By Alain Pinel
General Manager of Intero Prestigio international
Intero Real Estate Services, Inc.
In the real estate residential arena, as everybody knows, the dynamic duo is made of Single Family Homes and Condos. In some towns, SFH represent 100% of the housing stock. In some districts of large cities, condos (together with co-ops) represent 100% of the stock. For the most part, they cohabit in harmony, as they serve different needs for different people.
Since towns, at this point and going forward, are far more likely to grow vertically than stretching horizontally due to the lack of buildable space where people want/need to live and work, condos keep on mushrooming very quickly on the land.
It is always interesting for Realtors to look at stats showing the often significant differences we can observe regarding the velocity of those two different components of the residential market. Each has a life of its own. In a great market, they seem to grow at roughly the same speed. In a terrible market, they suffer roughly the same way. But when the market is in its way up or on its way down, SFH and condos evolve and behave very differently. The differences represent an excellent way to follow market trends.
Basically, the residential real estate market is motivated by 3 dominant factors. They are: affordability, availability & life-style. Let’s take a look at each one of these three elements, especially as they pertain to condos, to better understand the market and how to invest wisely in real estate these days.
Affordability: If you live in most of the country, that is where there is still a little bit of land to play with, the value of a condo is predicated on its competitive price compared to an SFH. Since land is where the money is, if a parcel is shared in between a bunch of housing units, the “cost” of the land ends-up being pro-rated. The units will be made attractive mostly because of their resulting “lower” price tag. That goes for condos in a multi-story building as much as for duplexes and townhouses. Of course, the “lower” price is relative…it can easily reach the 8-figure mark in Manhattan!
Buyers also need to integrate the fact that Association dues will add to the overall bill, and that they may have to pick up some of the tab for some expenses caused by others lack of maintenance or delinquent payments.
One important element to keep in mind when looking to buy a condo is the fact that this segment of the market is more fragile than Single Family Homes. It is the last one to warm up in a great market, and the first one to cool down when the market slows. If an upward cycle-trend lasts 3 years, the condo market is probably good for two.
Availability: Generally speaking, when the market is hot (Sellers’ market), prices go up. More so of course when the demand is heavy and the supply is light… the kind of market that most areas in the country have experienced for nearly two years. When the inventory is scarce, buyers who cannot or do not want to wait, buy what they can find and can afford. This condition is ideal for the condo market.
Last year, in the heat of a strong market in spite of an acute lack of listings, the condos market has been on fire. While SFH sales shrunk in many urban centers due to skinny supply, condos sales jumped most everywhere. In downtown Boston, they were up 18% year-over-year. In the two main counties of the Silicon Valley, Santa Clara & San Mateo, they were up respectively 5% and 7%, while houses were down 8.7% and 5.1%. In terms of price, largely due to the affordability factor mentioned above, the dollar volume of condos sales grew, on average, more than twice as fast as that of SFH. As an example, it jumped 32% in Santa Clara County (only 8.5% for houses) and 34.5% in San Mateo County (half of that for houses).
Life-style: Last but not least of the 3 factors, as this one is now huge and fast gaining on the others. For some reasons, we, as human beings, want to enjoy life more, and not everyone thinks that it means pulling weeds over the week-end or working on the roof. It’s nice to relax when we come back home to a condo and not worry about the house falling apart while gone for the weekend or somewhere on vacation. Peace of mind is worth a lot of money. This is why condos are more & more attractive for all age-groups and playing catch-up in many areas with SFH prices.