Housing Bubble
Condo Sales Break Annual Record, Hold Strong in Fourth Quarter
February 08, 2003
Annual sales of existing condominiums and cooperatives surged in 2002, significantly above the record, while the pace of sales activity held fairly steady in the fourth quarter, according to the National Association of Realtors®.
There were a total of 824,000 existing condo and co-op sales last year, up 10.5 percent from the previous record of 746,000 sales in 2001. NAR began tracking the condo market in 1981; prior to the late 1970s, condos were not an important segment of the nation's housing market.
The sales pace slipped 0.2 percent to a seasonally adjusted annual rate* of 818,000 units in the fourth quarter from an 820,000-unit pace in the third quarter. Sales remained 13.8 percent above the 719,000-unit level of sales activity in the fourth quarter of 2001.
David Lereah, NAR's chief economist, said the condo market has been outperforming the single-family housing market. "Although condo sales account for only 12.9 percent of total home sales in 2002, growth in this sector has been stronger and more consistent than growth in the single-family housing market," he said. "This is the seventh consecutive annual record for condo sales, and the rate of increase is double the 5.0 percent rise we saw in existing single-family sales in 2002."
NAR President Cathy Whatley said there is a common denominator behind both increases. "The rising tide that is floating all boats in the housing market is the historically affordable level of mortgage interest rates," she said. "In addition, the condo market is flourishing because both ends of the housing market – first-time buyers and retirees – are drawn by a combination of lifestyle and affordability considerations."
According to Freddie Mac, the average commitment rate on a 30-year conventional fixed-rate mortgage was 6.08 percent in the fourth quarter, down from 6.29 percent in the third quarter; it was 6.90 percent in the fourth quarter of 2001. Last quarter's average interest rate was the lowest since the Freddie Mac series began in 1971.
Whatley said there is a similar pattern in the rate of condo price increases. "The typical condo price has been rising much faster than the typical single-family home price," she said. "In the fourth quarter, the median existing condo/co-op price was $147,900, which is 15.5 percent higher than a year ago." The median is the midpoint, which is a typical market price where half of the units sold for more and half sold for less. By comparison, the typical single-family home cost $161,600 in the fourth quarter, 9.2 percent higher than a year earlier.
For all of 2002, the median existing condo price was $137,100, up 11.3 percent from a median of $123,200 in 2001. At the same time, the typical single-family resale price rose 7.1 percent to $158,300.
Lereah said there are several factors in the median condo price rising faster than historic norms. "First, the record demand has been placing pressure on condo prices. In addition, there is a short supply of available units, notably in the West and South," he said. "We've also seen a growing popularity of upper-end units that appeal to retiring baby-boomers, and more luxury units have been built in recent years. The higher mix of more expensive units being sold accounts for some of the rise in the median condo price."
In the Northeast, condo/co-op resales rose 6.5 percent between the third and fourth quarters to a 131,000-unit pace; they were 10.1 percent above the fourth quarter of 2001. The median price in the Northeast was $154,700, up 15.9 percent from a year ago.
Existing condo and co-op sales in the Midwest increased 3.1 percent from the third quarter to a level of 99,000 units in the fourth quarter, and were 13.8 percent above the fourth quarter of 2001. The median resale condo price in the Midwest was $152,100, up 8.2 percent from a year ago.
In the South, condo/co-op resale activity slipped 0.5 percent in the fourth quarter to a 381,000-unit pace; however, this was 14.8 percent higher than the same quarter in 2001. The median price in the South was $121,400, which was 21.5 percent higher than a year ago.
In the West, the sales pace of condos and co-ops fell 5.0 percent from the third quarter to an annual rate of 207,000 units in the fourth quarter, but was 14.4 percent above the sales rate during the fourth quarter of 2001. The median price in the West was $175,300, up 21.6 percent from a year earlier.
*The seasonally adjusted annual rate for a particular quarter represents what the total number of actual sales for a year would be if the relative resale pace for that quarter were maintained for the year's four consecutive quarters.
Seasonally adjusted rates are used in reporting quarterly data to factor out seasonal variations in resale activity. For example, sales volume normally is higher in the summer and relatively light in winter, primarily because of differences in the weather.
Source: National Association of Realtors®
