As Condo Market Slows in Bubble Regions, Properties are Reverting to Rentals
As parts of the country experience the end of a housing bubble and rentals in these regions are hard to find, the marketplace is doing its job by turning condos into rental units to fill the demand.
Property developers tend to be smart enough that if you see demand for purchase rising, the building will go condo. If as we are now and demand is weak, then the units will turn into rentals. If they are both weak, the builder is screwed.
Right now rental demand is high in these markets and condo demand is low, so the new buildings will have a bunch of rental units in them.
In Las Vegas, Phoenix, San Diego, Washington, D.C., and much of Florida, an estimated 25% to 40% of condos under development or apartments that were converted into condos for sale will be put back on the market as rentals, says Marcus & Millichap, an investment brokerage firm.
During the real estate frenzy, thousands of apartment renters were forced out by landlords who converted their units into condos for sale. Last year, about 200,000 apartments were sold for conversion to condominiums, on top of 135,000 new condos.
In Scottsdale, Ariz., condo conversions eliminated 15% of rental units. Vacancy rates were squeezed by the rising number of people who couldn’t afford the escalating home prices.
As renters in sizzling markets have scrambled for anything available, rents have surged. In the Miami-Fort Lauderdale area, “Not only are rental prices up 12% to 15% in the second quarter, but the number of people signing leases is up 23% over last year,” says Ron Shuffield of Esslinger-Wooten-Maxwell Realtors.
In recent months, though, the inventory of condos for sale has swelled. And buyers have vanished. Developers are turning condo projects into apartments or canceling them. Some landlords are inviting back tenants because they can’t sell the units. via USATODAY.com
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