Who is going to buy all the Condos, (Part II)

[Charlotte_native]

A stand by my position that these things are totally unnecessary here, and what they are doing in Dubai has little relevance here.

Not necessary, perhaps, but the desire is there for them so it isn't out of necessity that they are being built, but from demand. People from Charlotte (like me) and others from out of Charlotte simply choose this type of living. it isn't based on how much land is out there but the desire to have this type of home. Most of my neighbors are from cities where this is the type of home they had there and they want it here. I agree that what is going on in places like Dubai isn't relevant, but choosing an urban non-auto centered lifestyle is going on all over the place in cities as small as Asheville, to mid sized like Charlotte and Portland, to large cities we all are well aware of. Buyers in the general market aren't making decisions based on how much land is available, just on how and where they want to live -- it really is fairly simple.

Edited July 1, 2008 by Charlotte_native

[Charlotte_native]

That is not entirely accurate. Financing is not based on % of units sold. It's based on total $ sales against a % of the financed amount. In other words 10 units worth $1M each is equivalent to 100 units worth $100K. It's obvious in some of these cases, the developer did not have enough $ sales to hit the percentage despite reaching 70% unit sales. Either the units were priced to low or they didn't sell the right mix and/or costs where a lot higher than anticipated. This is why in the ones that did get built, they "cheapened" the building to get it built.

Financing is not hard to get, even in these days, as long as one sticks to traditional lending rules. The problem is that when this is done, there are not many who can afford or justify a skyscraper in the middle of Charlotte, NC. The base economics don't support it, because, fundamentally, there are no land shortages and extreme population pressures here.

This just isn't true for a couple project that have been put on hold. Demand just wasn't an issue -- they sold units just fine.

To say financing isn't hard to get...I just don't see how one would argue that when everyone in the business will tell you otherwise. Financing is terribly hard to get now -- many banks don't have funds or don't want to let go of them (see thread 'Things are not so good at the Banks' on this very site). Others are virtually on the brink of failure, and others are retreating and regrouping -- where is this easy financing you speak of?

If by traditional you mean how it was done 20 years ago, who knows, can't speak to that, but the developers I've worked for have never had their financing based on '$ sales' but on a percentage of the building sold -- that has been pretty traditional for 10 - 15 years now. 300 S. Tryon had plenty of sales for residential but lost their anchor tenant for the commercial element of the building -- 210 Trade had plenty of pre-sales, but some type of mess between multiple builders/owners combined with difficulties in financing.

If this were all based on land pressure to build up, most places would never have high-rise office or residential, most of America has plenty of land -- banks just don't base their decisions on this.

[Durhamite]

^Yet said projects are also being canceled all over the United States including Charlotte. Since you cited various cities, how about Miami, Las Vegas, and Chicago that you mentioned (where one of the largest proposals in the world was canceled) and countless others. Specifically about Charlotte, one can live in and near the center city without resorting to a 50 story highrise. A stand by my position that these things are totally unnecessary here, and what they are doing in Dubai has little relevance here.

And so is Nieman Marcus, Nordstroms, Concord Mills, IKEA, etc.....totally unnecessary! One could live their entire life in Charlotte or NC and never patron these retail establishments, I'd venture to say someone is???? Basically, it's supply and demand.

Maybe not 50 story behemoths, but demand in the 20-30 market will continue with ongoing market cycles in the future (especially in the South as cities become more urban where no market existed 10 to 15 years ago).

[monsoon]

.... but demand in the 20-30 market will continue with ongoing market cycles in the future (especially in the South as cities become more urban where no market existed 10 to 15 years ago).

Yet even during this "boom" most, in fact the vast majority of the condos built near downtown were in buildings that were less than 15 stories. (most less than 10) And with the exception of Myrtle Beach, there are no other cities in the Carolinas that I know of that are doing any significant condo building. So again the evidence does not support this claim.

[monsoon]

This just isn't true for a couple project that have been put on hold. Demand just wasn't an issue -- they sold units just fine.

To say financing isn't hard to get...I just don't see how one would argue that when everyone in the business will tell you otherwise. Financing is terribly hard to get now -- many banks don't have funds or don't want to let go of them (see thread 'Things are not so good at the Banks' on this very site). Others are virtually on the brink of failure, and others are retreating and regrouping -- where is this easy financing you speak of?.....

There are 10,000 commercial banks in the USA, how many of them are going out of business? Would you please provide a list of how many are going under? These places make money by lending money and they are not going to stop just because there were some really irresponsible lenders out there.

I do find it interesting there is such a resistance to the notion the recent fad in highrise condo building was just that, a fad. Maybe I am wrong, but there are hundreds of canceled and partially built dead projects in the USA. Fads come and die quickly and this one does smell, sound and look like one.

[palmetto75]

I'd be careful using the word "sales" instead of the word "resevations". I urged a friend of mine to walk away from his deposit (3%) this time last year. He decided to go through with the purchase, and at least somewhat regrets it now. I agree that financing is very tough right now, but if the developers really thought the 70% presales were really going to go through, they would have found financing.

Yr point of people wanting to live the uptown/urban lifestyle is very valid and I agree with you fully. My only point is that I don't think there are enough people in Charlotte that either want to live this lifestyle and certainly don't think there are enough that can truely afford it. I think the next 6-12 months would be quite telling.

[Andyc545]

I'd be careful using the word "sales" instead of the word "resevations". I urged a friend of mine to walk away from his deposit (3%) this time last year. He decided to go through with the purchase, and at least somewhat regrets it now. I agree that financing is very tough right now, but if the developers really thought the 70% presales were really going to go through, they would have found financing.

Yr point of people wanting to live the uptown/urban lifestyle is very valid and I agree with you fully. My only point is that I don't think there are enough people in Charlotte that either want to live this lifestyle and certainly don't think there are enough that can truely afford it. I think the next 6-12 months would be quite telling.

Desire- I'd say a lot don't have the desire, seeing where the majority of the Charlotte market lives (the 'burbs), although many do have the desire. I'd say that desirability is growing, though. Affordability- certainly the uptown market is at a premium COMPARED to the 'burbs, but lack of affordability I'd have to disagree with. Look at the industries in Charlotte... of course not great at the moment, the city is filled with a high percentage working in the banking industry. Believe me, most can afford the uptown market. The other part to the affordability is ours compared to other markets. For a city our size, prices are still relatively low.

Edited July 1, 2008 by Andyc545

[Charlotte_native]

I'd be careful using the word "sales" instead of the word "resevations". I urged a friend of mine to walk away from his deposit (3%) this time last year. He decided to go through with the purchase, and at least somewhat regrets it now. I agree that financing is very tough right now, but if the developers really thought the 70% presales were really going to go through, they would have found financing.

Yr point of people wanting to live the uptown/urban lifestyle is very valid and I agree with you fully. My only point is that I don't think there are enough people in Charlotte that either want to live this lifestyle and certainly don't think there are enough that can truely afford it. I think the next 6-12 months would be quite telling.

As for reservations, I agree completely, but what we are talking about in terms of lenders looking for a percentage of 'sold' units -- they are looking for how many are under contract or reserved. How many translate into closed units is a different story (on average about 10% drop out -- in tougher markets like now that might increase).

In the past few years there have been enough people in the region that want this type of home. If the metro area has just over a million people, and the uptown loop has, or will have, up to 10,000 residents -- this represents a minute portion of the market. Again, maybe it will change, I'm not trying to make predictions, but so far the demand hasn't lagged and the ratios of listings to pending to sales is healthy.

[Charlotte_native]

There are 10,000 commercial banks in the USA, how many of them are going out of business? Would you please provide a list of how many are going under? These places make money by lending money and they are not going to stop just because there were some really irresponsible lenders out there.

How many of those commercial banks can finance a high-rise building? Does that number include banks like First Trust here in Charlotte, Carolinas Premier Bank..? I have no idea, just asking, but I can tell you everyone in the construction and development business says money has dried up and become quite scarce, that is backed up by numerous articles I've seen so I'll take everyones word for it that the finance world is difficult to navigate right now. I never said the only reason financing was difficult is that all were going under, just some -- then I said others are regrouping, retreating, etc. There are many many reasons all of this is going on -- demand from the buying public in Charlotte wouldn't appear to be the primary reason as evidenced by reservations and sales. Again, with exception to bonehead projects like One Charlotte that expected 100 buyers to buy $1.5mil + properties.

I also don't imply that everyone wants a high-rise -- I like mid-rise buildings personally.

[Durhamite]

Yet even during this "boom" most, in fact the vast majority of the condos built near downtown were in buildings that were less than 15 stories. (most less than 10) And with the exception of Myrtle Beach, there are no other cities in the Carolinas that I know of that are doing any significant condo building. So again the evidence does not support this claim.

Actually, I'd prefer to see more of the 10-15 stories tall (ie, royal court) within and on the outskirts of the loop. Uptown is somewhat different, considering it's confined with a limited amount of real estate within the I-277 loop. Land isn't cheap there now and will no doubt continue to increase in value. My prediction is at least one-two 20-30 story office and/or condo bldg (or combo) completed every other year or so until land supplies have been exhausted for uptown. Of course the shorter story infill will continue.

To Charlotte's credit, I'm not totally for certain, but I don't think there is another Carolinas city that approaches the uptown employment numbers (even considering Raleigh's or Columbia's state government employee contingent).

[Charlotte_native]

I do find it interesting there is such a resistance to the notion the recent fad in highrise condo building was just that, a fad. Maybe I am wrong, but there are hundreds of canceled and partially built dead projects in the USA. Fads come and die quickly and this one does smell, sound and look like one.

I don't resist this idea at all, but I haven't seen evidence of it yet. This might certainly be true, but I don't think anyone will be able to be sure until after the current recession and financial mess with the banks is past. Once that is, and financing for buyers and developers isn't so difficult, then we'll see if people do or don't want high-rise living. Until this current situation is done, there are way too many variables on why these many projects have failed or stopped other than whether a fad came and went.

[voyager12]

I am more partial to midrises myself. If I was ever going to buy a condo it would probably be in a smaller garden style or townhouse format. Some of Uptown may be slowing but it seems like niche projects like Ordermore8 in Dilworth and those in other reliably popular neighborhoods like Elizabeth and PlazaMidwood are doing relatively well.

[VistaLakes01]

I don't resist this idea at all, but I haven't seen evidence of it yet. This might certainly be true, but I don't think anyone will be able to be sure until after the current recession and financial mess with the banks is past. Once that is, and financing for buyers and developers isn't so difficult, then we'll see if people do or don't want high-rise living. Until this current situation is done, there are way too many variables on why these many projects have failed or stopped other than whether a fad came and went.

Everyone needs to read this link from Business Week, then find the link for the best cities to do your job. It's funny, most places due to real estate prices are the best places, Atlanta, Dallas, Houston, Charlotte....all with lower prices but Charlotte is getting to that dangerous brink where values may have to fall some before people can buy. The most desirable cities NYC,LA, SAN FRAN fall in to the category of worst places. The article is about recent downtown downturns, what is really shocking to me is that Tampa is focused in the article and their downtown has been getting more active recently. Orlando, another downtown condo boom town, is finally starting to turn around, with downtown being the only market in the metro with a sales increase since January and is the top selling market in the metro. The price of a penthouse in one of the towers was dropped from $1,000,000 to $850,000 and it was snatched up in two days.

http://realestate.msn.com/Buying/Article_busweek.aspx?cp-documentid=8356625&GT1=35000

Edited July 4, 2008 by metrowester

[palmetto75]

It looks more and more like the condo boom in Charlotte was just the tailend of a very unsustainable national trend in real estate. I know I'm being prude and over generalizing in saying this, but based on what I've heard from a lot of the activity going on in these places I cannot believe the lack of class of many of the occupants be they owners or renters. I concede its anecdotal observations based on comments here (note the Trademark forum) and from friends and associates around town, but it seems more and more like a good chunk of the demand was from flippers (who are now renting) and 20/30 somethings who have never whethered a true recession and who thought nothing in signing up for a $400K mortgage. Throw in what is now looking to be some at least some lower quality workmanship on the part of the developer and this is lookin bleak.

[mad_park]

Today's Observer reporting that Citadin is now "stalled".

Think this will continue to be a difficult market as long as lenders shy away from the crazy mortgages they were giving out over the last few years. Most (not all) of the folks in the target demographic for downtown condos won't have 20% to put down on a unit.

[Guest]

Today's Observer reporting that Citadin is now "stalled".

Think this will continue to be a difficult market as long as lenders shy away from the crazy mortgages they were giving out over the last few years. Most (not all) of the folks in the target demographic for downtown condos won't have 20% to put down on a unit.

Well the first mistake in this was deciding not to build in phases, 550 units in a midrise in fourth ward is honestly not the best idea in any market.

[monsoon]

The Observer wrote a very short article this morning that says in the area that represents a 50 mile radius around Charlotte, home sales are down here 34% from last year and that prices declined 4.5% over the past month. I am thinking that is a price decline of around 7% or so, so far this year. This is a pretty significant drop over the last year. It's an indication that either population growth has stopped and reversed, or more likely, some parts of the Charlotte real estate market are highly leveraged and the bottom is falling out of that activity.

[palmetto75]

Although certainly not in the numbers of previous years, people are still moving here. From my observations out in the field, the relocatees have been much more apt to rent rather than buy. 2 reasons:

• The younger set doesn't have the money to put down and since that is a requirement now they are out of the picture
  
• The older more established most likely have a house back in Cali, Texas, DC, or Florida that they haven't been able to sell and are now renting out. A little scary how many instant landlords have been created around the country. Given this they are not/cannot buy another home yet.
  

The interesting part is will this people stay in CLT or will they have more of a propensity to return home since they have a rather "tie" to home still?

As for house prices in the area I think we all saw this coming. The media twist is always interesting. First it was CLT is the only metro area increasing in the country... cue Tate commercial! Then when we finally broke, and the spin was CLT is down less than all the other markets. Taht being said 5-7% isn't all that bad, but we are seeing a lot on inventory onthe market right now so I doubt the bottom is in.

[tozmervo]

As for house prices in the area I think we all saw this coming. The media twist is always interesting. First it was CLT is the only metro area increasing in the country... cue Tate commercial! Then when we finally broke, and the spin was CLT is down less than all the other markets. Taht being said 5-7% isn't all that bad, but we are seeing a lot on inventory onthe market right now so I doubt the bottom is in.

(did someone delete my original post, or am I going crazy and just never hit the "add reply" button, which is entirely possible.)

I'm not sure why you're interpreting those basic facts as spin or twists. Granting that CLT's media isn't exactly the most reliable/professional, those facts about CLT's residential real estate market were both true and remarkable, and stories about the downturn in other markets and economist's predictions usually followed those headlines. If those journalists had posited that those statistics were proof that CLT would continue to buck the trend, that would have been one thing, but to my knowledge that was not the case.

[DMann]

When comparing months, it must be remembered that this is only sales as recorded through MLS. And as for prices dropping, the average sale price is deceiving, a more accurate indicator is the average price per square foot. That accounts for true value, and not size of the unit. Downtown property in 2007 averaged $346.8 while 2008 averaged $399.1. Square footage averages were 2007 $335, and 2008 $332. That represents a decline of .0089% from 2007 August.

Numbers can be manipulated to say a lot of different things. Truth is that the demand for downtown property remains robust, but financing for new construction has become tighter.

[palmetto75]

^Yes they are facts, but I thought it was interesting that the first month CLT sales price ticked down Year over Year the headlines were "Charlotte market down less than other Markets" rather than "Charlotte market succombs to national trend and is now lower". 2007 and maybe 2006 aside, real estate has gone up only very modestly in Charlotte over the last 2 decades. Per the 21 years of the Case Schiller index it has only doubled. A 5%-7% drop in prices is quite disturbing to most homeowners even given the national picture, and unfortunately the worst has yet to come???

[Charlotte_native]

Hard to say if the worst is yet to come. What has happened should be expected. Potential homebuyer are having a harder time getting loans -- regardless the reason, it is fact. More people moving here are having trouble selling their home where they left so they often end up renting. For as much as the sales market has slowed, the rental market is way up and rents have risen in most parts of town. A 5% - 7% drop isn't much compared to many markets, but we'll have to see if it continues to drop or if this is leveling off. These big lending problems will have to changed before there is much of a rebound in real estate, and no one thinks that is going to happen any time soon. Hopefully, like the takeover or not, the Fannie Mae and Freddie Mac changes will make a difference and free some funds for mortgage lenders to lend.

[kennethlin]

Hard to say if the worst is yet to come. What has happened should be expected. Potential homebuyer are having a harder time getting loans -- regardless the reason, it is fact. More people moving here are having trouble selling their home where they left so they often end up renting. For as much as the sales market has slowed, the rental market is way up and rents have risen in most parts of town. A 5% - 7% drop isn't much compared to many markets, but we'll have to see if it continues to drop or if this is leveling off. These big lending problems will have to changed before there is much of a rebound in real estate, and no one thinks that is going to happen any time soon. Hopefully, like the takeover or not, the Fannie Mae and Freddie Mac changes will make a difference and free some funds for mortgage lenders to lend.

An encouraging news is that due to the bailout by the Federal gov't to takeover Fannie Mae and Freddie Mac, home interest rates have come down about 3/8 point in just 2 days. Also, lenders have reported new loans just on Monday alone to be the MOST BUSIEST day of the year and the most busiest since 2006! That is encouraging news, and we can only hope that the low rates, coupled with less guidelines will free up this tough market. The problem is not that people don't want to buy houses, it's moreso because lenders aren't willing to lend today, causing people to panic and hold off from buying a house. That, all in turn, is a huge reason why homes haven't sold, prices dropping, and people not buying. Free up those lenders and inject more capital and watch what will happen. I'll guarantee the market will come right back up the moment we hear news that the government has relaxed some of the restrictions imposed by FNMA when they were private. With just rate reduction of almost 1/2 point, people were rushing to close. Just look at all the closings of homes done on 9/8 leading to yesterday. I bet you next month's reading for the month of Sept. will look great, and then you'll hear everyone say we've hit the bottom. Well, not exactly, unless the gov't continues to free up lender's and their issues. Then maybe can we finally say we've survived the bottom.

Edited September 11, 2008 by kennethlin

[UPTOWNGIRL]

An encouraging news is that due to the bailout by the Federal gov't to takeover Fannie Mae and Freddie Mac, home interest rates have come down about 3/8 point in just 2 days. Also, lenders have reported new loans just on Monday alone to be the MOST BUSIEST day of the year and the most busiest since 2006! That is encouraging news, and we can only hope that the low rates, coupled with less guidelines will free up this tough market.

Don't you think perhaps some of the "tough guidelines" should remain in place? Of dozens, scores of people I know own uptown condos in Charlotte, so so very many have openly sat around and chatted about their "piggyback loans." I was sitting around at a complex BBQ/pool party, and it was as though every single neighbor of mine had done that to obtain financing. Two or three fellas were bragging about how they "knew this great accountant who does mortgages on the side" and got them 103%, even 105% financing -- so that they didn't even need to come to the table with money for closing costs -- or in the case of one guy: 0 down, 0 at closing, and the realtors finagled the sale price so he could get a few extra thousand dollars from the mortgage to buy furniture!!

My one very close friend who actually put 10% down on his place, had a HELOC... it was one of those things he got an offer from Suntrust in the mail for their "Access 3" option equity line. During those "exuberant" days, he kept getting letters stating that they raised his equity line of credit. Between what he had put down, plus the rampantly price appreciation, I remember him bragging to me that they had bumped his equity line up to something like $60,000. Boom - all of a sudden he gets laid off from his job - and the next week, his 12-year old car died. Thousands to fix. What does he do? He uses one of those "equity line checks" and buys a $40k car with it! Now of course, he couldn't come close to selling his condo and paying off both loans, but he's still unemployed, works odd jobs, bartends once in a while too...

That is the kind of irrational exuberance I am talking about -- and I feel sorry for those people who have 8, 10, even 12% interest rates on the second mortgage and thus haven't even begun to chip away at their principal yet!

Those are the sort of systemic problems that caused us to get into this mess in the first place. Think: Casey Serin, the 20-something kid in Cali who ran the blog IamFacingForeclosure.com -- the site is no longer his (he sold the domain name to pay some legal fees) but there is an entire Wiki site dedicated to him: The CaseyPedia Wiki

Sadly, I know a handful of people in Charlotte who have done exactly what he has: early twenties, use the equity from house 1 to invest in house 2, use the combined equity to buy house #3 (and then take more money out to refurb house #3 which is a heavily damaged foreclosure they are going to try and flip), and on and on. One girl friend (not MY girlfriend) got so caught up doing that, she now LIVES in the half-fixed up/not quite in such an "up and coming neighborhood after all" house because she couldn't flip it. Sad thing is: she ISN'T 22 years old; she's nearly 40, has an MBA and another Master's degree, works for Microsoft off Arrowood... but has at least one part time job to help pay these mortgages on the other properties -- good for her, a lot of people (like what is happening now in California) would simply walk away from all of them, take the hit and move in with mommy and daddy until their credit score recovered, 3-7 years later.

I fully recognize and appreciate the "American Dream of Homeownership" I really do (and I own my home). But too sadly it was greed and a LOT of young, financially unsophisticated (and older, financially unsophisticated people) who fueled this price appreciation. What happened to the good old days of saving up and putting 20% down???

[Charlotte_native]

^I think most would be happy to have tough underwriting guidelines in place. They heydays of the past couple of years don't need to return, but there are people out there with good credit and money to put down that still have a hard time with financing. I had a friend this summer who bought a condo in an older building in Dilworth -- good credit, good income, good price. It took almost 90 days to close. It finally did, but the seller almost walked away. I personally would love to see 'traditional' financing get back in line. If you don't have anything to put down, or need an ARM to afford something today depending on increasing income when it goes up, you probably shouldn't be buying a home or should be buying something less expensive. That isn't being paternalistic, but look what the last few years have done to people who bought more than they should have or more than they could afford when the time came for their ARM to go up.

Either way, slow home sales hurt the overall economy in many ways. If you think $1200 or $1300 'stimulus package' makes any difference consider how many people get paid when a home sale goes through and how that money moves back around in the marketplace. In average transactions the seller gets some (or a lot) of money, 2 real estate agents, a closing attorney, title company, paralegal, surveyor, pest inspector, home inspector, appraiser, mortgage company or bank and their sales agent, handyman if repairs were needed, Home Depot or Lowes after the sale...

When home sales stop or slow a lot of people are hurt over and above the sellers and the agents

Edited September 11, 2008 by Charlotte_native