Haddow Press Experiment

Condominium Bust?

Archived in Construction, Real Estate |

I couldn’t help noticing that as I’ve been driving around the city lately there are a lot of condominiums on the market. Lots. I counted one medium-sized building with eleven properties for sale. I’ve been thinking about this — and talking about it with friends and colleagues — and have usually claimed that this is “STEP ONE” in a down-turn in the housing market, in general. Why, you ask?

1) Simple Investment Properties

Condos tend to make “good” investment properties. At least that tends to be the perception in this kind of bubble-market. People who are on the fringe of true house-flipping tend not to dive in with both feet in a condo investment. After all, it’s just an “apartment.” No yard to tend, no roof to fix, to exterior to wash. The “condo” looks after this, right?

Barring the RISK of something going completely wrong in that equation, condos are the “simple investment properties” for low-key investors. This is not a problem until one realizes two things:

a) In this kind of market there are LOTS of condos owned simply as investments — and thus those are going to be the first to go up for sale at a hint of trouble in the market.

b) The less seasoned investors hold lots of these properties, and stand to lose the most from a bursting bubble.

2) CONSTRUCTION Rush

The work currently being done to satiate this desire for condo investments has resulted in a lot — A LOT — of new development. Never mind the fact that so many new condos has meant a drop in the availability of rental space for people unable to buy, but the demand for these properties means that owners (who are actually buying the condo as a home versus an investment) are moving into half-built complexes, buildings that have been under CONSTRUCTION for (in some cases) more than a year or two and look as if they may continue to be under CONSTRUCTION for much longer.

But, if demand is dipping (which seems that case from the current inventory of condos to be seen simply by taking a short drive around any neighborhood) three questions come to mind:

a) Will the new condominiums ever fill up with tenants?
b) And if they do, are people just moving into new spaces to leave the older buildings vacant? In other words, can they even sell those properties?
c) AND this is all assuming those new buildings — dozens of them — don’t get left hanging by either (still) increasing CONSTRUCTION costs or an all out bust in the market. Will they?

Of course, if the condo market cools I predict that the housing market is not far behind. Inventory in houses in already increasing: for sale sign sightings have increased markedly and they tend to linger for weeks or a month (rather than days). Just the other day an article was published about the state of CONSTRUCTION in this province, overall:

“A senior REAL ESTATE analyst says Alberta’s residential CONSTRUCTION industry faces a “precarious” future due to high labour costs and ballooning prices.”

To me, it all sounds like the music is about to stop: “Hot potato, hot potato…”

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