Condo craze is headed for crash and burn
Mike ThomasCOMMENTARY November 29, 2005, Orlando Sentinel
Call it "condo-mania" uncontrolled condominium construction and high prices. It hit the Tampa Bay area in the early 1980s. The area is just beginning to recover from that condo glut . . . If you're shopping for a condo, the best deals are to be found in foreclosures or resales by investors.
This history lesson is from a 1987 story in the St. Petersburg Times.
I bring it up as I drive around Orlando, looking at the increasing number of "For Sale" signs in front yards, taking note of those that have had their "Price reduced.
"The number of homes on the market is at an eight-year high. We are shifting from a seller's market to a buyer's market. The speed at which this is happening is remarkable, given that interest rates remain low.
But despite all these warning signs about a slowdown in housing, downtown condo builders remain bullish.
We've got thousands of inquiries!
We can't build them fast enough!
The empty nesters all want to move downtown!
The young, single crowd wants to move downtown!
It all sounds good. But what is it that makes condos immune from market forces affecting the rest of the housing market? My guess is that as we saw during the dot-com bust, speculators hate to let go of a good thing.
And speculators remain active in the condo market.
Downtowns in neighboring St. Petersburg and Tampa have more than 50 condo projects planned. Even cities such as Sarasota and Jacksonville are planning for thousands of condos.
Miami-Dade has a staggering 70,000 units in the works.
Add to this the coastal condo craze and the condo-conversion craze.
Are there really enough empty nesters, second-home buyers and young professionals to go around in the next few years?
There is an army of speculators and investors who think so.
Buying Florida condos at "pre-construction" prices has become a national phenomenon. Try typing "preconstruction" and "condos" and "Florida" into an Internet search engine and see all the Web sites devoted to helping you get rich.
Condo-flipping is the new day-trading. History says that this creates an artificial demand and jacks up prices.
As inflated as the cost of traditional housing has become, at least that market has one toe dipped in the waters of Lake Reality. A much larger percentage of buyers plan to actually move into their purchase and stay awhile. Or they plan to put big bucks into restoration before flipping the property. This requires a commitment and more thoughtful analysis.
This is why you see the traditional housing market begin to cool while the frenzied condo market booms on. A lot of people who put down contracts on condos have no intention of ever making the first payment.
If that day comes because they can't flip the units, they're in big trouble. So are the developers and lenders.
The longer it takes for a correction to occur, the more painful it becomes. And we have been through painful condo corrections before.
"When I came here in 1975, they gave you a Cadillac if you would buy a condo in Pompano Beach," says economist Hank Fishkind.
If Orlando's market is out of whack, it will correct itself in the normal manner -- when growth and price adjustments produce enough buyers actually looking for a place to live.
