Schnurman: North Texas condo markets are in big trouble

By MITCHELL SCHNURMAN

Downtown Fort Worth has a condo glut, with far too many high-priced units. In downtown Dallas, the problem is 10 times worse.

It’s not Miami, where thousands of condos sit vacant, or Phoenix, where the median price of condos has dropped 43 percent in the past year. But Dallas has a big surplus of condos for sale, including a five-year supply of million-dollar units. It has more than 400 new, finished, vacant properties. And its foreclosure postings have quadrupled since 2007, accounting for 1 of every 4 condo postings in all of North Texas this year.

This bubble trouble was not unexpected. Three years ago, downtown Dallas was swamped with commercial construction, and developers were flooding the area with new housing. Even the Federal Reserve Bank of Dallas took notice.

"There is growing concern about overbuilding of condominiums and townhomes in Dallas, and contacts fear that it will end badly," the bank wrote in the June 2006 Beige Book.

That warning didn’t slow construction. In the next year, the downtown area started 662 additional condos. By last summer, the Mandarin Oriental, which had announced plans for a tower with 90 units, said it was walking away from Dallas, because the luxury market was overbuilt for both hotels and residential.

Well, the building boom has practically stopped. The area had just 55 condo starts in the first half of 2009, according to research firm Residential Strategies.

But the overhang persists, especially on high-priced units. The downtown Dallas area, which includes four ZIP codes, currently has 1,035 condos and town homes listed for sale. Ninety percent are listed for more than $134,000, the median condo price for all of North Texas, and more than half list for $300,000-plus.

The past decade has shown that there’s a significant market for downtown living in this part of the country. But just how deep — and wealthy — is it?

Downtown Fort Worth has 87 condos on the market now, a 30-month supply. In the priciest segment, condos selling for $950,000 and up, downtown Dallas has 123 listings, enough to last more than five years at the current sales rate.

Six to eight months is considered a healthy inventory supply. Nationwide, there was a 12-month supply of existing condos in August — not great, but better than our major downtowns, and the national trend has been improving slowly.

Excess supply, combined with a surge in foreclosures, is hurting prices. Through September, the median price for condos and town homes in North Texas declined 3 percent. In a large swath of downtown Dallas, the median price fell 15 percent — and that’s for units that are selling.

Many others are being converted to rentals. One 1,700-square-foot condo at the Azure tower was listed for sale for 375 days, even after the price was cut to $1.1 million. Eight months after being pulled off the market, the condo was leased for $4,400 a month.

This year, 11 units at the Azure have been leased, while only one has been sold, a trend that’s been seen at condo projects in downtown Dallas and Fort Worth.

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