House of the Rising Prices Pt. 1

We have currently got several condominiums in escrow, and are frequently asked a question that historically has had an easy answer: Do single-family detached homes appreciate in value faster than condos? The standard answer has been: Of course single-family homes appreciate faster. They are what most people prefer to live in, so there’s stronger demand. They come with their own piece of land—and land is a crucial driver of value. Condos, on the other hand, tend to be smaller and more complicated. They come with boards of directors, association fees, rules and restrictions.

But research out this week from Trulia suggests that these assumptions could be giving way to changing market trends. According to data on millions of properties in the U.S.’s largest metropolitan areas between 2012 and 2017, the median appreciation rates of condos outpaced those of single-family houses (SFR’s). Median condo market values rose 38.4% over the 5-year period, while median SFR’s appreciated 27.9%. In some local markets, especially those that have seen either significant new condo construction downtown (like Los Angeles) or that have little available land suitable for detached housing, the median value of condos exceeds median values of SFR’s in the surrounding suburbs.

Trulia’s analysis stems from their automated valuation model which estimates ongoing property values both for properties that are on the market and those that are not. For this reason, some take issue with Trulia’s conclusions. The National Assn. of Realtors (of which I’m a member) says based on closed sales prices—not automated estimates—SFR’s appreciated an average of 4.7% annually between 2010 and 2016, while condos averaged 3.4% per year. What to make of the new Trulia data? Clearly condos are playing a key role in some cities’ value and growth—specifically in L.A. ‘hoods like West Hollywood, Century City, and Santa Monica. In other markets around the country, condos continue to be more affordable than SFR’s and may be appreciating in value faster as a result.