The Campbell Reporter

Columns

Perkins on Real Estate

Condominium market yields opportunities for investment

By Broderick Perkins

If you've been searching markets outside Silicon Valley for a more affordable first home, second vacation home, rental property or retirement home, conditions are moving in your favor.

Unlike Silicon Valley, condo values in a growing number of metropolitan areas aren't weathering the boom-off as well as single-family homes, and that's good news if you need a bargain getaway or long-term investment property.

For the first time in more than two years, the median condo price in Metropolitan Statistical Areas is less than the median single-family price in metro areas, according to the National Association of Realtors' quarterly "Metropolitan Area Existing-Home Prices and State Existing-Home Sales."

That's because speculators are bailing out of once super-hot condo markets, and some potential first- and second-home buyers, thwarted by higher energy costs, are opting for the rental market instead.

As a result, generally speaking on a national level, condo inventories are rising and the sector is turning around faster than the single-family detached-home market.

"I'm not surprised, as condos tend to be the second alternative to the dream of a single-family home, so as prices cool and inventory mounts, would-be buyers look to the first choice, single-family homes, then to condos. So condos would naturally be slightly more volatile," said Romeo Danais, a real estate investor with the San Jose-based Romic Financial.

In the first quarter this year, the median price of single-family homes in 149 MSAs tracked by NAR was $217,900, up 10.3 percent from the same period in 2005. MSA condo prices in 56 markets came in higher at $224,100, but were up only 5.2 percent from last year.

The median condo price in NAR's quarterly report has been higher than the single-family home median since the first quarter of 2004 because of a statistically skewing quantum shift in demand for condos. That shift generated a high concentration of high-end condos and other high-density housing developments in many of the metropolitan areas covered in NAR's report.

Depending on the location, the growth in city core condo concentration, just like that in San Jose, is due to reduced land availability; the need for more practical, affordable and high-density housing as well as high-end condos; the anti-sprawl movement; and the cool factor--young professionals want to be where the action is.

NAR spokesman Walter Molony says price-boosting demand for condos can also be traced to capital gains tax relief beginning in 1998 and empty-nest baby boomers moving down or buying a second home, but seeking appealing amenities. At the height of the now-waning housing boom, condos also were selling like hotcakes to speculators and investors.

However, NAR President Thomas M. Stevens, a senior vice president of NRT Inc., said recently the condo supply has begun to outpace the demand.

When the first-quarter report was released, Stevens said, "Buyers generally have more choices in the condo market, so prices in many areas are fairly flat. Condos have good fundamentals, given the demographics of buyers, with baby boomers focused on the high end and their kids on more affordable units. However, in a handful of areas where there may be an oversupply, prices may levelout, so the longer your time horizon, the better your investment."

He was dead on.

By the time the second-quarter metro-market report was released Aug. 15, it revealed, for the first time since the first quarter of 2004, that the condo/single-family home price anomaly had vanished.

In the second quarter, 151 metropolitan areas yielded a $227,500 median price for single-family homes, up from $219,400 a year earlier. Condo prices in 57 markets, on the other hand, were at a median of $225,800, less than the single-family median and down 0.3 percent from a year earlier as more than a handful, 14 markets, revealed price declines.

Condos in many of those markets are not cheaper than they were a year ago.

From the second quarter of 2005 to the second quarter of 2006, hefty home price declines were found in some attractive MSAs, including Atlanta, Ga.; Palm Bay, Fla.; Portland, Maine; Reno, Nev.; Salt Lake City, Utah; San Diego; Virginia Beach, Va.; and Worcester, Mass.

Meanwhile, in Silicon Valley, condo prices have dropped in recent months, but the median condo price remains up nearly 7 percent from a year ago--$512,500 in July 2006 compared to $480,000 in July 2005, according to Richard Calhoun, real estate broker with Creekside Realty in San Jose and publisher of the Bay Area Real Estate Market Newsletter, a report comprised of statistics from the area's multiple listing service, R.E. InfoLink of Campbell.

"For buyers, this is a great time to purchase. Higher inventories mean more choices, and more choices mean more negotiating power. Along with lowering prices, sellers are adding all sorts of buyer's incentives from allowances for repairs, furnishings and offering to pay closing costs," said Christine Karpinski, real estate investor, author and director of Owner Advocacy for HomeAway.com, a network of vacation rental listing websites.

She added, "If you have been dragging your feet on buying a vacation home, there's no better time than the present."

Real estate writer Broderick Perkins, executive editor of San Jose-based DeadlineNews.Com, writes regularly for this newspaper.