As Supply Outpaces Demand In The South Florida Condo Market, Selling Prices Already Are Equilibrating

Category: Finance.

During the past six years, the scene in South Florida has transformed from low- rise structures to high- rise condominiums hundreds of feet high- South Florida condo market has been booming.

Now, the dramatic hype of condo development is on the verge of landing its way back to ground, as real estate analysts predict. But as the building heights rise, so did selling prices. The apparent upward inertia of the South Florida condo market has been thwarted by inevitable economic realities, making even the most headstrong condo developers of the region recoil. Values of newly- built condos could pretty much tumble by at least 30% by the time the market plummets. As supply outpaces demand in the South Florida condo market, selling prices already are equilibrating. As a result of unbridled overbuilding, lenders are wary of financing condo construction, thus compelling developers across South Florida to cancel, defer or overhaul their respective projects.

It will also have amenities such as a fitness center, and library, theater. In May 2005, T- Rex Capital of Connecticut announced that it would construct a luxury condominium, named Eighty Points West, which will provide views of the West Palm Beach waterfront and a marina for yachts up to 90 feet. However, none of that has started yet, and the company s president Cliff Preminger said that construction has been postponed to next spring. The figures exclude the thousands of units built in South Florida since the year 2000, when the housing boom initiated. Metrostudy, a consulting firm based in West Palm Beach, reported that as of June 30, nearly 52, 2006, 000 condo units in Miami- Dade, and Broward counties, Palm Beach were either still under construction or already done but still unoccupied. Roughly 104, 000 units are being planned for the coming years.

Analysts trace the condo problems to short- term investors, who bought condos at low pre- construction prices and waited as the units rise in value before having to close on the properties. Analysts doubt that most of these will ever be built. These investors" flipped" the properties to other buyers for hefty profits, essentially trading condos like shares of stock. For the case of downtown Miami, the epicenter of the condo construction shockwave, the development is fuelled by international money. This trend systematically induced demands to inflate, steering prices upward while driving developers to build more. Condos also sprung up in downtown West Palm Beach as buyers were enticed by the idea of living near CityPlace, the shopping and entertainment complex that opened in 200Fort Lauderdale, on the other hand, isn t as overbuilt because the city restrains further residential building downtown until an affordable housing law is passed. More than 11, 000 units remain vacant in South Florida, according to Metrostudy.

Overall, the insufficient number of long- term owners purchased condos combined with investors dumping properties for sale has created a surplus of properties across the South Florida condo market. Investors have been getting frantic as they have been advertising all sorts price slashes, plasma TVs and other perks to attract buyers. This starkly contrasts the situation before when some lenders had no pre- sale requirements. While some lenders have discontinued financing for condo construction, others who remain have tightened lending policies, such as insisting at least 60% pre- sales. Another striking blow to developers is the continually increasing costs of construction materials. Neither will the Courtyards at Flagler Village be constructed.

Due to this, several condo developers" have canceled projects, put land up, returned deposits for sale and are at risk of foreclosure. " For instance, the Waves Las Olas would not be built in downtown Fort Lauderdale. Several other projects have been put into cessation in South Florida. Only a few years ago, the condo conversion craze was really hot when developers were buying apartments and turning them into condos to satisfy the insatiable demand. Developers and investors are attempting to salvage anything from the condo slump by converting units back into apartments. Since the start of 2004, 800 condo, more than 1- converted units in Palm Beach County have been reconverted to apartments. Real estate experts concur that it will take at least two years for the South Florida condo market to bounce back, provided that consumers stop using condos for overnight investments and instead revert to home- buying philosophy of past generations. In Broward, 1, 088 condos have been transformed into apartments, while 672 condos in Miami- Dade have been switched back to apartments.

For Sale by Owner VS Foreclosure in Florida. Rampant real estate speculation, development and the sub- prime mortgage debacle are being blamed for the glut of homes for sale that has left the market upside down and many homeowners under water and facing the prospect of foreclosure. The state of Florida seems, on the surface at least, to be experiencing a real estate meltdown. With many Adjustable Rate Mortgages( ARM) due to reset at higher rates the fallout may not be over. Compounding the problem is the expected increases in condo fees to cover property losses not covered by insurers. Further manifesting the situation is the insurance premium increases coming down the pipe to cover the devastation and property loss/ claims associated with the last several hurricane seasons. The fallout has created a unique opportunity to re- visit real estate opportunities right across the state.

One is a rise in For Sale by Owner properties. There are a couple of by- products to this type of market. Homeowners are looking for any edge they can get when they are looking to get out from under a high equity mortgage or negative equity mortgages. They can expedite the sale of the property by passing on the real estate commission savings associated with a For Sale by Owner. A For Sale by Owner allows the homeowner more options when it comes to pricing. This can represent a substantial savings to the buyer and certainly make your property more attractive when you consider the real estate commission savings on a$ 280, 000 property is$ 16, 000! They can offer creative seller concessions like" no condo fees for a year" or" 0% financing for 3 years" .

The For Sale by Owner also has more latitude when it comes to making their home" appear" to be more attractive. Essentially instead of passing the savings directly to the buyer they create a" package" that may seem more appealing. Creativity can certainly perk someone s interest, but I tend to prefer a straight" cash" discount or rebate. I have personally seen everything from" Free Plasma TV s" to" Timeshares in Puerto Rico" . This allows the prospective homebuyer the opportunity to decide how they want to best use the monies. The 2nd by- product, unfortunately, is" Foreclosures" - which have been rapidly increasing in Florida since 200Industry experts blame this increase on" sub- prime mortgages" . Cash has a set face- value; $2000 always carries a" value" of$ 2000 regardless of the buyer, whereas a" timeshare in Puerto Rico" will have different values to different people.

Sub- prime mortgages are higher risk because they are made to borrowers that typically do not qualify under traditional more rigorous criteria because of limited or poor credit history. Sub- prime mortgages typically have a higher debt service- to- income ratio and the homeowner simply can t make ends meet. Sub- prime mortgage loans have a significantly higher failure rate then prime mortgages. The end result is more foreclosures and an increase in houses for sale- the fact that they are" distressed" and vacant further erodes the overall values of all homes. The bottom- line is there is an abnormally high number of existing homes currently listed for sale in Florida. As the inventory of unsold properties continues to grow, residential real estate prices decline. As supply outpaces demand, property values drop.

For Sale by Owner may allow the homeowner to bridge that drop in value and allow them to avoid foreclosure.