What’s the fastest-appreciating form of real estate investment in the U.S. economy?

Single family housing? Second homes at coastal resorts?

Guess again. The latest national real estate pricing data confirms a trend that’s been quietly underway for over a year: Condominiums -- apartment units or townhouses -- are gaining over twice as fast as conventional detached houses. NAR researchers have found that whereas the nationwide median price of single family resale homes was up by 7.4 percent during the past year (to $169,900 at the end of the second quarter), the median resale condo price was up 15.1 percent during the year (to $163,500).

S. Lawrence Yun, NAR’s senior economist, told Realty Times that “although the condominium market traditionally lagged behind the detached single family market, that is no longer the case.”

Condos “are producing much bigger gains” for their owners, said Yun, and it’s no longer solely because they tend to cost less. Barely $6,500 now separates the median prices of the two housing types nationwide, “so you have other factors at work here.” These include rising demand by empty-nesters and retirees looking into luxury condos after selling the family home, and heavy demand at the low end of the market by first-time buyers.

Regionally, the biggest payoffs on condo sales appear to be in the West, where the latest median condo price is $211,300 -- up 23 percent from the year before. In the South, the second quarter median-priced resale condo went for $131,500 -- up 17.2 percent over the year before. In the Midwest, gains were more modest -- up 6.3 percent (to $158,900) from second quarter 2002 to second quarter 2003.

In the Northeast, on the other hand, condo resale prices jumped 22 percent during the past year, with the median price at $177,600.

Yun said low interest rates and widely available mortgage financing options for resale condos “contributed significantly” to the big jumps in prices.

Overall sales volume for condos also hit an all-time record in the latest NAR survey -- soaring to a seasonally-adjusted annual rate of 861,000 units nationwide. The previous record sales rate was 829,000 units in the final quarter of 2002.

Yun added that in many metropolitan areas the “low-cost condo market is red hot,” pulling in first time and immigrant purchasers.

“When you’ve got that level of demand at the very bottom of the market,” he said, that allows sellers to come away with solid equity gains and move those dollars to the next rung up the ladder in the local housing market -- either a higher-cost detached house or a higher-cost condo. That, in turn, allows the whole move-up cycle to progress, eventually translating into more sales and profits and progressively higher-cost segments of the market.

The bottom line: get rid of your old presumptions about condos. They are the appreciation stars of the new decade.

Published: August 18, 2003

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Kenneth R. Harney writes an award-winning, nationally-syndicated column on housing and real estate from Washington, D.C. He is also managing director of the National Real Estate Development Center, a professional education company. He is a past member of the Federal Reserve Board's Consumer Advisory Council, a committee that by federal statute reviews all Fed actions on home mortgage, consmer credit and banking industry regulation. He served as a member of the U.S. Department of Housing and Urban Development's Working Group on Computerized Loan Origination (CLO) systems, and is a member of the Editorial Board of the Fannie Mae Foundation's journal, Housing Policy Debate. He is the author of two books on mortgage finance and real estate.