January 13, 2006

Freddie Mac economist address the 800 pound gorillia in the room - the expected flood of investor owned condos


I was driving down the road today, looking at all the for sale signs and new condo construction in Phoenix. And I thought to myself - what happens if there are NO buyers. I mean none.

Game it out - assume not one single buyer is to be found for all of these investor-owned condos and homes (especially here in AZ).

How does that look? How does it play out?

The big boys are starting to think about this. And they're scared. Really scared. Either because they don't know the answer, or because they do.

Here's an article fromn the economist roundtable at the International Builders show. Must have been an interesting meeting...

But danger does lurk, especially in Palm Beach County, which has a large number of investors who bought condominiums for speculative purposes, Freddie Mac economist Frank Nothaft said.

All three economists warned that investors are pulling out of the housing market and that most of them bought condos. The full extent of their involvement in the condo market isn't known yet, they said, because most investors paid cash.

Some experts have said investors hoping to sell at higher prices have bought as many as 50 percent of all new condos in Palm Beach County. In Miami-Dade, as many as 70 percent to 80 percent are investor-owned, experts say.

If thousands of investor-owned condos flood the local market, prices will drop dramatically, the economists said Wednesday.

"The big risk is: How many investor-owned units are there?" Seiders said. "How many hidden units will come back into the market?"

43 comments:

xSparta said...

I don't recall what year this was.

I was traveling along the beach areas of the West coast of Florida. There were empty high rise condos on the water abondoned by their builders. No buyers I thought? I also made a mental note, that builders or investors who bought now and could hold on could make a fortune......Fast forward to today.........Condos sold back then 2BR-2BTH on the Gulf for $55K and had no buyers! These same units sold last year for $550K.......Could this happen again? Good chance it will.

Robert Coté said...

What's going to really kill these condos is insurance and management fees. No one is going to figure out how to "run" these buildings on a reduced budget and insurance already up 40% in places from the 2004 season is likely to see another 40% when the 2005 liabilities are included next year. Municipalities are also out of control as to costs and spending. What I'm getting at is giving away condo for free won't even work if fees are $300/mo, taxes are $300/mo and insurance is $200/mo.

keith said...

xsparta - same experience here, when I was a kid. So about 1980. We vacationed as a family in the panhandle of Florida. and I heard many tales of empth condos, people who had lost 50% on their condos, the big condo bust.

didn't make sense to me back then. How could such a beautiful, desireable area be full of condos that nobody wanted, that had essentially lost their value?

It makes sense to me now.

Robert - what happens to condo HOA's when the investors who bought units (and walk away) don't pay their HOA fees?

Some of these places you're looking at $500 - $1000 per month HOA

Excessively Diverted said...

Maybe the builders should be given a tax break so they can convert the condos into shelters in order to house all of the families that will be left homeless when their ARM and interest only loans adjust. They can be luxurious 'Hoovervilles'.

I live in the Florida panhandle and I'm shocked at the number of condo towers going up between Panama City and Pensacola. Our realtor tells us that there is a huge glut of existing condos on the market here. More than a 200% increase since this time last year and no one is buying. First, after all the hurricanes in the last 18 months, it is impossible to get homeowner's insurance. The condos around here were some of the most damaged properties. Second, there is no industry here so if you want to move here and live in the condo full time, where do you work? The only things that pass for industry around here are meth labs, retail, tourism (which is seasonal), and either the Navy or the Air Force. Other than that, it is a redneck no man's land with gorgeous beaches.

foxwoodlief said...

You say most investors paid cash? Well, I guess they are the losers in a price meltdown and they can choose to take the loss (and pay the price for poor investment choices and greed) or rent which might prove a very poor return on their $500,000 plus investment. I personally doubt most of these guys really laid 100% cash on the table with their leverage options.

Oh, and if I could buy a luxery beach apartment for $100,000 I'd probaly buy one...but of course it wouldn't be some 500 sq ft efficiency! Say 1800 sq ft?

Anonymous said...

Aventura (recently renamed this phony name from Scottsdale Cove Apartments from a phony flipping company, Montecito Investments) in Scottsdale, AZ is a perfect example of out of control greed. The one BR's used to rent for $610/month which included washer and dryer, fireplace, carport, tennis court, 3 pools, etc. Now, investors are spending $1400/month just to keep the property out of foreclosure and the lowest they'll go in rent is $950/month! Can you imagine what I told them they could do with their financial albatross? They can barely flip it to get $5,000 profit if they can even sell! The number of open house signs up and down 92nd Street (1/4 mile distance from Shea Blvd. north) has gone from zero to about 15! Most of these greedy bastards want much more, so they won't sell. Good luck to them and their negative cash flow. As the market unwinds in the next two years, I will love to see the albatross strangle them very slowly and painfully.

Wes D said...

I'm on the west coast of Florida. Check out this site here: http://www.emediawire.com/releases/2005/4/emw227950.htm

That is an apartment complex formerly called Pelican Landings. It was built in 1984 and was the shittiest complex in the "exclusive Feather Sound area". 1-bedroom apartments were renting for $600 and 2-bedroom units commanded $800. The sample payment on a 2-bedroom "condo" is $1400/month. Oh lets' not forget they were throwing in a initiation fees on the Tierra Verde boat club, a "short drive" away from the community. Not sure how they define short - it's a 1/2 hour drive without any traffic taking the highway and toll Bayway. Taking the local roads it's 45-60 minutes.

If anyone's interested I could swing by there and get some pics - if I could post this in a message it would really expose the local market here for the fraud it is.

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