NEW DEMOGRAPHICS OR A BUBBLE?
September 1, 2005
As condominium prices reach never-before-seen heights, many wonder if the trend is driven by demographics or if this is the latest speculative bubble in the real estate market, says the Wall Street Journal.
In 2004, for the first time ever, the national median price of a condo was higher than that of a single-family home.
- In June, the median price was $233,500 while a traditional home cost $218,600, on average.
- Between 2001-2004, condo values appreciated 57 percent, while those of single-family homes rose only 25 percent.
Demographic changes in the middle-class can explain some of this, says the Journal.
- The ideal of the two-parent home with 2.2 children in the suburbs is being surpassed by an array of arrangements and the urban condo is now considered more luxurious and convenient than a house with a yard.
- Between 1970-2000, the percentage of nuclear families among U.S. households fell from 40 to 24 percent.
- Some studies show that the number of households without children will increase in the next 10 years, while those with children will fall slightly.
Economists and housing experts believe that many people are buying speculatively, causing prices to rise faster than economic fundamentals can support and that the ratio of real buyers to investors will ultimately determine the strength of the market, says the Journal:
- In the past five years, developers have started construction on about 802,000 units; about 270,000 will be started in 2005 and an additional 255,000 in 2006.
- But median prices may be skewed because many of the newer properties tend to be located in pricey coastal cities or in areas where land prices are higher.
Additionally, the condo market is booming in second-tier cities such as Minneapolis, Minn., Charlotte, N.C., and Omaha, Neb., says the Journal.
Source: Kemba J. Dunham and Ray A. Smith, "Behind Zooming Condo Prices: New Demographics or a Bubble?" Wall Street Journal, August 18, 2005.
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