Philadelphia Condos: Where is the Philadelpia Condo Mar
ket Going ?
Straight to the dogs some might say ! Chris and I talk about this 24/7. We live in a Northern Liberties new construction condo right now, I rented in the Art Museum for years, and we moved from Old City where we still own one of our old condos for investment purposes. So, when I speak with our "opinion", I am doing so having much of our own hard earned money invested in these areas of the city. Not to mention we have experience as modestly successful Realtors.
The Center City Philadelphia condo market and some of the "fringe neighborhoods" such as Northern Liberties, parts of Fishtown, the Art Museum area, even Old City, that have an abundance of new construction condos and condo rehabs, are handcuffed by the mortgage industry. It looks like the only developer doing well is Bart Blatstein with Tower Investments. He is a genius because he builds posh apartment housing and then creates a village around them that will not only provide for their every need but create an attraction for the entire city (The Piazza is a great example). It is a brilliant business model and a generous city planner. (Bart Rocks !)
Developers and rehabbers cannot go any lower on their prices without being upside down on their loans. One opinion is that developers are defaulting on their loans is because the buyer pool for their 1-2 bedroom condos are nonexistent. Well, maybe not completely nonexistent, but for the most part, the buyer pool is more like an evaporating puddle.
Who are the buyers for most of these beautiful condos ? They are you. They are typically young, first time buyers, with good credit, and a great job making decent pay but they typically do not have a lot of cash saved up. Their savings are perhaps 10-15% shy of qualifying for a mortgage for a new condo.
The buyers that are out there right now do not qualify for new condos. Many can only qualify for an FHA loan which rules out most of the condos out there in the city. (see Philadelphia Condos - Even if You Qualify, the Condo Building May Not) . That is why neighborhoods like Old Kensington, Fishtown and the Art Museum, as well as Pennsport and Graduate Hospital have been where many sales transactions are occurring. The condo buyers move to the closest neighborhood next to Center City and buy row homes there. As long as there is a demand for FHA friendly housing, the prices in those neighborhoods will not go down dramatically.
If the loan products do not become more user friendly, then sellers will have to either lower their price and suck up the loss, rent their home/condo until the market ripens, choose a short sale if they have proof of hardship, or throw the towel in and let the bank foreclose on the property. We are seeing all of the above in our Real Estate practice for Philadelphia condos.
As for condo pricing, it has come down, but perhaps not as much as it has in New Jersey, and certainly not as much as it has in other states. The Developers are holding on and renting as an option. The Marine Club is one example (there are many more) of a fabulous, large, Luxury condo conversion that has amped up on rentals rentals because it is unattainable for first time buyers that can only qualify for an FHA loan.
That is our opinion. At least that is one of them : )
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The same thing is happening in Reno! The prices of condos are really low but buyers cannot obtain financing for them. Many developers have gone out of business and many units have gone to auctions! It is sad because the buildings and condos are really nice!
If renting is the only way developers can hold onto without going bankrupt I think it is a good option for them! It will be interesting to see what the future holds for them.
Excellent overview of the Philadelphia condo market for the consumer.
Very nice assessment of the condo situation in Philadelphia. We see the Condo financing for first-time home buyers as a item for improvement in our area as well. Condos near downtown are a great way to mitigate urban sprawl that has occurred across the nation. It makes good sense to improve the financing options for buyers in this segment. Thanks! John
Great overview of the market. I'm selling a small condo marina front building in Northern Virginia and our sales this year have been surprisingly strong. I've settled 5 and have 4 under contract. I've worked with the developer to bring prices down out of the stratosphere and we seemed to have found the magic numbers. I think others will have to do the same all up and down the east coast to get out of the hole their are in.
Here the problem is as complex. It is not just a mortgage industry problem, it is also about deciding to build starting in 2004, starting construction in 2005 at the height of land prices, and material prices. By the time many projects reached completion in 2008, they were way over valued but the indebtedness was extremely high here also. Many of the projects had prices that couldn't come close to the real value. Developers also played hardball with investors and owner-occupants thinking they could force them to close. If the developers could drop the arrogance, and the banks would work them like a short sale, our condos will sell. But excuse me for trying to be practical. Your point about the one developer creating a living lifestyle is right on the money, excuse the pun.
Nice post... So basically what you are saying is to buy in an FHA loan friendly area so you won't lose as much money as in a non-FHA loan friendly area?
We have seen a lot of the same sorts of things in the condo market in Baltimore. A lot of developers started building condos in the boom to maximize living in the downtown core, now they are stuck renting these as they are not selling. People are opting to buy homes rather than spend more on condos.
Interesting blog for a suburbanite to read !
Does the Obama home buying credit not apply to condos? Can lawmakers create an exception in their downtowns so as to help shore up investment options for residents? There must be something that can be done to help?
What a great post, Steph! Totally tells the story! Good on you.
The condos in my area are mostly vacation homes near Disney World. You can barely give them away. The problem is that so many are distressed properties that the HOAs are collapsing due to lack of funds. I have a unit on the market right now as a short sale for $65,000. It sold new in 2006 for $386,000!! The assocaiation dues are almost $500 per month. I'm not sure yet how low we'll have to go to get it sold. 50% of the units in this complex are in some stage of foreclosure. Not good at all.
Financing condos is next to impossible.
This is an excellent overview of the Philadelphia condo market for buyers, with some important things to be aware of - bet many buyers don not understand all this and realize the implications.
We have lots of tirst time buyers adn most of what they can afford are the condos, but these can be a challenge since so many are not qualifying for FHA, which I suspect is true in many pther locales. too.
Jeff
We don't have many condos here, but in general we have too much inventory and our sellers are in the same boat as your condo developers.
Terrie - Yes, this seems to be a nationwide "epidemic" of sorts with difficulty of obtaining financing for condos. In addition to renting, we have used lease purchase as a good solution as well for developers to get their units occupied and have a decent chance of the unit being sold down the road.
Lenn - Thanks ! For many of our blogs, we have been focusing more on providing quality content for the local consumer.
John- Yes, if the financing options were improved, I think many more of these types of properties would be sold. It is a bit of a conundrum per se. The Fannie Mae guidelines are quite strict and FHA extremely stringent.
Christopher and Stephanie,
Great post. From a lending perspective, with FNMA and FHLMC owned by the government now as opposed to prior to the boom, it hard to see it getting easier to finance condos. It reminds me of the late 80's early 90's when it was about 10 years before condos came back to the values they sold at in the late 80's. I lived in NJ for many years and saw the Philly market really boom with many friends buying there. I hope I am wrong about how long it might take. One way or another the Government (through easier FHA financing guidelines or revamping the FNMA/FHLMC standards) must become more flexible with it's financing programs or they will end up owning most of them!
Mike
Cindy - Thanks for your update, and congrats on that sales activity ! That is awesome. The key is the pricing and when a developer is willing to have the units priced to sell, all can be very good. Many of which is hard due to their investments may not give them the luxury to be able to price to sell and still make a profit. In these markets, the money is made on the purchase of a building, not on the sale... that and keeping the construction costs down. In reality, that is the case in any market as well.
Joe - Well said ! Is so true about that one Developer creating the demand through creating a building a culture. Further, all of his buildings are rentals so he is not forced to sell at below-market prices to pay off debt.
June - Yes, it is tough out there as things go full circle. Sometimes the cost and the loan complexity will push someone to buy a condo versus a house, even though a condo would have been their first choice.
It sounds like some things are still going to have to change if your condo market is going to rebound.
It sounds like you have a great understandings of the ins and outs of your market.
Chris & Stephanie, I hope the loans ease up and make it available for clients to be able to purchase the lovely condos you have mentioned. Here the condo prices are through the roof....they cost more then homes here and when you include maintenence, they are VERY expensive.
Your situation mirrors many suburban areas where developers built way too much new inventory and then got caught in the "Bubble." The difference is that you have the problem with some condo's not meeting FHA guidelines.
Believe it or not I had that exact probelm with a small condo here in Happy Valley last year and lost the deal because of it. The owner finally rented it.
Good luck as you continue to carve out the Philly condo niche.
Tim
These condos don't have the advantage of being FHA approved like many do here in NJ. Builders are getting new developments approved FHA ASAP, which definately wasn't the case a few years ago. Which come to think of it turned out bad for buyers who got "stuck" with 100% loans that weren't as good of a loan.
These condos don't have the advantage of being FHA approved like many do here in NJ. Builders are getting new developments approved FHA ASAP, which definately wasn't the case a few years ago. Which come to think of it turned out bad for buyers who got "stuck" with 100% loans that weren't as good of a loan.
These condos don't have the advantage of being FHA approved like many do here in NJ. Builders are getting new developments approved FHA ASAP, which definately wasn't the case a few years ago. Which come to think of it turned out bad for buyers who got "stuck" with 100% loans that weren't as good of a loan.
Christopher and Stephanie:
Jumbo land is still remote to most. The requirements for 25% or more down and high credit scores does not create a strong buyer pool. This is a universal problem around the country for high end properties.
Banks als won't lend to builders any longer for spec homes. That comes at no surprise. Many banks have builders who are sitting on large inventories yet.
I think it is inverted however, at the market highs with great risk there was loads of financing, now at lows, with what I believe much less risk we have an empty barrel.
Go figure.
Richard
What a great post about the local market conditions there in Philadephia
I hope the condo market turns around. I heard gas may go to 10-15 a gallon in the next 10 years, forcing people back to major cities and employement sectors, so now may be a good time to snap up some low priced condos.
Juliet - Thanks for stopping by and thanks for the comment ! The tax credit does apply for condominium so that certainly helps. What does not help is for a healthy condominium project to be "xed" out for FHA buyers if it does not meet FHA guidelines. For example, a newer condo project needs to already be turned over to the condo association for 1 year. So if it just about ready to be turned over, or it has only been 3 months, even if is a no-brainer that the condo association is in good shape, FHA will not go through.
Bryant- That is some amazing and scary info about that condo complex. That is a whole different world. In those cases, I would also be quite worried if I was the lender !
Erica - Yes, the analogy is the same for sellers - sell, rent (or lease purchase) or walk away ? Good point.
Christopher and Stephanie, very interesting to hear about the Philadelphia market having lived in Queen Village for years before moving to North Carolina.
When we moved here about ten years ago there were NO condos available in Raleigh. Today somewhere around a 15 month supply. It was amazing to watch as building after building went up wherever they could find a lot.
Great blog
Thanks,
David
I like Bart's business model. Of course you need to have some serious capital behind you to accomplish what he is doing.
Bill,
To fully appreciate the depth of it you need to see with your own eyes what Blatstein has done to the area. Many local residents did not welcome him with open arms but now, they are singing a different tune.
SS
David,
Queen Village is an interesting Hot Spot in Phladelphia and is better known (as you know) for their low-rise condos of which many are row homes converted into 2-4 units. Those properties are a little easier to sell since they have a greater ratio of owners to renters and have been out of the developers control for many years. There are less New Construction condos in Queen Village (no more room to build) compared to Center City and my area Northern Liberties. Love Queen Village !
SS
We are seeing revisions to guidelines slowly but surely. I hope it turns around for the condo market in Phili. Great information.
Before the "Bubble" occurred persons forget that it was referred to as the coming "Condo Bubble!" It was way over done in most markets, and in many market they are totally upside down now.