The waning of summer has brought on the end-of-season sales in Maryland's beach resort town. T-shirts, half price. Flip-flops, sun umbrellas and beach towels, all discounted. And in a sputtering housing market, Ocean City's real estate is in the mix, too.
The banners tell the story. They're hung across pastel-colored buildings along Coastal Highway, the main drag on the 10-mile strip of sand, and from the bay to the Boardwalk: No closing costs. 100 percent financing. 5.75 fixed. Reduced prices.
Many of these new projects got their start at the height of the housing market, when developers razed restaurants, hotels and stores to build condos. Units were selling sight unseen, and real estate values soared.
Now, several projects sit partially sold, hoping to lure buyers with reduced prices or incentives, to dazzle buyers with fitness clubs and swimming pools, and to seal the deal with tours of models full of granite, custom tile and whirlpool tubs.
At least one redevelopment into condos has been put on hold. Sellers of older condos watch months go by without a single offer. Condo units that are sold have been on the market, on average, for nearly a year. Buyers look for deals and wait it out.
"Unless it was already started and potentially couldn't have been stopped, there's no builder out there looking to build spec inventory and continue to flood the market," said Chris Jett, an agent with ReMax Premier Properties in Ocean City.
"As the market has slowed down, the inventory started to stack up, both resale and new," Jett said. "In the boom years, it wasn't uncommon for a building to sell out before it was completed. On the new side ... pre-sales have dried up, and people are content to wait until a building is finished."
The number of condos for sale in Ocean City had nearly doubled as of the end of July (the latest report available) to 1,667 from 843 listings at the height of the market in July 2005, according to the Coastal Association of Realtors (CAR). (In July 2006, when the market had already slowed, the number of listings was similar to this year, but sales a year ago were occurring more quickly.)
This month, 541 units were available in new condominium projects, according to Hanley Wood Market Intelligence, a Washington-based market research firm.
Still, developers continue building condos in more than half a dozen projects launched before the downturn, totaling about 700 more units under construction.
"Ocean City has a history that has always gone in cycles like this," said Jesse C. Houston, director of Ocean City's Department of Planning and Community Development. "A Realtor would say we do have an over-supply of units, but if the market is doing what it does in the next year or so, things will work themselves out, and we'll probably be back to where we were."
Vacation homes, a discretionary purchase, often feel the brunt of a down market more than primary residences, said Celia Chen, director of housing economics for Moody's Economy.com.
"There is a lot of uncertainty in the market, and so buyers are going to be cautious," Chen said. "They don't want to buy a second home that will fall in value."
And condos that did go to closing in July had been on the market for an average of 342 days, the Realtors association said. That contrasts with 194 days in July 2006. The number of sales fell nearly 11 percent, CAR reported.
The Realtor data for Ocean City don't differentiate between new units and resales. But Hanley Wood, which tracks new projects, reports for Worcester County (where the majority of sales would be in Ocean City) that sales of new condominiums fell 84 percent for the first half of the year, compared with the first half of 2006. And the average sales price of a new condo in Worcester, not including upgrades, was down nearly 18 percent for that six-month period, to $778,227.
And some builders continue to lower prices:
At South Beach Boardwalk, a new luxury building on the Boardwalk with a rooftop pool, three-bedroom, oceanfront units can be had for $1.2 million, reduced from $1.46 million, with no closing costs. The Bella Vista, which has sold 10 of 40 units so far, has shaved as much as $90,000 off the bayside condos that now start at $499,900.
At the nearly completed Rivendell, where 13 of the 88 units have sold since sales began in May 2006, developers have held pricing to its original range: $599,000 to $1.6 million. However, the developers began offering closing cost help this summer, said Jett, the ReMax agent selling the project, where the Hobbit Restaurant once stood at 81st Street and Coastal Highway.
Individual sellers, as well as developers, are struggling as the market has shifted to favoring buyers.
Eric Thompson, for one, never imagined it could take more than a year - and a reduction in price from $459,000 to $390,000 - to sell his two-bedroom condo in Heron Harbor, a bayside community with tennis courts. The condo, he said, was in good shape and had never been rented out. In 2005, he bought a move-up townhouse in the same community and put the condo on the market.
"At the time we bought the townhouse, the market was pretty hot, so we didn't think we would have a problem selling the condo," Thompson said. But then he started seeing more condos in the development go on the market - and sit. "The market was just dried up. I just had to wait it out."
He got his first offer this month. He took it.
His agent, Erik Windrow, who took over the listing after it had failed to sell, said he often has to take his seller clients out to comparison shop properties to persuade them to price their homes at the current market, not last year's.
Potential buyers might be more hesitant to make offers, but they are at least out shopping.
A recent morning found two couples huddled around saleswoman Joan Walter considering floor plans from a sales trailer parked outside the nearly completed Makai condominiums, a conversion of a Ramada Inn. Walter said she meets with about a half-dozen people a day.
Betty and Ron Howard of Annapolis stopped in after seeing the sign on Coastal Highway advertising luxury bay-view condos priced from $199,400 -well below July's average price of $509,581 for all Ocean City new and existing condos.
The Howards were shopping for a condo to use as vacation home and rental. Betty Howard, though, said she remained unconvinced about the potential rental income. Then again, "if you hang on to it until the market is better, you will make out when you resell. I think it's a great draw," she said of the low price.
The Makai's developers had owned the former Ramada for eight years before deciding early last year to convert to condos.
"The market was hot, and we thought it would be a good product," said Lee Kellar, director of operations, who said the developers could offer lower prices because they owned the building. "The market has slowed a lot since we started, but interest is there. For new construction, I don't think anything even comes close [in price]. It's going to sell itself."
At the other end of the price spectrum is the 16-story Gateway Grand Residences, expected to be the town's biggest and among its most opulent new condos, priced from just above $1 million to $3 million for a penthouse.
Since pre-construction sales begin in spring 2006, prices have increased twice. So far, at least 59 of the 196 units have sold, said Marie Karl, senior vice president of developer Trammell Crow Co.
"Ideally, we'd be sold out by the end of 2008," Karl said. "Is that optimistic? Yes, it is. It's a lot of units at a high price point. We have many people who want to move up from a previous property. That requires them to sell the property they have and to then close on ours."
Cliff Sutherland, a 52-year-old business owner from Morgantown, W.Va., signed a contract on a $1.4 million Gateway condo because, "It was a property I felt would be the address in Ocean City for many years to come. This property represents to me as a kid what I imagined having in luxury."
He plans to sell his condo at South Beach on the boardwalk.
"The market's going to be up and down, but there's no more ocean, and only one Boardwalk," Sutherland said. "Even if I were stuck for a little while, the market would come back strong, and I'd make out."