One of the reasons why many people argue that high-priced city apartments are immune from housing bubbles is that there is often a lack of buildable land. The reasoning goes: How can a city fall prey to a real estate bubble if there isn't room left to build enough supply to outstrip demand?

Well, there is a way to add to the supply of homes for sale in cities that has nothing to do with constructing new buildings.

All you have to do is convert apartment buildings into co-ops or condos. I see this happening all over Manhattan, and according to Jack Farrar, public relations manager at Re/Max, it is also a hot trend in Phoenix. One of the firm's top agents in that market, Dean Selvey, predicts 5,000 buildings will be converted this year and 10,000 next year, Farrar emailed me recently.

Dan Boone, portfolio manager of the Calvert Social Investment Equity Fund (CSIEX ) is worried that -- thanks to a ton of conversions -- the supply of condominiums is already outpacing demand in places like Florida and the California Coast. For that reason, he is avoiding stocks in regional banks, or any lenders with a lot of real estate exposure.

For more on the potential for mortgage woes to slam banks, see BW, 6/27/2005). The story is a few months old, but it reads like it was written yesterday.

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