Why the Condo Market is Coming Back Faster Than Single-Family Homes

A history of the recent condominium market, in 88 words: Housing market explodes. More money in selling condos than renting apartments, so developers buy apartment complexes and convert them into condos, by the gazillion. Glossy new towers rise above Biscayne Bay and San Diego Harbor. Market is glutted nationwide before the paint is dry on the first batch. Housing market stalls. Condo market falls harder and faster than any other product. Instead of admiring  views from their windows, investors in Miami condos jump out of them. Some conversions are reverting to rentals. Conventional wisdom says condo market bad juju. Stay away.

MARKET MADNESS

A Massachusetts developer is using a corny video with a girl who can fill out a bikini, a dancing dog, and sound effects to give away a fabulousi two-bedroom condominium at Canton Park in Canton, Massachusetts. "Isn't it great how open it is?" Little Miss Thing coos to the camera. "I feel at home already." 

A Grand Rapids, Michigan developer has put a 158-unit project on indefinite hold until the market turns. A Galveston, Texas, developer used an auction to move his 193-unit project.
Is the conventional wisdom true? The National Association of Realtors studies 55 markets as a bellwether. In the first quarter of 2008, of condo sales in those 55 markets, 23 were up, 31 down, and one unchanged. 

"That's a reflection of the mixed bag wei?e seeing around the country," said Walter Molony, an industry trends and research expert with the National Association of Realtors. "It varies from neighborhood to neighborhood."

SPOT MARKETS

"Condo sales were a little bit up last month," said Bernard Markstein, senior economist and director of forecasting at the National Association of Home Builders. "Projects that have something special to themî are selling, he said. Condos in Washington, D.C. with views of the Anacostia River are selling well. A few blocks away, projects without river views sit empty. Manhattan projects continue to sell reasonably well; the difficulty and expense of building on the island has prevented overbuilding and glutting the market. 

Views drew Sam and Lynette Carmelli to their three- bedroom, three-bath luxury condo in Tarragon Corp's One Hudson Park in Edgewater, New Jersey. 

"We liked the view of the sky and water and view from our windows," Carmelli said. "The ceilings and floors were also what really attracted me. While we were looking, it was a toss-up between buying a house and an apartment. One Hudson Park was a good compromise."

The Carmellis paid about $775,000. They decided to buy at One Hudson Park for a number of reasons. Carmelli, a former commercial pilot, and his family had bounced around apartments between Queens and Manhattan for years. The buyer's market and the homeowner's tax break spurred them to house-hunt. 

One Hudson Park is one of the rare success stories in the current market. By mid-July, Tarragon Corp had sold more than 90 percent of its units. The first residents moved in May 2007. The company president told the press good interest rates and a change in buyer attitudes are responsible for increased sales. 

In June, condo sales were up 1.7 percent, while single- family home sales slid -2.6 percent. "Condo sales were a little bit up last month,î Markstein said. "They've been up for two months now." 

CONDO-NUNDRUM
"I'm noticing that condos are doing a little better than single-family homes, said Drew Grunwald of Right Place Properties in Phoenix, Arizona. Right Place Properties is a real estate investment and development firm specializing in affordable, entry-level condominiums. 

"If condo sales are up, people are discovering that they're a great buy," Grunwald said. "You can find condos that are pretty inexpensive." 

With the tightening of lending restrictions, condos are an easier buy. They fall into Federal Housing Administration loan guidelines, which require very little cash to open a loan. The 
FHA will also back loans for an entire condo project, according to Grunwald, whereas conventional lenders like Washington Mutual will only finance loans on 10 percent of the units in a project.

A POINT IN TIME, LIFE & MARKET  
Condominiums first appeared in the 1970s. They were popular with baby boomers because the transition from renting to owning was much easier. That popularity tanked in the early 1980s with oil shortages, high inflation, and a floundering housing market.

NAR OPINION
"We have a condition now similar to what we had in the early 1980s," said Molony. "In 2004 / 2005, they couldni? get units on the market fast enough. We do have a broad oversupply in the market today."

In 2005, at the peak of conversions, there was a 4.7- month supply of condos on the market, according to Molony. In 2007, that supply rose to 10.7 months. Inventory is historically high. (The hole in the data is that no one measures new condo construction, Molony said.)
"I would say we had higher levels of inventory in "82," he said. iﾌIt will take the condo market longer to come back than the single-family."

NAHB OPINION
Projects that were slated to be condos are being taken into the rental market, according to Markstein.

"The fact that a lot of these are going into rentals keeps the oversupply from getting too great," he said. Look to late 2009 and possibly into 2010 for a full recovery. "I think we're talking about the market working itself out," Markstein said. "It's really the single-family market thati? been more overburdened."

Condo prices will lag, said Molony, but now may be the time to buy for investment. "With a long-term view, youi?e likely to work through the market corrections," he said. 

CONDO.COM OPINION
If Americans are slowly beginning to buy condos, foreigners are leading the charge. A strong euro and currency fleeing uncertain economies make the United States an attractive market, said Richard Swerdlow, president of Condo.com, the leading condo sales and vacation listing site.

Individuals and families are looking for second homes in money and trade centers like New York, Miami and Los Angeles. 

"They want the spa, tennis and doorman," said Swerdlow. "Essentially set it and forget it. Condos are easier to own, and match baby boomer lifestyles. The fact that oversupply is in  

more desirable markets means aggressive marketing has lead to faster price adjustments. Add $4 a gallon gas, and centrally located condos add fashionable economics to style."