Call
it the Cinderella segment of the American home real estate market:
Condominium apartments and townhouses are now officially the hottest form
of housing -- appreciating in value at more than double the rate of
conventional, detached single-family resale homes.
New national survey data reveal that the median
price of a resale condominium in the second quarter of this year was up
15.1 percent from the same period the year before. The median price of
detached single-family houses nationwide, by contrast, was up 7.4 percent.
Equally significant, the gap in overall pricing
between condos and traditional houses is now almost negligible. The median
priced resale home in the national survey was $168,900. Condos -- once
marketed as the lower-cost, lower-maintenance alternative to detached
homes -- sold for just $5,400 less, a median $163,500.
Lawrence Yun, senior economist at the National
Association of Realtors, the group that conducted the pricing study, said
in an interview that the "condominium market historically had lagged
behind" the detached single-family market in appreciation rates and
sales. But now demand for condos -- and all their amenities and
efficiencies -- "has been rising very sharply" both at the
luxury end of the spectrum and at the entry-level, low-cost end.
The lower-priced segment "is super hot,"
said Yun, with condos now a major entry point into the homeownership
market for first-time purchasers.
On a regional basis, the appreciation performance of
condos has been most impressive along portions of the two coasts: In the
Western states, prices of resale condos soared 22.8 percent from the
second quarter of 2002 to the same period of 2003, to a record median
price of $211,300. In the Northeast, condo resale prices hit a median of
$177,600, up 21.6 percent over the year before.
In the South, the median resale condo went for
$131,500, a 17.2 percent annual increase. In the Midwest, the median condo
gained by just 6.3 percent to $158,900 -- the only region where
condominiums appreciated at below the national average for single-family
detached homes.
Overall national sales of condos hit a record high
in the survey -- a seasonally adjusted annual rate of 861,000 units. The
previous record sales rate was 829,000 in the last quarter of 2002.
What's behind the relatively sudden transformation
of condos into the premier profit-producers in real estate?
Part of the answer, says Yun, is demographics. In
virtually every metropolitan market in the country, the leading edge of
the baby boomers is now looking at empty nests. The kids are finishing
college or starting first jobs, and the family home is beginning to look
too big.
No-maintenance, high-amenity luxury condominiums
offer a reasonable way to downsize and simplify life for many of these
homeowners. In fact, condominium communities often come with superior
facilities compared with detached houses in traditional neighborhoods --
exercise rooms, pools, tennis courts, and no lawns to mow, no gardens to
weed.
Resales at this end of the market are squeezing away
the historically large differentials in median prices between detached
homes and condos. But it is the sizzle and fire at the lower-priced end of
the market that is helping stoke demand throughout the condo pricing
continuum.
"You have a very large pool of buyers who have
been brought into the (home buying) market by low mortgage interest
rates," says Yun. They are newlyweds, middle-income renters who find
that with rates in the 6 percent range they can now afford to own a home
for the first time.
Yun says "the condo market is in a better
position to capture these buyers" than the detached home segment
because it offers greater numbers of lower-priced resale units with
smaller square footage.
The big equity gains available from condos also
might have caught the eye of still another type of purchaser --
small-scale real estate investors. Although Yun's latest survey did not
examine investor purchases as a contributing factor to the national 15.1
percent appreciation rate, earlier survey data on second-home purchases
suggests this might be the case.
Polling data from recent second-home buyers
conducted this past spring by the National Association of Realtors
confirmed that a rapidly rising percentage of purchasers are motivated by
"investment gains" rather than more traditional recreation or
personal use. The study found many second-home buyers fed up with poor
investment returns in the stock market, and impressed by high appreciation
rates in residential real estate.
Whatever the cause, here's the bottom line: Condos
are now the documented profit-leaders in housing this year, yielding more
than twice the percentage gains of detached homes.
