Unsold Condos Hit the Auction Block — at Very Deep Discounts
It is often said that the most important factor in the real estate business is location, location, location. But the collapse of the housing market and its aftermath suggest another key ingredient: timing.
Case in point: The Murano, a 23-story, 302-unit condominium that is one of the most striking elements in the skyline in Philadelphia, Pa. Completed about a year ago, only 124 units have sold, and 112 have gone to closing, according to The Philadelphia Inquirer, which also reports today that 40 of the 178 unsold units will be sold at auction later this month, with bidding to start at sums 50% below their original list price. An example: $485,000 for a 1,405-square-foot, 23d-floor unit that originally listed at $995,000. Smaller units on lower floors are asking opening bids of $250,000.
Such auctions are occurring throughout the country, from Bremerton, Wash., to Fort Myers, Fla. While there have been modest signs of life in the market for single-family homes, the condominium market remains "substantially weaker," Lawrence Yun, chief economist for the National Association of Realtors, told USA Today last week.
Of course, construction of many of the struggling units commenced during the peak of the housing bubble — the collapse of which in 2007 caught many developers by surprise. But the warning signs were out there. Consider this September 2005 Knowledge at Wharton article about the appearance of interest-only loans, "Could Risky Mortgage Lending Practices Prick the Housing Bubble?" Such mortgages, Wharton real estate professor Susan M. Wachter told Knowledge at Wharton, were contributing to soaring housing prices and setting the stage for a potentially rough pullback that could make the next recession far more severe than it otherwise would be. "Undoubtedly, these new instruments bring us into uncharted territory," she said. "This is unprecedented."
