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Correction: Due to a reporting error, the original version of this story gave the false impression that in addition to a CCDC tally of 3,414 condominium units in buildings under construction downtown, there were another 1,485 condos “on the market.” In actuality, the 1,485 figure should have been included the 3,414 total. We regret the error.
Tuesday, Jan. 16, 2007 | More than 5,800 condo units have been built in downtown San Diego since 2001, representing a significant piece in the revitalization of the city’s center. And another 3,414 condos are currently under construction, having at least broken ground, according to the Centre City Development Corp. Those units are housed in 30 projects, many of which have been under construction since the market was booming in 2004. They’re set to be finished in the next two years.
In a slow market, some worry the new units will barrage a region already staggering under a level of unsold homes that hasn’t been seen in years. Just the units currently available would take at least 12 months to sell at the peak activity rate of 2004, estimates Peter Dennehy of Sullivan Group Realty Advisors. He said adding thousands more units may only exacerbate downtown’s housing oversupply. But the nature of high-rise development is that of a nonstop train — once developers start on a building, it’s nearly impossible to stop when conditions get tough.
“Once they go vertical, they rarely go back,” Dennehy said.
And the concern stems from more than just a slower real estate market — it takes a little more creativity than it did a decade ago to market high-rise homeownership. More than 5,800 condos came on the scene between 2001 and 2006, nearly doubling downtown’s condo count.
“When the first building started selling, nothing had been built in a decade,” Denney said. “The ballpark wasn’t in yet; there were a lot of reasons to think of it as an investment.”
Now, he said, a bit of the bright-shiny-newness of the neighborhood has rubbed off.
“It used to be an investment in the opportunity that downtown presented,” he said. “Now it’s a real-live place. It’s much less that buyers think they’re getting in on the ‘ground floor.’”
The extreme price hikes of a few years ago priced thousands of people out of the market. Developers often say the mechanics of supply and demand will help with the high prices for housing in San Diego. If we build it, it will help, or something like that.
There are 3,400 units due in the next two years, and 4,000 more that are pending construction, and 3,000 more that are in planning stages. Could the thousands of units slated for release in the next 10 years result in enough price slashes that we’d end up with a sort of subsidy-free solution for affordable housing?
“The glut potential of downtown San Diego is highly overrated,” said Russ Valone of MarketPointe Realty Advisors. Valone said an across-the-board significant price drop is as unlikely as, well, 9/11.
“Aside from someone flying an airplane into San Onofre, the capacity for wholesale price reductions is not there,” he said.
But more than half of the units that are under construction have sales staffs that have been recruiting buyers to sign contracts or make reservations, and so the 3,400 number won’t be a blanket addition to the number of unsold units.
Dennehy estimates the price drops in 2006 for the downtown condo market ranged between 10 and 20 percent. Because of that, there are a few studio or one-bedroom condos on the market for prices in the low $200,000s, he said, and those represent some of the entry-level housing the county desperately needs, at below-cost prices.
“The opportunity is there for people to buy units that probably couldn’t be built again,” he said.
And Realtor Lew Breeze, who tracks inventory and price data for the 92101 zip code, said the people who are waiting to see if prices will drop further may get those lower prices, but on units that wouldn’t have been their first choice.
The kind of buyer who’s interested in these units is no longer a flipper looking to turn a condo around for a profit. And that breeds a new kind of pickiness in buyers weeding through a larger catalog of units than they would have had a couple of years ago.
“The investors are long gone,” said Little Italy Realtor Anthony Napoli. “The people that are buying are now owner-occupants.”
Flipping declined in 2006, a new report released Friday by DataQuick Information Systems affiliate HomeSmartReports.com showed.
Homes owned for six months or less accounted for 2.5 percent of
all home resales in 2006, down from 2.8 percent in 2005 and 3.5 percent
in 2004, the report showed. The data covered to the entire San Diego County area, but many analysts say the downtown and condo-conversion markets were where flipping was most prevalent during the boom.
Dennehy said location and type of unit is back at the top of the list for home buyers.
“What has really been clogging the market lately is the units a bit further inland,” he said. “There’s a few brave [builders] out there, but it’s the water-oriented units that are most appealing.”
Valone said the market challenges don’t erase downtown’s amenities.
“You’ve got a lot of young professionals, aging baby boomers,” he said. “People with a lot of equity looking for lifestyle.”
While he still thinks the market will weather the slowdown, he reluctantly admits there’s at least a little cause for concern.
“Maybe there’s a window of glut,” he said. “But it’s not a very widely opened window.”