Anxiety complex?
THE shift in the real estate market has raised that age-old question: If prices crash, will condos slip and fall before single-family homes, and will they stay in the gutter longer?
First, here’s where we are: Buyers seeking condos have scads to choose from, but if it’s bargains they want, they should probably hang tight a bit longer.
Things are by no means cheap these days, even in the condo universe. The Los Angeles/Long Beach/Santa Ana metropolitan area was the second-most-expensive condo market nationwide in the second quarter of 2006, according to the National Assn. of Realtors, behind the San Francisco Bay Area and ahead of San Diego.
It’s unclear how long these high prices will last, but appreciation rates already have slowed dramatically. The median price for a condominium in Southern California in July was $404,000, up 2% from $396,000 a year ago, according to DataQuick Information Services, a real estate research firm. The year before, condos appreciated 16.8%.
They’re still much less expensive than single-family homes, which appreciated 4.6% to $520,000 in July from a year ago. And the reality is, choosing to live in a condo instead of a single-family home is frequently more about means than lifestyle.
So how will condos fare in the months ahead?
If history is a guide, condo and single-family-home prices will “dance to the same tune,” said John Karevoll, chief analyst for DataQuick, meaning that the two types of housing will adjust together.
Condos and single-family homes have historically declined in tandem the first 5% to 7% of a market slide. Condo prices then tend to drop slightly more.
Industry watchers are keeping a close eye on the condominium market because of its important role in keeping the housing mix balanced. In the early 1990s, condo prices, like the rest of the market, dropped like a stone as the housing boom went bust. Builders were stuck with a huge supply of unsold condos, further eroding prices. First-time buyers were able to leap-frog over that housing type and buy cheap single-family homes, Karevoll said. By 1996, as the market regained steam, condos once again became the most-affordable housing for entry-level buyers, freeing up single-family homes for move-up buyers.
Today, condos are popular with first-time buyers and young professionals who prefer to live in an urban setting and pay less. At the other end of the price spectrum, wealthy older buyers with equity to burn are creating a whole new market for high-end condos, as that demographic begins to downsize.
Condos and single-family homes are sitting on the market longer than last year in part because sellers are holding out for top dollar and buyers aren’t jumping into purchases, waiting to see if prices will fall. The time it would take to sell the current supply of condos in Los Angeles County increased to 6.9 months in July from 2.7 months a year ago, according to the California Assn. of Realtors. Interest rates that have climbed to 6.48% from 5.82% a year ago also have contributed to the slowdown.
“I had 50 buyers bidding on 25 condos a year ago,” said Walt Tamulinas, an agent with ERA North Orange County in Yorba Linda. “Now I have 75 condos with 25 bidders.”
Those seeking condos now have the luxury of lingering before purchasing, agents say.
“Buyers are waiting for great value or something that’s move-in ready,” said Linda Cardoso, a Coldwell Banker agent in Encino.
But not in every neighborhood, as the veteran agent recently learned the hard way. Thinking the market was right to buy a new condo for herself, Cardoso checked out a $625,000 unit with large rooms and high ceilings in a great Sherman Oaks location. Returning three days later for a second look, she discovered it was sold.
“I was surprised it went so fast,” Cardoso said. “It really comes down to the amenities and the location.”
In downtown Los Angeles, recently one of the hottest Southland condo markets, there is a glut of units, said Stephen May, a veteran broker with Downtown Residential Real Estate. The broker’s sales count through June of this year is half that of the same period last year, he said. Today, seven condo units are listed for every one that sells. Last year, the ratio was 1 to 1.
May recently represented a seller who had bought a condo last November for $385,000. She listed it in early July for $485,000, with a warning from May that she should be prepared to reduce the price. She quickly did, to $450,000, then $419,000, the price of five others for sale in the building. May urged her to drop the price to $395,000, which would set her apart from the others, but she refused and the sales contract expired. The condo no longer is listed.
“Her property isn’t worth what she wanted it to be,” May said. “It’s hard to accept that prices are going down.”
In Studio City, close proximity to major studios and television networks, restaurants and upscale shopping have young professionals and older move-down buyers still jumping at condos in the $650,000 range and higher, said Anita Rich, a Coldwell Banker broker. Although the days of multiple bids are over, new and move-in-ready resale condos are disappearing in three days, she said.
Sita and Bill Hoyt, 17-year Toluca Lake homeowners, just moved into a new three-bedroom, 2 1/2 -bathroom condo a stone’s throw from the CBS Studio Center in Studio City, the last one for sale in the complex. Typical of downsizing boomers whose kids are now on their own, the couple divested themselves of their extra china sets, artwork, a “gorgeous harvest table” and other furniture that wouldn’t fit comfortably in the 1,700-square-foot space.
This is no slap-dash construction, either. The Hoyts’ unit features 13-foot ceilings with triple soffits, cherrywood kitchen cabinets, a travertine-marble entry, high-end kitchen appliances and a patio off the main room. All for $819,000, plus $378 monthly homeowner association dues.
“You do have neighbors on top of you and around you,” said Sita, an interior designer. “The upside is you can close the door, walk away, take a vacation, and also walk a few blocks for a great dinner out.”
Silvie Bordeaux, a divorced, 42-year-old public-relations specialist, feels as if she got a good deal in Van Nuys when she recently purchased a three-bedroom, two-bathroom penthouse condo with high ceilings and a sunken bathtub in the master bathroom. The complex has only 15 units and is on the Sherman Oaks border. The price tag: $552,000 plus $332 monthly homeowner associations dues.
“You can’t get much in a single-family house in that price range,” said Bordeaux, who formerly owned a large Woodland Hills house. The median price of a single-family home in Van Nuys today is $662,500. “I’m living in luxury in this place.” Bordeaux said she views this purchase as a good investment and plans to stay put for now.
Despite some of the doom-and-gloom worries about the market, many experts say it is in better shape than it was 15 years ago during the recession. Today, supply and demand are more balanced, and there is the best mix of condo, mid-size and prestige homes since the dramatic price run-up began in 2001. Aware of the bulging baby-boomer demographic and its much-touted desire for stylish downsizing, builders won’t be packing up their cranes.
Nonetheless, major builders, who typically under-build to avoid unsold inventory, are slowing down condo construction and the pre-building process in Orange County, said Michelle Wolkoys, senior managing director at Hanley Wood Market Intelligence, a Costa Mesa real estate consulting firm. Projects already in the works will be completed, but some slated for later release may be postponed for a year.
“Many projects that developers swore would go ahead this year in Orange and San Diego counties appear not to be going forward,” said Alan Nevin, director of economic research for MarketPointe Realty Advisor and chief economist for the California Building Industry Assn.
The construction slowdown is not expected to be as pronounced in Los Angeles County, although Gary Schaffel of Schaffel Development in Van Nuys -- a prolific San Fernando Valley builder of condos ranging from $500,000 to $1 million per unit -- said he’s taking a more conservative approach about future deals.
“We’re keeping the same pace for the projects that are already rolling,” Schaffel said. “But I want to see the land prices dip more before I make future land purchases.”
