Comments on Sign of Desperation?

"Would it help if we threw in a pizza? Your choice of toppings."

nice place for single people who earn 51,484 a year. for that price tag though it still seems over priced per square foot.

There are lots of condos in Seattle for less than $300k. Maybe not BRAND NEW condos with a Sound view from Capitol Hill, but not slums either.

Their web survey says:

Our concept to achieve this goal centers around building smaller-than-average condominium units (about 400-500 square feet), which allows us to maintain a lower-than-average overall cost for the home.

In other words, they want to charge you $250K to live in half of a shoe box with a Murphy bed. Lo and behold, I'll bet they can fit more units in the building that way too.

Altruistic my ass. They're trying to maximize profitability and move product quickly by finding an unserved market niche.

This project is a joke. They are living in the fantasy world. 400 sq/ft @ $250,000 is $625/sqft. $625?!

Look at other units in the area to see that it's easy even in this inflated market to get more for your money: 388sqft studio for 176k and 173k at the Parc on Summit. 506sqft and 584 sqft studios for 240k and 255k at the Oliver.

Prices are only going down from here, folks. This project is doomed.

Sign of desperation indeed...

You know, if this housing bust happened two or three years ago: Manray and Pony may have been saved.

PS...

"...a design strategy focused on flexibility, space optimization, and the right balance of features and amenities to ensure that even though these are smaller units, they remain highly appealing and functional."

This makes me think of one word: IKEA.
Crap quality, cheesy design. I totally expect the construction crews to build this thing using pre-fabbed pieces and a massive IKEA allen wrench.

It's probably half desperation and half sincere marketing experiment. Either way, I think the condo market here is headed downward in the coming year and interest in it may be dampened by that anyway.

So it would appear that the developers are… altruists.

Weird. I look at that thing and I see pragmatists. I mean, they pretty much lay out the numbers: "This is how much money people have, this is how much housing costs, these numbers don't match up. We're trying to market our goods to the existing market." That's not altruistic. It's common sense, and it's a kind of common sense that very few developers are displaying these days. Developers who fail to recognize the nature of the situation are doomed to bring about a collapse of the local real estate market that won't be good for anyone. These other developers are at least making an effort to head that off.

Because it's good business.

But that's just my read.

Who the hell wants to look at the sound? It's fucking water = fucking boring. I want a view of the shitty downtown architecture. Twa!

Okay. I've been watching that building with great amusement since I've been living on the hill.

Somebody please tell me the deal with that building. Do the three cars full of junk belong to the landlord? Is the landlord the guy on the north facing first apartment with junk on it? We once got yelled at for making a right hand turn onto denny by that guy.... crazy loon yelled at our car all the way to I5.

Somebody please spill all the juicy gossip before that place goes. I need to know the facts.

are we really gonna get pissed off because a developer wants to make money and chooses to do so by asking what folks might want?

These particular owners have experience only with condos. Though most developers are switching to building apartments now, it's hard to get construction financing from a bank that sees you haven't ever done apartments before. (Hell, it's hard to get construction financing at all these days.)

So they try to stick to the condo idea. Keep an eye peeled: they may sell sell to an Apartment Real Estate Investment Trust soon.

I lived in this building for 3 years. My unit was over 1,000 square feet. Maybe I'm not reading this all the way; where are you getting 400 square feet?

The building is blah on the outside and in the common areas, but my apartment was amazing.

@4 nailed it. These guys might not get the price/space ratio right, but the pool of million dollar condo buyers is drying up fast. Developers NEVER set out to not make a buck--their lenders and investors would never allow it. They see a market opportunity and they're trying to be first to exploit it.

@15: The existing building will be demolished

@8 Don't knock modular building too much. Habitat 67 in Montreal was designed to be entirely modular, and allowed for a variety of unit sizes, a garden for every resident, and many green features. It was also originally affordable, though the cachet of living there has made them very pricey units now. If the idea were replicated, it would be very doable and cheap now.

Wasn't there already a post about this project on Slog? Not the original concept, but the revised, condos-for-the-people project with the nifty online survey, only a week or so ago?

My guess is that this project, like many during the development "boom times" of previous years, is being done by the landlord who is inexperienced and thinks they can still cash in on the "condo craze."

Not sure about Seattle, but many developers in Portland are now actually changing developments they have already broke ground on to be rentals rather than condos. But these are the ones that already have a ton of money reserved from the profits of previous developments.

My gut tells me that whomever owns or is developing this property has no idea what they are doing - and is getting some goofy advice from a real estate agent or something who might be partnered in the deal. I also have a hunch their marketing ploy is more about trying to get a certain number of pre-sales which are sometimes needed for the gap financing in developments.

Alas, I'm pretty sure they certainly don't have a clue about either the current market or how to create a solid proforma based on it and I'd be surprised if they have their financing in place to demo, then rebuild this.

People pay for views, it's called Location, which comes right before the all important location. After those two factors there is a third which REALLY jacks up a 400sqft cute as a bug's ear room price, yeah it's called location. People pay for views.

So it would appear that the developers are… altruists. Or socialists.

No, they're simply developers responding to market conditions. Which they are doing now, which they did 2 years ago, which they will always do if we let them.

i call for more shootings and heroin addicts on capitol hill. if you want to drive down housing prices, make capitol hill a non desirable place to live.

People pay for views.

Not only will they pay, but we know what they're worth - any appraisal of a property with a view includes a dollar estimate of the value of the view.

Perhaps we can make housing more "affordable" on Cap Hill by blocking the views of the view buildings.

I promise I won't say anything about how other cities zone for much higher multi-story residential inexpensive rental apartment buildings.

Nice snow today, huh?

Bizarre.

What we see here is a capitalist trying to satisfy the consumer. That's bad ? To be scorned?

Favoring density and then personally attacking someone for trying to provide more of it is also a bit odd.

I keep hearing all this talk about in-process condo projects going rental, which makes sense given the current housing downturn.

But, what I keep wondering is: what happens three or four years down the road, when the economy starts rebounding, and presumably housing demand begins to upswing again? What's to stop these developers/owners from just converting them back to condos again?

Nothing, so far as I can see.

In the 1950s there were lots of 1600 SF houses built that housed 4 people. That's 400 SF/person. Today there are more single people. Offering a smaller sized product provides more choice and is a good thing.

If you want lower prices, the quickest way to do that is ending the mandate making the new buyer also buy a parking space. This forces people to join in the automobile-highway-congestion-C02-asphalt-industrial complex, even if they don't want to. Unfair and unenvironmental. And monopolistic.

The government mandate that parking be provided, apart from helping Exxon and the Saudis, also adds some $40,000 to the price. A mandate to keep home prices high is wrong.

Let the market figure out how many unit owners want parking. Even if just 25% pass it up, that's more affordable housing for those who want to pass it up.

This is a highly walkable location, too.

"In Seattle, the 2007 median income is estimated at $51,484, which typically enables a person to afford a home that is approximately $250,000."

Is that correct? 250k seems like a pretty generous loan for someone making 50k, even with 5% down.

Jesus - my Capitol Hill RENTAL is @7$ a square foot... and that's twice what the U-district renters pay.

@29:

I think the traditional rule of thumb is no more than 4x your annual income with a 20% downpayment. So the max loan for a $50k wage earner would be 50k x 4 = 250k - 20% = 200k

I could be wrong, but that's how I understand it.

@31:

(sorry to derail this thread with the minutia of loans.)

Interesting, I hadn't heard that. If that's reasonably true, things are looking up for me.

I've always considered the mortgage at roughly 1% of the price (way oversimplified I know, but it should be in the ballpark). A $2,500 mortgage is way out of range for a "normal" person pulling 50K, especially consider a down payment should pretty well drain your saving.

Bellevue Ave, isn't this your area? What say you?

Its too bad they got as far as tearing down and closing the properties they were going to develop cuz now we're stuck with a bunch of vacant lots with garbage in them a la the corner of 14th and Union where once a coffee shop, an ethnic hair salon, and a very rare and cool junk shop that sold refurbished bikes for $25. Thank god that guy was able to move to 12th.

And the change in zoning height is the 100% reason this is happening on Capitol Hill.

there are a few general rules that were kind of standard. 3x income, 20% down, 6% interest, 30 years of payment.

I dont think that is too far off in a good guideline but there are always exceptions. I think the biggest problem for people is coming up with the downpayment and so they opted for these higher interest or variable interest payments.

I generally go by % of income devoted towards housing with 25%-33% of your income. at 50k youre looking at 1040-1666 in monthly payments.

for the above property under this ideal, you'd wind up with a 1199 payment per month with a 50k downpayment. 1348 with a 25k downpayment. so it is actually affordable to a certain market segment of 50k earners.

Wait, are we talking about net? hahahha, suckers! this is where the big lie in affordability comes in; most of the affordability calculations i see are based off a gross income median, not net income median. at 1199 we are pushing the 33% allocated towards mortgage payments (to be fair though, this would change with natural wage inflation and wind up being less and less over time).

but the problem here that a lot of people have is what to do with 400 sqft of condo? it's not that the monthly payments per sqft are absurdly high when accounting for the time of the loan and payments. it's that the property itself caters to such a niche market segment that most people here are complaining about and feel doesnt exist (i'm sorry that so many people ignore gay men who don't plan on having families and have above average income). I find the problem of affordability being a question of cost to benefit. is living there worth only getting 400 sqft? possibly for some. definitely not for many.

another typical argument is how does someone save up 50k. imagine you devote 10% of your net to savings per month earning 51,484 per year. after taxes that is about 42,189 per year, and 10% per month is about 351.57 per month. for you to save 50k, you'd have to save for 11 years (provided you were putting these downpayment savings into an account that yielded inflation pegged rates). there is an allowance within the 401(k) program that allows for a 50k withdrawl for a first time homebuyer IIRC. so imagine socking this money away, reducing your tax burden because it is going towards your 401(k), and having it invested in an index fund using dollar cost averaging, you could probably save this up in less time. This of course requires a lot of forethought and financial planning but it is possible.

so what does this all mean? while one can AFFORD such a condo on ~51k, one has to wonder if one who earns ~51k should VALUE it at 250k. I for one question the value of such a dink condo in a location like that. living on cap hill is great, but one has to look at one sacrifices to do it.

personally i pay about ~26% of monthly net income to rent.

diana, someone gets screwed no matter what happens.

you stop people from building; you increase the rents of everyone that wants to move to capitol hill. people can't make rational business decisions with their own property in rebuilding and you encourage condo conversions. you basically favor those that have money over everything else.

you prevent rent increases from happening; you increase the rents of prospective new people moving to capitol hill. you reduce the incentive of landlords to actually care for their property. you encourage teardowns and rebuilds within regulation. you favor those that have been in the neighborhood and corruption. you also have the city pay to offset reduced property tax income due to rent ceilings, reduced sales/property take from prospective new residents with higher incomes moving in to either condos or apartments.

i think there is a bigger drag on the city from rent control than from people being displaced. the overarching problem here is one of fairness viewed from an emotional/social perspective which doesnt account for anything else.

Cleve @28: in the 1950s 1600 sq. ft. was actually pretty large. One of the things driving the housing market in the past decade or so is this new idea that somehow you've got to have 4,000 sq. ft. or more (sometimes a LOT more) to be comfortable. Which means lots of perfectly good, well-designed, attractive houses torn down for hideous and gigantic shit, and lots of big-ass ugly furniture to fill the oversized rooms.

fnarf is of course right. i find the metric of sqft per person a bit specious though, because really, where are those sqft coming from?

I for one would be happy with a 2 bedroom, living/dining/kitchen, 2 bath setup (and a sunroom. gotta have a sunroom/greenhouse). these kinds of places are pushing 60 years old and are being eliminated for monstrosities. if i asked contractor to build a smaller house they would probably try to upsell me on the whole premise of resale value etc etc. and cost per sqft. anyone who considers making their house a home should be oblivious to the concern of resale.

@34 - At least with only 400 sq ft, you don't have to factor in a percentage of income for furnishings.

Thanks Bellevue Ave, that's was informative. Those mortgage calculators always seemed a little dodgy...

@34 - Another possibility is getting two loans to start out with. Let's say someone had 15K saved instead of 50K. They could finance 200K (80%)of the 250K price at 6%, and then get a second loan for the remaining 35K. The rate on the second loan is definitely higher (approaching 10%), but if you paid it off in 15 years, you'd be looking at $376/month. This would be on top of the $1199/month for the 30-year 1st mortgage. So, it's still less than $1500/month, which is (barely) within the range for someone making $50K.

Getting a second loan in lieu of a full down payment isn't a bad idea if you can afford both payments. The other thing nice about that is IF the property value appreciates, then you can probably refinance the entire thing into one loan in a couple of years at the lower rate anyway. Regardless of the property's future value, there's little risk if you can afford both payments.

All of the sub-prime hoo-ha is a result of people buying more than they could afford and also tapping into their equity. Don't do that.

Oops ... $1600/month, not $1500 ... but still within your window for someone making 50K per year.

taking out 2 loans and depending home price appreciation above interest rate and above inflation is speculative at best. assuming you can afford both payments, you could do way better taking that extra 500 a month you would be spending and invest it in the market dollar cost averaging. house and condo investment only makes sense when the appreciation exceeds interest rates and inflation and historically that isn't the case and looks like it wont be the case after the market settles down.

@42 -
By my calculations, with a 5% return on your $500/month investment, you'd have 50K in 7 years, which is enough for a down payment on a 250K property.

For someone who did two loans, as in my example, they would owe about 200K after the same amount of time and could refinance at that point if housing prices hadn't appreciated at all.

I also assume that the $500/month saver is flushing away around $1000/month on rent, so the monthly cash outlay in the two cases is about the same.

So, it's break even between the two cases with a 5% return on a 500/month investment and zero gain in housing prices for seven years.

Now, I know housing prices are taking a dump and all, but no appreciation for seven years? I've got a hard time thinking that will happen, particularly with entry-level properties.

Maybe you can get a better return on your investment. A phenomenal 10% return will get you 50K in 6 years instead of 7, but it still seems risky to me.

In my view, the only risk with a house is not being able to sell it. If you plan on living there for a long time, it is absolutely the best way to invest money, even in today's market.

Additionally, even if the monthly saver is sheltering the $500/month through a 401K plan, as you mentioned earlier, I think the property buyer gets a bigger tax break with the interest write-off.

But, maybe I'm missing something?

Oops again ... I know what I missed. The property buyer started w/ a 15K down payment in my case. So assuming it's the same person trying to decide what to do, they only need to save 35K, not 50K to get their down payment.

So, starting w/ 15K and saving $500/month w/ 5% return will get you 50K in 5 years, not 7. The home buyer would owe around 215K at this point.

With a modest 2% annual increase in housing prices, the home buyer would have around 60K in equity, and the investor would need to wait a few more months before they had their 20% down payment.

PS- I heart Excel

mahtil, one of the key factors i described was the tax incentive of saving and investing using the 401(k). putting just 10% of net per month would reduce your taxable income by 4k a year
also taking on debt that isn't tax deductible for the downpayment results in less net disposable income at the time of home purchase and 15 years into a home purchases.

look at this way; after the first 5 years or so both people will own homes, but you'll have a higher payment for 10 more years, yet both will be deduction the same amount of interest.

and 2% increase in housing prices YoY means you're losing money due to inflation. you might have 60k in equity but it isn't worth as much as 60k in todays dollars.

interestingly enough 500x12x10 = 60k. remember though that one could take the money saved from the 10 years and put in a 401(k)AND could earn higher returns on average than a house with DCA.

also, the deduction for interest isn't that amazing on around 11k per year for the first year. I believe it is about ~1200-1500 off your AGI.

You lost me, Bellevue.

Since the second loan is for purchase, and not an equity loan, its interest is fully tax deductable.

And interest is a straight income deduction. 11K of interest is 11K off of your AGI, no?

Inflation affects both types of investments, not just housing.

And, regarding the higher payment for an additional 10 years, that is only necessary if 1) housing prices have declined significantly over 5 years (even a flat market is OK), or 2) interest rates have gone up so much that refinancing doesn't make sense. I suppose this is a risk, but not devastating since the premise of the investment is that you could afford both payments.

Finally, I will add that a mortgage cost is fixed (unless you get a really stupid loan), but rents are not. $1000/month in rent now could easily be $1200/month or more in a few years. This will always go up over time.

Likewise, this threshold is what will keep the bottom from falling out of the entry-level real estate market. When it becomes more economical to buy than rent, more people buy, which drives up (or, at least, maintains) prices.

By the way, if Charles reads down this far, I'm sure he's horrified by this thread.

i asked someone about the tax portion. they told me that 6000-5000 off the taxable income if they itemized. which would roughly translate into 1500 dollars net tax savings, at 6000 dollars based on tax bracket. for ~3800 for 401(k) thatd be about 950 in net tax savings.

as for the downpayment loan, I wasnt sure if such a loan interest can be written off as mortgage interest, but if it can that wont necessarily translate into a huge benefit.

for the 10 years part; if the premise is that you can afford both payments, the question thus becomes, what is the best way to invest your money with a set amount of payment you can afford.

the opportunity cost that you are describing is 10 years of higher payments with no income from that $1600 pie going towards a tax deferred investing account.

the idea of refinancing is possible but then you are paying for refinancing.

the opportunity cost of not getting a home for 5 years is 5 years of growth in the property value you could of had and an increase in rent over the 5 years.

I think that putting off the purchase of a home for 5 years and then getting a home and having the ability to save up for a retirement nest egg for 10 years is better than having 5 years of home value increase and 10 years less for directing income towards a retirement nest egg. either way, when you retire, that home will be there, but your nest egg will be a lot smaller by purchasing earlier.

I'm still not understanding you on the tax deduction. In my example ($200K 1st loan at 6%, and $35K 2nd loan at 10%), the interest in the first year is $11K. ALL of that is tax deductible, which would translate to a tax savings of nearly $3000 for someone making $50K/year. On the other hand, someone saving $500/month into a tax-deferred investment would reduce their taxable income by $6K/year, translating to a tax savings of $1500.

I will add that refinancing is not that expensive. A new loan will cost around $1800, and that's a one-time fee. Speaking from a cash-flow standpoint, it pays for itself in less than 6 months when the 2nd payment disappears. You seem fixated on the extra 10 years of payments, but I will say again that is only necessary if the market completely tanks long-term from where it is now and/or interest rates go through the roof. If that happened, I think you'd be hard-pressed to find any investment which would give you a decent return, and we'd all be screwed anyway.

The housing market is depressed right now. Interest rates are low again (5.5-5.75% for a 30-year fixed). There are many bargains out there now, which means a property could instantly appraise for more than you pay for it and you could possibly refinance it very quickly (within 1-2 years). Granted, there are no guarantees, but there is a risk-reward trade-off, with the worst-case risk being a couple more years of shelling out $350/month on a 2nd loan.

Finally, I will add that I agree with you on the retirement savings. If someone has an employer who matches funds for 401K, then they would be absolutely crazy to not save enough to get a full match. That's an instantaneous tax-free 100% return on the first 3-4% of your income that you save. This should be done first, before anyone considers whether they can afford to buy a house. So, maybe that 50K/year is really 48K/year ... that should be the starting point for any financial decisions.

Mahtli69, if you dont mind my asking, what do you do, and do you have an email address?

Isnt the standard deduction taken away from your itemized deduction of interest? so it'd be 51k-11k and for the 401(k) since it was pretax and not an itemized deduction you could still take the standard deduction of 5800 and on the 401(k) amount of 3800ish? so it'd be 51k-9600?

AFAIK the downpayment loan would have to be secured by the property, in effect a second mortgage. and we also havent addressed the issue of where that 15k is going to come from.

regardless, it is nice to have another person here that is aware of this?

also, if the company matches, it would take a lot less time, like 4 years to get that 50k. and with continued matching...holy crap, it wont even be close.

i made hte assumption that the contribution to the 401(k) would be the difference between the mortgage payment and the rental price.

I sell real-estate, why do you ask? ... Ha ha, just kidding. I'm an electrical engineer. I don't really wanna post my email on Slog, but if you want to I'll email you back.

I hadn't thought of the standard deduction not being included, so you are correct about that. However, once you itemize deductions you can also write-off state income tax (or, in the case of WA, all sales tax which at 8.9% or whatever it is, ends up being lots of $$$), charitable donations, etc.

As far as a 401K company match, typically they won't match your entire contribution (depends on employer, but typically 4% or so). But, free money is free money no matter what it is. And, yes that would definitely make it accumulate faster.

Of course, if you use your 401K to fund a down payment for a house, then you'll need to pay yourself back. Things could get a little sticky if you're unable to do that for some reason (keeping in mind that you will also have a mortgage while you are paying yourself back).

Finally, as for where does the initial 15K come from? Who knows? My point is you need a 5% down payment to buy a house, not 20%. And, in my opinion, anyone who is in this position and renting would be better off just buying a house if they can afford the payments.

Marcotyx@gmail.com

I suppose the 401(k) withdrawl will cause a hefty tax hit in year one if it is a hardship withdrawl, and you will have to pay yourself back from subsequent 401(k) contributions if it is a 401(k) loan. the tax hit might be mitigated by previous tax provisioning though. the loan works out to about 1% above prime.

I am in full agreement though; the idea that you need 20% down isn't true, but there are benefits to getting 20% down if it can shave interest of the entire loan, or something like that. we of course are operating under the idea of ceteris paribus; real world experience may vary.

i think the thing that annoys me about this whole condo scenario though is

a. semantics
median income? median household income is 51k or individual median income is 51k? a household of two 51k earners should have no problem affording an house and or condo at 250k, whether using our strategies or not.

b. who makes that kind of money and doesnt want something more for that price? a studio that dinky for that price? If someone was paying comprable rent for a studio i'd say go for it, but if they can pay 1k for a 1 bedroom then it is comparing teh mortgage on a studio condo, to the rent on a 1 bedroom.

c. people arent satisfied either way by this.

Email sent. Talking about mortgages and refinancing, hopefully I didn't get zapped by your spam filter.

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