A Tale of Two Condo Markets: December 2020 Market Update: Single-Family and Condo

Dear friends and clients,

Thanks again for your support this year, we are so proud of the referrals and ability to continue helping families with their real estate needs in this very unusual year. We sincerely hope you and yours stay safe and healthy – and heal fast if illness has affected you.

November sales data show that our single-family market continues to boom.

• The boomlet we saw this summer from pent-up demand is slowing, yet closings in the past few months are still higher than normal.
• Mortgage interest rates have steadily declined from upper 4% range to upper 2% range in the past 2 years.
• This means buyers purchasing power has increased. Today buyers have 20% more purchasing power in the past 2 years, 10% in the past year. (For the same monthly payment, buyers today can afford houses priced 20% higher than 2 years ago)
• Inventory continues to decline even while closings increase, meaning there are fewer homes for buyers to choose from.
• These three trends (pent-up demand from COVID shutdowns, increased purchasing power and decreased inventory) have now resulted in median price increases: For Single Family homes, the trend shows over 17% increase in the past 24 months, and over 24% since last December.

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Nationally, we are seeing similar trends. Mortgage demand is spiking and loan amounts are at a record high, and the census bureau reports sharp increases in home sales.

3 bed, 2+ bath homes in Uptown and Mid City (zips 70115,70118,70119 & 70130)

– We are still in a strong Seller’s market with 2.8 months of inventory. Month’s supply has declined about 45% in the past two years. In that time, we have never been in a true Buyer’s market for more than a month, if that.

 – Inventory continues its decline: number of homes coming on the market has declined about 21%

 – Closings continue their long term trend, up about 29% over 2 years.

– With inventory declining and sales increasing, the seller’s market remains very strong.

Should sellers list now?

In short, yes. Inventory is declining, so you have less competition. Buyer demand and mortgage rates are showing up in prices: big increases in median sale prices this year!

We get similar questions in the late fall and early winter each year: should sellers wait until after the holidays or even after Mardi Gras? There are definitely more buyers after the holidays, but also more competition from other sellers who also waited for the holidays to end. I always urge sellers to consider that buyers looking during the Holidays are usually VERY serious, and if they are not on the market, those sellers will miss those serious buyers.

Obviously, safety issues need to be carefully considered, and allowing buyers into some families’ homes may be all but impossible now. Sellers who can allow showings can find those serious buyers who are looking right now.

For those sellers who do want or need to sell, start getting ready if you haven’t already done so. Work on the deferred maintenance, and let’s meet soon so I can explain how we are saving our sellers thousands of dollars by avoiding inspection surprises.

Condos: A Tale of Two Markets Market

This month we took a deep dive into the CBD and Warehouse condo markets. In the past few years, we have seen increased supply and declining prices for resale condos in established buildings (buildings renovated over 5 years ago). In the past 12 months:

• 16% decline in median price to $417,000
• Almost 20 months of inventory now
• Closings are up 20%, yet inventory has increased over 300%

The increases in closings are positive, likely driven solely by interest rate decreases / purchasing power increases. In general, though, this market has for many years now suffered from an oversupply of inventory. While there are many great condos and condo buildings, buyers are simply choosing the most desirable units and buildings: more recent interior updates, better views, outdoor space like balconies, parking and more desirable buildings. The big increase in units for sale this year has likely been driven by the pandemic: high-density living is less attractive and second-home owners choosing not to travel have placed their condos on the market.

New-build luxury condos

While the established-building condo market continues to soften, we have seen several high-profile new-build condo developments come to market in the past 5 years, totaling over 330 new units: The Standard, Kalorama, 731 St Charles, 425 Notre Dame and now presales at 1100 Annunciation. These are full-service luxury buildings. The largest is about 90 units, much smaller than many established warehouse conversion buildings featuring 150-250 units.

• Median prices for these condos (under 5 years old) are more than double the prices vs. established buildings.
• This is a much smaller market: we have just 19 units available, and 5 sold in the past 3 months. It is a buyer’s market, with about 11 months of inventory.

This is a different market than the established-building condo market. The high prices can only attract much more upscale buyers. Downsizers and well-heeled second-home buyers seeking luxury, full-service amenities are driving this market, and developers are happy to accommodate them. It still seems that the best units and sell quickly, and the 40-60% of the ‘regular’ units in the building languish on the market. Some buildings have resorted to leasing unsold units to keep inventories lower.

Conclusion: Choose Condos Wisely

The great news for condo buyers is that you have a lot of selection. So choose wisely. While the new-build luxury condo market seems to be healthier (less unhealthy?) than the established condo market, buyers in any price range should strongly consider resale when they are purchasing. When you go to resell, why will a buyer choose your unit over others?

• Interior updates are even more important to condo buyers than single-family buyers, but interior finishes can always be improved.
• You can’t change views, outdoor spaces, building amenities and parking. If your unit has those features, resale will be easier and at higher prices than the competition.

With high inventory, choose units that have the best features for your enjoyment as well as resale.