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Condo Resale Rates Pass Houses

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 detached single-family resale houses.

New national survey data show that the median price of a resale condominium in the second quarter was up 15.1 percent from the same period of 2002. The median price of detached single-family houses nationwide, by contrast, rose 7.4 percent.

Equally significant, the gap in overall pricing between condos and traditional homes 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.

S. 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 homeownership for first-time buyers. 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 year-over-year, to a record median price of $211,300. In the Northeast, condo resale prices hit a median of $177,600, up 21.6 percent from the second quarter of last year.

In the South, the median resale condo went for $131,500, a 17.2 percent annual increase. In the Midwest, the median condo gained 6.3 percent, to $158,900. It was the only region where condominiums appreciated at a rate 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 fourth quarter of 2002.

What's behind the relatively sudden transformation of condos into the premier profit-producers in real estate? Part of the answer, Yun said, is demographics. In almost every metropolitan U.S. market, baby boomers are looking at empty, or soon to be empty, nests. The children 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. Condominium communities often come with superior facilities compared with detached houses in traditional neighborhoods, such as exercise rooms, pools, tennis courts and no lawns to mow or gardens to weed.

Resales at this end of the market are squeezing away the historically large differentials in median prices between detached houses 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 market by low mortgage interest rates," Yun said. They are newlyweds, middle-income renters who find that with rates around 6 percent they can now afford to own a home for the first time.

Yun said "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 may have also 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 suggest this might be the case.

Polling data from recent second-home buyers interviewed this past spring by the National Association of Realtors confirmed that a rapidly rising percentage of buyers 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 houses. And you can take that statistic all the way to the bank.

Kenneth R. Harney's e-mail address is kharney@winstarmail.com.

 

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