In Search of the Unattached
When Wendy and Charles Shapero bought their first house last year, it wasn’t a condominium, even though that was the most affordable option.
“I didn’t want to feel like I was living in an apartment,” said Wendy, 26, a preschool teacher.
Instead, the couple plunked down a little bit more for a “cluster” home in the Brittany subdivision of Foothill Ranch, which has six narrow detached homes huddled around a central courtyard. These homes aren’t much bigger than a condominium and share many of the same features, including a homeowners association.
But they’re not attached, and for many buyers today, that’s what counts.
In recent years, condominiums have become real estate pariahs in Southern California as prices have dropped and construction defect suits have become commonplace. Simply put, nobody wants to buy condos and very few builders will build them.
“It’s a tough sale; people don’t want other people on top of them and on all sides,” said Kristen Fowler, an agent with Coldwell Banker in Yorba Linda.
Most important, buyers don’t want a home that won’t hold its value.
Since 1991, the median per-square-foot price of resale condos in Orange County has dropped 21%, while the price per-square-foot for existing detached homes fell only 15.5%, according to Acxiom/Dataquick.
There’s no single reason for the disproportionate drop in values. Real estate agents blame some lenders for dumping foreclosed properties on the market at fire sale prices. Experts also say condo complexes in some areas are not maintained and are difficult to sell.
But the recent housing slump may be the main culprit. The falling price of detached homes
has brought many of them into
the range of first-time buyers, who generally make up the condo market.
During the boom times of the 1970s and 1980s, young professionals sought condos because they couldn’t afford the extra 20% for a single-family home, but wanted the tax deductions of home ownership, said John Shumway, president of Costa Mesa-based Market Profiles.
Today a small detached home can go for as little as $155,000, the median price of a condo in 1991.
“If the buyer has a choice, he’ll take detached over attached every day,” Shumway said.
But don’t count condos out yet, he added. The real estate market is ever cyclical. “As prices go up, the condominium market will come back,” he said.
The roots of attached housing date back to colonial times, when two- and three-story townhouses were built in urban areas.
During the industrial era of the 1950s and 1960s these townhomes, near manufacturing centers, were subdivided both horizontally and vertically, creating condominiums. At the same time, condominiums began cropping up in resort and retirement communities along the East Coast, especially in Florida.
However, condos didn’t appear on the California scene in any significant way until the 1970s and 1980s when the state’s population exploded and land prices soared. At that time condominiums were marketed to singles as an affordable way to enter the housing market. Young professional couples sought them as part of a lush lifestyle, chock full of amenities like racquetball courts and swimming pools, but minus the upkeep.
People bought them as investments, renting them out until prices went up, and then selling them. Condos sold so well that construction boomed to the point of oversupply in this market, analysts say.
Then the housing slump hit and builders started having trouble lining up buyers.
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Condominiums suffered most in older neighborhoods where the existing housing stock was not that expensive, including parts of Santa Ana, Anaheim, Stanton and Lake Forest.
But the impact also was felt on the high end.
In places like tony Ocean Avenue in Long Beach, the developers of several complexes went bankrupt and many projects still stand vacant or unfinished.
Paul Gaillard, 58, a Long Beach real estate agent, bought into one of these high-rise units in 1989. At the time, he thought he was getting a sweet deal: a two-bedroom ocean-view unit for $530,000. Six months after he bought it, he was offered $50,000 more than he paid. Looking back, he kicks himself for not taking that deal.
The next year the bottom dropped out of the market. After trying unsuccessfully to renegotiate with his lender, he let the bank foreclose on the property, losing his $150,000 down payment. Recently the unit sold for $275,000.
“It’s never going to get back to half a million--not in my lifetime,” Gaillard said. “Most people’s first choice is to have a yard and no association dues. The baby boomers aren’t as entranced with the condo as my generation was.”
January’s flood of condo sales is proof of that. More people than ever are unloading their condominiums to get into detached homes, which they perceive as a better investment.
“Anything under a three-bedroom house just doesn’t hold its value,” said new cluster-home owner Wendy Shapero.
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Condo construction has shriveled in Orange County since the 1980s. From 1987 to 1996, the number of permits pulled for construction of multifamily housing, which includes condominiums, dropped 80% to 2,637, while the number of permits for single-family units dropped only 24% to 7,074.
Builders say condos cost too much to build. For instance, Brittany cost $40 per square foot. Its attached counterpart--the Orchards in Tustin, also built by John Laing Homes Inc.--cost 25% more.
Builders blame the cost increase on higher insurance premiums needed to protect themselves from construction defect claims. These claims, which have mushroomed in recent years, stem from some of the shoddy building practices in the 1980s.
At that time, lenders were pressuring developers to complete projects under tight schedules. Steps in the building process were often skipped and glossed over, only to be discovered later, attorneys say.
Attached projects were more susceptible to these defects because of their larger size and common elements including roofs, walls and drainage, said Karen Conlon, president of the California Assn. of Community Managers.
Industry insiders say condos also are an easier target for attorneys, because of their homeowners associations, which are responsible for the upkeep of the property.
Instead of pursuing separate suits for a number of detached homes, attorneys could file one suit on behalf of these 400-member associations, saving time and garnering bigger settlements.
Some attorneys do target condo associations for frivolous suits, acknowledges Ross Feinberg of Newport Beach-based Feldsott, Lee & Feinberg. In fact, some “prospect” for damage at complexes around the Southland. But, he said, a credible attorney won’t advise you to sue unless there are significant damages.
The high number of claims has taken its toll on insurance premiums and coverage. Only a handful of major carriers will insure condo construction in Southern California. The ones that do have doubled premiums in the last few years, increased deductibles and reduced coverage, according to Tom McCall, a vice president with Anderson & Anderson Insurance Brokers Inc. in Irvine.
“We are only building condos in Northern California now,” said Les Thomas, Southern California division president for Shea Homes. He said the pace of construction in the north wasn’t as frantic, the projects built were smaller and they didn’t attract as much attention from attorneys. “The litigation process is nowhere near as invasive as it is here.”
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Since 1993, “pulled-apart” condos known as cluster homes have become the salvation of home builders looking to build a lower-priced home for the first-time buyer.
The first cluster home community in Orange County, Los Abanicos, was built by Newport Beach-based RGC Development in Rancho Santa Margarita in 1993. Since then, many major home builders have started building these smaller homes, including Western Pacific Housing, California Pacific Homes and John Laing Homes.
They may look like detached homes, but these cluster houses act just like condominiums, with no lot lines and shared recreational amenities.
But to Brittany buyer John Nicholas, 28, who is planning a family with his wife, Jennifer, 27, it feels like more of “real” home.
“I felt like we were just on top of each other in some of the newer [condo] developments,” Nicholas said. “It was so cluttered. Here I’ve got a boundary of my own. I’ve got a fence around the yard.”
For this sense of space, buyers like Nicholas are willing to pay more than for a condo of the same size. The Brittany homes are no larger than Laing’s condo project the Vineyards across the street. But the homes at Brittany cost an average of $10,000 more.
“The cluster housing concept has captured all the fallout from the [decline in] attached homes. I think that will continue to be the case for the next two or three years,” Shumway said.
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But as Orange County land prices rise over the next several years, builders say they will be forced to construct more homes to the acre to make a profit. And as young professionals start to see values come back, analysts predict they will return to the condominium, lured by its low-maintenance lifestyle and low-commute time.
“There are so many double-income families working full time that don’t have the time to mow the lawn and clean the gutters and all those things that consume so much time with suburban detached homes,” said Brian Bragg, editor of building newsletter U.S. Housing Markets.
He points to markets like Denver and Seattle, areas where the condo market was flooded, but eventually came back as land values went up.
However, the secret weapon of the condo developer may well be the aging baby boomers. Increasingly divorcees and “empty-nesters” of this generation are looking for smaller homes with little upkeep within walking distance of stores and restaurants.
Builders say some will even look at the out-of-favor two- and three-story “stacked” apartment-type units because they have all of their living space on one level.
“The rules have changed now,” said Eric James, a real estate agent who is marketing condominiums in Dana Point for an investment group. James said it’s no longer the American dream for first-time homeowners to buy a condo.
“It’s people over 40 who find these things attractive,” he said.
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Condo Downturn
In the last six years, condos have fallen out of favor with Orange County builders and buyers. Even though 1996 sales were the highest in seven years, the median price and median price per square foot declined:
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Median per Sales Median price square foot 1990 8,783 $144,000 $142.86 1991 5,028 $150,000 $141.08 1992 4,504 $150,000 $137.32 1993 5,544 $142,000 $125.93 1994 5,596 $139,000 $118.23 1995 4,920 $131,000 $109.81 1996 6,281 $123,000 $103.25
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Construction Crater
Construction of multifamily dwellings, including condominiums, has plummeted since its most recent peak in 1988. The value of building permits issued for multifamily construction has followed suit. Units constructed, with permit values in millions:
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Units Valuation 1988 11,941 $687.2 1989 8,608 $590.9 1990 8,627 $556.3 1991 2,980 $213.2 1992 2,361 $171.3 1993 1,903 $148.0 1994* 5,079 $347.7 1995 2,637 $198.5 1996 3,131 $228.5
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* Large increase due to a surge in permits before a major fee increase.
Sources: Construction Industry Research Board, Acxiom/DataQuick
Researched by JANICE L. JONES / Los Angeles Times
