Homeowner Shift to Condos won't affect Prices -S&P

In the S&P/Case-Shiller home price indices report forrnApril David M. Blitzer, Managing Director andrnChairman of the Index Committee at S&P Dow Jones Indices notes that, “Salesrnof new and existing homes are rising in recent reports and construction of newrnhomes enjoyed strong gains in May. At the same time, the proportion of new constructionrnthat is apartments rather than single family homes remains high.”  Over the last year, he says, 34 percent ofrnhousing starts were apartments compared to an average of 22 percent over thernyears since 1975.  He points out that onernaspect of this could be an increase in condominium construction and that in allrnfive of the cities in which Case-Shiller tracks condos, their prices are risingrnfaster than single family homes.  </p

In the June edition of RealtyTrac’s HousingNewsReport Blitzer expands on that statement, saying that “ThernU.S is witnessing a shift from single family homes to apartments andrncondominiums.”  This is evidenced notrnonly in the multifamily share of housing starts, which rose from 19.8 percentrnduring the period of 2000 to 2004 to 35.2 percent in the 15 months that endedrnthis past March, but also in the decline in homeownership.  These indicate both a move from owning tornrenting and a move from single to multi-family housing.</p

He points out that there are relatively few analyses thatrnfocus on the condominium sector during the housing boom and its aftermath so hernuses the Case-Shiller price information on Los Angeles, San Francisco, Chicago,rnBoston and New York and compares it to the corresponding single-family Case-Shillerrndata for those cities.  The data coversrnthe entire metropolitan area in each case, not just the central cities. </p

Blitzer says that condo prices have recovered from the housingrnbust more quickly than single-family houses. rnNew condo price peaks have been set since the recession in SanrnFrancisco, Boston, and New York.  Onlyrntwo cities among the 20 in which Case-Shiller tracks single-family home prices,rnDenver and Dallas, have set new highs, it seems to be condos in dense urbanrnareas that are staging strong recoveries. rn </p

The figure below shows how condo prices changed on an annualrnbasis in each of the five cities between January 1996 and February 2015 andrnillustrate the individual ways each city reacted to economic events.  The tech boom in the late 1990s and bust inrn2000 to 2001 are clear in the San Francisco data. Although the tech bustrnaffected Wall Street as much as it did Silicon Valley prices in New Yorkrncontinued to show solid gains through both boom and bust and then acceleratedrnafter the 2001 recession through 2006 with condo prices peaking in March 2005rnwith a 20 percent annual gain. </p

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In Los Angles condo prices gained 35 percent in the 12 months</bending in August 2004.  This reflected arnresponse to gains in the national economy between 2002 and 2004 by a city withrna diversified economy and a strong reliance on tourism as well as a spike in itsrnpopulation growth in the nine year that preceded the price surge.  However Blitzer says there is no majorrndevelopment that can be easily identified in L.A. like the tech boom in SanrnFrancisco.</p