Focus on Condos

This week we're taking a look at activity on condos in our market. When I talk about condos, it's really a much broader category than the technical definition of condominiums (I'll spare you the boring details). Essentially, if it shares a wall with a neighbor and it's not in the Country Club, I call it a condo for our purposes.

We have a pretty high level of these properties on the market at the moment, with 17 active listings. And we're pretty high in distressed properties in this segment, with 10 REO's, 1 short sale and 6 non-distressed listings. In addition we have 6 contingent sales, all short sales.

Sales activity has been fairly steady on these units, with 10 pending sales (3 REO/3 SS/4 non-distressed). Over the past 3 months, we've had 9 sales (4 REO/4 SS/1 non-distressed). The prices appear to be pretty flat over the past several months for most of this segment, but a high inventory of distressed properties is a concern.

When we look at the decline in prices from the peak in our market in late 2005, it would appear that we've lost somewhere in the neighborhood of 50-55% of value. But when we look at condos, it appears to be a much steeper decline. Many of these have lost more in the range of 65-70% in value from the peak. Why is that?

There are a few things at work here. First, it's harder to finance these deals than it used to be. Most lenders have guidelines regarding owner occupancy and HOA delinquencies in a development, and many of our condo associations have some problems in those areas. But what I think is more of a factor is that these were probably more overvalued during the peak than houses in our market. Back in the peak days, houses were selling in the range of $400-425K in the entry level, and even with the ridiculously easy financing in those days it was harder for first time buyers to qualify for a house. So many of the first timers then were buying condos, driving up demand and prices. Now, you can buy a pretty decent house in the $180-200K range, and at those prices, a lot more first time buyers can qualify for a house. Most people (though not all) prefer a house over a condo. Yet another factor is that HOA fees have increased dramatically over the past few years in many complexes, due to a need to build reserve levels and a rise in HOA delinquencies. Some of those HOA's are around the $250-300 per month level, and that's a big chunk of money to factor into the budget.

I've said it before, and I'm sticking to it - I think that condos will be slower to start price recovery than the rest of our market. Until we start to see some financially healthier HOA's and loosened lending guidelines, we'll probably continue to struggle in this segment.