U.S. condominium market |
The dramatic real estate boom of
2004 through 2006 was due in large
part to the burgeoning condominium
market. A handful of states were at
the epicenter of this condo boom.
Florida, Nevada, Arizona and
California all experienced an
unprecedented number of new
condominium developments. In 2006,
of the top ten condominium
conversion markets in the United
States, 4 of the top 5 markets, and
7 of the top 10, are located in
Florida.
The U.S. condo market is in a
serious down-turn due to a “perfect
storm” of factors. The primary
contributing factor is rampant
overbuilding in the condo market.
This rampant overbuilding was due to
the desire of many developers and
purchasers to “flip” a property -
buying a property, fixing it up to
increase its market value and then
selling at a higher price. Other
influences included extremely
low-interest rates and lenient
lenders willing to make high-risk
loans.
The condo boom is now over, and many
developers and purchasers are left
to pick up the pieces. This is
especially true of those developers
and purchasers who invested at the
height of the market. Florida has
been especially hard hit by the
impact of the market down-turn.
According to HousingPredictor.com
which provides independent real
estate market forecasts for more
than 250 cities in all 50 U.S.
States second year in a row Miami
leads the list of Worst 25 Housing
Markets with the highest forecasted
deflation. The deflation goes well
beyond just the Miami market with
five of the 25 worst housing markets
in Florida.
The condo market bust has had a
ripple effect on the US economy that
goes far beyond just the developers
and purchasers of failed condo
projects. Deflation and the glutton
of unsold condominiums will impact
the housing market for years to come
as the inventory of unsold condos is
slowly sold off. Lenders, who were
seemingly oblivious to the risk of
loaning huge amounts of money to
developers and condo purchasers, now
face countless foreclosures. Perhaps
the biggest beneficiary of the
market boom, the construction
industry, is expected to experience
a dramatic decrease in jobs.
Developers, unable to sell unsold
units and unable to complete
condominium renovations, are facing
bankruptcy and a flood of
litigation. Unit owners, who now own
units that are worth far less than
the purchase price are unable to
sell their unit and can only rent
the unit at a negative cash flow.
Foreclosures are at an all
time-high. The number of
foreclosures is expected to continue
to rise in the near term as tens of
thousands of adjustable
rate-mortgages and interest only
loans face adjustments leading
mortgage payments to rise
dramatically.
The U.S. condo market is not likely
to get better anytime soon due to
the glut of unsold condominiums
still on the market. For example, in
Miami alone, over 37 new high-rise
condos and 20,000 new units are
being built in the downtown area.
This is in addition to the over
24,000 existing units currently for
sale in the Miami area.
The New York Times, “Buyers
Scarce, Many Condos Are For Rent”
The New York Times, "In
Florida, a Home Market Still in Flux”
The New York Times, “As
Condos Rise in South Florida,
Nervous Investors Try to Flee"
Bloomberg.com, “Miami
Condo Glut Pushes Florida’s Economy
to Brink of Recession”
National Real Estate Investor, “Vultures
Circle Condo Market”
The Real Estate Research
Corporation, “A
Case Study: The South Florida Condo
Market: The PerfectStorm" |
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