In many metro areas across the United States, there are now two totally distinct housing markets within the same community. One is for condos struggling to find buyers. The other is for single-family homes -- with at least a patch of yard -- and is overwhelmed with demand from wannabe owners.
Advertisement
“Buyers who want the traditional detached house with a yard in a nice neighborhood are beyond exasperated trying to compete with other bidders,” says Alexander Cernik, a real estate agent based in the tony suburb of Arlington, Virginia.
Cernik, who is 35 and still renting an apartment himself, has been on a long-term search for a detached house for the better part of this year. Unlike many in his millennial generation, he’s willing to accept a fixer-upper that would require extensive kitchen and bathroom renovations. Ideally, he could find such a property at a below-market price, allowing him to compete with other bidders in the still frenzied Northern Virginia market.
The major problem for people searching for detached houses in coveted metro neighborhoods like Arlington is an extreme shortage of available properties.
Unfortunately, the problem for many buyers is that prices in high-demand areas have continued to escalate. Meanwhile, few homes are available in such communities, given that many owners with mortgages around 3% are refusing to move.
“Demand is low, but inventory is even lower,” says Glenn Kelman, the CEO of Redfin (redfin.com), the national real estate brokerage.
The shortage of supply in many metro areas is pushing up prices. As Kelman notes, June was the second straight month when sales prices have topped asking prices across the nation. Meanwhile, buyers continue to face punishingly high mortgage rates.
Because of the unfavorable economics and extreme competition for detached houses in popular metro areas, some buyers have given up the chase and are now refocusing their search to favor condos in the same general area.
“Condos just haven’t appreciated as much as single-family houses. They are also more widely available in many markets than are separate houses,” Cernik says.
Are you giving up your quest to find the perfect single-family house and have now come to accept that a condo could be your most realistic choice -- at least for the near term? If so, these pointers could prove helpful:
-- Examine data to validate your hunches about the right condo building.
“Look at the resale history for the building going back as long as four years. Notice especially the median number of days it takes to sell units in the building. The more days it takes to go from list to sell, the less liquid the building,” says Fred Meyer, a longtime agent in the Boston area.
Also, he says you should be sure to check the “reserves” of the building -- which translates to the amount of money owners there have set aside for key repairs and renovations.
“If the building needs a new roof and there’s no money for this, all the owners could be hit with a big special assessment. A poorly financed building can become rundown, making it less desirable for future owners,” Meyer says.
-- Question whether a low-condo-fee building would be a good deal.
Nearly all condo buildings impose “condo fees” on their residents. Among other expenses, these monthly charges cover the cost of routine upkeep on a building and its grounds along with support services, like a concierge at the front entrance.
Meyer says would-be condo buyers sometimes shop for a building with the lowest possible monthly fees to contain expenses. But seeking out a building with rock-bottom fees could be a mistake.
“A building with very low fees could actually decline in value due to poor maintenance. That could make your unit hard to sell in the future,” he says.
-- Reject a building with many renters.
Homebuyer advocates are wary of buildings in which a large percentage of the units have been rented out by their owners.
“Owner-occupants feel a natural pressure to ensure that a building is adequately maintained. Renters don’t feel that pressure,” Meyer says.
What percentage of owner-occupants is sufficient? In most cases, Meyer says you’ll want to see more than half the units occupied by owners. However, this rule may not hold in a resort community where seasonal rentals are the norm.
Though it’s wise to avoid a building with a large number of renters, Meyer says it’s also smart to avoid one that prohibits owners from renting out their units.
“That’s a huge right to give up, to be forbidden to rent out your apartment if you want or need to do so down the line,” Meyer says.
-- Pick your condo unit wisely.
Even in the ideal building, not all apartments are created equal. Some will be more salable when it comes time to put your property on the market.
Meyer says it’s usually unwise to buy one of the most expensive condos in a building, such as a penthouse, unless statistics show such apartments have sold readily and for respectable prices.
“It’s usually smarter to buy one of the less expensive units in a building that also has high-end units. Then, over time, the high-end units will help hoist your property values,” he says.
(To contact Ellen James Martin, email her at ellenjamesmartin@gmail.com.)