Portland's condo demand appeared insatiable. Now, shelved projects and stalled construction dot the city as a Shadow falls on the Portland condo market.
In the hot real estate summer of 2005, the futuristic John Ross tower generated a buzz never seen before in Portland. Within a week, 222 potential buyers plunked down $5,000 or more to reserve their condos in the 31-story tower on the Willamette River. The talk around town was that developers couldn't build new big-city condos fast enough to keep up with downsizing baby boomers and newcomers.
But two years later, the condo boom is over. Today, the John Ross has seen so many canceled purchases that developers actually have fewer buyers -- 192 -- than they did two years ago.
The city has a condo glut, and thousands more are rising out of the ground. In the past six years, developers built 4,042 downtown condos, more than twice the figure from the previous 30 years. Today, developers have nearly 2,114 condos under construction.
Nelda Newton, a senior vice president at Wells Fargo, is generally positive on condos long term but acknowledges that current condo sales can barely keep pace with cancellations.
[Mish comment: Nelda is as clueless as those positive on Florida condos in the summer of 2005]
Condos in the early 1990s went for about $120 a square foot. Today, prices sometimes are far above $500. But the hype is now on hold.
developer Bob Ball shocked the industry when he converted the $50 million Wyatt building under construction in the Pearl to rentals. Ball had already put in expensive finishes for high-priced condos.
Before the switch, Ball said he'd cut prices and still sold only 53 units, just 21 percent of the total and barely half his goal.
"The problem wasn't with the Wyatt," Ball said. "It was the overall change in the market. We just have too much supply on the market." Ball said last week that he has sold the Wyatt to an unnamed buyer.
[Mish comment: The problem is always overall supply. Why was it so hard to see when you started building the things?]
Other projects have been plagued by disappointing sales.
Bob Scanlan, whose real estate company invested in the John Ross, says sales are so slow in that tower that he expects his returns to be cut in half. The 303-unit building is almost two-thirds sold -- not bad for such a big project completed just this summer, but far below initial expectations. Backers now predict the building won't sell out until spring 2009, a year later than first hoped.
The 104-unit Westerly tower near Northwest 23rd Avenue is scheduled to be complete this winter. It has sold about 40 percent of its condos.
[Mish comment: It will remain half vacant for years or prices will be slashed. Anyone buying one of those units now is a fool.]
"No reason to panic"
Still, real estate insiders remain confident about the long-term future.
They say Portland is immune from the downturn that's infected other big cities. Job growth remains strong, and people continue to move to the area, providing demand for urban living. "It's steady as she goes here," Scanlan said. "There's no reason to panic."
Every Reason To Panic
We are now hearing the same nonsense from people like Bob Scanlan that we heard in Florida.
Florida Two Years Ago:
- Florida is "immune".
- Look at the demographics.
- Look at the jobs.
- It's impossible to overbuild.
- Retirees will move to Florida.
- Portland is "immune".
- Look at the demographics.
- Look at the jobs.
- It's impossible to overbuild.
- Retirees will move to the inner city.
The only difference in the story is those retirees who were all going to move to Miami had a sudden change of heart. They are now supposedly headed to Portland instead.
B.C. on Portland Condos
I received an Email from a friend today on the insanity of the Portland Condo Market. He lives in Portland. Here is the Email from "B.C."
There has been absolute insanity occurring during the past 2-3 years here in Portland; well, the bell rang for the top 14-16 months ago, but the local media are only now getting around to suggesting that the market will "slow down". With many newer condos (or remodels) in hipster downtown areas (or so they thought) having reached Manhattan prices/sq. ft. in '06, and persisting still today, I expect prices will crash 50% or more in the years ahead.
Tattooed and pierced older Xers and younger Millennials working 2-3 dead-end, part-time jobs do not make even a fraction of the income after taxes and existing debt service required to pay current prices (the median price is 80-100% above median household income of Portlanders in the 21-34 age bracket, implying a decline of 35% in real terms over 6-7 years or flat nominal prices for 11-12 years minimum at the trend GDP), not to mention their dismal credit positions from student, auto, and revolving consumer loans rendering them poor credit risks for years to come.
Moreover, there is not even close to the necessary number of Boomers dying to sell their $400,000-$500,000 suburban houses to flood downtown to downsize by half or more and pay more per sq. ft than the houses they are selling, and to take on huge mortgages in their 60s with $500-$1000/month Home Owner Association fees.
How does one rationalize $1.25M for an 1800 sq. ft. high-rise condo with a $900-$1000/month HOA fee? One has to be daft or completely insane to pay such a price or expect someone to pay such a price.
However, US Bank (USB), KeyCorp ( KEY), Umpqua (UMPQ), Wells Fargo ( WFC), Bank of America (BAC), etc., are still competing to lend to build out (albeit at a slower rate of late), leaving us with at least 4-5 years of supply overhang so far versus fundamentals.
For more on banking please see Problems For Banks, Problems For You? and Consumer Credit vs. Weakening Demand. And speaking of fundamentals, it is highly likely that Portland job growth is a mirage just as Florida's job market was. Sure there are plenty of construction jobs as long as there are fools building an unlimited supply of condos and houses that will not be sold for years. The job picture in Portland will change once all of this nonsensical building stops. It looks like every city has to discover this by itself.
