Speculators ‘Getting Killed’ With Condo Conversions
A look at condo conversions in Florida. ” It’s happening throughout the country, but South Florida is the top market for condo conversions, followed by Orlando, San Diego and Washington, D.C., said Jack McCabe. In Boynton Beach and west of the city, at least nine apartment complexes have converted to for-sale units since 2004.”
“Countywide, 6,471 units went condo in 2005, compared with just 831 units in 2001, McCabe said. And in the first two months of 2006, a staggering 5,802 new conversion condos hit the Palm Beach County market. What does this mean in a cooling market that real estate experts say now favors buyers instead of sellers? ‘We are going to see things get very competitive this year in condo conversions,’ McCabe said.”
“The market turn already is visible in Boynton Beach. Look, for example, at Orchid Lakes. The 319-unit complex began converting to condos in December and as recently as last month had folks out on street corners waving ‘no closing costs’ signs.”
“But last week, the complex, which touted Orchid Lakes in color newspaper inserts, abruptly abandoned the conversion and began renting its units once again. Orchid Lakes’ owner could not be reached for comment, but a leasing agent who answered the phone confirmed that the development is ‘not converting anymore.’”
And from The Voice of San Diego. “Like downtown, University City has been experiencing a real estate boom that has largely centered on condominiums. But unlike downtown, University City’s boom has been primarily driven by the conversion of existing apartments into for-sale condos.”
“In the last few years, as those condo conversions have flooded onto the market in University City, however, prices have stagnated there, leading some Realtors and home owners to worry about the future of their neighborhood’s real estate prices. (Realtor) Sherry Sangan said the past couple of years have been tough for sellers in all but the best University City condo projects.”
“‘I have buyers who bought two years ago over in Lucera (a condo conversion project) that are getting less right now to sell it than they paid, and that doesn’t include our commissions,’ said Sangan. ‘They’re getting killed,’ she added.”
“Data compiled from Dataquick and ZIP Realty shows that condo prices have completely stagnated since late 2003. Indeed, the median price of condos sold in January 2006 was $45,000 less than it was in January 2004.”
“At the same time, condo sales have also been drying up in University City. In 2005, there were fewer sales in every single month of the year compared to 2004. Sales in 2005 were down 23 percent from 2004.”
“(Realtor) Adam Rappoport, who has a number of clients in University City, said he’s heard a few horror stories from condo owners in the area. Though his clients preferred that their story not be told directly, Rappoport said he knows of a number of people who bought their condo or condo conversion within the last three years and have since run into trouble on their loan repayments.”
“Buyers were simply expecting prices to carry on increasing, Rappoport said; when the market stagnated, they have found themselves unable to re-finance and therefore getting burned. ‘Because of the financing vehicle they took, now not only can they not sell it for what they hoped to get for it, but they’re probably a good $20,000 below the price that they bought it for, and they’re going to have to pay commissions and closing costs on top of that,’ Rappoport said.”
“Asked if sellers have done well in downtown’s younger cousin to the north, (Realtor) Mary Burger was cautiously optimistic ‘It depends upon how long they’ve owned the home. If they’ve owned it for 10 or 15 years, they’re doing quite well,’ she said.”
“And what if they’ve owned it for one or two years? ‘If they’re not absolutely pressed to sell, they still have a lot of opportunity there.’ That’s one way of putting it.”
Summary of todays’ posts:
“Killing Me Softly”
softly? softly you say? soft as in getting hit with a bat wrapped in a towel maybe.
sd condos for everyone!
Eh- maybe just wrapped in a t-shirt.
You got it, cereal.
I say: “San Diego condos for everyone!”
Also from the Voice:
‘For the last two weeks it looked like spring was in the air for downtown San Diego. For the first time in weeks, inventory levels of unsold condos in downtown San Diego dropped, undoubtedly resulting in a sigh of relief from downtown sellers and Realtors.
But this week the inventory has spiked again, according to Lew Breeze, a downtown Realtor who has been compiling statistics about the 92101 ZIP code for the last three years. Breeze’s Web site, http://www.92101.info lists all the condos currently for sale in the downtown ZIP code.’
The inventory level this week stands at 478 condos, up from 467 condos a week ago. Since last week, the median price of condos for sale has dropped from $645,000 to $636,250, its lowest level since September 2005.’
With downtown set to add some 11,000 condos in the next few years, rising inventory levels concern sellers hoping to offload their condos at a profit. Many experts have said that the high level of growth seen in downtown is unsustainable, and that many planned condo projects will not end up being built.’
Ben:
I have been watching Lew Breeze’s charts too. If you noticed, for the past 3 years the inventory goes down or stays flat from February through mid-May, and then it keeps shooting up till October; don’t know why. I think this coming mid-May will be significant for SD condos.
Hey boys and girls! It’s your old pal Bubbles the Clown! For today’s show I’ve written a song for all the Flippers out there. You know what a Flipper is don’t you? That’s right, they were waiters a couple of years ago that threw caution to the wind and bought more homes and condos than all of my ex-wives put together with my alimony checks. Which is why Bubbles has to work on this show so he doesn’t violate mean Mr. Judgie’s court order. You wouldn’t want to see Bubbles in jail would you kids? Good! Okay here we go…sing along!
“Flipagain’s Isle”
Just sit right back and you’ll hear a tale,
a tale that’ll make you sick.
It started back when everyone,
was buying homes to flip.
It started out okay you see,
the Flippers brave and sure.
Five condos they would buy one day,
their riches were assured, their riches were assured.
The market started getting rough,
they could not sell at cost.
If not for the folly of the greedy fools,
Their cash would not be lost, their cash would not be lost.
The price hit ground near the floor and yes,
they choked on their own bile.
With Flipagain, and the Lenders too,
The Realtors, and their lies.
The Groovy Cars, the Plasma Screens and the Get Rich Dreams,
Here on Flipagain’s Isle!
Did you enjoy that boys and girls? Yea! Would you like to visit Flipagain’s Isle someday? I wonder if they’ll make it off that island ok!
Allrighty kids, Bubbles has to go now and see Doctor Dan about his “procedure”! Can you say triple-bypass! Yikes!
See ya next time!
And remember: Bubbles the Clown is Fun! Housing bubbles are icky.
A rainman18production 2006
Ok, enough now, water was coming out of my nose, so funny I can’t take it …….. ( any final verses?)
LMAO Standing ovation till the realtor part funny nonetheless
Oh, my God! Better than fantastic….a copyright for that is in order.
Ya got major skillz Rainman.
BayQT~
That’s great!
this is the tale of our flippergang
they’re screwed for a long long time
trying to make the best of things
but it’s an uphill climb
NO PHONE, NO CASH NO PLASMA SCREEN
not a single luxury
like kids right out of med school
they’re broke as broke can be
so join us here each day my friend
you’re sure to get a smile
from legions of dumb fb’s
here on flipagains isle!
LOL that was pretty good too.
That was simply amazing!
Now THAT was a thing of beauty. I hope you don’t mind that I posted your epic tale on Craig’s List, with full credit of course.
Great piece Ben. A few firsts:
1. First time I’ve ever heard of condo conversion “unconverting”.
2. Article also proves that even those of us that have been following the numbers closely the last few years are not completely informed:
Data compiled from Dataquick and ZIP Realty shows that condo prices have completely stagnated since late 2003. Indeed, the median price of condos sold in January 2006 was $45,000 less than it was in January 2004.”
I would have never guessed condo prices peaked in early 2004. I think this proves that even the bubble watchers don’t know everything - no matter how informed we think we are. Speaking mainly about myself here…
FYI…those condo prices are wrong in San Diego. The peak wasn’t in late 2003. They were rising well into mid-late last year.
Thanks Mark - yes, I think maybe we have a mix-up in the year there.
I think I’ve wandered onto the wrong blog.
Does this have anything to do with ‘converted’ rice?
Realty.com shows 582 condos listed in the down town (92101) area.
TOO FUNNY!!!!!! I’m a loan officer with HOME 123, BIG PROBLEM FOR HOUSING TO COME, its inevitable, and these problems are caused by short term rates going up, do u want to know the last straw to break the camels hump (bubble)……answer: long term rates and that should do it which the yields on the 10 year are going up, which means long term rates are going up, great for a yield curve correction which will mean we will be in a recession soon, i bet the house on it (doh), not.
I”M laughing so hard I cant stand it
This one is close to my heart. I have lived in University City (92122) for 7 of my last 10 years. The last place I lived at (La Cima/Verano) got converted.
Any way, I just noticed that this conversion that I moved out from last year is again placing ads in UT soliciting renters. How cool is that
They have also dropped prices and are now offering a free year of HOA fees. Good luck to them in getting that homeowner’s association up, running, and self sufficient. The sister property to Verano just up the street is similarly dropping prices and doing a $5K moves you in offer. My, my… how the tune has changed. I wonder how all the current owners like that sinking equity feeling as the prices keep going downward?
Have you seen their 1 hour ads on cable TV? (Nice looking people, lot of skin around the pool)
I have only heard about the ads.
Having seen the reality of the skin that actually hangs around the pools of those two places, most of it is not worth looking at. Small herds of children screeching and splashing can hardly be a sexy selling point. I’m trying to imagine what they could possibly have to rave about concerning these places for an hour.
Not sure I understand how conversions can change back to renting unless there was a clause in the contracts. What a mess. I don’t recall seeing any apt to condo conversions reverting back to apartments in the 1988 - 1998 crash. Anybody no of any cases? My guess is that we’ll see lots of firsts with this bust.
This is priceless. Some poor guy, crying in his beer, and blaming the media for the housing bust.
http://www.sun-sentinel.com/news/opinion/letters/sfl-pbmail725mar07,0,1259332.story?coll=sfla-news-letters
Where was his complaint when the FL real estate was ramping up at 15 to 20% annually? I wonder how far underwater he is right now.
I guess this guy didn’t think his letter might get printed - therefore, confirming to anyone that didn’t already know, that Florida RE is in a slump.
Thanks a lot pal for pointing this out in your letter- now, how am I going to sell my condo conversion?
Hi RudeKarl,
That IS funny. The reader’s letter almost did more damage than the original article.
Good point. The paper printed hundreds or articles on the rise. Sword cuts both ways.
let’s send him a box of chocolates.
He is what is known as a “bitter owner”
LOL. Great term. We’ll see many more of those.
I don’t know if it was just chance, but when I went to the link the ad. that accompanied it was from careerbuilder.com, and showed a chimp in shirt, tie and braces with the tag line “Only zookeepers work with monkeys”.
How unbelievably appropriate :lol:.
Interesting change I’m seeing in my local area (Loomis, CA — Northeast of Sacramento), is the closing of real estate offices. A few months ago the C21 office on the corner of Horseshoe Bar Road and I-80 closed. Then just last week the ERA office just down the street appears to have folded (see http://tinyurl.com/p55fm ). I tried their phone number during regular business hours and no one answered.
I’m thinking we are going to see tough times for real estate offices with a lot of them disappearing. What will take their place? I suspect possible replacements will be credit counseling services or soup kitchens.
Cendant is the parent company/franchisers for those real estate brands. In their last earnings report, they alluded to consolidating offices, FYI…
http://biz.yahoo.com/prnews/060213/nym258.html?.v=9
Real Estate Services - As a result of recent moderation in the residential real estate market, particularly in some of the markets where NRT is more heavily concentrated, the Company expects EBITDA comparisons (before separation costs) to be negative in first quarter 2006 versus first quarter 2005. The impact on Cendant’s prior first quarter 2006 EPS projection is approximately $0.03 - $0.05. The Company is taking actions to reduce costs at NRT, including consolidating offices, which should benefit results beginning in the second half of 2006. In addition, our open contracts have trended up in recent weeks, which normally indicates that home sales should improve in the next few quarters. During January 2006, average homesale prices increased in the high single digit range, year-over-year, in our franchise and brokerage businesses, continuing the national trend of uninterrupted annual price increases that, according to government statistics, has existed since at least 1950. As a result, the Company currently estimates that Real Estate Services’ revenue will increase and EBITDA (before separation costs) will be about unchanged for full year 2006 versus 2005.
Does anybody know the link to the pdf file that illustrated the last housing cycle in LA through color maps? I downloaded it, but can’t seem to find it.
Thanks in advance
Here you go.
“‘Has The Fire Burned Out? The Return to a Normal Market
Southern California: An Example Case
A Mathematical Study of Real Estate Trends’
Christopher Cagan, PhD, Director of Research and Analytics, First American Real Estate Solutions
October 27, 2004″
I wish somebody would study the SF Bay market like this.
The “heat maps” of the LA Basin showing home prices changes from the late 80’s to the recent past are just plain incredible.
I bet Mr. Cagan’s wishes he could re-title his work above by adding a question mark after the word “Market.”
NOTE: ***pdf file***
http://www.firstamres.com/pdf/Cagan_FireBurn_1104.pdf
Or:
http://tinyurl.com/cs2wh
Despite all of this great analysis, it seems that Cagan has never heard of ‘reversion to the mean’. Namely, that these extraordinarily high home prices cannot be sustained with the wages being paid in Southern California.
Sometimes even the best statisticians/scientists can see the forest for the tree.
always proof your copy.
”….can’t see the forest for the tree…”
lmg -
I messed up, too: “Mr. Cagan’s wishes…” is the wrong tense.
Also, I think Cagan chose not to tell it exactly how he saw it then. He was only making an estimate for 2005 and trying to keep the home buying vibe in SoCal positive. Even if he was thinking it, he couldn’t say, “my God, look at these historical figures and maps; what do they say? They say get the hell out and sell your house now!”
And probably for two reasons:
1) He didn’t want to alarm anyone.
2) He’s probably been thinking, “when the heck is this bubble going to burst - it’s gone x years longer than I thought.”
If you can read the maps and keys, you can see what he’s saying without him point blank saying it.
Last time (2 weeks ago) when I went to S. Fla. I saw numerous ads/infomercials on TV about how to get rich quick in RE, and how easy it is. One of them even showed a 14 year old boy who had gotton rich in RE, and was boasting about it. Last time I checked the law, you had to be 18 to get into a legal contract. The worst part is that people in S. FL. are still falling for this.
Titanic sank lower and lower at the bow, and stern began to rise out of the water, but the band continued to play…
During the tech bubble Greenspan publicly claimed one couldn’t know if we were in a bubble until after the fact yet privately Fed governors worried about a downturn in the stock market according to Fed minutes from Dec. 1999:
“While recent developments provided little basis for anticipating slower growth in consumer spending, members commented that such spending could be vulnerable to adverse developments in the stock market and the attendant effects on consumer wealth and confidence; and spending for household durables could be damped by the anticipated softness in housing activity.”
http://www.federalreserve.gov/FOMC/minutes/19991221.htm
invest3,
Thanks for posting that. If one reads way into the meeting, AG also points out that rents were out of whack with prices; in 1999!
That was the subject of a post for my original HB blog in the spring of 2005.
Ben,
My pleasure. These guys speaketh with forked tongue.
Ben,
The one true( and very scary) point made in that article is that there are very few rental developments in the Boynton Beach,Delray, and Boca Raton areas. The occupancy rates are well over 90%. If you call arounf the specials that they used to run of 1 month free, etc. are gone. The apartment complexes are saavy and know that most people are priced out of a home and that rentals are cheap compared to homes. For people making less than 75,000 it is very tough to find any place to live that does not require you to own a gun, a baseball bat, mace, pepper spray, and forget about sending your kids to the public schools.
If you want to feel better, go through the tax rolls for houses of the type or neighborhood you’d like to rent. Make a note of all the homes that are owned by people with a different mailing address. Most of those likely are second or investor homes. Drive by a number of them in the evening, noting particularly those that appeal to you. At this time of year in Florida, if the lights are out, the home probably is unoccupied. Go a second or thinr night, if you want to feel more assured. Write the owner and offer what you want to pay in rent, subject to your inspection of the place.
And it will only get better from here.
It gets better. Excerpts from the Dec. 2005 Fed minutes regarding housing:
“Meeting participants discussed tentative signs that activity was beginning to slow in the housing sector. Reports from contacts in many parts of the country suggested somewhat less ebullient market conditions, and measures of confidence of homebuyers and builders had fallen back noticeably. A downshift in attitudes regarding the outlook for the housing sector could have significant market effects, in part by damping the demand for houses by investors and speculators. A slowing of house price increases, by restraining the expansion of consumption, and a moderation in the pace of new building were expected to reduce the growth of aggregate demand somewhat in coming quarters. To date, however, the national data on home prices, sales, and construction activity did not suggest a significant weakening in the sector.”
They know they blew a bubble and are trying to contain it:
“Committee members generally anticipated that policy would likely need to be firmed further going forward. In that process, the Committee would need to be mindful of the lags in the effect of policy firming on the economy. However, it would also have to take account of the effects of the sustained period of favorable financial conditions on asset prices and aggregate demand as well as the resulting possibility of further increases in resource utilization and pressures on prices. Views differed on how much further tightening might be required.”
http://www.federalreserve.gov/FOMC/minutes/20051213.htm
These jokers are too much!
I used to live in Boynton. I rented while my place was under construction. I looked at apartments at most of the places than went condo last year and there were very few that I wanted to rent much less would have wanted to buy at over inflated prices.
Buying an apartment converted to an apartment is a foolish idea under the best of circumstances. Most of these places ripped out old carpeting and slapped on a coat of beige paint before listing them for 350K or more.
SCOTT CITY, Mo. - Perhaps Rocky has a nose for real estate. The dog is credited with sealing a home sale in Missouri.
Jared and Whittnie Essner met Rocky while house-hunting in Scott City, Mo., and knew they’d found their home — and their new dog.
It turns out the seller couldn’t keep Rocky, so as part of the deal, the little guy went with the house.
The realtor says she’s never seen a contract like it: “Rocky was in black and white under personal property to stay.”
The former owner has visitation rights whenever he wants to see the pooch.
Now fast-forward to the FB distress sale of the future:
“It turned out the buyer, a onetime renter, demanded that the seller’s attactive 19-year-old daughter convey with the house. The sellers couldn’t afford to feed her anyway after the money they had to ante up at the closing. “We just had to go that extra mile to close the deal,” said the girl’s parents with a shrug.
The realtor said she’s seen lots of contracts like it. “Heck, I’m contracted to mow the lawn and feed the squirrels for the next five years, just to close this deal.”
The former parents have visitation rights, if they can scrape up enough cash for a bus ticket.
OT, but maybe worth its own post: Newsweek warns the sheople that it may be too late to get out of the housing market alive –
http://www.msnbc.msn.com/id/11661266/site/newsweek/
Correct me if I am wrong, but I thought everyone wanted to live in San Diego. Since this is the case, how can this happen?
And one more for good measure.
I say: “San Diego condos for everyone!”
buy one, get one free!
one last time for this week.
National Real Estate Investors’ Conference at BWI this week drew about 500 people, and many of them hopped on a bus to Baltimore for a tour of potentially lucrative investments
Historical Census of Housing Tables
Home Values
Even in the county’s toughest neighborhoods, we couldn’t find cheap housing
After a holiday slowdown, the Super Bowl each year marks the start of housing’s prime season.
Average US House Prices Measured In Ounces Of Gold Or Silver
Supply Hits High In Condo Craze
If you want to buy my house, you have to feed the squirrels.
In come the waves(from the economist)
Housing bubble’s burst could cost 1 million jobs and cause a recession, experts say
I, for one, really appreciate your repeated posting of these links. Oftentimes I just dont have enough time to look at something that looks interesting, and then after a couple of days I forgot where it was posted.
I wish Melody would follow your example.
High property taxes driving a new revolt
I read that article. People at this blog has been talking about it for over a year now. My brother had bought a piece of land 15 years ago in Charlotte County, FL, and has no plans to do anything with it. His annual taxes were about $75/yr. This year they bumped it up to over $320/yr. He can afford $320, but the fact remains that the taxes jumped up 300%!
OT, but just watched a stupid commercial from Century 21 that made me mad. Shows a (worried?) woman trying to convince her husband to buy the house she liked and the good schools there. Husband says the kids are too small. Woman says they will grow. Then a voice on speakerphone urges them and tells them “they can do it”. This is the Century 21 agent, presumably. Husband reluctantly agrees. Voice on speakerphone says she will get right to work.
So now its the good schools that your kids will want to go to 5 years from now. . This is actually a good reason to wait 5 years to buy a house.
LMAO,
I saw this also,
pissed me off too.
I saw it too and hated it. The cautious husband gives in to the whiny “I want a house now!” wife. It’s pathetic.
I also noticed it is airing repeatedly. A desperate ploy by Century 21 to reel in a few more ‘greater fools’ by manipulating their emotions.
I laughed when I read this
Read about What’s In, What’s Out
with Homebuyers in 2006.
“What’s Out:
The real estate bubble. It’s a correction with a soft decline in prices.”
I don’t recall seeing any apt to condo conversions reverting back to apartments in the 1988 - 1998 crash. Anybody no of any cases?
Yes, I do. Waaaaaaaaay back in the early 80’s after the first big wave of apt to condo conversions, in Socal everybody went nuts. Everything was being converted. If it had four walls and a floor it was now a condo. A large apt complex near me in Santa Monica turned condo…too late however and was soon back in the apt.biz. The lucky renters got all those condo upgrades that never were. It took them almost 10 years before they were condo worthy again.
Orlando condo-coversions don’t seem to be doing so hot. A lot of the 2-3 bedroom floor plans are selling for the same price as many new town home & even re-sale homes. Since June 05 prices in Orlando have been flat they went from 240,000 to 242,500 for the average cost of a home here.
There are probably thousands of condo-conversions on the market. Converters are buying anythign to convert. Some of the more run-down apartments off 436 and in the UCF area are being magically converted to “Luxury Condos”.
The ads in the paper are real funny, they state things like
- Buy 5 and get 15% off
- No HOA fees for 1-2 years
- No Closing costs
Or my personal favorite the “false adress” Where a condo-conversion located in near an upscale market like Winter Park or Windermere somehow is advertised as a “Winter Park Condo” but the adress at the bottom of the ad clearly states the property is located in Maitland or Orlando.
Also there are many projects that have been on sale over a year, they have billboards, news paper ads, radio ads every possible median. Some hotel conversions are even advertising on TV.
Also there are many condo-conversions where speculators bought in at the “ground floor” and are now trying to flip the properties in direct competition with the developers, unfortunately the developers are offering all kinds of goodies.
I agree that the flippers are going to eat the farm , but long term owner occupied people that bought at the lower rates are happy unless they find themselves in a situation that they have to sell in a down market . People who were going to sell their house and buy up just hold off until a better cycle or better rates . I think alot of houses on the market right now are flipper/investor houses . Over supply will be absorbed eventually ,(at the right price ) and we go into a flat market for dont know how long . Could go back to mid 2004 prices if rates are below 7.50 .
When you guys talk about the housing market declining by 50% you would have to have interest rates at 10 to 12% for that to happen in my humble opinion . Maybe some sectors are in for major correction but I have heard you guys say 80% correction in some areas on pricing and I just can’t see it . Maybe I’m blind ….. I got out of my house in mid 2005 because I needed to move to a smaller home and retire ….Im a baby-boomer . I paid the higher price for a smaller home in a retirement area because prices were nuts but got the 5.50 rate . You wont see me on the forclosure list because I put 50% down .
And that’s why you’re the “Housing Wizard”!
The Gilligan flipper songs are classic. An apt does not make a condo. Just waiting to watch this whole thing unfold. Are people seriously asking strangers to loan them money via the web? That has got to be too much. And all for $6000? That should be chump change to a home owner with a lot of equity. Oh, wait, they used it as an ATM and are now underwater. FL will be the next New Orleans, followed by Sacramento.
Wait until you get the condo conversion owners caught in the condo crappers try to sell time-shares in Condo’s in a attempt to try to get out of their mess . They will try this in the more travel designation areas like florida, Hawaii, Las Vegas .
To be fair , some flipper/investors were decent hardworking people who earned their profits by fixing up houses that needed it and improved neighborhoods , but , those flippers were gone by mid 2004 . When people started buying dumps at non-dump prices it screwed it up for the hard working flippers by trade .
The condo conversion market is loaded in Northern Virginia. For an example of one such conversion in Prince William County, click here
http://www.novabubble.blogspot.com