August 25, 2007 (LPAC)--There is more blood in the water as the glut of condominium projects financed and begun at the peak of the bubble, collides with the collapse in today's real estate values.

According to the Wall Street Journal of August 25, in several areas of the country, notably areas of Florida, California, and greater Washington, D.C., condominium development projects are being foreclosed in increasing numbers. The causes are manifold. Firstly, condos are being built and completed at levels unheard of since 1985 (a record year preceding a nasty real estate crash). New condo units increased by over 145% between 2003 and 2006 alone.

Secondly, condo project financing became as fast and loose as that in the single-family home sector, with more speculators (including hedge funds) getting into the act, and financing the projects so completely, that only a project able to sell all of its units for premium prices could pay back the loans.

Thirdly, the buyers who had signed for the units at premium prices during construction, have found themselves unable to get loans to cover the high sales prices. These buyers are opting out in high numbers, leaving the developers unable to repay their construction loans. The result is a rising default rate among condo developers. One of the biggest lenders to condo projects, Corus Bankshares, had an increase in "non-performing assets" that jumped from $620,000 to $242 million in the last year, due largely to condo loans going bad.

While the single-family home market collapse is in full swing, the condo collapse is just beginning, as projects typically take two years for construction. There will be a lot more carnage in the next year as the reality of the financial crisis hits these projects midstream.