Bad Market – Silver Lining

fistfull of moneyAccording to the NAHB, Builder confidence in the condominium market continued to erode in the third quarter of 2006. That wasn’t exactly news to the real estate industry. So why do developers continue to build condos in such large numbers? It’s a question I hear often in Orlando.

The issue is this: most condo communities are very substantial developments compared to a single-family homes, and they take a long time to plan and build. Developers cannot simply turn off the supply overnight once projects have begun – although we are now seeing a clear curtailment in building activity.

Now, if you’re a buyer, that’s a good thing. Because almost half of the respondents surveyed “49%” reported that they had reduced prices on their condo units in order to boost sales. The majority of these respondents had cut their sale prices by 5 percent to 7 percent. That translates to a pretty substantial discount in most cases. And that’s not including the incentives.
With prices adjusting and interest rates still low, we are seeing increased affordability on many of these units, says Seiders, Chief economist for the National Association of Home Builders. With supply starting to be constrained, the market will have a chance to improve.

Of course, this phase of over oversupply and great deals will only last until the next phase. And the next phase is a diminishing supply – with prices rising again. Seiders says he expects the real estate market to rebound in the next three to six months for most of the country, (provided the Federal Reserve doesn’t raise interest rates again).

Nobody knows if he’s right or not, but I’ll say this: if you’re in the market for a condo, you better hope he’s wrong. Because if the market rebounds, you might feel better about your investment, but I can guarantee that not only will condo prices increase, but you can wave goodbye to free HOA dues, free granite and stainless steel in the kitchen, waived developer fees, no closing costs, freebie mortgage payments, free garages, custom paint jobs, hardwood floor upgrades, and need I go on?

True, you can’t flip and retire in the current climate – but you gotta love those incentives. The truth is, bad seller markets produce great deals for buyers. That’s why it’s called a buyers market. So if you’re here to buy, quit whining and scoop up a bargain before the tide turns again. Because one thing’s for sure. It will. And with hindsight, you might find yourself wishing you’d bought when the prices were low.

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