I see many disadvantages associating with owning a condo:
1. Unless you live in a Penthouse (which would be ideal unless your condomium doesn't have elevators and the premium is outrageous), you will find yourself having neighbors on your left and right, above and below. Most condomiums claim that their buildings are of top-notch construction quality, i.e. you will not hear your neighbors' conversations, footsteps, family disputes, and current TV programming noises. But there's no way for you to verify their claim until you've actually moved in, and in most cases, it's too late. Your left and right neighbors may have the habit of watching late shows, while your downstair neighbor has a keen interest in playing Star Wars and partying with his bass turned on to the max level, from 9 PM Sunday until well over 2 AM of the next Monday. Technically, it's still the weekend, and no one will have an early 9AM meeting on Monday, will he? Yet, that very downstair neighbor of yours is always axious to complain of your footsteps if you happened to leave something in the stove for too long, and were rushing to save your favorite soup. As usual, you will also have the same complaints to your upstair neighbor regarding most of the mentioned matters.
2. What about the Home Owner Association (HOA)? Should they be contacted to intervene on your neighbors' disturbing of the peace problem? Well, they could just be as ineffective as an incompetent apartment staff. While you don't have to pay for the services of the apartment staff, you have to pay for the HOA management competency. The fee has to be paid monthly, and it is steep. I've seen condo HOA fee in the range of $350 to $495 a month. Granted, this fee covers some things extra, such as garbage collection and water, which could reduce your pain, but in minicule portions. The rest are for stuff you could feel better to manage them yourself, ambiguous fees like "liability", "earthquake", and "reserve". How can you be assured that such fee portions will cover your behind when you really need them? How much does the money go into the "reserve"? Will the HOA be ever increased? You bet your sweet ass it will. Can you trust the HOA? The answer should be "most of the time, NO".
3. You don't have a private space. Some of the perks of being a homeowner is to have some space where you can plant your favorites trees and shrubs, having a barbecue with friends in the weekends, and jump into your private swimming pool with your wife/girlfriend/mistress without paying attention to some creeps gawking at her fine-tuned body and sharing the same water with you. Condos give you the space, but you will have to share, and that's no private.
4. When you are finally fed up with your neighbors, the public sharing of barbecue and pool space (and the view of your girlfriend/wife/mistress), and your condo HOA, you will find a hard time selling your condo. No one wants to live in an apartment (condo is just a fancy term you pay the extra money for), dealing with the same apartment-type problems while being branded a "homeowner". It will get even harder to sell a condo when the market turns from a seller to a buyer (picky) housing market.
With townhomes, I see lesser problems with neighbors and with private spaces, but they are still there. Sure, you won't have upstair and downstair neighbors, but the side neighbor(s) would still be fond of playing the bass and throwing technically-correct weekend parties. The HOA fee would still be high, covering fees you have no idea how they're distributed, and the HOA will never be your friend. You may have some space for your plants and a double parking garage, but you will still share swimming pool and barbecue places with strangers. In addition, townhomes tend to have steep and narrow staircases. Good luck trying to get that couch upstair, or be prepared to haggle with the moving guys because they want you to cough up $100 extra for climbing up.
Will condos and townhouses be out-of-favor when the buyer market returns? Or will they still sell because of a shortage of single family homes? Is there actually a single family home shortage?
Bonus question: Are we actually out of space in the Bay Area to build single family homes (classic Realtor's(tm) rationale)? Is there a chance commercial real estates be demolished to give space for private housing?
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FollowBefriend4 threads101 comments San Jose, CA
The townhome is the lesser evil of the condo. Owning a condo is probably a mistake you will realize once it's turned into a buyer's market. You could see condos listed for a year without a prospect buyer.
If this housing bubble bursts and the housing market crashes hard, buyers should (and will) take over single family homes first. Condos will probably see a reverse conversion back to apartment complexes. It's true that single people could opt to buying condos at that time because they're cheaper, but not many people can endure noisy neighbors, the restriction of privacy and personal freedom (of stripping and jumping straight to your own backyard swimming pool in the evening) and the ridiculous, screwy monthly HOA fee.
I believe at that time, this blog will talk about the condo market crash :-)
FollowBefriend (4)44 threads4,602 comments Los Altos, CA
High density shared community space living probably isn't going away anytime soon; if anything it will increase as a function of affordability. It's also a matter of taste. There will always be folks who prefer such communities. The obvious are older empty nesters or young professional DINK types. But I also know a good number of divorcees with kids, perma single folks, etc. who just don't want the burden a SFH involves.
That said, I grew up in a rural setting with big yards, lots of land, and neighborhoods which spanned miles. Not a chance in hell I'll ever live in an association community...at least not before I'm 70. I'd like my son to be able to climb a tree out back without some association board fining me for breaking some community behavior code rule.
“Condos will probably see a reverse conversion back to apartment complexes.”
Hmmm…that’s interesting. Never heard of that happening before. Does it ever happen?
When I lived in Chicago years ago, in the mid 80s, this happened from time to time. Unsellable condos in marginal neighborhoods were bought up by rental companies on the cheap. Of course, 10 years later they were converting them back into condos again and selling for big $ as marginal neighborhoods on the North side became desirable yuppivilles.
Just a tiny point of optimisim amid the gathering stormclouds:
Goldman Sachs just released some long-term projections for labor and employment in the US and Europe, targetting 2025 and using prevailing demographic population trends (fertility rates and immigration). The net is that by 2025 the US should enjoy a 11% gain in per capita GDP because of the rising demand for labor over the longer term; Europe a whopping 16% and even Japan a 7% increase (Japan is kind of special because of essentially 0% immigration and shrinking population). Bottom line is this is one of the first projections that doesn't conclude a demographic armageddon, but that instead job creation and demand will prevail over catastrophic economic collapse.
FollowBefriend (1)214 comments
ScottC writes: As for the Bay Area and lack of space for single-family homes, it’s not a problem of space. It’s a problem of regulations. When I visited my friend in San Francisco, he took me to several homes that are in historical areas where no improvement is allowed. The owners can’t change their homes in any way.
Well, in the city of San Francisco, there really is no more private land. There's an occasional vacant lot, but they're very rare and have been for decades. To build something new you have to knock something down. Often, an owner will knock down a 1950's zero-lot line SFR to put up a 3-story condo building.
Take a look at Google satellite maps of SF. In nearly all neighborhoods, the houses share common walls. When there are yards, they are in the back -- a big solid rectangle of buildings along the perimeter, and small patches of varying greenness in the middle. SF is famous for narrow but deep buildings (like the south's shotgun/camelback style, without the side yards). In some parts of town, the buildings are SFRs. Many of them are being converted, and there's absolutely zero incentive to build new SFRs today.
It's not a regulation problem. It's a space problem.
California is plagued by environmental regulations and NIMBYs, which seriously restrict much needed growth and development. We don’t have that problem in Texas.
True enough, though not to the extent national media would have you believe (many other states are comparable). The thing about Texas is that it's huge, and the regions (climate, flora, etc) shift much more gradually than in California...so even the desireable areas can support many more people with space to spare. But the vast majority of TX (aside from the cities, which have their own thing going on...sort of...and excluding El Paso, which has very little justification for existence) reminds me more of rural California (think central valley sans water) than of a place people would dream of moving to.
FollowBefriend (4)117 threads17,655 comments
I actually told my friend that San Francisco is the most relatively inexpensive city around the Bay Area because of space, regulation, and so the higher possible future rent growth.
He was surprised because he thought SF is very expensive.
I have been to the McDonald in Lodi. I have not visited any McMansion though. What is in Lodi other than the McDonald?
It is true that everywhere does have its share of regulations, but CA is in the higher end, and given the population density on the coasts, the regulations are amplified in price effect. For comparison, Ohio has many more layers of regulations, and often more restrictive regulations than CA overall; also no prop 13 protections, city income and property taxation on top of county and state, and many arbitrary building restrictions (not usually for environmental reasons like CA, but often put in place by special interests in Columbus). But, since all but a few areas of Ohio have not bubbled and population is less concentrated, the price effect of all these regulations is not as apparent as in CA.
In dense urban areas (SF, NY, Chicago) condos are in many cases the best housing available.
I agree that the RE dymanics between "classic" urban city areas and metro-sprawl areas are not directly comparable. There aren't that many proper urban cities in the US, ala NYC, Chicago, etc., so people tend to generalize. For example, LA, Indianapolis, Phoenix, etc. are more akin to sprawling metro suburban areas than the land-constrained, uniquely governed, massively regulated likes of NYC and Chicago. So just assume people are talking about everything but big-city living. As to SF...having lived in NYC, Chicago and SF, I put SF in a different category. In many (but not all) ways it is less like a true urban city and more like an extended metro area, except for the governing system, which is more like a big city.
FollowBefriend25 threads1,690 comments SQT15's website
What is in Lodi other than the McDonald?
Lodi is trying to be the next Napa Valley and there are a lot of vineyards popping up. But it's still Lodi. You know how the song goes, 'stuck in Lodi again......'
Personally, I think building SFHs inside the urban core is a crazy idea. In the city, we should aim to put at least 40-50 families per acre of buildable land. Open spaces within an urban area should be for public use only (e.g. greenbelts, parks, plazas)
Lodi is trying to be the next Napa Valley and there are a lot of vineyards popping up. But it’s still Lodi. You know how the song goes, ’stuck in Lodi again……’
Do they have restaurants comparable to those in Napa?
FollowBefriend1 threads973 comments
OT--for Jack, Randy H and others who live in Marin
Would you be interested in sharing real-market info on the current state of RE in Marin?
Any observations you have on the local scene would be very informative, such as sales activity, inventory, price reductions, etc. The Marin bubble blog will provide an ongoing thread for pricing history. This might be a great way to get some public exposure on price changes.
Do they have restaurants comparable to those in Napa?
If they do I haven't found them. I was only there once and we ended up at Applebee's.
Those are bulk growers, selling to other wineries. I doubt you'll see many "estate bottled" Lodi wines....but hey, I could be wrong. The weather sucks there for good wine, imho.
Speaking of recent buyers, my sister and husband are bidding today on a new home. Actually, it's a smaller, older property that requires lots of work. The only thing going for it is more land (a whole 1/4 acre) and a hillside view. But now it's going to cost them $200-300K to get the place liveable vs their previous, remodeled home. For some reason, they think they must buy NOW. The've convinced themselves it's the wise thing to do--I'm flabbergasted. When I heard this, I simply bit my tongue; I'm sure they're betting on future appreciation to bail them out.
And I thought market reality was self-evident by now; are "bubbleheads" still that far ahead of the info curve? Maybe this bubble has a little more gas.
I fully expect to see a contraction in the wine industry concurrent with the upcoming consumer-led recession. Luxury items like wine will be shunned if people are worried about more basic needs.
We also noticed all the wineries in the C.Valley, asked a family banker (specializing in wine industry) whether we could foresee a huge grape glut someday. He noted the growth, but thought the output would help even out grape prices during low-yield harvests. That is, when Sonoma has a poor yield, they could mix in some grapes from C.Valley and help increase production. And of course, there's more wineries opening all the time, which helps with demand. Demand is not infinite though...so it will peak someday. Since there's a huge market (and supply) of wines under $20/bottle, I don't see all wineries hit hard by a recession. Some will drop out, but many others will adjust to meet demand. I think the specialty vinterners of the pricier wines will be hardest hit.
think there’s been a difficult-to-justify growth (a bubble?) in vineyards since the mid-90s.
I echo Kurt S' comments. I did some work for an unnamed large corporate wine distributor about two months ago advising them on acquisitions from a financial and economic perspective. The thing is that there is huge, sustained demand growth across nearly all wine categories, except jug wines (
...hmmm, well that's a bite in the pants. Anyway, what Kurt said.
Of those, the last seems to have the most promise in this market and is the route they are taking.
Not necessarily. Many "fixers" in this market already have the "potential" priced-in.
[...] tax deductions [...]
You cannot *make* money on a tax deduction, by definition. Mortgage interest is not a tax *credit*, it is a *deduction*, meaning you have to make the income and be taxed on it first, then pay out the interest in hard dollars, then you get a little of the taxation on your income back. The tax deduction is way overplayed, especially given how many lose a portion to AMT.
KurtS, I'll join you on your Marin blog when I get a moment to summarize my data on properties I've been tracking. There's been a lot of change in my folder lately as about half of the listings seem to have disappeared, but don't seem to have sold either. I'm waiting to see if the relist or if they're just renting out now. That place in Corte Madera is back on the market since the offer fell through. The agent has called me 3 times now insisting it is a "steal" at the 1.15M price. Every time I ask if she'll take a lower offer and every time she says she won't present them a lower offer or they'll fire her. Maybe I should write an offer at 895K just to force her to present it. Trouble is, I'm not sure I even want it at that price all things considered, given all the problems that come with the place.
Another thing, I saw your blog asked to list the addresses of the places we're tracking. I know in the Marin MLS many many homes don't list an address. Even Realtor.com doesn't have the addresses often. I'm a bit worried if we'd be at any risk of disclosing addresses for "address confidential" MLS listings. I know they can get nasty with their lawyers for violating this or that copyright, etc. Or is this statute public information? Perhaps a RE expert can help us...
I know in the Marin MLS many many homes don’t list an address. Even Realtor.com doesn’t have the addresses often. I’m a bit worried if we’d be at any risk of disclosing addresses for “address confidential” MLS listings. I know they can get nasty with their lawyers for violating this or that copyright, etc.
How about MLS listing #? Or GPS coordinate? ;)
There’s been a lot of change in my folder lately as about half of the listings seem to have disappeared, but don’t seem to have sold either. I’m waiting to see if the relist or if they’re just renting out now. That place in Corte Madera is back on the market since the offer fell through. The agent has called me 3 times now insisting it is a “steal” at the 1.15M price.
Randy, sounds good. I also need to review my home listings and see where they're at. So in the meantime, I simply reposted your brief report on that blog to get things going while I check my listings.
I hope that's cool; otherwise I'll delete.
What happened to the website rantings of EscapedFromDC or is this the site of someone else?
I was wondering about that today. Hmm...
Give your family some credit for effort. I personaly only know of four ways to make money in RE: Appreciation, cash flow, tax deductions, and adding equity.
Sure, I'll hope the best for them, but I'm still concerned. The house is actually the lesser of my worries, the primary one being they both quit their biotech jobs, my sister now has a kid, and the husband's a wedding photographer--a business that's highly seasonal and economy-dependent. The guy's fairly sharp, but I'm still cautioning him about the market, and if he can pull off any of those "four ways", and stay above water--then I'll give him credit. So guess who I'm more concerned about? Well, that's the scoop.
I hope that’s cool; otherwise I’ll delete.
It's cool. There's too much funny business going on up here in Marin. Time to get some real data out there.
I could be the nominated bull friend today if necessary ;)
AND that's no bull.
Is it just me, or does it seem that more companies are going chapter 11.
Delhi, airlines, ........
It’s beginning to look a lot like fraud to me.
Sounds a lot like Marin. I guess greed isn't state specific.
To be honest I sort of feel bullish at this time.
Unfortunately it is not with housing but with business.
AND unfortunately that does not include the stockmarket but with SME private business.
REASON being is that there will likely be a continuing skills shortage and my gut tells me that most people with suitable skills usually start their own business. Hence alot of business will probably go to the SME businessess.
I'm bullish on SMEs too. I've observed the largest infusion of new VC into Valley companies--most of it later stage--in the past 5 years. That said, RE is still going to go down due to financial fundamentals.
One day, the bears will be pleading for a bull to come along and save them. ;)
How many bears does it take to change a bull ? ;)
(answer: None, Just a bad NAAVLP experience)
@ScottC: wildfires ... electricity
You make excellent points. See also, "trees" and "oilmen"...
But I didn't mean to sound like I was dissing Tejas. I've probably spent more time in TX than in any other state where I haven't had a permanent address...and only partially because it takes a month and a half to drive the length of I-10 between New Orleans and Tuscon (kidding!).
I actually like TX quite a lot. I had the best biscuits and gravy of my life in Big Bend NP, and the USPS folks in Dripping Springs are on my permanent Christmas list. Just don't ever send me back to El Paso.
For rental properties the HOA is good also as it keeps the tenant in line
Not sure about that... :)
I am fine with HOA if it is well-run. This means more research to do and more documents to read before any purchase.
but any economist can tell you that if the large cities in Ohio had the same regulations, zoning control and impact fees as in California, then the real estate values in the large Ohio cities would obviously be much higher than they are. It is a proven fact in basic economics that if you restrict the supply of anything then you will increase the price. In the case of areas such as California,
Ohio's large cities do have higher prices, it's just that Ohio has a lower general equilibrium. Those same economists will tell you that the nominal prices are subject to localized inflation, among other things. Ohio has experienced markedly lower inflation over the past 30 years than CA. I'd guess that the deltas for large cities in Ohio versus CA are about the same, perhaps even higher in the worst regulated Ohio cities, like Cleveland.
I have heard this stated multiple times and I explained in a long post on the “October is Here” thread that the last sentence above is not quite true for eligible home mortgage interest.
The IRS has only clarified these rulings in the past few years, most recently with 2005-11, which I think just happened. I stand corrected, therefore. My experiences losing 100% of deductibility went back to the 90s when we got clobbered by ISO excercises which caused huge paper earnings and erased our interest deduction entirely. We also lost status one year due to refinancing, which is no longer a problem (but we little AMT that year, so it wasn't a huge problem anyway) This situation has apparently been resolved. Now, if only I can find some more ISO options in hugely overvalued blocks to test this again.
35 million people in Californa just might have SOMETHING to do with high prices also.
How about the billions of people in India and China?
I cannot find flaw with either your data or reasoning. My point was that Ohio has roughly the same regional aggregate inflation as its nearest neighbors such as IN and MI. However, OH has a heavy beuracratic overhead (as opposed to overt regulations as you pointed out are the constraint in CA) and many extra layers of taxation, which also serve as a regulatory brake on normal supply/demand. I'm sorry I don't have data sources to refer to--and I always run the risk of being out of date since I haven't done business in OH since about 2000--but OH housing RE was notably higher than its neighbors in percentage of median income terms, at least in the large urban areas.
All that said, OH has gone through massive political upheaval in the past 5 years, including a change of state government, many indictments and scandals, and now yet another new government. It could well be that all this invalidates my points entirely, so let's settle that we can agree that overregulation distorts markets, RE severely so.