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LATEST CORELOGIC ECON TWEETS

Part 1: How Affordable are Condos?

Affordability Varies By Location

Kristine Yao    |    Property Valuation

Conventional wisdom tells us that condos are more affordable (in other words, less expensive) than single-family detached homes, making condos a good entry-level option for aspiring millennial homebuyers. However, there are other factors influencing the rising demand. Condos tend to be located in higher-density markets that are attractive to homebuyers wanting walkability and a more urban lifestyle. With its smaller living space and lower maintenance responsibilities relative to single-family detached homes, condos are also ideal for single, unmarried individuals and aging baby boomers wishing to downsize. A closer look at condo prices, with considerations to location and size, reveal that while condos are generally valued less than single-family detached homes, factors exist that go against the notion of condo affordability.

Overall, condos typically cost less than single-family detached homes. Of the nation’s 25 largest condo markets[1], the median condo price was $221,900 for the 12 months ending in September 2015 compared with $270,000 for single-family detached homes. Condo median prices were cheaper in all but two markets: New York-Newark-Jersey City, N.Y.-N.J.-Pa. and Detroit-Warren-Dearborn, Mich. Urban Honolulu saw the biggest discount in the median price of condos relative to the median price of single-family detached homes, with condos selling for $302,000 less than single-family detached homes; this is followed by San Jose-Sunnyvale-Santa Clara, Calif. ($295,000), San Francisco-Oakland-Hayward, Calif. ($180,000), Denver-Aurora-Lakewood, Colo. ($160,000) and Washington-Arlington-Alexandria, D.C.-Va.-Md.-W.Va. ($154,000).

However, there has been a shift in housing demand as more buyers wish to live in centrally located urbanized areas. This shift is reflected in the national CoreLogic Home Price Index, which shows that detached homes appreciated 5.3 percent and attached homes, like condominiums, appreciated 6.3 percent from September 2014 to September 2015.   Furthermore, home prices in city centers have appreciated faster and increasingly cost more than outer homes in certain markets.

When CoreLogic analyzes home sales between those located within five miles of the metro area’s principal city central business district (CBD) and those located outside, using the same 25 markets, the median price of condos within the core was more than double the median price of condos outside of the core at $389,000 and $192,000, respectively. Single-family detached homes saw a less dramatic increase of only 9 percent for a central location ($295,000 versus $270,000). Condos within the five-mile core made up 20 percent of all condos sold in the 12 months ending in September 2015, while single-family detached homes within the five-mile core made up 6 percent of all single-family detached homes sold in that same time period. Centrally located condos were still more affordable than centrally located single-family detached homes in 20 of the markets (based on median prices) and made up almost half of the sales occurring within the CBDs’ five-mile radius. Condos in Boston-Cambridge-Newton, Mass.-N.H. and New York-Newark-Jersey City, N.Y.-N.J.-Pa. accounted for more than 90 percent of core sales. The markets in Figure 1 are sorted in descending order by the amount of extra dollars paid for a centrally located condo versus an outer condo. San Francisco-Oakland-Hayward, Calif. ranked highest, with a centrally located condo/co-op costing $603,000 more than the median price of an outer condo/co-op. New York-Newark-Jersey City, N.Y.-N.J.-Pa. followed, with a centrally located condo/co-op costing $520,000 more. The table also shows that, for the 12 months ending in September 2015 compared with the 12 months ending in September 2014, median condo prices within the core areas were appreciating faster (8.1 percent) than outer condos (6.0 percent) in 15 of the markets. As a result, condos located within five miles of the CBD are increasingly being priced outside an affordable price range for many first-time buyers.

In the second part of our condo affordability blog, we will take a different approach to price comparisons by examining how affordability varies with floor area.

[1] The 25 largest condo markets were defined at the Core Based Statistical Area (CBSA) level and determined based on total condominium and housing cooperative unit counts.

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