Realtor Jim Abbott calls Downtown’s current change in home sales a ‘correction’ in contrast to the early 1990s slowdown, which he terms a ‘crash.’ Abbott organizes a regular Thursday morning gathering of real estate agents who specialize in Downtown properties. (photo/alandeckerphoto.com)

The Thursday morning regular gathering of real estate agents who specialize in Downtown properties always ends with a chance for the agents to spend 30 seconds at the microphone talking about open houses and special deals they’ve got coming. One morning, after several energetic and well-spoken agents talk about the properties they want to move quickly and the civic activities they seek support for, an agent steps to the microphone and mentions a hot property he has. The price has gone up, he says. The stunned silence is broken in seconds by gales of laughter, before the agent announces the new — reduced — price on the property. The days of owners expecting double-digit appreciation are gone, although it hasn’t dawned on everyone.

“People who want to sell have to be very aggressive in pricing, they have to look at the last comparable sale and price lower,” says Jim Abbott, of Abbott and Associates. “They should be pricing lower to begin with.”

Abbott, one of the organizers of the Thursday forum, has been selling Downtown homes since 1992, when buildings like CityFront and the Harbor Club (then One Harbor Drive) struggled to make the market and the Meridian was the only true luxury condo of consequence. He lived through the harsh market corrections of the early 1990s, triggered by the one-two punch of the loss of tens of thousands of jobs and elevated interest rates, that he says can be accurately described as a crash. It has given him unique perspective on what is happening now, and how it may play differently.

“In the early 1990s, it was a dire situation compared to now,” he says. “This feels like a correction and we’ll recover from it.”

With more than 700 condos on the resale market, and fewer than 70 selling each month, there’s no denying that the Downtown market has slowed considerably from its hectic pace of the past five years.

Has Downtown real estate gone to the dogs? Not exactly, says agent Tisha McMurry, here with Bella, her Cavalier King Charles spaniel. But with speculators selling and new developments continuing, ‘Demand will catch up with supply in a few years,’ she says. (photo/alandeckerphoto.com)

“In 2003 to 2005, you could not walk into a sales office and buy a condo,” says Tisha McMurry of Vertical Village Realty, who began selling Downtown homes in 1999. “Everyone was buying anything and everything they could. You went on a waiting list and if you were very lucky, you got a call back.”

The frenetic buying during the last six years, when more than 7,600 new condos opened their doors, drove prices up at a staggering, and some say unsustainable and unrealistic, pace.

“Three or four years ago I was telling clients to buy anything they could, and my colleagues and I were snapping up anything extra for ourselves,” McMurry said. “That means that nearly half of the inventory — officially, 30 percent to 50 percent — is speculators and if they haven’t flipped already, they were planning to.”

But the number of new condos coming to market will flatten soon as developers shelve, dump or delay planned and even approved buildings. Since June, at least a half dozen projects that would have yielded more than 1,000 new condominiums have stalled, say Centre City Development Council statistics.

Many of the 8,800 condos still planned in the next few years are spoken for, so the market will not suffer from a flood of empty new condos competing with the resale market, McMurry says.

“The existing projects will be eaten up by market demand, and demand will catch up with supply in the next few years.”

But McMurry isn’t optimistic about a quick return to appreciation. “I think that for the next 18 months we’ll continue to see this leveling off because of the number of speculators who need to sell,” McMurry says. “They’ve got 200-300 units on the market where they’re hoping to recover what they spent. With closing costs at 7 percent of the sales price, people who bought aren’t thrilled with what’s happening.”

Has the market matured?

Not exactly, say Russ Valone, of Marketpointe Realty Advisors. Certainly, the speculators are gone — or wish they were. Home buyers and investors are slowly picking up the slack.

“I make a distinction between speculators and investors,” Valone says. “Investors are second home buyers, people who are buying for the long-term future. Some want to move there as soon as the last carpet rat is out of the house, or they’re buying so they can keep their kids in the area, or as (IRS Tax Code) 1031 exchanges on other properties.”

Downtown is still a sound investment, just as long as buyers aren’t expecting “their God-given right to 23 percent annual appreciation,” Valone says. The resale market continues to show appreciation, and the value per square foot went up in 2006, he adds.

But sellers aren’t feeling very good about that little bit of appreciation.

‘If it’s priced more realistically, you’ll get more lookers and it will sell,’ advises Ethel Merriman, a Downtown real estate agent since 1999. (photo/alandeckerphoto.com)

“Sellers are still bowing to the 11th commandment: thou shalt not sell thy real estate for less than thy neighbor,” Valone says. “Sellers are being understandably stubborn about holding on to their value.”

The problem with that approach is that buyers won’t look twice — because they don’t have to, says Ethel Merriman, who’s been selling Downtown homes since 1999.

“You can’t price like it was six months ago and you can’t price it too high and expect you will drop it during negotiations,” she says. “Sellers don’t want to hear that but it’s not their market any more.” And, she says, what keeps buyers away — the fear of falling prices — is reinforced by sellers pricing too high.

“When sellers price too high and then drop their prices, it tells potential buyers that prices are still dropping and it makes them reticent to buy,” Merriman says. “If it’s priced realistically, you’ll get more lookers and it will sell.”

Merriman is still keen on the Downtown market, and says that prices will stabilize within a few years and begin a slow, steady climb — as they would in a mature market.

“Over the next five years, more and more people will want to look for a great place to retire and Downtown is one of the best,” she says. “This is a very healthy market in a very healthy economy.”

Dale Hotten, who runs the Hotten Group, has been writing loans for Downtown properties and refinancing Downtown residences for three years. While he’s seen a few sell for less than what owners paid, he is seeing more people coming to him to leverage their equity in property they already own so they can buy more Downtown property.

Lender Dale Hotten hasn’t grown cold on Downtown’s potential. ‘Downtown is a good investment,’ he says. (photo/alandeckerphoto.com)

“It’s a good use for the money because long term, Downtown is a good investment,” he says.

Downtown is definitely a niche market, says Jodi Detamore, who started selling Downtown in 2000.

“The demand is constant, and we know that buyers have been waiting and they will start to move soon,” Detamore says. “And if you can get a place for $50,000 less than people paid for it a year ago, that’s a great deal and it’s a good time to buy.”

For now, Detamore and partner Sandra Melville are advising people to hold on, if possible, to properties rather than sell.

“If they can hold on for at least two to three years, when we will have returned to strong appreciation, we’re telling them it’s better than selling,” Detamore says. “We’ve been up for a long time and it’s not going to happen the way it did in 2004 for Downtown owners.”

Caryl Iseman, who along with Abbott runs the Thursday morning session of agents at the Downtown Information Center, says that some unsold condominium units are becoming rentals. She worries about how that will play on homeowner associations and with lenders.

The most interesting twist, Realtors say, is that high-priced, high luxe units are moving very well.

“We just sold a couple of $3 million units this year where the buyer plans to combine them into one,” Detamore said. “There are more high-end buyers than low-end buyers in the market right now.”

Jim Abbott says he’s seen the high end continue to move as well. “There have been a lot of sales in the $4 million range,” he says. “And those will be even more valuable in five years.

What real estate agents point to is the appeal of living Downtown and the rising number of people who will want that lifestyle.

“Nothing has changed Downtown to change the reasons home buyers want to live there — the lock-and-leave lifestyle, the great restaurants and entertainment, the terrific access to the bay and freeways, the really active, interesting area,” Valone says. “Those things will keep Downtown homes desirable.”