The Real Deal New York

US condo market staging a comeback

Absorption rate improves as condo pricing normalizes

August 18, 2014 01:50PM
By Business Insider

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The U.S. condominium market is rebounding, according to Sam Khater at CoreLogic. Condo construction completions were up 11% percent year-over-year to 2,100 buildings. 

More proof of strengthening in the condo market comes from the absorption rate — the share of units sold within the first three months of completion — which hit 82 percent in 2013, up from the 36 percent low seen during the financial crisis.

“One reason that absorption rates have risen is that condo pricing has normalized in two important dimensions: the condo price premium vis-à-vis the single-family market and the new versus existing condo price premium,” writes Khater. “The normalization in both price dimensions is important because it will draw more condo buyers back into the market and spur even more construction.”

This chart shows that the price of condos relative to single-family detached home prices has declined to levels seen in the early 2000s. This compares to March 2008, when condo prices were 37 percent above the median single-family detached home price. By July 2013, however, it was 1 percent lower.

20140818_Condo Price Premium

Ratio of condo median prices to single-family detached home median sales

Meanwhile, “the correction of the new condo price premium relative to existing condo prices has taken longer,” according to Khater.

20140818_Condo Price Normalized

Ratio of new condo median price to existing condo median price, 3-month moving average

The recovery in construction and price normalization are important because “condos are one of the few sources of affordable housing,” writes Khater.

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