Sluggish sales and elusive financing opportunities have Valley condominium developers delaying and, in some cases, completely scrapping projects — a trend likely to carry on into the new year.
A total of 714 new condos were sold in the third quarter of this year, a 60 percent dive from the previous three months, said John Fioramonti, senior managing director at Meyers Builder Advisors in Scottsdale.
“High-rise (condos) seem to be taking the biggest brunt of it,” Fioramonti said.
Some projects in downtown Phoenix, Tempe and Scottsdale have been put on the back burner, he said.
Fioramonti estimated that 2008 could see a 20 percent drop in condo development.
Construction loans for condos are hard to come by in the lagging housing market, said Brent Gleeson, president of San Diego-based NewCondosOnline.com.
Gleeson’s company markets condos in 1,300 developments across the world, including the Valley.
“I think a lot of builders are just trying to hang on, maybe slow things down a little bit and watch their expenditures,” he said.
Lenders are wary and may only give a developer a loan for 50 percent of the project’s cost, Fioramonti said.
To cope with the changing financial landscape, some developers of projects that mix shops, offices and residential units are building the commercial portions before the condos.
Developers of the Downtown Ocotillo project at Price and Queen Creek roads in Chandler are building the commercial element first, Fioramonti said.
Some builders are also choosing to build apartment complexes with units that could easily be converted to condos when the market becomes strong again, he said.
“I think the overall housing market is going to remain pretty quiet in 2008,” said Ben Sage, director of research firm Metrostudy’s Arizona division.
The condo market typically trails single-family homes because it’s more of a niche product, so it may be slower to recover, Sage said.
Much of the early demand for condos during the boom came from investors, most of whom are now gone, he said.
Sales of condos in the $300,000 to $600,000 range are suffering, Fioramonti said. Meanwhile, projects with more affordable units priced in the high $100,000s and low $200,000s in places like Mesa and Chandler are selling fairly well, considering the market.
One development in Chandler is already 50 percent sold even though builder D.R. Horton hasn’t broken ground, Fioramonti said.
Some higher-end products in places like north Scottsdale and Tempe are selling OK, he said. And anything built in the Desert Ridge region is going fast.
“That area of town right now in terms of volume is probably the hottest in the market,” he said.
Gleeson said he expects next year to be slow.
Phoenix has a leg up on other markets because the area is growing and is still affordable, compared with places like California, Gleeson said. His company markets from 60 to 65 condo communities in the Valley at any given time.
“Home values were already kind of undervalued when the prices started to swell,” he said.
Gleeson said he has also seen the most projects get sidelined or canned in places such as Las Vegas and Florida, which have been some of the heaviest-hit markets.
Another positive sign for the Valley is that building permits for new condos have seen a large drop-off in recent months, he said.
Single-family homebuilders are also taking out fewer permits in an attempt to get rid of excess speculative homes and restore balance between supply and demand.
“You’re going to see that help stabilize the market a lot more quickly,” he said.