141 replies to this topic

[monsoon]

Maybe it was the same kind of mentality that leads people to pay highrise prices for units surrounded by parking lots and vacant space.   Skyscrapers are only justified, in the long run, in situations where there is no land left.   Certainly, this isn't CLT, NC.

[Charlotte_native]

monsoon, on Jun 27 2008, 11:17 AM, said:

Maybe it was the same kind of mentality that leads people to pay highrise prices for units surrounded by parking lots and vacant space.   Skyscrapers are only justified, in the long run, in situations where there is no land left.   Certainly, this isn't CLT, NC.

Perhaps, but i think most don't see a similarity in mentality for those looking to cash in by doing nothing and flipping a property and those that choose a certain property type for their home.  Two different objectives, two different types of folks.  Considering the price per foot in most of the mid-rises, high-rises, and townhomes are similar to the price per foot for homes in Dilworth, Myers Park, Elizabeth, NoDa, Wesley Heights, I can't see where it is really very out of line.  The markets on a per-foot basis are almost identical.  Only a small percentage of uptown properties are much higher than around $200 - $250/foot, some are as low as $150/foot.

Edited by Charlotte_native, 27 June 2008 - 12:00 PM.

[mfowler12]

Although investors were definitely involved in some of the previous 3-4 years of Charlotte's condo blitz, I believe most of the appreciation was pushed more from the developments that were announced one after another.  Example, those who bought in early at Courtside or Court 6 benefitted from the new market pricing of trademark, avenue, and other newer towers with better ammentities.

I think other markets have suffered due to an investor feeding frenzy - but to dismiss this practice as something evil because a "flip" investor adds no value is a bit dismissive. Another example, buyer A secures a contract for 5-10% deposit, waits 24-30 months during construction, and is able to sell (hopefully) for the new market price based on 24-30 months of apprecation. Now take buyer B, buys an existing condo uptown, lives there for 2 years, makes no improvements and is able to sell for the same appreciated value. Who deserves to make a profit? - I say both equally deserve that appreciation.

I agree that doing this as a business is not espcially wise, but those who tried and failed will suffer the consequences. As for the homeowner's that will suffer from an immediate drop in value due to foreclosed units, they also benefitted from the flippers that supposedly artificially drove the prices up. Let's call that a wash.

[SmellyCat]

monsoon, on Jun 27 2008, 01:17 PM, said:

Maybe it was the same kind of mentality that leads people to pay highrise prices for units surrounded by parking lots and vacant space.   Skyscrapers are only justified, in the long run, in situations where there is no land left.   Certainly, this isn't CLT, NC.

Geez, thank goodness so many of these other projects are not coming to fruition then (OneCharlotte, 300 S. Tryon, 210 Trade, The Park?) or else we really could have had a condo overhang problem on our hands.

Another thing that may help tip the scale a little more in favor of Center City condos is sky high gas prices, which may keep prices at a floor.  This will have the opposite effect - that is making exurb type areas like Huntersville and Mint Hill, where there is also a ton of land available, a lot less desirable.  We're already seeing that effect in play in the DC area, where Northern Virginia exurb house prices are getting slaughtered.  I would expect to also see that happen in our exurbs, if it already isn't.

[VistaLakes01]

I live in Orlando and have been following the housing market trends in Charlotte and other desirable cities, due to the rising cost of living here.  When Charlotte was cheap in the housing market while Orlando was high and out of control, lots of people left for Charlotte and I saw the rise in housing prices in Charlotte start to happen, basically the trends in the Charlotte market are about a year to a year and a half behind the Orlando market.  Even now with the mortgage crisis prices in Orlando haven't dropped drastically, it's gone from a peak of $297,000 and is now down to $247,000 and the national average is now $207,000.  Who is going to buy all those condos?  The Orlando Sentinel recently reported that the fastest selling housing market in the metro since January of 2008 is now downtown, where all the recent highrise condos have been built. It has made a major turn around due to falling prices and the cost of gasoline. They give an example of a penthouse that was priced originally at $1,000,000 was marked down to $850,000 and sold within 2 days.  The downtown condo vacancy rate was 80% in December 2007 and is now 22% as of June 2008 and sales are happening fast.  There are now over 20,000 residents living within 1 mile of the CBD and over 100,000 residents within 3 miles of the CBD.  Due to falling prices and auctions. smaller units that were priced in the $300-400K range are now selling starting in the low $200's. There are now about 2000 rental units under construction in the downtown area, most in a residential/retail center called SoDo and a residential/retail center called Mills Park.  Orlando is in the top ten cities with the worst urban sprawl and 4th in the nation in commute time.  So the same will probably happen in Charlotte, no matter how much available land there is in the suburbs.  The one thing that is a turn off to the new condo towers is the homeowner association fees which are like $500-$600 a month in the new buildings. To see a link of the SoDo apartment complex which is anchored by an urban Super Target go to :
April aerials: http://www.sodo-orla.....s aerials.pdf

[monsoon]

SmellyCat, on Jun 27 2008, 02:11 PM, said:

....  This will have the opposite effect - that is making exurb type areas like Huntersville and Mint Hill, where there is also a ton of land available, a lot less desirable.  We're already seeing that effect in play in the DC area, where Northern Virginia exurb house prices are getting slaughtered.  I would expect to also see that happen in our exurbs, if it already isn't.

There is actually no evidence that high gas prices will cause people to move to the center city, especially in an area such as Charlotte where the majority of the jobs are also in the suburban areas.   People will switch to more fuel efficient cars, use express buses, etc.    This was proved in the 1970s during the fuel shocks of the time where, not only was gas high, but there were times where you couldn't buy it at any cost.   I remember driving down sugar creek hoping to find an open gas station but they were all closed.   This did not cause people to start running towards downtown Charlotte.  In fact people continued to move in the opposite direction.   I note that the condo projects would not be canceled if the demand was still there.   It isn't despite, the gas prices.  

The homes are being slaughtered in Northern VA, because they experienced very high appreciation in a short time, and now it's headed back down.   The same is starting to happen to overvalued property in Charlotte too.   I don't know why it is surprising to people this is happening when at a macro level real estate went up 87% in this country since 2000 but household income has actually dropped in real terms.   It's unsustainable.

[SmellyCat]

monsoon, on Jun 27 2008, 11:49 PM, said:

There is actually no evidence that high gas prices will cause people to move to the center city, especially in an area such as Charlotte where the majority of the jobs are also in the suburban areas.   People will switch to more fuel efficient cars, use express buses, etc.    This was proved in the 1970s during the fuel shocks of the time where, not only was gas high, but there were times where you couldn't buy it at any cost

True, there is no evidence because we have never seen anything close to the likes of what's going on right now.  Even in the 1970s, adjusted for inflation, fuel shocks were never ever this high.  During the oil embargo years you've cited, the highest gas prices reached were $2.50/gallon (again, in today's terms) and peaked at $3.40 in March 1981 at the beginning of the Iraq-Iran war.  Don't you think there's a chance - just a possibility - that $6 gas by the end of the summer could perhaps render people's behavior in this era different than what we've seen in the past?

By the way, oil broke through $140 a barrel for the first time today.  Uggh.

[Charlotte_native]

mfowler12, on Jun 27 2008, 01:00 PM, said:

I think other markets have suffered due to an investor feeding frenzy - but to dismiss this practice as something evil because a "flip" investor adds no value is a bit dismissive. Another example, buyer A secures a contract for 5-10% deposit, waits 24-30 months during construction, and is able to sell (hopefully) for the new market price based on 24-30 months of apprecation. Now take buyer B, buys an existing condo uptown, lives there for 2 years, makes no improvements and is able to sell for the same appreciated value. Who deserves to make a profit? - I say both equally deserve that appreciation.

I agree that doing this as a business is not espcially wise, but those who tried and failed will suffer the consequences. As for the homeowner's that will suffer from an immediate drop in value due to foreclosed units, they also benefitted from the flippers that supposedly artificially drove the prices up. Let's call that a wash.

I hope i never implied that flipping was somehow dishonest, evil, or anything otherwise.  I personally just think it is a VERY risky way to try and make quick money.  Easy come, easy go.

My comment about making money without doing anything was more in consideration of the difference between someone who buys a property, invests money in it to add on or update, then reprices and resells.  Something like that scenario is somewhat less risky because you have actually done something to create value more than just biding your time and closing.  

I believe in the free and open market and if people want to risk their money in flipping new condos, go for it.  But there has been quite a fleecing of those that tried this at Courtside, Avenue, Trademark and other projects.  Luckily it hasn't caused prices to drop lower than people paid for their units, and it has also created a nice inventory of rentals in uptown for those that decided not to sell at a loss and rented their units out.

Edited by Charlotte_native, 28 June 2008 - 11:49 AM.

[mad_park]

Flipping is definitely high-risk/high-reward. The rush of "investors" to the new concept of high-rise living in downtown Charlotte was not unlike the rush of investors in the .com craze. I'm sure most thought that there was no way they could lose money and that their money would only be tied up for a short period of time given the aggressive construction time lines that were proposed to them. Developers saw this huge demand and met it w/ supply - its not like there is a severe shortage of land inside the 277 loop. Get an architect to design your building, buy an option on the land, come up with a hip, cool name for the building, and open a pre-sales office on Tryon St.
Have we heard any success stories from these investors who got in early in the Charlotte market? I think the folks who bought the places to live in and are in it for 5-10 years will come out okay - the market will shake itself out over that time. But those who thought they could sell for 20+% gains as soon as the doors opened are/were likely mistaken.

[monsoon]

SmellyCat, on Jun 28 2008, 12:14 AM, said:

.... Don't you think there's a chance - just a possibility - that $6 gas by the end of the summer could perhaps render people's behavior in this era different than what we've seen in the past?

By the way, oil broke through $140 a barrel for the first time today.  Uggh.

Maybe, maybe not.  Prices were mitigated somewhat through rationing of supply that isn't going on now.   Also, unlike the 70s, we have such things as telecommuting, more access to mass transit,  (In your example DC's metro was still mostly a plan in 70s) and improved technology to make much more fuel efficient, and non-fossil fuel cars.    

I can tell you know the vast majority of the demographic in the Charlotte area cannot afford or would want to move to the center city or its surrounding enclaves.

[Charlotte_native]

mad_park, on Jun 28 2008, 12:54 PM, said:

Have we heard any success stories from these investors who got in early in the Charlotte market? I think the folks who bought the places to live in and are in it for 5-10 years will come out okay - the market will shake itself out over that time.

There were some that made a good bit of money early into the uptown building boom -- consider the projects that were built in the very late 90's and in 2000, 2001, and 2002.  The developers at that time were far more modest in pricing their units.  since the market was unproven they priced units to sell and sell quickly (and construction costs were less).  People that bought early at Gateway, Silos, areas of 1st Ward and 3rd Ward did well selling a year or two after they bought.  Of those I know that did this, though, they didn't buy with the intent to sell for high profit, it just worked out that way when they moved on.  Jump to projects announced after that time -- many had heard of these high profits and made an assumption that it would somehow be guaranteed and investors increased with uptown projects.

The reason it happened to be very profitable at the early part of the boom is the projects weren't all top-heavy with investors, those of late have been.  When you have a small percentage come back on the market it might work, supply isn't higher than demand, but jump to Courtside, Avenue, Trademark and upwards of 20 - 30% of the units come back on the market the day after they close marked up enough to cover commissions, some carry costs, closing costs, and desired profit, supply is suddenly very high as is the large price bump.  Combine that with the developers of each of these projects have units they still need to let go of -- and they can price them much cheaper than the flip units...

Developers lately have also priced their units at the beginning more in line with anticipated future value unlike the early projects.  Each of the recently announced projects, and completed projects of the last year or two, have been priced at 'current' pricing so when Avenue is completed and priced at $300/foot, yet other units all over uptown are that price also, it is hard to sell a flip unit in the building for over that price.

[palmetto75]

The difference between the downtown boom of the last 2-3 years vs. earlier times was that this boom was in large part due to a nationwide trend that few understood.  This is evidenced by the number of rentals and number of out of town and even out of state mailing addresses on the deeds.  Many thought it was simply people wanting to live in a more convenient urban setting, but few outside of maybe Miami and Las Vegas understood the true magnitude of speculation in the market.  

My opinion is that the worst (maybe much worse) has yet to come for the uptown condo market.  The amount of "phantom" inventory that is currently being rented out at prices that only cover 60% of the holding has yet to have a true impact on the market.  As these out of town flippers turned landlords continue to stomach large losses in their respective home markets they will be forced to liquidate their negative cash flow holdings regardless of whether they are in a "strong" market or not.

[monsoon]

palmetto75, on Jun 30 2008, 02:01 PM, said:

The difference between the downtown boom of the last 2-3 years vs. earlier times was that this boom was in large part due to a nationwide trend that few understood.  ....

Actually there was never a boom prior to what we have seen over the last 4-5 years.   The 1990 census placed the downtown population (first 6 census tracts) around 6010 if my memory is correct.   In 2000 it was 6032, so 22 people in a decade.  In 2006 the downtown population was estimated about 9,000.   Despite this, around the end of 2006 there was the equivalent of 6000 condos announced in various projects around and near downtown.   So I agree completely with you that something unreasonable and not seen in modern Charlotte before was happening, and is now most likely coming to an end.

[atlrvr]

While I don't disagree that their is a large amount of inventory being rented at below carry-cost, I'm not sure that I buy the argument that they will be "forced to liquidate".  Why would they be forced?  Sure, some can't afford the carry, but most will hold on because, a) their debt is higher than the resell price and literally can't afford to sell, b)not willing to take the foreclosure hit to their personal credit, c)pride, and d) it's a deduction for personal income taxes, so a sizable portion of the true "loss" is recaptured, e) the longer someone holds on, the greater the incentive they have to stay in

The truth is, the speculative bubble has popped in that no one with any common sense is buying properties with the intent to flip them in any newly announced towers.  This means supply will dry up relatively soon.  With the decline in rental properties entering the market (and lending standards getting tougher), rents should begin to increase in a couple of years, which should bouy those holding.

I can be convinced that we haven't seen the worst yet, but I think that time is very close.  Investors have for the most part stopped closing on places like Avenue (much better to walk away from $10k with no debt than to knowingly enter a bad business plan under the current market conditions).  We will have some foreclosures and people willing to pay to get out, but the bulk of that occurs sooner rather than later to the initial purchase.  In perhaps a year, things should have turned the corner and we will have a much better perspective of the true market.

[mshook]

Shouldn't we also take into account the changes in the desires/demographics of a younger generation than what we had in the 70's.  A generation that A) is generally more educated,  B) has higher incomes, C) isn't marrying/having children until their 30's, D) Wants/Desires to live near city's center.  I would say there are a ton of "New" Charlotteans who want to live in the city center.

[monsoon]

^I am not sure that I buy into those generalizations.   As a whole the US population is generally less educated now, (look at the dropout rate), and real household income has not risen since 1979.    I do admit there is a lot more credit than there was in the 1970s which gives the illusion of wealthier times, but there is the basis of the problem, it went too far.   There is the fact that wealth is more concentrated in fewer hands now but I am not convinced these people are beating the trail to actually live in a small condo.

But in any case, if the demand was there, these projects would not be getting canceled.

[palmetto75]

I buy all the arguements for people not being forced to sell, but will add a few more that say they will be or at least will want to:

1.  Late last year the govmt changed the IRS rule to allow short sales with no tax penalty.  Previously if the bank forgave a portion of the principle balance (short sale) the amount of forgiveness was taxable as income.  This being no longer has given homeowners in distress to get out with only blimished credit and not a full foreclosure.   This tactic is in wide use in the bust areas now especially condos.  It works well for people who generally have strong income and good credit.  Kinda an "opps I made a mistake" gift from the govmt and the lender.

2.  The other arguement is the loan itself on the property. Many of these "investments" were bought with 2-5 yr ARMs that will adjust in the coming years.  The negative carrying cost will become even greater as these adjust absent of a tremendous drop in long term rates.  Then you have the infamous Option ARM wich is a possibly much more horrific beast than the plain jane ARM.  

I must emphasis that most of this is based on other markets and I have only anecdotel evidence that shows it occuring in Charlotte itself, but some of it is quite strong.  For instance I know of several buyers in a few of the buildings being pushed to use Option ARMs when it came to closing time and they realized interest rates had shot up over 100 pts from the time they reserved the unit.  Also, Wachovia was the 3rd highest originator of Option ARMs (1st Country wide, 2nd WaMu).  Some of those had to have been condos in CLT.

[CorgiMatt]

I'm a johnny come lately on this topic, but a better question would be who's going to have any choice but to buy condos when gas is $7 per gallon by 2010 according to economists's predictions on CNN?

[monsoon]

CorgiMatt, on Jun 30 2008, 04:53 PM, said:

I'm a johnny come lately on this topic, but a better question would be who's going to have any choice but to buy condos when gas is $7 per gallon by 2010 according to economists's predictions on CNN?

I never really understood the concept of purchasing a $250,000 (low end) - $500,000 downtown condo in order to save some gas money.  And that's assuming that you actually work there which most people in this metro don't.  And the monthly fees in some of these places would also purchase a lot of gasoline even at $7/gallon.   It's better to get rid of the SUV and purchase a small car that gets 35mpg - 50mpg.

[atlrvr]

I'm certainly not an expert at Option ARMs, but don't these actually make it easier for an investor to "hang on".  They can reduce their monthly loss at the expense of a negatively amortizing mortgage.  Agreeably a horrible investment strategy, but one that would possibly allow someone to "afford" holding the property.