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Passengers on the Poseidon aren't the only people in distress this summer. Condo owners, who had been cruising along propelled by double-digit price gains, are encountering cooler currents and the prospect of perilous waters ahead.
The supply of existing condos for sale increased by almost two-thirds during the year that ended in June. At the same time, sales fell by almost 15%, according to the National Association of Realtors. Investors -- about one-third of all condo owners, according to mortgage-data tracker LoanPerformance -- have been fleeing like proverbial rats.
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Sale prices of existing condos have fallen a bit, too. At $226,900, the nationwide median price of a condo is once again less than that of a single-family home ($231,500). Condos had been appreciating more quickly than single-family homes because they are concentrated in high-cost metro areas, where prices were rising rapidly. As home prices cool in overheated urban markets, the drop in condo prices is likely to be more precipitous. (Check out condo prices where you live.)
Even more ominous: Over the next two years, "a tsunami of new units will swamp the market," reports the National Association of Home Builders. Conversions of rental apartments to condos are adding to the glut.
Don't panic
Although the median price of a condo rose nearly 14% last year, double-digit increases are a thing of the past. The NAR expects prices to rise 3% to 4% in 2006 (compared with 6% for single-family homes). And the outlook varies by region. Condo owners in the Midwest, concentrated in the Twin Cities and Chicago, probably have the least to worry about; between June '05 and '06, sales fell by about 1% and prices fell by just a third of a percentage point. The West has taken the biggest hit -- down 21% in sales and 11% in price.
In the Northeast, it's a mixed bag. Sales are down 20%, but prices are 6% higher. In Boston and other markets, real estate agents say the market for lower-priced condos (under about $400,000) is still relatively tight and demand is strong. But at the high end, the bidding wars are over and there’s more give-and-take between buyers and sellers.
Andrew Terrat found the market cooling when he listed his luxury condo in Boston's South End for sale last October. For several years, Terrat, an interior decorator, had been riding the wave of price appreciation by buying and renovating condos and then trading up. He bought his current apartment in 2004 for more than $900,000 and listed it for $1.4 million in October.
Buyers showed little interest, so Terrat took it off the market and used the time to transform a home office into a guest bedroom. In February, he put it back on the market; instead of reducing the price, he threw in his Bang & Olufsen audio system. By May, he'd found a buyer.
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