As Investors Move Inland, Condo Prices Surge

The condo craze in Florida shows no signs of slowing down … just changing locations.
After six months of unprecedented price increases for oceanfront condominums, the frenzy recently moved inland, bumping prices up as much as 50 percent in some cases during the last half of 2005. According to an analys of four condo projects - two inland and two oceanfront - there was a 60 percent jump for oceanfront units through June last year.

“I think that’s the greatest appreciation we’ll see for quite some time,” said Mark Vitner, senior economist at Wachovia in Charlotte, N.C.

Overall, the median price for condos in the market jumped 37 percent, based on numbers from the Multiple Listing Service. The oceanfront frenzy in the first six months made some flippers $100,000 richer in four or five months, according to the MLS.

A changing condominum market

As oceanfront prices peaked and then started to show depreciation around June, some investors switched to inland buying mid-year, pushing up prices away from the beach.

Two-bedroom condos at River Oaks, for example, a development west of the waterway off U.S. 501, sold for an average price of $99,688 in June. By December, they were selling for an average price of $152,300.

Economists and analysts say a couple of things were at play in the market:

1. Low inventory for oceanfront condos created hot demand, pushing prices up. Those prices got too high for some investors, so they switched to buying inland real estate.
2. Interest rates also increased, along with property taxes and insurance costs, causing some buyers not to be able to cover their mortgage payments with the vacation rental income.

This contributed to make inland condos, which had seen steady appreciation, a good option.

“Oceanfront reaches a certain level where it just makes the inland stuff more popular. You don’t have an endless supply of rich investors out there,” said Tom Maeser, president of the Fortune Academy of Real Estate.

The effect of rising prices

Renters who wanted to become homeowners could have purchased a two-bedroom condo in Sweetwater for $76,900 in January 2005. Now they’ll have to pay about $112,000.

With salaries not increasing at the same rate as real estate, affordable housing has become a serious problem.

“As we see more and more investors moving inland, we’re seeing a decrease in affordable housing,” Maeser said.

Condos used to provide more affordable options for workers, but now that a large portion of new construction is high-end, workers will be forced farther inland to live, he said.

Maeser doesn’t expect condos to appreciate at the rate seen in 2005. Oceanfront living will always be popular, especially for those seeking a Florida home loan. The boom may have ceased, however.