The authors estimate that the number of new condo units delivered in 2004 in South Florida was 9,000. Approximately 50,000 condo units are either planned or under construction in 2005. With an absorption rate of at best 12,000 units per year, it is hard to justify these numbers, especially when condo conversions will produce another 13,000 units. If the condo market were to take a downturn, owners would initially attempt to rent their units in order to generate cash flow. With time, the oversupply of rental units would drive rents downward. A dramatic decline in rents would cause speculators to struggle to meet debt service, tax, and insurance requirements. It is at this juncture that they would put their properties on the market for sale. An over-supply of units on the market would dramatically drive the market value of the units below the investor’s break points, causing a bust.
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