Condominium (condo) prices in California are lower than ever. Condo prices in the so-called sand states (the group of real estate markets hit hardest by the economic crisis: California, Nevada, Arizona and Florida) have plunged as much as 65% from their peak prices during the Millennium Boom, with some now selling for as little as $15,000.

Not all of the bargain buys are quite so low, however. Many condos in the sand states are selling for $20,000 to $50,000, a possible bargain if the condos are located in good neighborhoods and are in habitable condition.

first tuesday take: With the exception of land deals, condo prices swing more wildly than most other types of real estate. For a management-free ownership of real estate during the last year of a momentum market, they have proven profitable for speculators who get in before the prices start to rise and get out within one year after the Federal Reserve (the Fed) starts raising short-term rates — that would have been mid-2000 and mid-2005. Keep an eye on the combination of rising condo prices and the Fed’s increase in short-term rates, as this combination triggers the need to get out of condos within one year.

Condos are really no better a deal than single family residences (SFRs) in the same market area. SFR values in California have also dropped by more than 60% from their peak. Thus, bargain condos are not necessarily a better flipping opportunity, or an investment, if they ever were.

At the moment, financing for condos is the hang-up. Financing a purchase or a resale is hugely restricted with numerous limiting requirements that many projects cannot meet. [For more information on financing requirements, see the June 2009 first tuesday article, The FHA-insured home loan.]

Real estate market trends show condos drop in value much more quickly than SFRs and climb in value much more slowly, but rocket in price at the end of the cycle right before the bust – due primarily to speculators and second home investors looking for managed housing.

Condo prices have been further flogged by rampant overdevelopment during the boom. Developers branched out from major suburban housing markets and developed in inner-city markets hoping the unprecedented demand for real estate experienced during the Millennium Boom would pay off in the condo market as well as it did in the SFR market. This proved true until January of 2006, when all condo projects still in progress fell off and were left in the lurch.

Next we will see the coastal hotels that are not operating profitably converted to condos and time shares, and subsequently sold to make the owners a profit. Prices of hotels have at last started to get realistic for just this type of venture. Local politics is changing and will soon most likely permit anything that will encourage movement in the world of real estate construction and sales. Bring on the “jobs” argument.

Re: “Condos for less than the cost of a Corolla” from CNNMoney.com