The Washington Post is reporting There is no Stop Button.
Well that’s not actually the headline but it should be.
Let’s take a look at the highlights:
Sales of new condominiums reached record levels in the Washington area in 2005, according to a new report, but the supply of new condos has begun to outstrip demand.
In 2005, 13,698 new condo units were sold in the area, up from 9,108 in 2004, according to the new report from Delta Associates, an Alexandria-based real estate information firm.
But far more units are being readied for the market, either in new projects or conversions from rental apartments. About 51,400 units were being planned or marketed for delivery within the next three years, Delta Associates found, up from 39,000 three months earlier. It appears some builders are proceeding with projects they have spent years developing, even as the supply of new units rises, in hopes their projects will be more successful than the competition.
Leisch said many condo developers are proceeding because they must financially. “They paid so much for the land, and they are so far down the development timetable, they are so far committed, that, practically speaking, they can’t stop,” he said.
That is what they do.
Regardless of conditions, regardless of demand, regardless of anything else they keep buying land at ever rising prices, and they build on it. The only thing that stops them is inability to get financing or bankruptcy. 54,000 units coming on in three years, in a clearly slowing market when the max units sold was 13,698 up from 9,108 that was probably a record year too. If (big if) they can sell 30,000 units (10,000 a year) that leaves 24,000 units unsold and probably several builders in trouble.
Conventional wisdom has it that the big builders can weather this storm and “pick up market share” but the fact is there is diminishing share to get. A local builder can do one home or several homes at a time with financing paid for up front. No so with 54,000 condos and not so with massive land costs of huge acreage plots (and their carrying costs) of the big builders. At some point in every cycle the only stop button is bankruptcy. I think we are nearing that point now for some condo builders.
Mike Shedlock / Mish/