With Hopeful Buyers Looking Everywhere…
It’s Spring 2022. We have just lived through a remarkable migration phase in U.S. real estate history. The coronavirus emergency, followed by the shift to remote and hybrid workplaces, sent many home buyers out of crowded and expensive cities, and into suburban and rural areas. Throughout the past two years, demand for single-unit houses has done nothing but shoot up. And the price of houses got so high (average is now $400K-plus!) that most hopeful buyers today are priced out.
The latest push out there? Finding a condo for sale. It’s a cheaper path — but only relatively, and maybe not for much longer.
Sticker Shock: Typical Condo Now Above $300K
According to Redfin’s review of listing data and public records, the typical U.S. condo as of Feb. 2022 sells for a record-high $319,000. The cost of a condo is up about 15% from the year before (and 22.7% from two years earlier, just before the pandemic began).
Condo bidding wars are now a thing. Four in ten condos are selling for more than the asking price as of early 2022.
With houses, the bidding wars were already notorious. Most houses for sale still draw multiple offers. This activity has pressed single-unit house prices up nearly 35% since February 2020. People keep trying to buy, as mortgage rates have broken above the 4% line. People who can qualify want to nab a mortgage before interest rates climb back up to the 5% line and above.
☛ NEWS FLASH from Freddie Mac, Apr. 7, 2022: The new Primary Mortgage Market Survey® shows the average 30-year fixed-rate mortgage as 4.72%. Over the last three months, rates went up 1.5% — the fastest pace on record since May 1994.
No wonder people are trying to buy condos at this time. Condos are within the financial reach of more people. But like apartments, condos are getting pricier every month — in a housing market that’s now OMG unbearable!
What Revived the Condo Market?
The rise in condo shoppers is particularly striking because of its newness. People were not necessarily looking for condos during the 2020 migration shift out of cities. They were more interested in yards and privacy in the midst of a nerve-wracking public health scare. So, at first, condo prices in many areas dipped.
In mid-2021, we noted that condos stood out as a relative bargain.
In 2022, with some semblance of normalcy returning, people are no longer hesitant to buy property in dense areas. And condos are back in demand.
And as demand goes up, it’s getting harder to find condos for sale. As soon as the typical condo hits the market today, buyers notice. Most condos are now sold within the month. More than half are under contract within two weeks, as of February 2022. (By comparison, the typical detached house now sells in 24 days).
The upshot here? People who’ve been priced out of the market for houses could now face intense competition for the available condos, too. Bidding wars for condo properties are becoming normal.
As always, much depends on where people are willing and hoping to buy. St. Louis, for example, has a relatively high condo supply for buyers to consider.
But we’re empathetic here to the fact that not everyone can simply avoid certain high-priced markets and move wherever they want.
Here are some of those very pricey markets, according to the new Redfin survey.
Where the Condo Market Is Surging Most in 2022
Condo prices are shooting up nearly everywhere. Here are some of the most notable impacts by location over the past year:
- What happens in Vegas can’t afford to stay in Vegas. Condo prices in Las Vegas have shot up by a third — to $237,000.
- What on Earth? Nashville, Tennessee saw a nearly 50% median condo sale price rise in a year — to $426,000!
- Seriously? Condos in Charleston, South Carolina are up more than 40% — to $319,000.
- Talk about a frenzy…. Typical condos in Seattle, Salt Lake City, Denver, and Indianapolis wind up under contract within the week they’re listed on the market.
- Getting any real estate at all in California is a coup. Those who decide to shop for a condo in San Diego, Oxnard, San José, or anywhere in the San Francisco Bay area will witness properties going for well above their listing prices.
- Condos are becoming scarce assets. The condo supply is down by roughly half in Raleigh, North Carolina; Birmingham, Alabama; and, of course, Nashville. Supply is down by about a third in Miami, where the typical condo costs over $380K. It’s not just that people are buying up condos now; tight supply is also caused by slowdowns in worker availability and material supplies.
What about the Big Apple? Yes, it’s true that a lot of people moved out of the city to avoid the coronavirus. But a whole lot of buyers are moving into NYC now, and the shift means condos and co-ops have risen in price by 11% year-over year.
What About Risk—Will Property Values Go Down for This Year’s Buyers?
Those who can get the money together for a down payment this year might wonder about the risk of possibly buying at the market’s peak. Is this a cause for concern?
The absurd rises in property prices are indeed projected to slow down in 2022. But “slowing down” is relative.
Industry analysts are talking about growth calming to a rate of 9-10%. That suggests there’s still a lot of potential equity building ahead for buyers in desirable markets.
☛ Buying a desirable home helps many people improve their financial lives. And buying a home means putting inflation on your side.
It’s pretty clear that some markets have inflated real estate valuations, though — and doesn’t this situation carry a risk for buyers? Maybe, and maybe not, depending on location.
As overvalued as some properties are, buyers are not walking into the risk of a broad real estate crash in the year ahead, according to a recent forecast from CoreLogic. But there are pockets where home valuations might actually be going down. And this does happen, historically, even in hot markets. The only year in which the entire country saw no major areas with declines whatsoever was 2021.
CoreLogic’s Market Conditions Indicator shows overvaluation of real estate versus household incomes in “many of the markets in the Mountain West and Southeast — where home prices grew by as much as 20% to 30% year-over-year in December 2021…”
Yet CoreLogic sees a “low” risk of falling real estate prices in these overpriced areas. People will not stop moving into them any time soon, and employment opportunities are generally supportive. Possible risk, says CoreLogic, is actually more likely in the west and southwest, and in the northeastern states. What are the most important factors for buyers to watch out for? Rises in jobless rates and declines in income growth.
Interested in Buying a Condo? Know What Kind of Ownership You’ll Get
As for condos, their valuations are clearly on a renewed upswing, give the statistics we see from Redfin as described above. Yet before buying into the condo market, you might rightly wonder: “What kind of title will I actually get?”
We have more information for you on how condo deeds work, what you actually own when you buy a condo, and what it means to belong to a homeowners’ association. We hope it helps you navigate this challenging real estate market.
Supporting References
Dana Anderson for Redfin.com: News – Condo Market Bounces Back (Mar. 28, 2022).
Harrison Connery for The Real Deal: Condo Prices Hit All-Time High: Redfin (Mar. 30, 2022).
TheMReport.com: Condo Prices Soar in 2022 as Demand Returns (Mar. 28, 2022).
Selma Hepp for CoreLogic, Inc.: Potential Risks of Price Declines in the Real Estate Market (Mar. 16, 2022; based on CoreLogic HPI and Forecast, issued Feb. 1, 2022).
And as linked. Photo credits: Igor Starkov and Vecislavas Popa, via Pexels.