Normalized Pricing Resurrecting Condo Market... Relatively Speaking
The condo market that is. At least according to CoreLogic which says
condo construction completions are up 90 percent to 2,100 buildings in the
fourth quarter of 2013 from the trough of 1,100 condo buildings in hit in the
second quarter of 2012. Of course the
comeback trumpeted, at least in the construction area, is relative; there were
20,000 completions in the first quarter of 2008.
However there are other measures
besides construction that lead to the rosy picture CoreLogic's Sam Khater
paints in the company's Housing Trends
blog. The strengthening is also evident
in the market's ability to more quickly absorb new condos - indicating an
increase in demand to match the increased new condo supply. In 2013, condo
absorption rates, defined as the percentage of units which sell within three
months of completion, reached 82 percent - over twice the 36-percent low at the
height of the financial in mid-2008.
Khater says that the absorption rate
has increased in part because condo prices have normalized in two important
ways, both of which will draw more condo buyers back into the market and
encourage more construction.
First, the price of condos relative
to single family detached home values has declined over the last few years and
is back to levels of the early 2000s. At
that time both condo and single family median prices were around $138,000 but
as the market began to overheat condo prices rose much faster than single
family home prices. By March 2008 the
median condo price was 37 percent above the median single family detached home
price. Once the market started to cool
condo prices fell fast and by July 2013 the median condo price was 1 percent
below that of single family homes. This relative
relationship has continued thus far in 2014.
The normalizing of
new condo price premiums relative to existing condo prices has taken longer
than that between condos and single family houses. Khater said this is particularly important because
of its influence on the demand for new condos, a demand that was lacking until
18 months ago. From 2000 to 2003 new
condo prices sold at a 29-percent premium over existing consos but the housing
boom then pushed up existing prices much faster and reduced the new price
premium to 5 percent by 2005.
Once the market
crashed most condo prices declined rapidly but not new condo prices. By late 2011 the price premium had been
pushed to 80 percent. Since then
existing prices have surged while new condo prices "have moved sideways" and
the premium ceclined to 43 percent by this year. Khater says that while this is still modestly
above the levels of the early 2000s, "Given more recent improvements in the amenities and locations
of new condos, it is reasonable to expect the new premium to be even higher
than in prior "normal" times."