'Soft Landing' for Condo Investments in Most Markets, Report Predicts
'Soft Landing' for Condo Investments in Most Markets, Report Predicts
January 30, 2006
By Gail Kalinoski, Contributing Editor
The condo conversion market "is largely played out for this housing cycle," according to commercial real estate expert Greg Leisch. But in a report to industry executives advanced today to CPN, Leisch also said he does not expect a national burst. He forecasted a soft landing in most major metro markets, but less gentle in others.
"The bloom is off the rose for condos as an investment," said Leisch, who is chief executive of Delta Associates, an Alexandria, Va.-based real estate information firm and research affiliate of Transwestern Commercial Services. Cities expected to be hit harder by falloff in condo activity include Las Vegas, Miami and Phoenix. He noted that those cities have several things in common: too much supply and condo conversion activity; cheaper housing than other parts of the country; high levels of speculation in the condo market; modest jobs growth and the possibility of a weakened regional economy.
"Prices have risen too dramatically recently and it's probably going to be a little harder landing there than, say, in places like New York City or Washington," he said. "The (condo market) will remain really quite firm in places like New York or Washington."
He also predicted a soft landing in Boston and Los Angeles in the Delta Outlook market report entitled "Condo Conversion: Boom or Bubble Waiting to Burst?" Cushioning the fall in most major metro markets will be high levels of job growth, pent-up housing demand, continued low interest rates and mortgage liquidity. He noted that's in contrast to 1983 and 1990, "when the market last took a dive." Also, there is more demand for condos as an affordable alternative to owning a single-family home after an unprecedented five-year run-up in housing prices, and more people choosing to live in urban areas--where condos tend to be built.
In his firm's report, Leisch pointed out that real estate investment sales have been at record levels since 2000 and no new alternatives have yet emerged. In the first half of 2005, speculators and investors made 85 percent of the condo purchases in South Florida. During that same period last year, 80 percent of the condos in Las Vegas were bought as investments. Those numbers are in stark contrast to Washington, D.C., where end users, according to Multifamilyexecutive.com and Delta Associates research, made 70 percent of the condo purchases. The report also noted that as of the middle of last year, real estate returns exceeded returns from alternative investments such as stocks and bonds for one-year, five-year and 10-year periods.
But Leisch noted that that might change for 2006. "When your stock broker called and said the market would be up by the end of the year," he said, "he hasn't been right for five years in a row. But I suspect he might be right this year."
January 30, 2006
By Gail Kalinoski, Contributing Editor
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"The bloom is off the rose for condos as an investment," said Leisch, who is chief executive of Delta Associates, an Alexandria, Va.-based real estate information firm and research affiliate of Transwestern Commercial Services. Cities expected to be hit harder by falloff in condo activity include Las Vegas, Miami and Phoenix. He noted that those cities have several things in common: too much supply and condo conversion activity; cheaper housing than other parts of the country; high levels of speculation in the condo market; modest jobs growth and the possibility of a weakened regional economy.
"Prices have risen too dramatically recently and it's probably going to be a little harder landing there than, say, in places like New York City or Washington," he said. "The (condo market) will remain really quite firm in places like New York or Washington."
He also predicted a soft landing in Boston and Los Angeles in the Delta Outlook market report entitled "Condo Conversion: Boom or Bubble Waiting to Burst?" Cushioning the fall in most major metro markets will be high levels of job growth, pent-up housing demand, continued low interest rates and mortgage liquidity. He noted that's in contrast to 1983 and 1990, "when the market last took a dive." Also, there is more demand for condos as an affordable alternative to owning a single-family home after an unprecedented five-year run-up in housing prices, and more people choosing to live in urban areas--where condos tend to be built.
In his firm's report, Leisch pointed out that real estate investment sales have been at record levels since 2000 and no new alternatives have yet emerged. In the first half of 2005, speculators and investors made 85 percent of the condo purchases in South Florida. During that same period last year, 80 percent of the condos in Las Vegas were bought as investments. Those numbers are in stark contrast to Washington, D.C., where end users, according to Multifamilyexecutive.com and Delta Associates research, made 70 percent of the condo purchases. The report also noted that as of the middle of last year, real estate returns exceeded returns from alternative investments such as stocks and bonds for one-year, five-year and 10-year periods.
But Leisch noted that that might change for 2006. "When your stock broker called and said the market would be up by the end of the year," he said, "he hasn't been right for five years in a row. But I suspect he might be right this year."
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