Prices of condominiums are closing in on houses
Condominiums, for decades the inexpensive alternative to houses, have posted a dramatic increase in value around Southern California, surpassing the appreciation of single-family homes in one county, according to recent research.
A decade-long, steep drop in condo and townhome construction, along with soaring home prices, has created a surge of demand for attached units, mirroring the recent home-buying frenzy.
The median price for a condominium in Los Angeles County in September was $220,000, up 20.5% over the same period a year ago, and up 93% from the same month five years ago. In Orange County, the median condo price was $262,000, up 14.9% over a year ago, and up 107.1% from five years ago, according to First American Real Estate Solutions, a real estate research firm.
The median price of a single-family residence in Los Angeles County increased in September at a slower pace than condos, up 17.2% over a year ago to $280,000.
Historically, condominiums have been considered the stepchild of the residential home-buying market, a purchase made because the units were priced considerably lower than single-family residences.
Recent data reveal, however, that the gap in the median price per square foot between condos and single-family homes has narrowed significantly. In Orange County, for example, the cost of a condo per square foot was $220.22 in September, only 5.4% less than that of a single-family home of equal size at $232.17 a square foot.
In San Diego County, the cost per square foot of a condominium in September was actually more than that of a detached house of equal square footage. The condo price was $226.80 per square foot, while the single-family dwelling of equal size was 3.2% lower, or $219.47, according to First American’s research.
“We’re seeing a lot of ‘now-or-never’ condo buying right now,” said Chris Cagan, director of research and analytics at First American Real Estate Solutions. “Interest rates are down, and renters want to become homeowners. Condos are the way to get in.”
Typically, condos are smaller in square footage than single-family dwellings, and require less land -- the most expensive part of the price of a home. Therefore, condos have cost far less than detached homes. The number of multifamily units built in the last decade has greatly diminished, however, pushing the demand and prices for attached housing ever higher.
Last decade’s proliferation of construction-defect lawsuits, stemming from a rash of hastily built condos in the ‘80s, among other issues, forced much of the insurance industry to stop covering attached-housing construction. That resulted in a huge decline in new building of that type of housing.
Condo construction peaked in Los Angeles and Ventura counties in the third quarter of 1989, with 2,152 units, according to the Meyers Group in Irvine, which does consulting work for new-home builders. Only 333 condos went up in those counties during the second quarter of this year, the latest period for which data are available. The low point in condo construction was the fourth quarter of 1999, with only 112 units.
Brian Bechel, 39, counts himself among the lucky ones able to find a reasonably priced condo in the San Fernando Valley. The single controller of a major hotel chain moved into his two-bedroom Valley Village condo two weeks ago, after a fruitless, eight-month search for a single-family home in his price range. He paid $219,000 for his unit -- a steal, according to his agent -- making an offer on the condo without ever stepping inside.
“I’d made four or five offers on other condos that I didn’t get, even when I offered more than the asking price,” he said. “So when I heard about this one, I ran over there, peeked in a window, and made my offer to the agent. I saw it for the first time at the inspection.”
Traditionally, condo owners -- typically, first-time buyers -- view that purchase as a stepping stone to eventual homeownership.
Today, however, agents such as Jamie Duran in Studio City, are seeing condo owners moving up to more expensive units, because prices of larger, single-family homes still are too far out of reach.
“Some condo owners who bought for $250,000 are moving up to $350,000 units, perhaps in a better location,” Duran said. “Homes in Studio City start at $477,000 right now, so $350,000 feels like a bargain.”
On the Westside, condos that cost $175,000 in 1996 fetch $400,000 today, said Steve Miller, an agent at Re/Max Westside Properties in West Los Angeles. One reason for the surge in prices is the lack of available condos there. In Culver City, for example, there were 222 condos for sale in the fall of 1992. Today there are 22.
The demand for condos also has pushed prices up in Long Beach, where some units in the Villa Riviera, a historic downtown building, are going for $465,000, said Lee Shoag, an agent with Re/Max College Park.
Reflecting a possible resurgence of condo construction, developers in Redondo Beach, Hermosa Beach and Manhattan Beach are tearing down old buildings and putting up attached housing, a sight not seen for years, said Steve Goddard, an agent at Re/Max Beach Cities Realty in Torrance.
In the beach cities, condos start at about $600,000 by the water, and further inland, apartment conversions go for $200,000 to $400,000, Goddard said.
Projects such as Quail Hill and North Park in Irvine are adding much-needed attached housing in Orange County, a trend that is expected to continue, said John Burns, an Irvine consultant to new-home builders. Builders are eager to resume condo construction, and are cautiously stepping back into that arena, said Rich Lambros, executive vice president of the Building Industry Assn. of Southern California.
With the passage of recent state legislation overhauling construction-defect laws, builders have changed a number of their practices. They plan to build even more attached housing when insurance companies resume covering condo construction in the state, Lambros said.
The urgency to increase the supply will intensify as baby boomers begin to downsize, fueling a trend toward condominium and townhouse living, said Nima Nattagh, research director at FNC Inc., a consulting firm to the mortgage industry.
“You’re going to see a move by builders toward higher-density products,” Nattagh said. “They want to capitalize on the limited space available.”