As financing becomes harder to get, potential buyers may instead choose to rent–which, according to some reports, is killing the condo market in some large cities.
An article in Tuesday’s Atlanta Journal-Constitution about the trend declared the city’s condo market all but dead.
Given that last month, multifamily housing was cited as the reason residential building rose in May, the rapid decline of condo sales and construction–in a city as large as Atlanta–is somewhat of a shock.
But it turns out Atlanta’s entire multifamily market isn’t declining. Only its for-sale sector is.
The problem? Financial backing for condos has become nearly impossible to get, according to local developers.
Luxury rental apartment financing, however, is a different story.
- In Atlanta’s metro area, hundreds of units are in the works to fulfill the city’s growing rental need.
- "The new darling child of multifamily residential is rental," local developer Franco DeFoor told the Journal-Constitution.
- Developers can’t get funding to build condos; buyers also can’t get funding to buy them. But apartment project funding is widely available.
Still, it’s an interesting shift for a city that had a condo boom at the beginning of the decade. As urban living became more popular, young professionals and retirees flocked downtown to condos to be able to walk to entertainment and work.
Could Condos Collapse In Your City?
Atlanta may have had a unique period of condo market growth, but the current condo decline isn’t specific to Atlanta.
The rental market is taking over in cities like Orlando, too. Just this week a developer in the city got approved to change the condo portion of its mixed-use project into rental units.
Jon Wood, vice president of the Houston-based The Morgan Group, told the Orlando Business Journal that its 200 planned condo units are transforming into 202 apartments because financing was impossible to get for condos.
Condos comprised 25 percent of multifamily housing starts in the first quarter of 2008; in 2006, they were more than 50 percent, according to the National Multi-Housing Council.
A Need–But Not A Necessity
We’ve discussed how the declining housing market and rising foreclosure rate are likely to give the rental market a boost. And a recent National Apartment Association survey found 69 percent of renters have no plans to buy a home in the next year.
We’ll need apartments–that’s clear. But it’s surprising that financing appears to be completely drying up for condo projects.
After all, some buyers will still want condo units: Young professionals, urban dwellers, empty-nesters looking to downsize.
And granted, some markets–like Atlanta–are probably suffering from an oversupply built by zealous developers during the housing boom, but does that really mean lenders should label condos as high-risk investments?
Some of the high-end apartments mentioned in the Journal-Constitution come with rents of $1,500 to $2,000. That’s mortgage money in most cities!
True, financing isn’t easy to get these days, which may block many buyers from buying–scraping together a down payment in today’s economy isn’t easy, either.
But if they can afford $2,000 in rent, they can afford monthly mortgage payments. And before long, won’t they start to think that might be a more economical, long-term financial choice?
Then what will we do with all these luxury apartments that are being built–turn them into condos?
Have you found condo projects are being scrapped or converted in your area? Do you have a project that’s switched over from for-sale to rental?
We want to hear about it. Post about your experience below.