And not even in a recession yet…
“”It was the most splendid condo bubble ever, topped off with a mania, driven by the Fed’s interest-rate repression that included trillions of dollars of purchases of MBS, which pushed down mortgage rates below 3%, triggering wild and woolly speculation from FOMO buyers and breathless investors – thinking of short-term rentals, long-term rentals, leveraged capital gains forevermore, a second or third home in the sun, a combination, or whatever…
Price drops are spreading and steepening. In three of our 20 cities here, condo prices have already dropped by 20% or more from their peak through May. In two other cities, prices have dropped by 15% and 16%. The 20 cities are spread over 11 states, led by Florida, Texas, Arizona, California, and Colorado.””
A Condo Bust is unfolding.
Condo sales, which have been careening lower all year, dropped further in May to a seasonally adjusted annual rate of 360,000 condos, the lowest in the data going back through 2012, along with Lockdown May 2020. Sales were down by 38% from May 2019 and by over 50% from May 2021. Demand destruction on an epic scale, a result of prices having exploded in recent years far beyond what the market can bear (historical data from YCharts):
Supply of condos spiked to 6.7 months in May, the highest supply since the Housing Bust in July 2012 (historical data from YCharts):
Condos face all kinds of problems: They face too-high prices that exploded over the past few years. They face big special assessments for long-neglected structural repairs. They face dizzying increases in HOA fees. They face Fannie Mae’s ever-expanding Condo Blacklist that makes financing a unit in a listed building very difficult – and often it can only be sold to a cash buyer at a lower price. They face the threat that the condo building could end up on that Condo Blacklist. They face buyers that have to finance at mortgage rates that have returned into some sort of normal range. They face foreign-based owners who no longer want to live part-time in the US, such as Canadians, and are putting their condos on the market.
Long-term rental of condos has come under pressure from the flood of supply of new higher-end apartment developments that sprang up over the past few years. The vacation-rental boom over the past few years created a huge supply of vacation rentals, and demand for them may have peaked. For investors, condos are expensive to carry, and they can quickly become a money pit.
Credit Flow Investor 