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Anxiety complex?

The crop of condominiums has increased as the once-soaring housing market tries to find a soft place to land. But bargains are few -- for now.

September 03, 2006|Diane Wedner | Times Staff Writer

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."

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