Could Multifamily Property Sales Be a Sign of Hope for the Overall Market?
- Jul 30, 2008
On Thursday, the National Association of Realtors reported overall existing-home sales–including single-family, townhomes, condominiums and co-ops–declined 2.6 percent.
However, as MHN wrote, not all real estate sectors showed a decline.
- Single-family sales fell 3.2 percent.
- But condominium and co-op sales increased 1.7 percent.
Yes, condo and co-op sales are still below last year’s level. But the fact that they rose at all–as sales of other property types continued to decline–is good news.
As the single-family market continues to navigate through rocky waters, multifamily units are still moving for a number of reasons.
- Lower prices are making condos an even bigger value. Single-family and multifamily prices have already plummeted a fair amount due to slow sales and a growing amount of foreclosures.
That’s not to say multifamily units with lower prices are worth less: It’s just a result of what’s been going on in the market for months.
As lenders who are eager to unload properties they’ve foreclosed upon put them up for sale at drastically reduced prices, median prices in the area often decline. (It is, after all, a competitive market.)
And there are plenty of foreclosures to alter the market: Just last week, RealtyTrac said foreclosure filings rose 14 percent over the past quarter.
As a result, prices have fallen in many areas of the U.S. In some areas where prices have already fallen a significant amount–such as condo-friendly Palm Beach, Fla.–condos are selling extremely well.
In June, existing condo sales in Palm Beach grew 9 percent–that’s compared to 2007 levels. June was the third month in a row the area saw an increase in sales compared to last year.
Part of the reason the condos are selling so well is that they’re cheaper than they were a year ago. The median price has fallen 24 percent, dropping from $201,500 to $153,200.
- Cautious buyers could be multifamily buyers. Lower prices haven’t sparked sales everywhere in the U.S. In the past few months, experts have speculated that the bulk of potential buyers are waiting for prices to fall even further.
A recent NAR survey found about a quarter of potential home buyers are holding off on purchasing a home.
But buyer profit concern, along with tighter lending restrictions–especially for bigger loans needed to buy pricey properties–is good news for the multifamily market.
Buyers looking to spend less and secure a bigger return on their investment (for the most part, that’s everybody) are wise to consider a condo or co-op.
As the NAR numbers indicate, their resale value is stronger. According to the NAR, the national median existing sales price for single-family structures was $213,800 in June; the average condo sold for $224,200.
A Bright Multifamily Future
The increased demand for new multifamily units also indicates that their popularity with buyers–as well as with investors who are backing the projects–is on the rise.
Led by a 242 percent jump in the Northeast, construction of multifamily units increased 43 percent to an annual rate of 419,000 in June, according to the Commerce Department.
At the same time, single-family construction fell 5.3 percent, hitting its lowest level since 1991.
Why such a difference? There are a number of possible reasons: The investment potential a condo offers; a growing concern about buying large, expensive single-family properties that may not resell well down the line; higher gas prices that are prompting consumers to look downtown to avoid long commutes.
We many never isolate a single reason why multifamily properties have remained strong throughout the housing slump–but we do know that the strength of the multifamily market could help us get out of it.
Some, including NAR chief economist Lawrence Yun, are hoping first-time buyers will reinvigorate the market. Yun recently noted that roughly four in 10 properties are bought by first-time buyers, allowing pre-existing homeowners to trade up into a new property.
Because condos are a popular choice for first-time homebuyers due to their size, price and amenities, it’s entirely possible that the high demand for new condos and strong sales of pre-existing units could give the overall housing market a big boost.
Why do you think condos are still selling well? And what role do you think they will play in the future of the housing market?
Tell us what you think by posting below.