First-time buyers flood condo market

Part 3: Condo craze: Flippers, converters, first-time buyers grab a slice
Inman News
Editor's note: The condo market is on fire across the country, with prices appreciating faster than single-family homes in some cases. Buyers are scrambling to be the first in line, and amateur real estate investing is akin to sports and hobbies in the hottest markets. In this three-part series, we examine the trend from the trenches, catching up with part-time investors and first-time buyers, along with an example of the type of unique conversion projects taking place. (See Part 1: Property flipping is sport in some markets and Part 2: New England town converts hospital to condos.)

Ryan Sankey dropped the first moving box on the floor of his first-floor condo about a month and a half ago. At 27, he's feeling good about his decision to buy a condo in a Seattle suburb.

Sankey viewed the purchase as a way he could own real estate without having to worry about the exterior headaches that come with owning a single-family home. And the price was still within reach at $121,000. Houses in his area of Everett, Wash., sell for about $200,000 to $250,000 on average, he said.

The condo market has sizzled in many markets across the country, with condo-price appreciation in some cases exceeding home-price increases. Murmurs of bubbles and busts haven't scared away condo developers from low-rise, high-rise and condo-conversion projects, though. And buyers in some markets are still scrambling to be first in line for a condo unit.

"The primary motivation was being able to find something decent for less money since houses are still expensive in my market," Sankey said.

Also, he's still within reasonable distance of his technical support job at Microsoft in nearby Redmond. If he'd bought a house, he'd most likely be further from his job.

Sankey figures that by keeping the interior nice, he'll build some attractive equity by the time he's ready to move again. "I figured if I do this, I will live here maybe two years, three. I may turn this into an investment," he said.

Sankey's two-bedroom condo is part of a former apartment complex that's been converted. He said a conversion group is now finishing converting the second to last complex.

"They basically took all the carpet out, all the detailing out, repainted everything – all the fixtures – and basically updated it so it looked like a brand-new interior," he said.

The Everett area is in high demand because of its proximity to Seattle – about 30 miles, Sankey said. Many of Sankey's friends have bought condos or are looking to buy condos. "Everyone is recognizing the fact that it’s just easier to purchase…it's not that much harder than renting, and it’s yours," he said.

Sankey said he's been hearing chatter that the housing market in his region is set to cool down. "The condo market, however, seems to be more on the rise than on the fall," he said.

Condo markets are booming nationwide, with sales and prices in this market segment rising steadily for eight consecutive years. The median price of condos and co-ops has increased roughly twice as fast as that of existing single-family homes, according to Harvard's Joint Center for Housing report for 2004.

"The market in general favors single-family, detached homes, and when they become unaffordable, condos are the preferred alternative," said Leslie Appleton-Young, chief economist for the California Association of Realtors.

The median price for condos in California rose by 24.2 percent year-over-year from $303,060 in January 2004, to $376,300 in January 2005, according to a recent report from the state Realtors association.

And annual price appreciation of condos surpassed that of detached homes in all but one of the last five years in California.

Nationwide, sales of condos and co-ops went from 657,000 units sold in 2002, to 731,000 in 2003, to 820,000 units sold in 2004, according to the National Association of Realtors. And the average U.S. condo price increased 16.4 percent from 2003 to 2004, while single-family home prices increased 9.3 percent during that same period.

Appleton-Young said condos are a welcomed addition to the California housing stock, particularly in the coastal areas where the supply of homes for sale is low.

"We really do see condominiums come to life when the single-family, detached alternative is too expensive," she said. The median price of a single-family home in California reached $485,700 in January.

Indeed, price and location were among the top reasons recent condo buyers gave Inman News for buying this type of housing rather than a single-family home.

Simon Horwith, chief information officer for AboutWeb, recently purchased a condo in the Logan Circle area of Washington, D.C. Horwith and his wife are first-time buyers.

"The deciding factor in purchasing a condo versus a house was the fact that my wife and I wanted to live in the city as opposed to the suburbs," Horwith said. "We like to go out to bars and clubs, little shops and coffee shops, and we like to walk."

Horwith said the condo market was competitive. The seller of the condo he eventually purchased received many bids – including Horwith's – in the first weekend of the sale. "Without an escalation clause and willingness to pay above the asking price, we wouldn't have got the condo," he said.

The Horwiths also had to compromise a little on location to get in on the condo market. The couple started looking for condos in the Dupont Circle area of D.C., but opted for a larger unit for about the same price at the nearby Logan Circle neighborhood. Horwith said they were able to purchase a two-bedroom, two-bathroom condo for the same price they would've paid for a small one-bedroom just a few blocks away.

Iris Garica, a Bronx, N.Y., resident, turned to the condo market because she is priced out of the single-family market. Garcia said condo prices in the area have been a wake-up call for her, and she has expanded her search to a four-state area that includes Connecticut, New Jersey, New York and Pennsylvania.

"You can't find a two-bedroom condo for $92,000. They all start at $120,000 and up. Some of them are about $300, 000," she said. "The prices are ridiculous. I figured I would be able to buy something and I really haven't been able to."

Jessica Swesey and Glenn Roberts Jr. contributed to this article.