Condo Market Shows Some Signs of Bottoming Out
Despite a large oversupply of new condominium and co-op units in some of the hottest housing markets of the 2003 to 2005 boom and continued production of those units at a historically high rate during last year’s final quarter, NAHB economists see signs in recent data from the U.S. Bureau of the Census that this market sector may be finding the bottom of its current downturn.
Over the past several years, condominium production increased dramatically. There were 71,000 multifamily condos and co-ops started in 2001 and 2002. By 2006, that number had doubled to more than 150,000 units.
“A closer look at the numbers shows that, despite the slowdown in the for-sale housing market, condo production at year’s end 2006 remained significantly high by historical standards, coming in at an annualized rate of 136,000 units,” NAHB economists said. “Given the relative weakness in condo prices and the strength in rents, it is hard to know whether supply is being constrained enough for the market to have actually bottomed out.”
On a national basis, the three-month absorption rate for new condominiums was 69% in the first quarter of this year, up slightly from 68% in the fourth quarter of 2006, but down from 75% during the first quarter of 2005.
Absorption rates of new condos and co-ops have tended to be higher than the absorption rates for rental units since 1999, with the exception of the fourth quarter of 2004.
Regionally, the South had the highest new condo absorption rate during the first three months of this year, at 86%, followed by 79% in the West, 39% in the Northeast and just 21% in the Northeast.
“While 21% is very low, it is important to remember that quarterly absorption numbers are volatile and that the completion of just one large project can dramatically alter the results,” according to NAHB. However, economists said they will be watching the Northeast over the next several quarters “to see whether the recent decline is the start of a trend or simply a cyclical event. The absorption rate in the Northeast during the first quarter of 2005 was just 28%.”
The worst of the decline may just about be over for existing condo sales, as well. Existing sales fell 10% in 2006 to 801,000, and sales were at an average annual rate of about 800,000 during February and March of this year.
NAHB economists also said that rates of resale price appreciation provide some evidence of a possible rebound in demand for condos.
Median condo resale prices began to decline last year after three years of price increases. However, during the first three months of 2007 those prices rose from a low of $222,600 in January and February to $228,000 in March, well above the recent monthly cyclical low of $213,100 in October 2006.
For information on multifamily resources from NAHB, e-mail Ann Marie Moriarty, or call her at 800-368-5242 x8350.