The condo market has become so bad – pause for a “Match Game”-style response of “How bad is it?” – that nearly seven in 10 (68%) condos sold below list price in the first quarter, the lowest share in five years.
Furthermore, new data from Redfin (NASDAQ: RDFN) found investors purchased 8,509 condos in the first quarter, down 3% year-over-year to the lowest level in 10 years (not counting the second quarter of 2020, the disruptive start of the pandemic). The Florida condo market had the greatest drag on this sector, with rising HOA fees and insurance costs ruining the appeal of these properties. HOA fees in California and Washington, DC, are also weakening this sector.
“People who own condos as rentals are trying to offload them because the money no longer makes sense – and people aren’t buying condos to rent them out anymore unless they have cash to burn,” said Stuart Naranch, a Redfin Premier agent in Washington, DC. “It’s a tough time to rent out a condo because high mortgage rates make it hard to profit on a financed condo, and outside forces like homeowners’ association rental regulations and potential rental caps are adding to the hassle of being a landlord. The flip side is that people who are buying a condo as a home rather than an investment may get a deal because there are a lot of them on the market, without much competition.”
While investors are shying away from condos, they are continuing to pursue single-family homes. During the first quarter, investors purchased 46,726 homes, up 2% year-over-year. Redfin reported that investors saw a median of $182,980 in capital gains for each home they sold in March, up 2.8% from one year earlier, and only 6% of homes sold by investors were sold at a loss, up only marginally from 5% from one year earlier.
Real estate investors purchased 19% of homes that sold in the first quarter, unchanged year-over-year and up slightly from 18% two years earlier. Investor purchases of high-priced homes nationwide rose 12% year-over-year in the first quarter, the biggest increase in three years, while purchases of mid-priced homes rose 2% and purchases of low-priced homes fell 4% year-over-year. Still, low-priced homes made up nearly half (46%) of investor purchases in the first quarter, while high-priced homes made up 30% and mid-priced homes made up 24%.
“Investor home purchases have leveled off because rapid sale-price and rent growth is no longer the norm,” said Redfin Senior Economist Sheharyar Bokhari. “While some investors are still making money by flipping homes or renting them out, particularly in parts of the US where rents are still rising, many of the investors who jumped into the market in 2021 or 2022 have backed off. That’s one piece of good news for regular homebuyers: While it’s still hard for the average American to afford a home, there are now more homes to choose from and individuals aren’t facing stiff competition from investors. That allows buyers the chance to negotiate prices down, and/or ask the seller for concessions.”