Housing Bubble

Condo / Co-Op sales set record in first quarter

May 05, 2003

Sales of existing condominiums and cooperatives reached a new record in the first quarter as buyers responded to low interest rates, according to the National Association of Realtors®.

The seasonally adjusted annual rate* for existing condo and co-op sales was 846,000 units in the first quarter of 2003, up 3.2 percent from an 820,000-unit rate in the fourth quarter of 2002. Sales activity in the first quarter was 3.4 percent above the 818,000-unit sales level during the same period in 2002. The previous record was an annual rate of 824,000 units in the second quarter of last year.

David Lereah, NAR's chief economist, said historically low mortgage interest rates and strong demographic factors are favoring the condo market. "Younger households, including children of the baby boom generation, are taking advantage of low interest rates and getting into the housing market, while many of their parents' generation are seeking simpler lifestyles," he said. "Lower-end and more affordable condo units are attractive to first-time buyers, especially in high-cost markets, while luxury units are meeting the preferences of wealthier households that are closer to retirement."

According to Freddie Mac, the national average commitment rate for a 30-year conventional fixed-rate mortgage was a record-low 5.84 percent in the first quarter, down from 6.08 percent in the fourth quarter; it was 6.97 percent in the first quarter of 2002. The Freddie Mac mortgage interest rate series began in 1971.

NAR President Cathy Whatley, owner of Buck & Buck Inc. in Jacksonville, Fla., said a strong sales trend is expected to continue. "The positive factors driving the condo market during the first quarter are expected to prevail throughout 2003, although interest rates should rise slightly in the second half of the year," she said. "While higher interest rates may dampen some activity by first-time buyers, we don't expect much of a decline."

The median existing condo price during the first quarter was $150,700, which is 12.5 percent higher than the same quarter in 2002. The median is a typical market price where half of the units sold for more and half sold for less. By comparison, the median price of an existing single-family home was $161,500 in the first quarter, up 7.0 percent from a year earlier.

Lereah said two factors account for the strong condo price increase. "A tight supply of available units is putting some pressure on prices, but a higher ratio of luxury units in the sales mix also is causing the median price to rise at a faster clip," he said.

In the Northeast, condo/co-op resale activity rose 13.1 percent in the first quarter to a record 147,000-unit pace, and was 3.5 percent above the first quarter of 2002. The median price in the Northeast was $155,800 in the first quarter, up 15.2 percent from a year ago.

Existing condo and co-op sales in the Midwest were at a record seasonally adjusted annual pace of 106,000 units in the first quarter, up 6.0 percent from the fourth quarter, and also were 6.0 percent above the same period last year. The median resale condo price in the Midwest was $154,200, up 7.2 percent the first quarter of 2002.

In the South, the existing condo and co-op sales pace rose 1.3 percent in the first quarter to a record 387,000-unit pace; this was 6.3 percent higher than the same quarter in 2002. The first-quarter median price in the South was $123,400, which was 14.3 percent higher than a year ago.

In the West, condo/co-op resale activity slipped 1.0 percent from the fourth quarter to an annual rate of 206,000 units in the first quarter, and was 2.8 percent below the sales rate during the first quarter of 2002. The median condo price in the West was $184,200 in the first quarter, up 15.5 percent from a year earlier. "It appears tight supplies constrained condo sales in the West, and also contributed to the sharpest price increase in any region," Lereah said.

* 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®