Flipping Condos – Are all of the speculators in trouble?

There are quite a few brand new shiny condo developments in my neighborhood. All over town, actually. They’ve gone up in good neighborhoods and bad neighborhoods. They’ve gone up in residential neighborhoods and downtown areas. I’ve seen flyers for condos that cost easily three or four times as much as a an average single family house a block away. Condos condos condos.

The whole time I was watching them go up, and seeing that the prices were (on average) considerably more than a single family home in the same neighborhood, I couldn’t help but wonder who was actually going to live in them. The developers don’t go through with a project unless they can sell a certain number of units ahead of time, so someone had already committed to purchasing a good share of them. But where were they all coming from? This astronomical increase in the amount of available housing units was not being matched by an astronomical increase in population (unless there’s been some sudden mass immigration of 30-something yuppies that I’m not aware of). No, these condos weren’t being bought (for the most part) by people who actually planned on living in them. With housing prices going up, up, up, with no end in sight, these condos were each individual 1000 square foot goldmines in the sky (with balconies, of course). A condo investor could buy it, hold onto it for a short amount of time, and then resell it for a huge profit, without having to lift a finger.

But then the market went flat, and everything went awry. Here’s an excerpt from an article I saw on bankrate.com today:

Elsewhere in our fair county, condo buyers are filing lawsuits to get out of their purchase contracts. Why? Because these buyers plunked down money before their units were built. They expected to flip the condo units for profit. But with a glutted market, they can’t unload their units for anything approaching what they agreed to pay. So they’re running to the courts and asking the government to release them from the contracts they signed.

Poor babies.

The condo’s developer, Brian Street, puts it best: “We entered into a compact and I relied on it. If I had failed to meet my obligation, I doubt anyone would have been forgiving.”


[The entire article is available here. ]

What worries me, though, with this whole condo explosion, is what all of this will do to the rental market. A huge number of these investors will no doubt continue to hold onto their condos and rent them out — adding many new rental units to the local market increases the rental vacancy rate, and then lowers the average price of a rental (and the average time it takes to rent a unit). I’m hoping, though, that with “the new urbanism,” many of these condos will actually be sold (perhaps not at such a killer markup as was originally expected) to aging baby boomers who have grown tired of cutting their grass in the suburbs, and things will even out.

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