What Happened to the Condo Market?

February 23, 2018

The condo market has softened in recent years, but some housing analysts are wondering why. Several economists have pointed to condos as a more affordable alternative to traditional single-family homes, as demand for lower-cost housing from first-time buyers picks up. While townhome construction is reportedly now on the upswing, the construction of condos has been mostly stagnant.

Realtor.com® notes in a new article that builders generally have an easier time renting out apartments in multistory buildings and towers on a monthly basis than selling condo units. It can also be more difficult to obtain financing on constructing condos than apartment rental buildings. Adding to the difficulties, some cities and state laws have left condo builders liable when issues arise from new developments, which can result in costly lawsuits. Banks have sharply curbed lending for condo construction, too, scarred from the losses of the recession and the housing crisis.

Condo construction comprised just 7 percent of the multifamily market in 2016, according to U.S. Census Bureau data. That is down from an average of 22 percent a year from 1985 to 2003. The condos that are being constructed tend to be high-end units in high-cost cities.

“Apartments have always been a larger share of the multifamily construction, but it’s even higher now,” Michael Neal, an economist at the National Association of Home Builders, told realtor.com®. “Virtually all of multifamily construction is apartments.”

Existing condo and co-op sales rose 1.6 percent in January to a seasonally adjusted annual rate of 620,000, the National Association of REALTORS® reported this week. But sales are still 4.6 percent below a year ago. NAR reports that the national existing condo price was $231,600 in January, 7.1 percent higher than a year ago. 

A stronger demand for condos may be on the horizon, Neal says. The location of condos in pedestrian-friendly city centers may make them desirable to both younger generations and downsizing baby boomers. 

Source: “What’s Missing From the Housing Recovery? New Condos,” realtor.com® (Feb. 22, 2018)