Condo Crunch

Area real estate agents chant the mantra of "overpriced oversupply" to describe the market for condominiums priced below $1 million in Southwest Florida. Many expect May to be the start of a new downward spiral of prices.

It's a bleak scene condo-wise in Lee County, according to Brett Ellis, a member of the Ellis Team, Re/Max Realty Group, Fort Myers. A 35.7-month supply of condominiums-nearly 9,000 units-was for sale in early 2007.

"Many of those units are owned by investors who have been slow to realize the glut of product on the market," he says. "While they have been reluctant to lower their prices, whatever leverage they had has been eroding."

Single-family homeowners have been quicker to adjust, he adds. In late February, an 18.7-month supply of single-family homes-about half the number of condos-was on the market.

Units priced lower than $200,000 and above $1 million are doing best, but drastic price reductions among those in the middle range are needed to prod sales, he says. Traditionally, two-thirds of condominium sales are made within the first two quarters of the year, so highly motivated sellers need to reassess their pricing.

Ellis observes that prospective buyers, worried about rising property taxes and insurance costs in Southwest Florida, are looking elsewhere.

"We'd better get a handle on taxes and insurance, because there's a lot of competition out there for second-home buyers and retirees. Florida is not the only game in town anymore," he says.

On Marco Island, Vince Colace of the Caruso Team at Re/Max Results Realty, says he's seen condo prices drop since the first half of 2006. "Condo sellers took note of what was happening and made adjustments," he says. "Prices came down about 25 to 30 percent."

He reports 229 condo sales from June 2005 to February 2006, and 192 condo sales from June 2006 to mid-February 2007.

"The short-term investor is not among the buyers we see now," he explains. "We are encountering a lot more end-users and long-term investors."

Marco had 1,100 condos on the market in February. But Colace reports some good values among them, and he anticipates a turning point as inventory tapers and buyer confidence returns.

Inventory is everything, says Ray Snow, a Naples-based buyer's agent. The inventory of condos in Collier County at the end of February, 6,700, was approximately 40 percent more than at the same time in 2006. But it's not doing any worse than the single-family market in Collier, he says; 12,204 homes were for sale at the same time.

"In 2004, we could take a client to several developments to shop for a condo in the $300,000 range," he recalls. "Now it can take all day to see the units in just one community."

Snow blames pricing for the glut. Sellers are apt to choose an optimistic high price rather than a competitive low one. Those properties are not moving and others are arriving on the market, so there's no place for prices to go but down.

"Most sellers expect to move their homes by March or April," he says. "If that doesn't happen, the most motivated ones could be responsible for a new round of price drops in May."

Snow, who specializes in the $200,000 to $800,000 market, says buyers are out there, waiting. "My Web site indicates that the number of inquiries has stayed constant for the past 18 months, even though business has evaporated. Folks are waiting to see how low prices will go," he says.

He believes that once the inventory starts thinning, Southwest Florida's desirable location and amenities will help it rebound more quickly than other areas facing slowdowns.

Naples Area Board of Realtors and Association of Real Estate Professionals president Spencer Haynes says the current market is more disturbing to novice speculators and market newcomers than to veterans familiar with its cyclical nature.

"In 1989 and 1990 we had a growth market, but for the next three years there was a slowdown, with some recession in prices and very little appreciation toward the end," he says. Growth in 1994 and 1995 was followed by three relatively flat years. The effects of Sept. 11, 2001, and the stock-market decline helped slow a growth spurt in 1999 and 2000, and an upswing that began in 2002 took off in 2004 and 2005.

"Sellers were in heaven in 2005, but you can't stay in heaven forever," he says.

Haynes optimistically notes that the first two months of 2007 showed 84 sales of condos at over $1 million, 11 over $3 million, and six over $5 million. "People with that kind of money don't invest in an area in which they have no confidence," he says.