I have always considered the condominium market to be like the "canaries in the mineshaft". Miners used to take canaries with them into the mines. Being more susceptible to deadly gases, the canaries would keel over when gas was present and thus warned the miners to get out of the shaft as quickly as possible.
Condos seem to perform a similar role in the real estate market. When the housing market begins a downward slide, it seems that the condos are the first to go into a tailspin with sales falling. Since we have so many condos here in Florida it is a good indicator of this special part of the market. Yesterday, developer WCI Communities, Inc. released news that for the first part of 2007, 17% of its buyers had backed out of their purchase agreements. Furthermore, they expect that during the second half of the year 12% will follow suit.
Part of this problem, which is expected to continue into the future with other companies also suffering, is due to the fact that many people signed their purchase agreements back when the market was hot. Now that prices have fallen, buyers do not want to close on units that will be worth less than the money their contracts would obligate them to pay. This same thing happened to many single-family homes in my area. Investors snapped them up in early 2005 for around $260,000 before they were built. By the time the houses were completed, the market had started to tank, and they ended up with homes that were only worth $200,000. We have nearly an entire subdivision that is in that situation. The investors are taking a bath. So it is no wonder that many condo buyers are jumping ship before the same thing happens to them. It kind of surprises me that the percentage is only between 12% and 17%.
One wonders, if as prices fall, will buyers pop up to grab some bargains? We are seeing deep discounting in the single-family new home market here around Tampa. I will be amazed if the condo developers are not doing something similar or even more dramatic.
John Elwell - REALTOR
Bill Nye Realty, Inc.
Licensed in Florida