Author Topic: can condo appreciation outpace single family homes at the end of a recovery?  (Read 590 times)

clarkfan1979

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When my wife and I moved to Kauai in August 2015, we were looking at purchasing a condo in a large condo complex of about 200-300 units. A few foreclosures were selling for 180K to 200K. They are 2 bed/1.5 bath and about 750 sq. ft. Non-foreclosures were selling for 220K to 240K.

Now 3 years later they are selling for 325K to 350K, which is approximately a 50% increase. Single family homes in the same area have appreciated around 25% during the same time frame.

As a result, I think it's possible for condo appreciation to outpace single family home appreciation at the end of a housing recovery. However, in order for this to work you would need to sell before the next recession because they would be the first to go down.

Just and observation. Any thoughts?




Freedomin5

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Yes. And they are not necessarily the first to go down. Our condo in a fantastic location in Toronto (on a subway line) has appreciated at approximately 20% per year for the past five years. And itís unlikely to drop in an economic downturn because there are always well-paid singles flocking to the city looking to rent their first place in the city after graduating college. Thereís also a movement towards buying smaller condo units for young families as the Toronto real estate market gets crazier and crazier. Young families simply cannot afford SFHs. So our unit is expected to hold its value.

Another Reader

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Last to go up and the first to go down.  People want houses but buy condos when they are priced out.  When house prices moderate, the bottom falls out of the condo market.  Manhattan and DT Toronto largely excepted, as there are very few single family homes in those locations.

clifp

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Last to go up and the first to go down.  People want houses but buy condos when they are priced out.  When house prices moderate, the bottom falls out of the condo market.  Manhattan and DT Toronto largely excepted, as there are very few single family homes in those locations.

This pretty much my understanding also.  I think if you go back and look at most markets in most times Condo appreciation trails home price appreciation by a modest amount. Now that may start to change as more an more millennials buy condos because they want to live in the city and/or don't want to deal with appreciation. 

But that same prediction was made for Gen Xs and didn't prove true.

Jon Bon

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I mean your logic sounds reasonable, but this is also Hawaii, so it is not your regular market. I for one just completely avoid condos like the plague. Some places however you just dont have that option.

Also on a side note I read the first sentence as you were buying a 200-300 unit property in Hawaii... I was like wtf is he doing here? That is Bigger Pockets stuff!


waltworks

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1: Your experience may be entirely local to you. HI is a weird RE market and the smaller islands are even weirder.
2: Market timing in RE is probably not as hard as timing the stock market, but the overhead costs to buy/sell are horrendous... so what's the actionable takeaway here?
3: I tend to agree with AR that in most markets, condos are going to experience more dramatic swings both up and down than single family houses, partially because HOAs (nobody pays their dues when the crash comes, roof caves in; times are good let's build a pool) tend to act as an accelerant in both directions.

-W

Another Reader

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1: Your experience may be entirely local to you. HI is a weird RE market and the smaller islands are even weirder.
2: Market timing in RE is probably not as hard as timing the stock market, but the overhead costs to buy/sell are horrendous... so what's the actionable takeaway here?
3: I tend to agree with AR that in most markets, condos are going to experience more dramatic swings both up and down than single family houses, partially because HOAs (nobody pays their dues when the crash comes, roof caves in; times are good let's build a pool) tend to act as an accelerant in both directions.

-W

HOA's are part of it, but the main reason is that buyers become frustrated with the prices of single family houses and decide to compromise, thinking they will never be able to buy if they don't.  When the market softens and the next group of buyers buy cheaper single family houses, the buyer pool for condos evaporates.