Top places to cash in on real estate deals
September 23, 2009 · Tagged with Real Estate
Across America, tall towers of unsold condos stand like monuments of another age. In many markets, sales activity has virtually stalled, with sellers enduring a sales drought that’s lasted longer than a year. That means lots of opportunity for buyers.
That’s the case in Lake Tahoe, Calif., home to two of our best places to cash in on the condo market. In Olympic Village, Calif., and Tahoe City, Calif., condos have been sitting on the market for an average of 461 and 413 days, respectively. Also feeling the pain are Fisher Island, Fla., Bal Harbour, Fla., and Key Biscayne, Fla., where buyers have a tremendous opportunity to get a cut-rate condo.
Condos offer a particularly attractive bargain because during the boom they were in demand and subsequently overbuilt by developers who overestimated market demand. According to the National Association of Home Builders, at the time the condos built in 2005 and 2006 came onto the market, they ballooned supply to 38 months in Seattle, 21 months in Minneapolis and 14 months in Boston. Six months of inventory is considered a healthy market; a 400% increase in condo construction between 1996 and 2007, according to NAHB, created massive backlog.
Behind The Numbers
To determine which areas offered the best deals, we used data from Altos Research, a Mountain View, Calif., real estate research firm. The slowest sales rates for condos, and therefore the biggest opportunities for deals, are in the luxury sector, which lies outside of the $729,000 conforming loan limits for Freddie Mac, Fannie Mae and the Federal Housing Authority. As a result, we looked at every condo market in the country where properties do not qualify for government-sponsored loans. Defining a market at the zip code level, there were 150 neighborhoods that Forbes evaluated. We excluded any market where there were fewer than 10 active listings. The markets that made our list were all in the top quartile.
During the boom, luxury condos were the most profitable to develop; construction is relatively quick and buyers were willing to pay top dollar for downtown or beachfront locations. Rampant condo building continued to occur after 2005, when even the rate of single-family home building had tapered off, according to the NAHB. With the glut of supply, and sales down by 3% over the past year, according to the National Association of Realtors (single-family sales are flat), developers are rapidly approaching a tough call: sell for larger discounts or hold on?