Tracking the First Coast's great condo bust

The median price for a condominium on the First Coast has tumbled by more than 70 percent since 2007, but there are some recent signs of a sales resurgence

Article Courtesy of The Florida Times-Union

By Kevin Turner

Published September 20, 2010

While attention has been focused on shrinking values in Jacksonville's single-family housing market,something much worse has been happening in the condominium market.

Numbers tell the story: The median sales price for condominiums in Clay, Duval, Nassau and St. Johns counties has sunk by more than 70 percent since a five-year high of $239,200 in April 2007, falling to a low of $64,400 in April of this year, according to the Florida Association of Realtors.

By comparison, the median sales price for single-family homes in the area fell 33 percent from a five-year high median price of $213,500 in June 2006 to $143,400 in July 2010.

In recent years, Jacksonville has spawned dozens of condominium buildings - both new and those converted from former apartment complexes - but when the economy tanked, there were too many for the market and too many owners in financial trouble. The shocking drop in condominium values followed.

Recently though, real estate professionals have begun to see a turnaround. Sales volume has picked up substantially and some think price increases will follow, albeit slowly.

Eric Miller, a real estate agent at Keller Williams Realty, said so many condominiums were built or converted here because at the beginning of the decade, there was pent-up demand for housing around the inner circles of the city, near jobs and nightlife. The first condominiums to market were snapped up quickly, he said.

"The demand was huge, and then too many buildings were being built for the end user," Miller said.

Soon, they were appearing all over town, with names like Avanti, Bella Terraza, Il Villagio and The Colony. It was a microcosm of a statewide trend - more than 150,000 conversion units alone appeared in Florida between 2004 and 2006, according to a 2007 Times-Union article.

But by 2006, some began to feel that the market being ballooned above its actual values and that the trend could not be sustained for long, he said.

"I saw it here. I felt it," he said. "We couldn't do any more developments. And by the time 2007 came around, people were saying, 'uh-oh, we don't want to live here, we're upside-down in it.'"

"Upside-down" or "underwater" refers to the phenomena when a property owner owes more in mortgage debt than the property is worth.

Ann Van Fleet, agent and broker for St. Augustine Prudential Network Realty, said as the boom was thundering along, she couldn't help but think it could end abruptly.

"In St. Augustine, properties were selling for ridiculous prices. It was insane, really," she said.

At the beginning of the boom, condominium median sales prices trailed single-family home prices fairly closely, and intermittent price spikes suggested an influx of high-end condominiums sold. After the market peaked and then sputtered in 2007, condominium prices and demand declined into 2008 - and the rate of decline was sharper than that of single-family homes.

After the crash there were plenty of casualties.

"Everyone was pretty disappointed," Van Fleet said. "They lost a lot of money. And not only did they lose their value, they couldn't sell them," she said.

The fall in condominium median values in Orlando bottomed out to depths lower than Jacksonville, Miami or Tampa. Its median values fell to around $50,000 in May 2009 and have stayed there since. In Miami, the median value remained above $250,000 from mid-2005 until May 2008, when they began a plunge toward $100,000. Tampa's condo market median prices have descended at a pace close to Jacksonville's.

It wasn't just a boom-fueled condominium glut that put such downward pressure on condo prices. Like the single-family home market, much of that also is attributed to "distressed" sales - foreclosures, sales for less than mortgaged amount or "short" sales and bank-owned property sales.

According to the Northeast Florida Association of Realtors, condominiums and townhouses accounted for 8.6 percent of all lender-mediated sales in August 2009, with 39 out of 453. Last month, the number mushroomed by 246 percent, as lender-mediated condo sales rose to 19.2 percent of all distressed sales, accounting for 135 out of 701.

The high end is especially hurt by the economy because bargain hunters dominate the condo market currently, Van Fleet said.

But getting funding for a condo can be harder than just finding a bargain, she said. Condo owners, especially boom buyers who can't sell their units for enough to pay off what they owe are forced to rent, she said.

And that throws off the ratio of owner occupation in many condo developments, hurting financing for buyers because most lenders want a complex to be only 25 to 30 percent or fewer rentals to approve a condominium mortgage loan, she said.

Still, there's reason for optimism, she said. Van Fleet said her office's sales are up 300 percent from last year.

"I am getting a lot of contacts from people up north," she said. "It's interesting how many are looking at condos. And they have the cash. Even for the ones that are higher priced, people are paying cash."

Sales volumes took a nose dive since the boom, but have recovered since. Real estate professionals say the increased sales activity was borne out of bargain-hunting. Looking ahead, they say more value could be lost in the future, but likely not as much as what was lost as the real estate balloon burst.

"Hopefully, we can get a level market and keep it there," Van Fleet said.

Investors also are actively buying, snapping up promising properties at low prices and positioning themselves for profit when good times return. SIG Partners announced Aug. 12 that it had purchased the former "Gulf View," a bank-owned, half-finished 36-unit St. Augustine golf course condominium project for a thrifty $2.2 million - just $61,000 per unit. The developer indicated plans to convert the project into $1,000-per-month rental units.

The market is bound to get better, Miller said, but it could take up to another two years to soak up excess inventory from the new condo boom.

"You get a lot now for under $150,000 to $200,000. They've got to go up. Until they start building more stuff, you're going to see appreciation eventually," he said.

Still, with condo prices low, it makes sense for buyers who can get financing to buy, he added.

"I think there is still some downside in prices, but it won't be like it was," he said.