In the September issue of New Homes Magazine, columnist Gail Lissner, of housing analyst Appraisal Research Counselors, weighs in on the state of the downtown new-construction market. The current slowdown hasn’t created a glut of unsold inventory, since builders are holding back:
The combination of huge project announcements in 2006 along with a less robust sales pace resulted in a sharp increase in the inventory of unsold condos on the downtown market in 2006. This number has stabilized in 2007. We have seen only a modest increase in unsold inventory because the pace of new development has moderated in all segments of the market.
In another healthy sign, projects already under construction achieved solid sales before breaking ground. In fact, nearly 90 percent of the units to be delivered in 2007 are under contract, with 80 percent of the 2008 deliveries also under contract.
Read more at New Homes Magazine online. The print edition hits newsstands later this week.
What happens when all the investors put their units on the market to flip them? Many of the buildings currently under construction do have a higher percentage under contract, but many of these units were bought at the height of the market mania, in 2005.
I know people holding investment units in several new buildings that are currently under construction. I’m sure they’re not the only ones.
Either there will be an increase in inventory once there are closings on these new buildings or there will be a bunch more rentals put out there.
Probably more will be rentals than re-sales, as it’s not a flipper’s market anymore. This will work itself out – investors probably represented a high of 25% or so during the boom in downtown pre-construction sales – I bet now they are no more than 10% or so for pre-construction downtown high-rises – this is an acceptable level as the new construction condo market downtown settles back to a 4,000-5,000 unit annual sales pace (down markedly from the record of around 8,000…
How many of these contracted sales will ultimately fall through as the buyers fail to qualify for financing under the new guidelines that most lenders are now using? Getting a loan for investment property is all but impossible without a significant downpayment.