Sugar Blossom

Price Appreciation in Condos versus Single-Family Homes

Going back about 50 years, the rule of thumb was that when prices went up, condos were the last to appreciate. When prices fell, they were the ?rst to go down. That’s changed.

Today, in many parts of the country, condominium price appreci­ation is faster than for single-family homes. Indeed, in many areas condos sell quicker and for more money per square foot than their single-family counterparts.

Trap-Getting The Right Comparison

Always compare apples with apples. When comparing prices between condos and single-family homes, do it on a square foot basis. If a 2000-square-foot house is selling for $300,000 and a 1500-square-foot condo is selling for $250,000, which costs more for what you get? The answer is the condo! The condo is selling for $167 a square foot, the home for $150 a square foot. It’s something to consider.

The reason condos are appreciating faster now than in the past is mainly because there are fewer of them available. Thirty years ago, builders swarmed to condominium construction and conversion. (A conversion is where an apartment building is converted to condo­miniums.) For the builders, the costs were less for multiple family dwellings, yet the prices they could get were handsome. So they built condos.

Then came the lawsuits. As it turned out, builders had grabbed hold of the tail of a tiger. When the roof on one or two units leaked, the HOA(Home Owners Association) often demanded that the entire roof over all the units be replaced before leaks could appear elsewhere. When the ground settled, the HOA sometimes demanded that the whole building(s) be lifted and a new foundation poured. Similar problems were found with plumbing, electrical, mold-all matter of things. Since the builders often had to guarantee the construction for as long as 10 years (in some cases by state law), they were faced with enormous liability.

Some builders went out of business. Others took the heavy ?nan­cial hit. But very few built more condos. In California, as an example, in 1999 there were roughly 20,000 new condo units built. By 2002 that number had dropped to roughly 2000.

As a result, in many areas there is a shortage of condominiums. And, consequently, the price of those available is driven higher.

Trap-When Older May Be Better

When buying a condo, it’s best to look for units that are at least 10 years old and that don’t have any pending lawsuits. Chances are that any construction problems will have already been taken care of. And you probably won’t have as big a risk of being assessed if the existing lawsuits go against the homeowners.

[tags]Price Appreciation, Condos, Single-Family Homes[/tags]