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Condo Market Seeing Some Signs of New Life
The condo market is showing initial signs of a revival in some markets across the country and that uptick is also benefiting the rental apartment market, according to multifamily housing developers speaking earlier this month at the International Builders’ Show in Orlando.
"We are definitely emerging from a difficult time and seeing some light in the condo market," said Bill Donges, CEO of the Atlanta-based Lane Company, which has condominium developments in several cities, including Hollywood, Fla. "The condo lifestyle — especially in urban areas — is very attractive, and with the interest rates low and the selection good, we are seeing buyers come back into the market," Donges said.
“Since the holidays, traffic has picked up and we’re seeing more buyers in our sales offices,” Donges said. For those who qualify and can put 3% to 10% down, “you can get a great deal; the supply is high and demand is low.”
Donges noted that condominiums have become a permanent fixture of the housing market, including such cities as Atlanta where they were not viewed as “a reputable thing to buy” until fairly recently. “The places where condos are available are the places where people want to live and where the jobs are,” he said, adding that they are providing an attractive alternative to older as well as younger home buyers.
“The fundamentals for condominiums are solid,” he said, which will become increasingly evident as the existing supply is sold off during the next one to two years.
Burning Off Excess Inventory
The slow but steady sale of condo units recently in selected markets is also helping the rental apartment market, according to Steve Patterson, vice chairman of NAHB's Multifamily Leadership Board and CEO of ZOM USA, which builds and manages apartments throughout the Southeast.
"We've had fairly strong rental demand for quite some time now, but the unsold condos and single-family homes coming back into the market as rentals were hampering the rental apartment sector," Patterson said. "With many of those units now selling, the so-called shadow market is starting to dissipate and the multifamily market overall is getting healthier."
At the height of the housing boom, condo starts accounted for an unprecedented 45% of all multifamily starts annually. When the market rebounds, NAHB expects that percentage to hover between a more normal 20% to 30% share.
"The real difference we're seeing now is that all our buyers want to live in the condos," said Donges. "The speculators are gone, which is a good thing, so we are optimistic that, except for the most overbuilt markets, the worst is behind us."
Patterson also pointed out that multifamily housing developers on both the for-rent and the for-sale side have been slowing down their construction activities in order to give the market time to "burn off" excess inventory.
Preliminary estimates from the Census Bureau indicate that 2007 saw a total of 275,700 starts of buildings with five or more units, down about 6% from the previous year and the lowest number of starts in this sector since 1996. NAHB has also ratcheted down its forecast for multifamily starts in 2008 — although not drastically — to approximately 250,000 five-plus starts, with that number rising to just above 260,000 in 2009.
Slow economic conditions will dampen household formations for the next 12 months, Patterson said. But looking not too far down the road, the market will receive a demographic boost from a 10% increase over the next decade in the 25 to 29-year-old population, the segment most likely to rent.
Struggling to Make Affordable Housing Numbers Work
Despite the slower housing market, multifamily developers are still struggling to "make the numbers" work on rental apartments affordable to working families, including teachers, police and other essential service workers, according to Larry Swank, head of the Sterling Group, Mishawaka, Ind.
In addition, Swank said that owners and developers of apartments that are subsidized by state and federal housing programs — including the Low Income Housing Tax Credit program — are currently facing sharply rising operating costs from utilities and other fixed expenses that are threatening both their existing properties and their ability to build new ones.
"There is still an affordable housing crisis in this country," Swank said, "The slower housing market hasn't changed that."
For more information, e-mail Ann Marie Moriarty at NAHB, or call her at 800-368-5242 x8350.
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Attend the 2008 Multifamily Pillars of the Industry Conference and Awards Gala, April 1-3 in Colorado Springs, Colo. and find out what’s next in the rapidly changing multifamily market from top economists and multifamily market experts.
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