Learn How To Start Investing In Real Estate
Learn How To Start Investing In Real Estate

New Condo Trend Encourages Investor Activity

Written by Than Merrill

Evolving trends, or better yet, how they are embraced, are directly correlated to the success of individual investors. Those ahead of the curve are often the beneficiaries of lucrative profits, whereas those behind the eight ball are left to fend for themselves. Subsequently, some trends are harder to spot than others, leaving some investors on the outside looking in. Uncovering the latest and greatest niche may as well be relegated to luck. However, for the first time since the recession, condos are serving as the catalyst of investor interest. Those who pay attention to the current condo trend may be in line for generous returns.

While the excitement surrounding condos was squelched by the recession, it appears to have made a comeback. The surge in condo popularity is particularly evident in Boston, Seattle, Los Angeles Washington, Houston, Miami, New York and San Francisco. These metros have seen a surge in new condo developments and potential buyers, as financing has gradually returned to those that were neglected as a result of the recession. Lenders are finally comfortable lending to those who were once considered a risk. Condos are also the beneficiary of the lowest apartment-vacancy rate the U.S. has seen in a decade.

“We’re in the very early stages of a long recovery in condos,” Sam Khater, deputy chief economist for Irvine, California-based CoreLogic Inc., said in a telephone interview. “Now you’re seeing rental booming, but today’s renters are going to be tomorrow’s condo buyers.”

Confirming the recent condo demand are statistics released by the U.S. Census Bureau: Builders broke ground on 22,000 for-sale multifamily residences last year. Those numbers represent a 4.8 percent increase from 2012 and a 47 percent increase from 2010. In the first quarter of this year, 8.5 percent of the 71,000 multifamily units that started construction were built with the intentions to sell, not rent.

While current condo statistics are more than encouraging, they are far from their peak in 2006. Prior to the recession, during the housing boom of 2006, 45 percent of multifamily home starts were comprised of for-sale units. However, following the downturn, developers shifted their attention towards apartment buildings. This was due, in large part, to the significant amount of individuals who lost their homes to foreclosure and younger buyers who could not afford to purchase. Apartments were naturally were the attention shifted, as to accommodate anyone without the appropriate funds to own. The shift to apartments, in association with the market collapse destroyed the condo industry.

However, high-end condo construction began making a comeback approximately three years ago. Manhattan, San Francisco and Miami all demonstrated an increased propensity for high-end condo retention. Smaller markets now appear to be catching on because of increased demand, tighter inventory levels and improved lender confidence.

According to the National Association of Realtors (NAR), the average resale price of condos in the U.S. climbed 8.3 percent in April from the previous year. The average resale price, taking the increase into consideration, now sits at $205,500. The jump is particularly encouraging when you compare it to single-family homes. In the same period, single-family homes jumped 4.7 percent to an average resale value of $201,100.

“The key is being able to jump in with the start of a project and finish it while the cycle is allowing you to sell condos at the number you anticipated,” said Ted Tye, managing partner of National Development, which has presold half of the 83-unit Sepia at Ink Block, scheduled to be finished next year in Boston’s Southend area. “In Boston, the window is open.”

First-time homeowners who previously weren’t able to afford a single-family home or even qualify for a mortgage, are fueling the current condo surge.

“There’s a lot of pent-up demand from first-time homebuyers and condos are a good first stop,” Crowe said in a telephone interview. “Dense developments like condos give the lifestyle they’re looking for.”

As conditions improve and more first-time homebuyers enter the market, condos will continue to remain a hot commodity. Their unique combination of affordability and desirable amenities make them a prime target for those not quite able to purchase a single-family home. Having said that, investors who recognize this may be able to capitalize on the emerging trend. Now may be a better time than any to expand your portfolio by purchasing condos. If the direction condos were heading prior to the recession are any indication, investors can expect condo demand to increase exponentially in the near future.