Looking at our reports, you’ll notice that condos have been hit really hard over the past 12 months.   Inventories are sky high, days on the market exceed by double digit percentages the averages for homes in the same zip code, and prices are down greatly.

So what caused this problem with condos?

1. Demand : Over the past 5 years, the demand for condos grew at an astounding rate.  People enjoyed the lifestyle that condos brought.  No need to cut grass, shovel snow, take care of exterior maintenance, pay property insurance, etc.  They paid one bill each month and it was all done for them.  It was great for young and old alike.  Young people loved the convenience, while older people enjoyed the fact that they didn’t strain themselves.  Prices were lower than single family homes as well.  So while many new single family homes were selling for $225k and up, there were many condos available for $150k or less.  And while there had always been a demand, this demand really met it’s peak in the early part of this decade. 
2. Supply and Builders: As demand waned, builders had projects that were in various forms of completion.  While just stopping the project was an option, many continued to finish their projects.  This created a huge supply of new condos that were available with little demand.    It’s easy for a builder that’s making $25k in profit on a unit to lower their price or even sell at a loss to reduce inventory.  When the builders started reducing their prices to sell their inventory, values of other units went down.  Why would you buy a used condo when you can have a new one for less money?  Builders loved building condos as well, they could pack many units into a small footprint that shared the same roof and other features.  Also as land plots to build home became more sparse in desirable areas, condos worked great because you could put 10 units on a place one or two homes might have sat.
3. Condo Fees: As the economy has tightened it gets harder to make a monthly condo fee payment.  Therefore, there are fewere new condo buyers in the market.  First time buyers that before might have foregone yard work etc, are now opting to save the money and do the work themselves.   Condo fees up until around 2005 averaged around $100.  That fee went up as condo buildings began offering extravagent features such as indoor pools, workout rooms, etc.  Some builders even reduced the price of their condo units and instead bumped up the fees.  They knew they could collect a piece of the condo fee forever, where the money they got from the sale was just one time.  So average fees kept getting higher and higher and in some places around Saint Louis condo fees can be $300-500 or more!  Also in buildings where there are foreclosures, individuals not paying, or units that were never sold, the fees must be made up somewhere, so condo fees are getting raised even higher.
4. Changes in Loans: We all know that it’s harder to get a loan than it was a few years ago, and that has been an obvious drag on housing as a whole.  However, part of the changes that went into effect causing this problem were specific to condos.  Now most lenders make borrowers qualify for a payment including the condo fee.  Up unitl a few years ago, this fee was not factored in when calculating debt to income ratios. (A prime way that borrowers are approved for a loan.)  Today the condo fee is added to any payment amount and must fall within the lender’s guidelines.  This makes it even harder to qualify.

Although condos are experiencing a hiccup we do expect demand to once again increase as the baby boomer generation downsizes from their homes to something more managable.  Therefore we see that it’s a great time to purchase condos at these significantly reduced rates.