For years, the American dream was to own your own home, which meant a single-family home. One reason for this was that single-family residences appreciated well over time. Condos didn’t.
That was true until the last couple of years when median-price gains for condos actually outpaced single-family residence median-price gains nationally. In 2005, the median price on condos was up approximately 13 percent over the previous year, according to the National Association of Realtors. The median is a typical market price where half of the homes sold for more and half sold for less.
The 2006 housing market is a different story. Rising interest rates and growing inventories of condos for sale are contributing to a slow down, in some areas an extreme slowdown. For example, according to the Florida Association of Realtors, statewide existing condo sales for April decreased 37 percent from the April 2005 sales volume. The median sales price of Florida condos sold in April 2006 rose 4 percent from the previous year. NAR projects a median home price increase for both housing types — condos and single-family residences — of only 5 percent this year.
Last year, double-digit price appreciation attracted speculators to markets like Miami, Las Vegas and San Diego. New condos were bought and sold at a profit before they were even completed. There’s little room for this sort of speculative flipping in the current market.
Even so, condos offer an attractive lifestyle for home buyers looking for convenience and relatively low upkeep. Another perk is that condos usually are less expensive than single-family homes in the neighborhood, making them a good choice for first-time buyers.
HOUSE HUNTING TIP: To ensure a good condo buying experience, do your due diligence investigations before you buy. The condo construction business has exploded in recent years, but so has litigation against developers for shoddy construction. Avoid inexperienced developers. Buy from an experienced developer that has a good track record and reputation.
Visit other projects built by the builder to see how they look after a few years of wear and tear. If possible, talk with owners to find out how responsive the developer was in dealing with problems as they came up.
When you buy a condo, you become part of a homeowners association that deals with co-owner issues. Dues are collected each month to pay for maintenance. However, precisely what is covered by the dues differs from one complex to the next. It can even differ from one phase of a project to another. Make sure you understand exactly what the dues do and don’t cover.
Homeowner’s dues may increase over time, which will increase your cost of ownership. With an existing complex, you can find out how often the dues have been increased in the past and by how much. In a new development, there is no such history. If the dues are not realistic in terms of projected maintenance expenses, you can expect additional assessments will be levied against the condo owners.
Be wary of buying in complexes that are largely investor owned. It can be difficult to arrange financing to purchase in complexes that are primarily tenant occupied. Also, owners tend to take better care of their homes than do absentee landlords. If a lot of speculators were to cash out at once, this could drive the property values down.
THE CLOSING: Over-building can also have a negative impact on property values. Find out how many condo projects are in the pipeline in the area before you buy. If there is a lot of projected development that will compete with anything you buy today, insist on quality, location and a competitive price.
Dian Hymer is author of “House Hunting, The Take-Along Workbook for Home Buyers” and “Starting Out, The Complete Home Buyer’s Guide,” Chronicle Books.