New developments and condos will decline much more than housing in general.
By 2015 there will be 3,000+ square feet homes in new far-away subdivisions (that first sold for $300K-$400K in 2006) selling for $50K or less - 80% or more haircut from the bubble top price. 80%+ haircuts will be available in Arizona, Nevada, Florida, and California. In other states McMansions in new far-away subdivisions will decline by over 70%.The reason for these declines is because nobody will ever want to live in these large homes in new far-away subdivisions. Think about it. By the end of 2007 there are over two million empty homes in the US already, many of them owned by "investors" in faw-away subdivisions. People are forced to downsize and live in much smaller homes closer to work. Plus most people prefer smaller homes anyway because of much cheaper heating/cooling/cleaning/maintenance. The reason people tried to buy larger homes until 07 is because they thought larger homes would give them larger home appreciation. Very few people will want to live in a huge home in the middle of nothing that is far from everything.
Let's say these McMansions in far away subdivisions decline to $100K (from $300K-$400K in 2006) in several years. But by that time $100K will also buy you a smaller (but better quality) house much closer to the city. Buyers will choose smaller $100K homes over far-away $100K McMansions, so McMansions will have to drop prices much further to compete for buyers.
Some McMansions will be converted to apartments, some will be torn down, some will become low-income housing. The bottom line is that there are several hundred thousand large houses in far away subdivisions that no-one will ever want to live in, no matter how low the price will get.
Condos will have the same problem new subdivisions will have - too many condos were built, not enough buyers for all of them. Also, many condos are owned as second/third homes - they will get sold as prices continue to fall. An average condo buyer makes probably $30K per year, so the condo he/she can afford is $75K at most. Market for luxury condos in downtowns is very limited and the whole downtown luxury condo thing has been way overhyped. Condo-hotels thing is another scam concept - they are worse "investments" than timeshares. By 2015 you should use the following as an approximate guide to condo prices:
In the last few years there were a lot of condos built in borderline sketchy areas and outright ghettoes that were selling for $ hundreds of thousands. These beauties will go through 90%+ haircuts in many cases. A lot of these condos will be available for $20K in a few years. The problem is that by that time they will be basically low-income housing, so you probably will not want to live there no matter how low the price gets.
- 1,000 square feet two bedroom close to downtown in a nice safe area - $75K-$100K.
- Luxury 1,000 square feet two bedroom in downtown or on the beach (on the beach means ON the beach, not 4 blocks from the beach) - $150K-$200K.
- 1,000 square feet two bedroom in borderline sketchy area (homeless people hanging out at bus stops outside, not completely safe for single women to walk at night) - less than $50K.
- Condo in the ghetto (not completely safe to walk even during the day) - less than $20K.
Another thing with new construction that will depress the prices is poor new construction quality.