Sheila Ryan paid dearly for her front-row seat to the boom and bust of South Florida’s condo market.
She put down $239,900 in 2006 for what she thought was a gem, a one-bedroom condo near downtown Fort Lauderdale. Little did she know that would be the peak of the condo market.
Over the next two years, investor-owners walked away from nearly half of the 20 units in her complex. Taxes went up and condo association fees rose to $350 from $180 a month for the owners who remained.
As Ryan paid more, the recession cut into her income as a massage therapist.
“I remember being at a homeowners meeting and actually shaking because I knew I wasn’t going to be able to turn it around,” she recalled.
Now in foreclosure, Ryan is trying to sell her condo for a quarter of what she paid: “It’s all out of control, and you just want peace of mind again.”
The same drama has played out for thousands of condo owners across South Florida. While housing is hurting, the condo market is howling in pain.
Since 2006, average condo prices have fallen 45 percent, to 2002 levels. Condo sales in 2008 dropped to a level that hadn’t been seen in nearly a decade, even though there are thousands more units. Condo construction is at a near standstill.
Even if you don’t own a condo, you’re living through the impact: more unemployed construction workers, lower local tax revenues, mounting bank failures and declining property values.
“This is what I call the payback period,” said Michael Cannon, managing director of Integra Realty Resources South Florida. “Because Monopoly was being played.”
The brightest view of today’s market is sales are starting to pick up. In 2009, condo sales rose 27 percent, barely surpassing levels in 2000.
Pending sales this spring are about even with the pace of two years ago, said Peter Zalewski, whose firm, CondoVultures, combs public records about condos.
“It’s shaping up to look like a bottom,” he said.
The reason: “We’re at fire-sale prices,” said Mike Larson, a real estate analyst at Weiss Research in Jupiter. “We’ve gotten to a point where real estate is cheap again.”
Of course, the prices of single family homes in South Florida are off by 40 percent, as well, from their peak in 2006. But experts say that’s about where the similarity between the two housing markets stops.
“The condo market has a tendency to have a life of its own,” said Wayne Archer, a University of Florida professor and executive director of the Bergstrom Center for Real Estate Studies. “It tends to be much, much more volatile than the single-family housing market.”
The reason: Buyers perceive condos as easier to buy than a single-family home, Archer said. That tends to draw amateur real estate magnates who say to themselves, “I can always rent it out …”
Some special circumstances made this boom even more explosive than others in years past.
First, there was a large amount of construction. Enough condos sprang up to house entire cities — and many are still on the market.
Richard Langhorne, a condo expert who is first vice president of CBRE’s Restructuring Services Group in Miami, says that in downtown Miami alone, construction began on 22,000 condos between 2003 and the end of 2009 — more than double the number built over the previous 40 years.
In Broward, at one point in 2004, 16 high-rise towers were under construction in downtown Fort Lauderdale alone. Similar information for Palm Beach County wasn’t available.
Jack McCabe, a real estate consultant in Deerfield Beach, figures 65,000 condos were built in Miami-Dade, Broward and Palm Beach counties during the boom, while another 63,000 apartments were converted to condos.
McCabe also estimates that nearly a third of those new downtown Miami-Dade units are still on the market.
Prices went up rapidly amidst the construction that price gains were made before buildings were complete.
“People were trading contracts for the purchase of condos over the Internet,” Langhorne said. “Housekeepers in New York City were pooling their money to buy contracts. It got to complete madness, to where there were contracts given to people who could never afford to make the first payment or qualify for a mortgage loan.”
But they could make money — and quickly. The average condo price rose more than 22 percent in 2004 and then by 30 percent in 2005, according to Integra Realty Resources South Florida. It was easy for a buyer to make a deposit and a quick, double-digit profit without ever having to move in or make a mortgage payment.
“Of course, that made it very, very attractive,” said Brad Hunter, chief economist at Metrostudy.
All that buying and selling created a volume of sales that convinced builders that even more condos were needed.
“They were selling faster than they could build them. They got fooled into believing the demand had suddenly surged to some incredible level,” said Hunter.
Construction continued until the credit markets stop lending.
Now, Moody’s Economy.com estimates it could be 20 years before housing prices reclaim their recent peaks.
“A lot of people, if they think they are going to stay long enough to get what they paid for the condo or more, they’re going to end up carrying them out feet first,” McCabe said.
This wasn’t South Florida’s first round of condo mania. There was a boom-to-bust cycle in the 1970s, when Archer says thousands of hastily constructed condos were torn down after prices plummeted. The market bottomed out again in the 1980s.
The tear-down trend is returning. Recently, the city of Fort Lauderdale outlined plans to demolish the abandoned 58-unit New River Condominiums.
Faced with a huge inventory of condos for sale, foreclosures and short sales, it’s up to real estate agents like Pamela Whitaker, who is marketing Ryan’s unit in Fort Lauderdale, to clean up the mess — in all price segments.
“I’ll be selling something for $60,000 one day and two days later a unit for $1.2 million. It’s nuts!” she said. “People are, number one, taking advantage of the deals out there.”
Which means, sellers and condo owners will be hurting for years to come.
“It’s going to be a long, long time of pain,” said Langhorne, CBRE’s condo expert.
Harriet Johnson Brackey can be reached at hjbrackey@SunSentinel.com or 954-356-4614.
