Condo Glut Forces Developers To Conduct Fire Sale Auctions

Interesting graphic depicting the original sales prices, opening bids and final sale prices for a recent condo auction in California (typical discount of 40% from the original asking price):

Graphic courtesy of the WSJ

The graphic comes from an article discussing how the condo glut is pushing developers to conduct fire sale auctions. In order to get an idea of how large the condo problem is in some cities refer to the passage below:

From the WSJ:

In the Miami area, where overbuilding has left the city, by some estimates with a 35-year supply of condos. Peter Zalewski of Condo Vultures Realty LLC compiled data showing that only 53% of the 20,000 Miami condos built since 2003 have been sold.

In other words, many developers built units to meet the inflated demand from speculators, over-spenders, a market flooded with cash from bad lending standards, etc, to such an extent that it may very well take a multi-decade time period for condo inventories in certain cities to normalize. Especially when you consider that there are still a significant number of condo projects that are coming online in the near future.

It’s a situation that’s good for buyers, bad for developers and bad for prices; it also suggests that some of the symptoms/pain from the current housing crisis may be with us for well into the next decade if not the one after that.

Sources:

The Wall St. Journal : “Condo-Minimum” — Jonathan Karp, September 10, 2008.

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