Friday, August 21, 2009

The Problem with Condos

One interesting aspect of today's Existing Home Sales report is that while the inventory of single family homes is decreasing, the inventory of condos is increasing. This is consistent with past weak housing markets--the detached market tends to come back before the attached market.

One of the reasons for this may be that detached houses are in more desirable locations, and so when prices fall, people who could not afford houses in the single-family market before a price drop can do so afterward. But incomes are falling along with house prices now, so I am not sure that is the explanation.

Rather, it may be that people prefer detached houses because they afford a degree of control not present in the condo market. If you own your own house, and think it is time to repave the driveway, you can just do it. But when you are in a condo, you need to get your condo board to approve capital expenses-even when they are necessary. I have been at condo board meetings where people protested spending money to deal with curable depreciation (i.e., make capital expenses whose value is greater than cost). And so the entire complex deteriorates.

9 comments:

doc said...

I've lived in condos where the unit owners didn't understand the importance of having some minimum level of reserves. (Actually, I am now in such an association.) So, every time something comes up, there's a special assessment...which lenders, and prospective buyers, do not like a bit.

toronto realtor elli said...

Exactly. That might be one of the main reasons - people feel free having a house, it's their own and they just might do anything with it. Privacy might be very important too. And actually, I have recently written an article comparing houses and condos. You are welcome to read it, if you want to.

Best regards, Elli.

Anonymous said...

could it also be because of requirements about % owner occupancy in a condo complex in order to get a mortgage? if people are renting instead of selling this could make it difficult for other owners to sell.

Rhonda Porter said...

financing a condo is trickier...not only due to owner occupancy ratios--they must also have specific amounts of reserves. In addtion, they have price hits with conventional financing of 0.75% when the loan to value is higher than 75% and when the term is longer than 15 years.

They are the last to go up in value and the first to go down.

New Delhi Real Estate said...

Condos are pretty different from living in a regular home and there are some restrictive measures that everyone should know about. One of the things I don’t like about condos, there is less privacy in a condo development.

Sherwoods said...

The Basic concept of "problems with condos", is the UPs and Downs in the price factor, which market we could see the changes in the family expenditure. The Condos market was the basically for seeking capital expenses whose value is greater than cost.

miyaka said...

"One of the reasons for this may be that detached houses are in more desirable locations, and so when prices fall, people who could not afford houses in the single-family market before a price drop can do so afterward." very well said. Anyway, we can't really avoid problems in our business or in other things.I've been looking for interesting topic as this. looking forward for your next post.


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jomie said...

I have a condo and also a detached house, I agree that there are some problems in living a condo but this is only a minor problems.


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