As the housing market cools, it may be a good time to take a hard look at buying into a community association for a more affordable first home, a vacation home, rental property, retirement home or long term investment.
Speculators are bailing out of once super hot condo markets and some potential first and second-home buyers, thwarted by higher energy costs, are opting for the rental market instead.
As a result, condo inventories are rising and the sector is turning around faster than the single-family detached home market.
In June, single-family home sales were down 8.2 percent from June 2005 as the median price came in at $231,500, up 1.1 percent from a year ago, according to the National Association of Realtors.
Meanwhile, during the same period, condo and cooperative housing sales fell harder, by 14.6 percent and the median price was down by 2.1 percent to $226,900, the association reported in its latest monthly tally to date.
The less frequent, quarterly "Metropolitan Area Existing-Home Prices and State Existing-Home Sales" is even more telling.
For the first in more than two years, the median condo price in metropolitan statistical areas (MSAs) is less than the median single-family price in metro areas.
In the first quarter this year, the median price of single family homes in 149 MSAs was $217,900, up 10.3 percent from the same period in 2005.
MSA condo prices in 56 markets came in higher at $224,100, but were up 5.2 only percent from last year.
The median condo price in NAR's quarterly report has been higher than the single-family home median for more than two years because of a statistically skewing quantum shift in demand for condos. The shift generated a high concentration of high-end condos in metropolitan areas covered in NAR's report.
Depending on the location, the growth in city core condo concentration is due to reduced land availability; the need for more practical, affordable, and high-density housing as well as high-end condos; the anti-sprawl movement; and the cool factor -- young professionals want to be where the action is.
NAR spokesman Walter Molony says price-boosting demand for condos can also be traced to capital gains tax relief beginning in 1998 and empty-nest baby boomers moving down or buying a second home, but seeking appealing amenities. Also, during the last housing boom, condos were selling like hot cakes to speculators and investors.
The result?
"Tight supply resulting in sharp appreciation and a growing mix of upper-end units being resold over time. So the quality of the existing condo stock has been upgraded over time. Even so, within a given area, condos still cost less than single family," said Molony.
NAR President Thomas M. Stevens, a senior vice president of NRT Inc., said recently, the condo supply has begun to out pace the demand.
"Buyers generally have more choices in the condo market, so prices in many areas are fairly flat. Condos have good fundamentals, given the demographics of buyers, with baby boomers focused on the high end and their kids on more affordable units. However, in a handful of areas where there may be an oversupply, prices may level-out, so the longer your time horizon the better your investment," he said in a prepared statement with the first quarter release of metro prices.
He was dead on.
By the time the second quarter metro-market report was released August 15, it revealed, for the first time since the first quarter of 2004, that the condo-single family home price anomaly had vanished.
In the second quarter, 151 metropolitan areas yielded a $227,500, median price for single-family homes, up from $219,400 a year earlier. Condo prices in 57 markets, on the other hand, were at a median of $225,800, less than the single-family median and down 0.3 percent from a year earlier as 14 markets revealed price declines.
NAR's monthly report for July, due later this month will likely reveal further strain on the condo market that could hurt recent buyers looking for a fast return or short-term sellers looking to move up or get out.
"New condo owners who are counting on renting their properties to vacationers should be prepared to work harder than might have been necessary even a year ago," said Emily Glossbrenner a partner with Yardley, PA-based FullyBookedRentals.com, a website for resort and vacation rental owners.
"Property owners who used to fill their available weeks by advertising on three or four of the leading vacation-rental sites are finding that they have to expand their advertising programs and pay a lot more attention to their ads in order to stand out from the competition," Glossbrenner said.
For buyers, however, it could be bargain time in condo land.
However, even with conditions growing increasingly more favorable for condo bargains, the deal is not to be consummated without considering a lifestyle which is different from single-family home living.
Buying a condo or town home or other community association-governed home is a lot like buying a share in a closely held, publicly-traded, non-profit real estate holding corporation. Often it is run by volunteers, but with the help of a professional management company.
You don't just buy a home, you also enter into a partnership with strangers and understanding how that can impact your life is key before you make the plunge.
Most, but not all, who take the time to understand the difference, generally enjoy their decision.
Some 57 million home owners live in association-governed communities today, up from 45.2 million in 2000, according to the Community Association Institute.
Zogby International, for CAI, conducted a nationally representative study of community association residents in 2005 and found:
- More than seven in 10 rate their overall community association experience as positive, while just 10 percent expressed discontent. One in five expressed neither point of view.
- Most of them, 78 percent, said their community association's rules "protect and enhance" property values, while just 1 in 100 said these rules "harm" property values. About 20 percent said rules have no impact on property values.
- The vast majority, 80 percent of community association residents, said they are pleased with the return they get on their community association assessments.
- Even more, 89 percent, said their community association board members strive to serve the best interests of the community as a whole.
- Most, but not all, 78 percent of those whose associations employ community managers, said their managers provide value and support to residents and the community as a whole. Of those who have had direct interaction with their community managers, 88 percent said the experience was positive.
