The condominium market is cooling, and even a star as hot as actor George Clooney can't heat it up again.

Neither can basketball great Michael Jordan or The Donald's ex, Ivana Trump, both of whom–like Clooney–backed the development of flashy new condominium towers that will never be built in Las Vegas.

From Manhattan to Las Vegas, from Boston to Miami, the four-year building, buying, and selling frenzy that has defined the condominium market is screeching to a painful halt as interest rates elevate, construction costs escalate, and quick-flip resale profits evaporate, chasing away the investors who were so eager to snap up even the highest-priced units before their builders ever broke ground. In response, developers are canceling or delaying condominium projects, slashing prices on the ones they've already built, reverting newly converted condos back to rental status, and shying away from making new condo plans.

Paul Woods

"If anybody told you they weren't being cautious nowadays, they'd be kidding themselves," says Matthew Blocher, senior vice president of Washington, D.C.-based JBG Cos. Frank Beck, chief development officer for Centra Properties, agrees: "Everyone is struggling."

'Gold Rush'

The struggle is acute in Las Vegas, Miami, Manhattan, San Diego, and Washington, D.C., and even in markets not typically associated with block after city block of condos, like Seattle, Boston, Minneapolis, and Toledo, Ohio. All are cities whose real estate reality was altered by what Las Vegas market analyst John Restrepo calls "a lot of irrational exuberance" on the part of speculators who flooded the market with "almost kind of a gold-rush mentality." After a few high-profile projects sold out in record time at record prices, he notes, everyone wanted a piece of the profits.

Add to that historically low mortgage rates and the ease with which even people of modest means could score interest-only loans with bare-bones down payments–seed money that they sunk into condos whose resale value was ballooning at fever pitch–and a boom was born. "We had a psychological feeding frenzy among the public to acquire condos," notes housing analyst Jack McCabe of Deerfield Beach, Fla. "It's Economics 101. You have a great demand and a limited supply, and prices go up."

Yet the opposite is true once supply catches up. By the second quarter of 2006, condo and co-op housing sales were down more than 14 percent from last year, according to the National Association of Realtors. Overall condo prices fell 0.3 percent as 26 of the 151 markets included in an NAR survey experienced declines in housing prices from a year ago. Manhattan apartment sales fell by 15 percent because of rising mortgage rates. And Bonita Springs, Fla.-based luxury home and tower builder WCI Communities revealed that new orders for its high-rise condos fell by 84 percent in a year-over-year comparison with the first two quarters of 2005, and it shaved the number of condo projects it would build from a planned 16 or 17 to no more than five.

"With more sellers competing for the pool of buyers, the pressure on home prices has evaporated in most metro areas," confirmed NAR's chief economist, David Lereah, in a statement explaining housing's poor showing. "We are presently experiencing a soft landing in the housing sector."

Soft and seemingly sudden, considering how many condo projects were in the works when it became apparent that the party was winding down. In Las Vegas, 108 high-rise condo projects–which could add a collective 60,000 units to the market–were planned as of the second quarter of 2006, estimates Restrepo, principal of the Restrepo Consulting Group. Eleven of them had "gone vertical"; that is, construction had begun. Restrepo estimates that of the original 108 projects, just 16 of them will open during the next five years. The story is similar in the Washington, D.C., market, where about 13,000 units have been built or planned over the past five years, according to Delta Associates, a real estate research firm in Alexandria, Va. Of those, 8,000 have sold; 5,000 have not. "That's a lot," says William Rich, Delta's vice president.

Las Vegas and Washington have healthy economies that could bode better for real estate sales than those in other parts of the country, analysts say. But as condos fall out of favor with speculators, whose interest in them surged with the potential to turn a profit of 20 percent or more without ever moving in, the condo markets are sagging even in these two cities. Rising construction costs–especially for out-of-town developers who rushed into those markets to mine for real estate gold–have forced builders to bump up their sales, whittling potential profits and running investment-savvy condo collectors out of town.

That's no small loss for a condominium market that, McCabe says, was "artificially propped up" by those speculators. McCabe estimates that in some major markets, up to 80 percent of condo sales over the past five years have been to speculators who wanted to flip their condos for a quick and considerable profit and had no intention of living in them. But he notes: "That only works as long as prices are going up. Now, the speculators are gone and we're back to a normal market–and we have a glut of condos."

In a normal market, condominium buildings don't sell out the first weekend their units are offered for sale. And indeed, the potential buyers who remain in the market now that the speculators have rerouted their investment dollars away from real estate are taking more time deciding whether they will call a condo their home.