How Lagging Condominium Prices Could Help First-Time Home Buyers

The hot housing market is not completely uniform, and some cities and property types experience greater price gains than others. In particular, condominium prices overall are rising less than single-family homes, according to recent data from Black Knight.

The data company reports that single-family home prices rose 12.3% on average in 2020 – the highest appreciation rate since 1992 – but condos aren’t gaining as quickly. This could be an opportunity, especially for first-time buyers, in a market that hungry for inventory and or bidding wars are commonplace in many areas.

Read on to find out more about what this means and how some buyers might benefit.

What happens with the price of condos?

Condo prices were low in 2020, according to Andy Walden, vice president of market research at Black Knight.

“What we’re seeing right now is an extremely hot housing market, but it’s actually mostly driven by single family residences,” he said. Although single-detached home prices rose 12.3% on average last year, condo prices rose only about 6.4%.

“That in itself is interesting, but when you look at the housing market over 30 years, the way the housing market generally works is that when the housing market is hot you tend to see condos overtake single-family homes.” , Walden mentioned. “Given the current heat of the housing market, you’d expect condos to overtake single-family homes, but they run at around half that rate. “

He said he suspects the trend is mostly driven by people leave the densest parts of cities for areas where they can buy properties with a little more space. Single-family homes were particularly popular in 2020 as people searched for additional bedrooms and abandoned their trips.

“People who lived in these urban areas or worked in these urban areas may have seen dislocation or a change in lifestyle due to the COVID pandemic,” Walden said. “Now, maybe they want a home office or things of that nature, so you see a broader shift in the dynamics of the market as a whole. “

Why is this important?

Condo prices are often at the ends of the market, according to Walden: higher when the market is high and lower when the market is low, so it is rare for condo prices to diverge from the rest of the market as they are. doing now.

“There are really dueling forces putting pressure on house prices right now. These are record interest rates that we saw last year and there is a lack of supply in the market, which has worsened in the single family space over the past two months, ”he said. -he declares. “These two elements exert upward pressure on prices in single-family spaces. In the condo space, there’s a little less pressure on the inventory side, so we can sort of reduce it and isolate the impact of interest rates a bit more and maybe glean a few points. future inflection in the single family home market based on what we see in condos.

The housing shortage is not a new problem, but a dynamic market has intensified its impact this year, and there is little hope that the trend will reverse in the near term. However, condos are generally more available than single family homes given the current real estate trends, so this is part of the cause of the price disparity.

“The supply / demand imbalance is significantly different in condominiums compared to single-family homes; I think you’re going to see it at least during 2021. That’s really the big question in the market right now. Where do you see this influx of inventory coming from? Walden said.

“One of the potentials was this struggling inventory in the market due to extensions of the forbearance plan, it is unlikely to happen until the end of 2021, early 2022. The other potential influx has been the missed registrations from last year and the natural rebound in new registration volumes this year, we have yet to see that, “he added.” In fact, we are seeing a decline in news volumes. registrations this year. We have yet to see the answer begin to manifest in terms of the origin of this inventory. “

In some particularly competitive housing markets, condominium prices are even lower than the national average. According to data from Black Knight, single-family home prices in San Francisco were up 11% year-on-year, but condo apartment prices were actually down. Meanwhile, in nearby San Jose, single-family home prices again rose about 11%, but condo prices were only up about 2% year-on-year.

“There are five key markets: San Francisco, San Jose, New York, Boston, and Seattle, where you see all single-family homes appreciate 9-10% faster than condominiums,” Walden said.

Can first-time buyers take advantage of this trend?

First-time home buyers always have an advantage when a segment of the housing market is relatively affordable. Newbies are also generally more likely to be interested in condos to start with. But are first-time buyers still following this trend during the pandemic?

The relatively low prices “may suggest that they are not as interested in urban areas as they have been in the past. This could potentially be an opportunity for some of these home buyers, ”Walden said. “For some of the people who are really struggling and looking for inventory or finding homes for sale, you may see first-time homebuyers coming back to that condo space depending on what’s going on with the levels of. inventory of single-family homes this year. . “

With stiff real estate competition this spring, first-time home buyers are likely to need all the perks they can get to close the deal. Discover Bankrate tips for first-time home buyers if you don’t know where to start.

At the end of the line

Condominium prices are not rising as quickly as single-family home prices in the current real estate market, which highlights the changing real estate preferences of buyers and could present opportunities for potential newcomers who still live in the city. comfortable in dense urban areas.

It may be too early to tell if the condominium price trend portends further changes in the real estate market, but one thing is certain: Competition for housing will remain high at virtually all price points this spring.

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