A good healthy debate and contrast among markets.
Rob, I agree with you in prime MSA's in California condo's are attractive as they represent a lower barrier of entry into ownership and typically allows for potential positive cash flow. For the record, that is sort of how condo's are suppose to work in most markets. Florida got a little egregious with this concept and over built and over charged.
I think some of the statements you are making have a very wide stroke. No two condo projects will be the same. Certainly as long as you read the bi-laws and it does not have preventive language for owning the unit for rental purposes is one check mark on the list. Reviewing the operating budget will give you an idea of risk for special assessments and potential fee hikes. Certainly, if you plan for it you will be OK. Throw unit occupancy in there for budget and understanding purposes which also will lead to indications of the stability of the purchase price and ownership type ratios.
Ethan points out some less controllable events. Such as the ratio of investors in the complex now and into the future. This would affect the available finance. You can ask if the complex is warranted and approved with Fannie/Freddie for finance, typically the management knows. Lenders will typically limit their exposure in contiguous complexes to less than 15%, something to also be mindful of. Again, you don't have a crystal-ball to determine what it looks like 5 years from now. Perhaps having a back up finance plan via seller fiance of some kind is not a bad idea.
In terms of condo finance coming back. There is still some finance available today but in limited restricted supply. It will not return to the levels as it once was. Lenders and insurers have learned the lessens over the last several years from their losses and their problems. Fannie/Freddie and FHA all have increased their underwriting guidelines on purpose to tighten the flow of condo's into their mortgage pools. Again while California and some other states may have some better functioning condo markets, the lessens learned stem from the broad picture of the whole nation. There might be potential for a portfolio investor such as a local bank or alike which will be a little more forgiving to the specific geography oppose to the big boys. Further and even more simply, there is more inherent risk in condo finance than in other types of residential real estate due to the CC&R's. But as I stated, having an potential backup plan or working with or knowing a good lender in your area may help further filter potential complex's to own in your portfolio.
I agree with your logic on the depressed areas to own in. Places such as Maricopa county in AZ and Vegas along with some other MSA's have potential to take advantage of the depressed sale prices while presenting very nice cash flow opportunities. Cities are always big places and as such, there is always good and bad. There is a butt for every seat, you just have to have planned right and executed better.