WSJ on condo projects going bankrupt

I worry that by posting this the comment section will be overrun by the bubble heads but I think it’s an important article to point out because of the consumer impact.

From the Wall Street Journal, Condo Troubles Further Squeeze Property Lenders:

Already plagued by rising home-loan defaults and foreclosures among overstretched consumers, major markets across the country — including parts of Florida, California and Washington, D.C. — are seeing rising foreclosures and bankruptcies of entire condo projects.

The problems are emerging as some buyers who signed contracts to buy new condos two to three years ago, when construction was just starting, seek ways to back out as they encounter trouble getting financing in the suddenly dicey mortgage market. Falling prices are forcing appraisals down, so banks aren’t willing to lend the full amounts that people committed to in the sales contract.

I don’t know of any Seattle condo consumers who have been put in a tough spot because their mortgage product evaporated, their condo appraised for less than the sales price or a project went bankrupt. But I have heard from some lenders in town that condo buyers are having to deal with mortgage product evaporation. This is especially problematic for new construction buyers since the earnest money amount is so high (almost always 5%) and financing contingency’s are often waved.

Interesting times indeed.