California's condominium market is roaring back after years in the real estate doldrums, thanks in large part to soaring prices of single-family houses and new tax laws that encourage renters to own their homes.
Although no one is predicting the return of the "condomania" that started in California in the 1970s and then swept the nation, sales at multifamily projects across the state appear to be brisk. A few realtors even tell of condo buyers getting into "bidding wars" for well-located units, while a handful of builders say people are waiting in line for a chance to buy at their new projects.
"There's no question that the condominium market is recovering," says Joel Singer, chief economist of the California Assn. of Realtors. "Sales and prices are moving up."
The renewed vigor of the condo market is in sharp contrast to the problems it suffered earlier in this decade. The market crashed in the early '80s--after years of double-digit price increases--due to soaring mortgage rates, overbuilding and the recession. Sales and prices plunged in many areas, and they remained soft until last year.
"The California condo market didn't really bottom out until about two years ago, and then we saw a year or so of 'bottom-creeping,' Singer says. "Now it's starting to catch up with the single-family market."
The sales pace of existing condos is up a whopping 40% from a year ago, according to the realty group's latest figures, and the statewide median price of $122,610 is up 7.5%. From 1982 through 1987, prices had risen an average of just 2% annually.
"Condos started selling last year, and then they really took off when we virtually ran out of single-family homes to sell," says Temmy Walker, president of the James R. Gary East real estate brokerage in the San Fernando Valley.
Brisk on Westside
"Condos are really the only affordable housing choice left out here," Walker adds. "If you want to buy a place for under $200,000, you pretty much have to figure on buying a condo."
Condo sales are also brisk on the Westside, says Lila Entis of Fred Sands Realtors in Marina del Rey.
"Before, you were lucky if you sold a condo after two years and broke even," she says. "It's sure not like that anymore. The market has gone crazy."
Four years ago, Entis says, a typical two-bedroom condo in Marina del Rey was selling for about $200,000 and would often stay on the market for more than 10 months before a buyer could be found. "Now that same condo is selling for $400,000 or $425,000, and it's selling within a month," she says.
The same holds true in Orange County, according to Tom Cannon, manager of Grubb & Ellis' Mission Viejo office.
"The condo that was selling in Saddleback Valley for $105,000 back in January is now selling for about $135,000. The people who bought at the start of this year are feeling very, very good right now."
Condo sales are even picking up in Riverside, a county which--until recently--was one of the last places where buyers could easily find a single-family home for less than $100,000.
"For the first time in years, I've got buyers for condos," says Sandy Sandison of Betty Landes Realty in Riverside. "Most of the action is in the $95,000-range, first-time buyers who have found that the house they want is a little out of their price range."
The upturn in the condo market is largely a result of big run-ups in the cost of single-family homes, experts say. Since many people can no longer afford to buy a house, they're purchasing lower-priced condos.
The condo boom is also being fueled by people who previously were content with renting, but now want to own their own home because of recent changes in the nation's tax laws. Those changes preserved deductions for mortgage interest payments but curtailed write-offs for most other finance charges.
But while the renewed strength of the condo market has put smiles on the faces of sellers, it's not entirely good news for would-be buyers--especially for those who are looking for condos because it's the only kind of home they can afford to buy.
"A lot of first-time buyers are being squeezed out of the market," says Orange County realtor Cannon. "In January, the most affordable condos we had down here sold for $80,000 to $104,000. They could be purchased with an FHA loan with a down payment of a little more than 3%, and the buyer could get an attractive, fixed-rate loan.
Effects of Price Rise
"Now the homes that sold for $80,000 are selling for more than $100,000, and the ones that sold for $100,000 are selling for about $125,000," he says. Since the FHA won't lend a borrower more than $101,250, Cannon says, "the guy with the small down payment has been knocked right out of the market."
Even those who bought condos a few years ago with the hope of eventually making a big enough profit to buy a single-family home have a feeling of deja vu .
"We paid $105,000 for our condo back in 1983, and now it's worth about $135,000," says Laura Baker of Culver City. "But now the house we could have bought for $150,000 back then is selling for $300,000.
"We're further behind now than when we started."
No one is making bets on when the current condo boom might subside.
"The market is going to turn soft sooner or later," says realtor Walker. "A lot of us think it's going to happen next summer, but it depends a lot on the elections and the economy. The condo market won't crash, but there will be the usual market adjustment, and prices will soften up a bit."
However, Walker says, even buyers who agree with her forecast shouldn't delay their home-buying plans. "If the market goes soft, interest rates go up," she says. "You might be able to pick up a condo for a few thousand dollars less, but your payment won't be any different because your mortgage rate will be higher."