By: Luis Mejia, CoStar’s Director of U.S. Research, MultiFamily
The condo market seems to get stronger every day. The trend, which often raises concerns about a potential weakening of the apartment renter pool, was first anticipated back in the 2012 and confirmed last year.
This article seeks to put these observations in perspective, comparing the current condo upswing with that observed during the housing bubble period.
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Exhibit 1 shows total existing home sales and the corresponding share of condo sales over the last 13 years, as reported by the National Association of Realtors. In the 2009-13 post-recession period, the condo portion of existing home sales surged nearly 250 basis points, although with large fluctuations reflecting the wobbly housing recovery. Condo sales in this period increased more than 55% while total existing home sales grew by only 29%.
In contrast, between 2001 and 2005 condo sales increased more than 50% while total home sales multiplied by 37% as the housing bubble inflated. At that time, the condo share grew by only 150 basis points, albeit with small variations.
But while today’s condo share of the total existing home sales is approaching pre-recession levels, the absolute number of sales is still more than 30% short of the previous peak. And today’s condo market does not involve the irrational speculation of the mid-2000s, when renters fled apartments to get a share of the expanding home price pie.
A portion of the current sales are often to foreign investors in condo-rich markets like South Florida and to current homeowners looking to downsize.
The trend also likely includes a lingering effect of the Great Recession: Today’s renters still face financial, credit and mobility constraints, which make condos more affordable and flexible than single-family homes.
There is no question: The for-sale housing market is recovering, and with it, the condo market. But although the improving housing market gives renters a reason to think about homeownership, today’s rent-to-own transition is taking longer and is not likely to accelerate while interest rates and home prices rise, even if it involves a more-affordable condo option.
Homebuying may continue to be supported by the improving economy, but the number of renters moving out of apartments, including those moving to condos, is not likely to outnumber-at least not yet-those coming in as new households are formed.
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