Orlando Condo Deals Continue

A National Association of Home Builders quarterly index that measures builder and developer confidence in the condo market dropped 11 points in the final quarter of 2007 compared to the same quarter in the previous year.

The Multifamily Condo Market Index, based on a survey of builders, stood at 18.8 in the fourth quarter on a scale of zero to 100. A score below 50 indicates more negative responses than positive responses.

Sheep racingSounds bad right? It is – if you’re a builder. But if you’re in the market to buy it looks pretty good – because about two-thirds of builders reported that they lowered condo prices to strengthen sales, with an average price reduction of 11 percent.

When asked about other marketing strategies, about 70 percent of respondents reported that they included optional items at no costs, paid closing costs or fees, or absorbed financial points for buyers as incentives.

We’ve touched on this before but we’re interested in your take on this. Why do buyers love to buy when prices are high and the only place to go is down — yet when prices are good they get cold feet? We all know that the way to wealth is to buy low and sell high – so why do so many insist on doing it backwards? Buyers love to buy during the frenzy (and overpay), then a year or two later when the inevitable happens they race like sheep to the slaughter house to sell again only to take a hit. There were some interesting comments from readers after we did the Time Magazine blog below — and it might be interesting to share the psychology of this mindset further. Do we all just feel safer when we’re doing what everyone else is doing?

3 Comments

  1. A couple things come to mind — first would be an element of behavioral economics — Google is a popularly traded stock, but if your an educated traded, it’s likely that you see it as a piss poor investment (its impossible for it to keep its growth rate indefinitely. At this point, its driven by speculation/castle-in-the-sky not firm foundation).

    The next thing that comes to mind is that buyers do not see prices as being low. They’re lower, but not low. Take Solaire, for example. At $320k for a 2br (which is what their latest email was to me this morning, and I bet you anything its the one that backs up to the elevator), you’re looking at $2126.24 a month including approx. condo fee ($550ish, and total is without taxes, I just don’t remember what they are). Its only getting worse as the 30 year moves upwards. You can easily find 2br rentals for 1500-1800 downtown — and thats before the other buildings going up start watering things down. As an investment goes, it’s just not there yet.

    If you take a reasonable % growth rate, say, 5 or 6% yearly return (some may even say 2-3%, but lets be generous), and go backwards to when all this nonsense started — we are so off the trend it’s not even funny. I doubt we’ll fall back in line with where “we should be”, but I think it’s very likely that we inflate our way to an approximate real value equivalent. Either way, as a buyer, your purchasing power evaporates.

    My advice to friends (and the one that my fiance and I are following ourselves) is to buy a long term home if anything. Typically, that rules out condo living almost immediately. Orlando doesn’t have many “dinks” (dual income, no kids).

  2. “Why do buyers love to buy when prices are high and the only place to go is down ?”

    Maybe because they let themselves get talked into the notion that real estate never loses value, despite a number of boom/bust cycles over the decades (though none quite as severe as this decade).

    ” yet when prices are good they get cold feet? ”

    Well, that’s assuming today’s prices are “good” (by historical standards) or if they still have a ways to fall before they are “good”. And now I’m starting to hear about worthy buyers (with down payments and decent credit) who can’t get a loan. This explains what I’m getting at:

    http://money.cnn.com/2008/03/13/news/economy/conformingloans/index.htm?postversion=2008031308

    So “cold feet” may not be the whole story about why condo/townhomes aren’t moving — despite the unbelievably low prices of some short-sales and pre-foreclosures. Meanwhile, I see non-distressed listings in the same condo/townhome developments that are asking laughable sums. If I were in the market, my “cold feet” would be waiting for the distressed sales to work their way out of the system, then get serious about looking.

    “Do we all just feel safer when we’re doing what everyone else is doing?”

    Four to six years ago, I would have said that, yeah, I feel safer following the herd. Now I listen to my gut. I moved to Orlando in the fall of 2005 from San Diego, where I had a condo to sell, which I listed the very week when (in hindsight) the market started to unravel. It took a then-unheard-of 90 days to sell. Came to Orlando and saw that there wasn’t a house/condo I liked, at a price I could afford, in a neighborhood I wanted to live in. Even with the price drops over the last year or so, I still can’t say anything in this entire MSA meets those three criteria. (And I surf the MLS and craigslist regularly). So I’m listening to my gut (heart, whatever), and holding onto my money, and staying in my imperfect-but-affordable rental.

  3. “Why do buyers love to buy when prices are high and the only place to go is down yet when prices are good they get cold feet?”

    It’s simply because prices on Orlando condos and townhomes STILL have much further to fall to be considered reasonably priced and within the purchasing range of the median income earner in Orlando.

    Take this Tradewinds Condo for instance. I’ve lived in the Metrowest area since 1995. Tradewinds is an older apartment conversion…it’s been here longer than I’ve lived in Orlando. As a rental community, it was the cheapest complex in Metrowest and as such, had the sleeziest renters in the area and the poorest maintenance and upkeep of that property. A few years ago (before the condo conversion), about 1/2 of the exterior wood siding on Tradewinds had to be replaced because of rotting wood and termite damage. Remember Tradewinds was built to be an apartment community…very cheaply constructed, wood-framed, single pane windows, minimal sound proofing and insulation, and old inefficient HVAC and water heaters. While the complex has been cosmetically improved, it’s still an old apartment community and older buildings will have continuous maintenance issues that the condominium association will have to fix (and those costs are passed along to the owners through condo assessments). You don’t get any garage space and with 1/2 the units only being small 1 bedroom units, those units will almost always end up being sold to investors and occupied by renters.

    In early 2003, the Pulte Stonebridge Lakes townhomes in Metrowest were priced at less than $100/sq foot and that was a brand new, luxury gated townhome community with attached garages.

    Older condo conversion properties like Tradewinds are not a good value unless they’re price in the $60Ks for 1/1 units and the low $80Ks for the 2/2 units.

    Once pricing per square foot comes down to a reasonable price for a decent property in a decent location, the units will sell.

Leave a Reply

Your email address will not be published. Required fields are marked *