Dallas Fort Worth Condo Market Report

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Fort Worth Star Telegram, trackingBy Mitchell Schnurman:  Downtown Fort Worth has a condo glut, with far too many high-priced units. In downtown Dallas, the problem is 10 times worse.

It’s not Miami, where thousands of condos sit vacant, or Phoenix, where the median price of condos has dropped 43 percent in the past year. But Dallas has a big surplus of condos for sale, including a five-year supply of million-dollar units. It has more than 400 new, finished, vacant properties. And its foreclosure postings have quadrupled since 2007, accounting for 1 of every 4 condo postings in all of North Texas this year.

This bubble trouble was not unexpected. Three years ago, downtown Dallas was swamped with commercial construction, and developers were flooding the area with new housing. Even the Federal Reserve Bank of Dallas took notice.

"There is growing concern about overbuilding of condominiums and townhomes in Dallas, and contacts fear that it will end badly," the bank wrote in the June 2006 Beige Book.

That warning didn’t slow construction. In the next year, the downtown area started 662 additional condos. By last summer, the Mandarin Oriental, which had announced plans for a tower with 90 units, said it was walking away from Dallas, because the luxury market was overbuilt for both hotels and residential.

Well, the building boom has practically stopped. The area had just 55 condo starts in the first half of 2009, according to research firm Residential Strategies.

But the overhang persists, especially on high-priced units. The downtown Dallas area, which includes four ZIP codes, currently has 1,035 condos and town homes listed for sale. Ninety percent are listed for more than $134,000, the median condo price for all of North Texas, and more than half list for $300,000-plus.

The past decade has shown that there’s a significant market for downtown living in this part of the country. But just how deep — and wealthy — is it?

Downtown Fort Worth has 87 condos on the market now, a 30-month supply. In the priciest segment, condos selling for $950,000 and up, downtown Dallas has 123 listings, enough to last more than five years at the current sales rate.

Six to eight months is considered a healthy inventory supply. Nationwide, there was a 12-month supply of existing condos in August — not great, but better than our major downtowns, and the national trend has been improving slowly.

Excess supply, combined with a surge in foreclosures, is hurting prices. Through September, the median price for condos and town homes in North Texas declined 3 percent. In a large swath of downtown Dallas, the median price fell 15 percent — and that’s for units that are selling.

Many others are being converted to rentals. One 1,700-square-foot condo at the Azure tower was listed for sale for 375 days, even after the price was cut to $1.1 million. Eight months after being pulled off the market, the condo was leased for $4,400 a month.

This year, 11 units at the Azure have been leased, while only one has been sold, a trend that’s been seen at condo projects in downtown Dallas and Fort Worth.

The hardest thing to rebuild is confidence," says Kenneth Cox, the broker and owner of DFW Urban Realty. "It’s been a lot easier to rent out condos than to sell them, because people don’t want to be locked in right now."

Their caution is understandable. In the first 10 months of 2009, 460 condos and town homes in downtown Dallas were posted for foreclosure. That’s up from 113 for the same period two years ago, according to Foreclosure Listing Service in Addison.

"We’ve been through cycles like this before with condos," says George Roddy, who compiles local foreclosure data. "But we’ve never had the problems concentrated in such a small area. The question is, how long will it take to work out?"

Roddy won’t hazard a guess, but Ted Wilson of Residential Strategies says it will take about two years. He’s optimistic, because new construction has stopped and downtown Dallas remains attractive, especially with the new Arts District coming online and stoking enthusiasm.

"We’re in the healing process, but at least downtown Dallas has reached the point of critical mass," Wilson says. "A lot of people have decided they like the downtown lifestyle, and they don’t want to deal with long commutes. Condos are here to stay."

Others says it will be a five-year workout or longer, in part because the lending environment is much stricter. Government-backed loans won’t work for many Dallas condos, because they’re priced well above the federal maximum. Even on moderate-priced units, high vacancy rates or a lot of rental units can hurt appraisals and rule out FHA loans.

While Fort Worth’s condo market looks a lot like Dallas’ — with too much supply and too many properties selling for more than the median price — the supply is so much smaller that it seems manageable.

What many may not realize is that Dallas has become so much larger. It has about 50 percent more households citywide, but its downtown population has been surging.

In 1996, fewer than 200 lived downtown, according to the advocacy group Downtown Dallas. Today, the city counts more than 30,000 residents there, including those who live in the nearby Uptown and Victory Park areas.

Downtown Fort Worth has about 4,000 residents.

When people talk about the housing bubble, they’re usually referring to prices that soared and crashed — the pattern in Florida, California, Arizona and Nevada. Texas never had a great price spike, but there was a construction and transaction bubble, says James Gaines, an economist at the Texas A&M Real Estate Center.

"Everybody worries about over-building, but whenever they get a deal together, they go ahead and do it," Gaines says. "That’s the mentality of a free market."

Overkill is one of the natural consequences.


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