Paul Herstein is in a good spot. The Seattle oncologist has shopped condominiums in eight cities — including San Diego, Miami and Chicago— for the past year. He wants a top floor on a building with a water view. He can pay cash. And he's in no rush to buy.
"Time is probably on my side," he says. "Sellers will have to become more realistic over the next year or so."
The most recent housing figures indicate Herstein may be right, at least in some markets and in some price ranges.
While evidence mounts that the single-family-home market is stabilizing, the condominium market remains "substantially weaker," says Lawrence Yun, chief economist for the National Association of Realtors.
In April, resale condo and co-op sales nationwide were down 9.4% from a year ago vs. a 2.8% drop for single-family homes, the association said Wednesday. Median prices fared worse, too, with condo prices down 18.5% year-over-year vs. 15% for single-family homes.
More distress is likely for the condo market, says Bradley Hunter, chief economist for market researcher Metrostudy. He says some markets could see condo prices drop 60% from their peak in 2005 or 2006. While some single-family-home markets will hit bottom next year, Hunter doesn't see that for the condo market until 2011. That's because it typically takes years to construct condo projects so new units have continued to come on line despite the real estate downturn.
"It is absolutely a buyer's market," says Paul Berg, 73, a forensic psychologist who, with his wife, recently paid $1.4 million for a new, 2,000-square-foot condo in downtown San Diego. A year ago, the price was twice as high, Berg says.
For those on the selling side of the market, the downturn has been intense.
•Prices for condos in South Florida have plunged 40% to 50%, or more in some buildings, from original prices in 2004, 2005 and 2006, Metrostudy says. Recovery is far off. In Miami-Dade County, which includes downtown Miami, condo inventories are at a 41.5-month supply at the current sales rate, Hunter says. "That's a mammoth number."
•In Minneapolis-St. Paul, the average sales price per square foot for a condo is about 16% less than it was three years ago, says the Minneapolis Area Association of Realtors. Recent sales activity "has come to a grinding halt," says downtown condo expert Kristen DuLac of Edina Realty.
•In Austin, buyers at a recent auction got condos for 15% to 20% less than similar units that sold in late 2008, says Rhett Winchell, president of California-based Kennedy Wilson Auction Group. His company has done almost three dozen condo auctions for builders in the last two years.
Additional challenges
The same factors dogging single-family-home sales have hurt the condo market, including rising unemployment, stock portfolio losses and tightening credit. The condo market faces additional challenges. For one, single-family-home prices in some markets have dropped so much they're attracting what would have been condo buyers, Winchell says. Condo loans are also tougher to get now than single-family-home loans.
"Lenders have greatly tightened restrictions because they see condo properties as a little more risky," Yun says, in part because occupancy rates in buildings can vary a lot.
To woo buyers, condo developers have been "aggressive with incentives," says Wendy Leung, condo expert at John L. Scott Real Estate in Seattle. A new condo development there, Gallery, is offering buyers incentives such as a credit of 3% of the purchase price toward closing costs, or no homeowner dues until 2011.
Developers are also relying more on rentals. In Las Vegas, the number of rentals in some luxury high-rise condo buildings on or near the Strip has doubled in recent years, says Bruce Hiatt, owner of Luxury Realty Group. "Owners or developers are buying time," he says.
In San Diego, Mark Mills, Realtor and condo expert for Re/Max Real Estate Consultants, estimates that 50% of the units in his San Diego condo building are owner occupied, down from 75% in 2004.
Despite the prospect of more distress ahead for the condo market, some markets show signs of improvement, Realtors say.
In April, Seattle had 13% fewer condos for sale than the same month a year earlier. Pending sales were up 1% year over year, Leung says.
Las Vegas' Hiatt says prices have dropped so much that multiple offers are now common. He says he's lost seven deals in recent weeks to multiple offers. "People didn't expect this to happen until next year," he says. "We are firming in price as well as demand."
In San Diego County, resale condo prices in April were down 55% from their peak three years earlier, says market researcher MDA DataQuick.
That big plunge — and recent rise in sales activity — is encouraging, says San Diego condo developer Nat Bosa of Bosa Development. In July, it'll reopen sales of the Bayside at Embarcadero condo project after a year of inactivity. "There are many more buyers out there now," Bosa says.
Some buyers aren't waiting for anyone to call an official bottom. Marianne Rose and her husband bought a Seattle condo in April. They paid $213,500 for a 568-square-foot unit near downtown. A year ago, similar units were selling for at least $240,000, says Rose, a therapist.
The condo gives the family, which includes four daughters ages 11, 15, 18 and 21, an alternative to commuting from their home on nearby Vashon Island. Rose's husband, who works in network communications, works a block from the condo and one daughter attends a nearby high school. The couple expect to own the condo for decades.
"We're probably crazy, taking a risk in this economy," she says. "But you only know where the bottom is when you look back."
