Condos make a comeback
Single-family residences continue to get snatched up fast after multiple bids. Townhomes disappear quickly from the market, too, nowadays. That means many buyer hopefuls are left to consider what is often their last homeownership option: a condo unit.
Not surprisingly to many, condos are selling above their asking price for the first time in at least nine years, with the typical condo unit being claimed in a record 22 days, according to the latest research by Redfin. Across the country, in June the average condo sold for $304,000 (0.7% beyond its asking price, up from 0.4% in May). While the Redfin report notes that this uptick could be attributed to a seasonal pattern (average sale-to-list ratios for condos usually peak by late spring), 2021 represents the firstyear condos are selling for higher rather than below-asking price.
“This trend is happening due to high housing prices and extreme seller’s market conditions dominating most markets,” explains Sara Coers, associate director of the Center for Real Estate Studies at Indiana University’s Kelley School of Business in Indianapolis. “Condos tend to have lower asking prices and may constitute a major part of the affordably priced housing within a given area.”
Consider that the more affordable a home is, the more people compete to own that property. And demand for homes has risen rapidly over the last year, with a substantial undersupply of units available.
“This supply-demand imbalance has created conditions that have driven up prices to record levels and created a buying frenzy that has exacerbated this existing supply shortage, leaving us with an extreme case of the seller’s market,” Coers continues. “As home prices rise, the pool of buyers who can afford higher prices shrinks, and more buyers funnel down into lower price points. This leads many people to condos — which can be affordable.”
Michele Harrington, COO of First Team Real Estate in Southern California, seconds these sentiments.
“It can be difficult to get your foot in the door
of homeownership with today’s high home prices, and a condo is the perfect first-time buyer property,” she explains.
“Their popularity can also be attributed partially to the younger generation’s lifestyle preferences. Millennials tend to gravitate toward walkable communities with more amenities and aren’t necessarily ready to sign up for yard maintenance or fixing a leaky roof. Condos make great starter properties because, while you have to pay your monthly homeowners association fees, you get a whole host of extra low-maintenance perks to make your life easier.”
Geordie Romer, managing broker for Windermere Real Estate in Wenatchee, Washington, notes that demand for condos in his market experienced a slight slowdown at the beginning of the pandemic but rocketed higher in the second half of 2020, with that trajectory continuing upward into 2021.
“Condos are mostly making a comeback because a rising tide lifts all boats. Prices on all residential properties in almost every market are going up,” Romer says. “I also expect that downsizers are taking advantage of a hot market and selling larger homes while replacing them with smaller condos.”
Romer adds that condos make a great choice for first-time buyers as well as downsizers and anyone seeking to get away from home maintenance chores. But it’s crucial to do your homework before committing to a condo.
“Look closely into the financial reserves of the condo association, and be on the lookout for future assessment increases. Condos with low monthly fees might have a large assessment coming to make up for lack of reserves,” Romer cautions.
Additionally, be sure to select a condo that has the amenities you value.
“Picking a condo with reasonable association fees as well as having a backyard, in-unit laundry and shared community amenities like a pool is important to many buyers and families,” suggests Donald Olhausen Jr., a San Diego-based real estate agent and investor.
He believes condo demand and prices likely won’t be coming down anytime soon.
“This trend toward condos will continue as long as there is pressure on the housing market. Condos are appreciating in value in a similar fashion to traditional homes,” Olhausen says. “And as long as interest rates remain low, coupled with a shortage of inventory, condos will continue to sell above asking price.”