Outlook for Condo Market Not as Bleak

Recent news has highlighted the severity of the renewed downturn in prices of single-family homes, but Capital Economics says although condominiums will not escape altogether, over the next year or so condo prices are likely to fall by less than their single-family counterparts.

According to a market analysis released recently by the research firm, demand for condos is currently stronger than demand for single-family homes.

Since January 2009, existing-condo sales as a share of all existing-home sales have risen from 10 percent to 13 percent due to cash buyers and investors, who currently drive the housing market. These buyers traditionally favor condos over single-family homes for rental income.

In addition, the lower delinquency rate in the condo market suggests that, in the coming years, fewer foreclosed properties will support the supply of condos.

During the housing boom, condo prices rose by 120 percent compared with the 105 percent rise in single-family home prices. During the housing bust, though, Capital Economics says while condo prices fell by 25 percent, house prices have plunged 32 percent.

According to the FDIC, in the fourth quarter of 2010, 1.1 percent of real estate loans secured against multi-family properties were three or more monthly payments behind compared with 2.4 percent for single-family homes.