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Tuesday, August 09, 2005

Buyers Being Priced Out of Homes, Into Condos

As the cost of real estate continues to soar in the Seattle area, far outpacing wage growth, many buyers are being priced out of single-family homes. This is causing a bit of a surge in the condo market:

While single-family home sales in King County were flat last month, condominium sales soared by nearly 6 percent, as Seattle-area buyers looked for lower prices, urban locations and good investments.
Condos definitely provide the first two items in that list, but I'm not so sure about the third.
Prices for both homes and condos were up sharply. The median sales price for King County homes was up 13.7 percent from last July and for condominiums it was up 6.9 percent, the Northwest Multiple Listing Service said yesterday in its July report.
And how much did wages increase in that same period? I don't have those figures, but I can bet it's less than 6.9 percent.
Fulton believes many buyers snatched up King County condominiums in July because at a median sales price of $216,995, they were less expensive than single-family homes. The median sales price of those homes was $375,000 last month. The median price means that half of the sales are above that amount and half below.
And if the price of both continues to rise at the current rate, more and more people will be priced out of single-family homes, then eventually they will be priced out of condos, too. Can we say unsustainable?

(Brad Wong, Seattle P-I, 08.06.2005)

1 comment:

ajh said...

This phenomenon has been analysed to death on Ben's blog, and you're quite right about the unsustainability. I have seen the same pattern in both Australia (where I live) and the UK (where I was for 3-4 months late last year.

Condos are the last to take off in price, and they fall first and furthest because the supply/demand equation is different to SFH's.

Put simply, the supply of condos is far more elastic, so when prices rise more get built. You usually see maximum commencement at the peak, with lag effects ensuring all this supply hits an already declining market.

Some comments posted on Ben's blog have some horrifying anecdotes about condo price declines during previous RE busts in various regions. 80%+ peak-to-trough.