Region Whittles Away At Condominium Glut
The struggling condominium market in the Washington region is still struggling from the real estate doldrums but may start to see a rebirth, albeit a miniature one, in 2009, according to housing experts.
Since 2005, arguably the high point of the condo era in the nation’s capital — when sales and price figures were at their peak — the bottom has fallen out quite drastically, with across-the-board decreases.
Yet the fourth quarter of 2008 saw a few positive upswings, leading to predictions for luxury condos that are not as bleak as they were in previous years.
According to the Virginia-based firm Delta Associates, the supply of condos is finally likely to gain even footing with demand this year. Less than 12 months ago, Delta was estimating that it would take eight years to rid the market of its glut of condo units. Now that number has been pushed down to 5.9 years. “That went down quite a bit from just the third quarter,” said William Rich, a Delta vice president and director of the firm’s condominium practice. “In the fourth quarter there were 506 sales metro-wide, compared to 231 in the fourth quarter of the previous year. So that’s much better.”
At present, the supply of available condos in the region is under 11,000, compared to a high point of approximately 25,000.
Condos became a major factor in the D.C.-area real estate scene a decade ago as a new style of revitalized urban living emerged. In the time since, developments in formerly run-down sections of the city, including the U and 14th Street corridor, have transformed their home turf into trendy, up-and-coming retail and residential destinations.
For developers, building condominiums with upscale accoutrements was a way to turn considerable profits in the boom times while catering to higher-income clientele and new homeowners.
Four years ago, condos had reached such popularity that nearly 14,000 units in the region were sold that year alone, according to Delta’s figures.
Then the market crashed and burned, and a hefty supply of condominiums suddenly became an excess supply. This translated into fewer than 7,000 condo units sold in 2006, with the number dropping the next two years as well.
Rich said his prediction for the coming year is that between 2,000 and 3,000 condo units in the area will sell and, thus, lower the overabundant number of condominium projects.
“Net sales will actually go up,” he said. “So more people who put down contracts will actually move in. The buildings are already there, and they don’t have to wait two years [for people to move in].”
By 2010, there could be even vaster improvements, Rich added, and “we should see some firming up, especially in these inner Beltway communities.”
At the moment, a third of sold condominiums in the District proper are located in the center of the city in what is technically considered downtown, or within a five-block radius of downtown, Rich pointed out. The rest are spread out due to the fact that condominiums have successfully pervaded the entire geographic sector of Washington.
But because the condo market fizzled, a sizeable number of condos have been converted over to rental units, as investors and developers essentially try their hand at turning a profit while waiting for economic conditions to improve. From 2004 to 2005, for example, the rental unit fleet surged 20 percent because of this condo conversion.
Rich’s firm found that at the tail end of 2008, between 850 and 900 condo units went the way of rentals. That amount, while certainly high, is substantially less than the 1,500 units converted to rentals just a quarter of a year earlier.
Heading into 2009, realtors expect fewer condo-to-rental switches because the rental market is fast becoming as overabundant as its sister condo one. Additionally, prices aren’t expected to dip as low for condominiums as they have been, minimizing the temptation to convert for a bigger profit.
Still, fluctuating condo prices haven’t nearly climbed back from their heyday highs a few years ago. In 2008, the middle price for condos was nearly 0,000 versus just 3,000 the prior year. Statistics from the National Association of Realtors still show an 11 percent price drop in the D.C. region up to the third quarter of 2008 versus that prior year.
Broken down by location, the biggest decreases in price have been in suburban Maryland, where rates per square foot hover around 5. The priciest Washington neighborhoods for condos remain Georgetown, at 0 per square foot, and downtown D.C., at 0 per square foot. The average size of condos in the region is between 700 and 800 square feet.
For the most part, experts say price drops are a natural extension of hopes to more easily sell a property. But as sales increase, so will the prices.
Who, then, is expected to help push those sales up? Rich says it’s been rare so far to find existing homebuyers who can purchase condos, given the state of the real estate market overall. “They have to sell what they own first. Since the housing market is making it hard to sell a home, they’re not able to get rid of their first property,” he explained.
For the same reason, those existing homeowners who break this rule tend to be downsizing from their current house, not attempting to acquire a grander condo.
But potential buyers are out there, in particular among certain categories of buyers. Delta Associates, in their year-end report for 2008, listed opportunities for niche consumers such as empty nesters in search of boutique-style homes, as well as those who want to upgrade from their current digs or first-time buyers.
For those not burdened by depressed property values, with a bit more liquidity or money saved, this year could be an opportune time to make the condo jump before there’s another reversal in fortune. That’s especially true for first-time buyers and empty nesters because, as Rich pointed out, “They’re able to afford what’s on the market.”
About the Author
Dena Levitz is a freelance writer in Washington, D.C.