Condo market is showing signs of cooling

In San Diego, another of the nation's hottest markets, there is no sign yet of any condo sales slowdown, said Ann Throckmorton, broker with Century 21 Award. So far this year condos in San Diego County have sold in an average of 44 days at 98 percent of their listing price —figures that are about the same as last year, she said.

The key factor to watch, according to industry executives, is a flood of supply that is coming onto the market as developers scramble to cash in on the condo boom.

Last year builders started construction on 120,000 multifamily housing units intended for sale as condominiums or co-op apartments, up from 87,000 in 2003. In the first half of this year the figure was 65,000, up nearly 40 percent from last year’s pace.

“There is still a lot of momentum in terms of starts,” said Michael Carliner, an economist for the National Association of Home Builders. “There are going to be a lot more (condo units) entering the market.”

At the same time thousands of apartment units are being snapped up by developers for conversion to condos, especially in hot-market states including California and Florida. About 300 apartment complexes with nearly 80,000 units have been purchased for conversion this year alone — more than in all of 2004, according to Real Capital Analytics, which tracks the trend.

“We have seen no evidence of a slowdown,” said Dan Fasulo, director of market analysis for the firm. But he said some clients “have started to take pause” because of the growing pipeline of condominiums entering the market.

“Especially in southern Florida, where there are a lot of units in the pipeline, it’s going to be interesting how the market accepts all this supply in the next couple of years,” he said.

If condo prices flatten out, investment interest could taper off in a hurry.

“If the inventory builds up, even at a reasonably brisk sales rate that may still lead to price weakness, and that starts changing the economics of the condo market,” said Mark Obrinsky, chief economist National Multi Housing Council.

While many people buy condos as an alternative to renting, others have been drawn to the market by the rapid price appreciation, and those buyers will disappear if condo prices go flat or decline.

“There is still a view out there that a condo isn’t just a place to live, it’s also an investment product,” said Obrinsky. “So long as people view condos as a good investment there will be people willing to pay a price that is awfully high compared with just a few years ago.

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