We all know that the real estate market in general is causing anxiety for many. But how are condo owners and sellers faring in this market? Maybe even worse.
And it's all thanks to the developers. They're continuing to build and build, continuously adding to a condo market that many people think is already saturated. Consider these statistics for 2008 quoted by the Wall Street Journal: 4,000 new units coming in Atlanta, 4,000 in Phoenix, 10,000 in Fort Lauderdale, and 2,500 in San Diego.
The WSJ also reports that 2007 ended with about a 10 month supply of condos available across the country, and they say this is the highest level since 1999. So there's definitely a risk to all the players in the market, including the sellers and the banks. And even though many of the condos have buyers who paid deposits on units, some of those deposits were so low (only 3% of purchase price) that some fear the buyers will back out and forego their deposits because of decreasing condo values.
I live in Milwaukee, and feel that the condo market is saturated here too. Yet despite that, new units are consistently being sold, suggesting that I'm wrong and the market isn't really saturated. But as the developers keep building, those who currently own condos and want to sell them are suffering. Buyers can get a brand new unit in which they select all the finishes, for the same price or maybe even less than you're asking for your "used" unit.
My advice to condo buyers is to not purchase a unit with the idea of a quick in and out with a profit to be made. Because of market conditions, it makes sense to buy a condo only if you're looking to hold that property for several years. Buy something that will satisfy you for a while, because there's no guarantee you'll be able to get your money back on a unit in the next year or two.
Tracy L. Coenen, CPA, MBA, CFE performs fraud examinations and financial investigations for her company Sequence Inc. Forensic Accounting, and is the author of Essentials of Corporate Fraud.
Condo market questionable for the near future