i turn REALTY into REALiTY

Lynnwood Perception turns into REALiTY

Back in February, I wrote about shadow inventory, and how it can affect the overall market. You can read my post HERE. In that post, I referred to a condo complex in Lynnwood, WA where there were many units for sale. A few weeks ago, one of my investor clients purchase a unit in that same complex for a sales price of $142,000. In my previous post, I posed a hypothetical question about what would happen if the units in the complex began to sell for bargain basement prices. Based on my recent experience, I think the answer is evident.

Value Levels Drop

Reality has hit home to many owners in this complex. Where once the average sales price was in the $200k+ range, it is now officially in the $150k +/- range for a net equity loss of $50k for each of the homeowners. The complex, according to the property management company, is in danger of losing their FHA eligibility for financing. It looks like a downward spiral with no end in sight, but I’m optimistic that things are about to level off.

Out with the Old, In with the New

In many areas throughout the country, you see neighborhoods spiral into decline, only to be re-born again with new vitality injected by excited new homeowners. The neighborhood I grew up in is a perfect example of this. I was born in San Francisco, CA and lived in a cockroach infested apartment bordering the “projects”. I was bused to a more prominent area during the “desegregation” era. Fast forward 30 years, and my old neighborhood has been gentrified, and warehouses that once were in decline have been converted into lofts selling for more than $500k each. These lofts didn’t start at this price, as this was far into the re-birth, but it had to start somewhere. I’m sure my old neighborhood hit rock bottom when investors saw potential and swooped in.

While I don’t see any conversions happening in this Lynnwood condo complex, I see some similarities between the two with the influx of new homeowners who are excited at the prospects of a new beginning. These new homeowners will take pride in their new homes, be active participants in their HOA, and hopefully in a few years, the values will start to rise again.

What are your thoughts? Do you think I’m way off base? Drop me a comment…


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