On December 28th, Michael Braga published a SHT article (http://www.heraldtribune.com/article/20091228/ARTICLE/912281016?tc=ar) on condominium sales. He was kind enough to call me for a quote. I always sound much smarter (to myself) when I’m talking with Michael than when I read my quotes. Apparently, those that read it online felt the same way based on some of the comments posted. There’s something about seeing what you said in writing that never sounds the way you intended. Mostly, I think, because the 30 minute conversation preceding or following the quote isn’t printed and obviously can’t be.
Originally, we had been discussing the financing of condos. Specifically about the affects of the following items on financing:
· short sales and foreclosures
· delinquent maintenance fees
· high percentages of tenant occupied units
· Buildings where the HOA was still under the control of the builder (there are various percentages of sales thresholds whereby the developer can and must pass control to the new owners).
We agreed that these factors had all combined to restrict financing, which contributed to the continued downward spiral of condo prices. I did say that I thought there might be some bright spots, though.
Condo prices have plunged much more so than single family home prices. When you look at the Case-Shiller indices, remember that condo prices are not included in the index. If they were, the condos on South Beach and Downtown Miami would probably cut the Dade County index another third. There is no statistical data on condo prices across Sarasota and Manatee counties (comparable to Case-Shiller) but just based unscientific observation, the average for west Bradenton has got to be 50%- 60% off the highest, pre-bust sale. That would mean that condos that sold for $250,000 during the boom are going for the $125,000 to $100,000 range.
Yet in some areas, the slide is even worse. Most of these worst performing communities are in either new construction or condo conversions (apartments or hotels that were converted to condominiums during the boom). Generally speaking they are the projects that came on line at the top of the market and were unable to sell out before the bust.
Not only have prices fallen more in these areas, but the sale price per square foot and, in many cases, the absolute sales price has fallen below the prices of 25-30 year old condos in West Bradenton. The only reason for this is the ownership and financing situation. The older West Bradenton condos are owned mostly by stable, retired people as primary residences and vacation homes with little or no financing while much of the new construction and condo conversions were bought on speculation with heavy financing. The original buyers in these poorly performing areas never intended to own the condo for as long as they have. Many of these owners are now facing foreclosure and, of course, not paying any maintenance fees. Adding to the woes of these communities is the fact that many of the developers, never sold a majority of the units. Many of the HOA’s are still under the control of the developer who is probably on shaky financial footing himself.
I don’t think that anybody believes that home prices, condos in particular, are going to increase broadly until the foreclosure mess is cleaned up and inventory starts to shrink. But I do believe that this pricing disparity is a sign that as soon as the mess does get cleaned up, these currently underperforming condos will get experience a jump in price over and above the market average. There is no reason that a new, modern condo in Lakewood Ranch should sell for less than a 26 year old condo in West Bradenton (adjusted for size and amenities).
It’s not location because the single family homes in the same areas work the other way. Single family homes in Lakewood Ranch sell for huge premiums to west Bradenton (30% per s.f. on average in 2009). But the condos in Greenbrook and the Village at Townpark sell for discounts to West Bradenton condos in the 20% range. The only reason I can see is weak ownership.
And when this does get cleaned up, the age spread will give today’s laggards another advantage. If five years from now, you want a condo less than 10 years old in Manatee County, today’s trouble spots will be the only choice. The next best alternative will be a 30 year old one somewhere else in the county.
I’ll give you all of the details in a subsequent post.
