Condominiums are an important part of San Diego's real estate landscape. Although there are some very pricey condos, in general, condos are more affordable than single-family homes and represent a good housing option for moderate and lower income buyers. With the housing boom seen over the last few years, San Diego experienced a rapid expansion in the number of condominium units available for sale. Much of this expansion occurred by converting existing apartment complexes into condominium projects, a process known as condo conversions.

The rapid construction of new condos, as well as condo conversions, has created an oversupply in the number of units. For example, as of June 2006, there were approximately 5,800 unsold units in new condominium communities.

The glut of condos, and the general slowing in the San Diego real estate market, has placed downward price pressure on unit owners. For example, most areas of San Diego County reported reductions in the median price of resale condos from August 2005 to August 2006, ranging from 1.1% to 2.6% decline. This is also the fifth month in a row in 2006 that the median price has been lower than the year before. Moreover, the number of units sold in August 2006 was down 27.4% compared to sales in August 2005. The one exception to this trend were the coastal communities in northern San Diego county, which had a 2.1% increase in the median price during August 2006 compared to August 2005.

A major source of new condominium units came from converted apartment complexes. In some cases, investors undertook substantial debt to purchase buildings during a time in 2004 and 2005 when prices were appreciating rapidly and units sold quickly. However, we are now in a time of declining condo prices and much longer marketing and sales times, but many building owners must continue to pay interest on the loans they took to purchase and convert buildings.

The pressure of carrying debt is forcing some owners to reconsider their options. Depending on their financial situation and goals, some owners have decided to be patient, not drop prices, and wait for the market to pick up again. Others have decided to offer substantial price reductions and buyer incentives to unload the condo units. Some owners are temporarily or permanently returning units planned or available for sale back to the rental market. This option allows them to offset some of their loan costs with revenue from rentals.

The excessive inventory has also impacted the further expansion of condominiums projects planned or underway. Some conversion or expansion projects have been temporarily frozen until excess inventory is sold. Other projects have been cancelled altogether.

No one knows for sure how long it will take to sell the excess supply of condominium units. In general, the real estate market cycles from periods of excess supply, to excess demand, and periods in which demand is roughly equivalent to supply. What makes this situation unique is the sheer volume of units available. Clearly it will take some time to get through this oversupply of condominiums.

This article was written at the end of September 2006. Since factors impacting the supply and demand of units can change rapidly, readers should obtain the most up-to-date information available before making any decisions about buying or selling real estate. Be sure to consult with a knowledgeable Realtor before buying or selling condominiums in San Diego County. The information above is considered reliable but is not guaranteed.