When my boyfriend's parents came down from New York to Chicago last summer to help him find a condo, they couldn't believe the vast number of new construction projects underway. From the North to the South Side you couldn't drive less than half a block before spotting an oversized sign advertising a new development. As we were driving down Ashland Avenue, staring out at an unfinished three-story red brick building, John's mother turned to me and asked, "How do they expect to fill all these places? There's just so many."
Mrs. K nailed it right on the head. The developers haven't and continue to fall behind in filling all those vacant properties. A report released a few weeks ago from the National Association of Home Builders shows that builder confidence eroded in the third quarter of 2007 in the Multifamily Condo Market Index (MCMI). The association's top economist, David Seiders, says builders may want to think twice about going for seconds. Current conditions in the condo market have hit its lowest level since the index was created five years ago, according to NAHB.
"While condos in a number of metropolitan areas are continuing to sell well, the national condo market still has a problem of too much inventory," said Seiders in a statement released on the NAHB's Web site. "However, it is clear from the latest MCMI results that builders are constraining new supply, and that will help bring the market back into balance sooner than later."
The index is derived from a quarterly survey of multifamily builders and developers, in which responses are rated on a scale of 1 to 100. A rating of 50 indicates that the number of positive responses is about the same as the number of negative responses. The index, at 20.8, is about seven points lower than it was a year ago.
What gets me is any reasonable person could have seen this problem coming at the height of the housing boom. During the buying frenzy, developers across the country saw a prime opportunity to cash in and started building like crazy. And let me just add, the inflated price tags on several of those properties I visited, was just that - inflated. If you're going to pay $2,000 for a Gucci handbag, you want the real deal, not some knock- off from Target. When I was touring these new buildings I'd asked the agents why there were so many new developments on the block, and they almost always responded with: "There's a lot growth happening in this area."
Overstock and growth are two different things. When there's three spanking brand-new, 32-unit condo complexes within a three mile radius, it's overkill. I don't blame builders for wanting to make money, but I don't think they should be surprised when a report shows excess inventory has hurt their confidence in the multifamily-condo market. I think it's time people start owning up to the mistakes that have fueled the downturn of the housing market.
Are you surprised there's a glut of condos on the market?
Got hot local housing tips or a story you want to share? Contact Amy Le at openingdoorsblog@homescape.com
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