As Sales Weaken and Prices Rise, Developers Shelving Condo Projects Across U.S.
In Philadelphia, Pa., a city strewn with condominium construction, Old City 205 (named for the city’s area code) aspired to be an ultramodern residence for the well-to-do.
Too bad no one will be moving in.
The $40 million project in Philadelphia’s Old City neighborhood won’t break ground as the softening housing market continues to weaken and suddenly picky buyers balked at its price tags — $400,000 for a studio to over $2 million for a three-bedroom penthouse.
Brown Hill Development, the company behind the project, took note of the slowing market trends and decided it didn’t want to be left with unsold units. From coast to coast, developers are nixing or delaying condominium projects as home sales decelerate, construction costs are soaring and mortgage lenders are hesitant to finance units that might not sell.
Add in too many high-priced condos on the market and too few people who can pay for them, and you have a major affordability problem and a recipe for disaster.
“We’ve gone through the biggest real estate boom in the last eight or nine years and some of these projects haven’t started yet. Do you think they’re going to start building now?” said real estate exec Allan Domb, who has been dubbed Philadelphia’s “condo king.”
In Las Vegas, projects canned include high-profile developments such as Aqua Blue, a $600 million, 825-unit luxury condotel resort, and a $3 billion, 4,400-unit project named the Las Ramblas resort. Related Las Vegas, one of the two developers for Las Ramblas, cited rising construction costs and slowing sales for the cancellation.
Turning our attention to the South Florida housing market, canceled condo developments include 1390 Brickell Bay and ICE in Miami, Fort Lauderdale’s The Waves Las Olas, and Promenade in Palm Beach County. WCI Communities Inc., a builder based in Bonita Springs, Fla., said new orders for its high-rise condos fell 84 percent in the second quarter.
The company will now go forward with 3-5 condo projects in 2006, down from as many as 15-17, mostly in Florida.
In May, the volume of condo conversions plunged to $334 million from $1.65 billion a year ago, according to Torto Wheaton Research. The all-time high was $4 billion, which the market saw last September. Builder confidence, as measured by the National Association of Home Builders, has fallen in June to its lowest level since April 1995. Confidence took a hit due to rising Florida home loan costs, high home prices and speculators bailing.
The index surveyed builders of single-family homes, where the sales decline hasn’t been as severe as for condos or multi-family homes.
Jack McCabe, CEO of McCabe Research and Consulting in Deerfield Beach, Fla., said desperate developers with finished condos are offering plenty of incentives in South Florida. Offers range from one year’s free mortgage payments to the use of a yacht or upgraded kitchen packages. McCabe thinks some might even sell units at cost if sales continue to weaken and inventory needs to be moved badly enough.
The condo market, especially the luxury end, is at risk of a crash, McCabe said. Over the next few years, prices falling by double-digit percentages might not be far-fetched. The luxury condo surplus is to blame, as about 25,000 condos are under construction in Miami-Dade County, with two-thirds costing $700,000 or higher. Another 25,000 units have building permits and 50,000 have been announced for future construction.
The median household income in Miami-Dade qualifies buyers for a $225,000 home, so the luxury units are targeted mainly toward the affluent. At the same time, speculators have driven up prices by flipping units, but are now leaving the market, driving down demand and adding to the glut at the same time Florida home loans are getting increasingly hard to finance.
