What are the plusses and minuses of buying a condo?
Question of the week: What are the plusses and minuses of buying a condo?
Answer: Even though number of housing units sold in the state and Southern California region is down significantly, prices in Southern California are down less significantly from a year ago. The median prices in the LA Metro region and all Southern California counties are still up approximately $100,000 from December 2020.
Between the $100,000 increase in the market and interest rates that are up more than double the rates at the end of 2020, many potential homebuyers are considering purchasing condominium based on affordability compared to a detached single family residence.
Condos have advantages and disadvantages that for many will decide what housing purchase direction they will take. Here are some items on both sides of the plus/minus equation.
- In many areas for the same price as a single-family residence (SFR) you may find a condominium is in a more desirable area for you and your family. For example, in one very highly desirable beach/beach adjacent area of Long Beach, currently there is only one listing for a 2-bedroom dwelling, it is a condo for under $800,000. For three-bedroom dwellings there are eleven listings, a condo at $1.175 million, and with one exception just be one-million, the other listings are SFRs ranging from $1.549 to $4.275 million.
- Along with location, you can often get more square foot for dollar in a condominium than an SFR in the same area.
- For most loans, the rate for a mortgage on a condominium will be higher than the rate for an SFR with the same percentage down payment, credit score, etc. This is because condos are a higher risk for default for lenders.
- When you purchase a SFR you enter a very loose “business” relationship with your neighbors. Your home value, and desirability to potential buyers, can be impacted by noisy neighbors, neighbors whose homes are in visible disrepair and/or have bad, overgrown landscaping. When you purchase a condominium you enter a business relationship with all your neighbors who are in your Homeowners’ Association (HOA).
- The monthly cost and value of, enjoyment you receive from, your condo unit is directly impacted by the Homeowners’ Association. Are all the members of the HOA, i.e. other owners in the complex, current on their dues? Has the HOA properly budgeted to maintain the property, including reserves to make major repairs for roofs, sidewalks, heating, electrical, etc.? Will delinquent dues impact the constant recurring maintenance and long-term improvements? Will lack of reserves result in large increases in your monthly dues in the future?
- Security is a big factor for many homebuyers, especially those who are not in a serious relationship of some sort. Whether at home, or travelling, your home is generally safer than those in a detached single-family residence where there are many ways for someone to enter your property and home.
- Maintenance costs, even with HOA dues, can often be lower for a condo than an SFR. Landscaping care, exterior painting, repairing or replacing roofs, garage door openers, over time the costs add up for expenses that condo owners pay on a monthly basis.
- Depending on the layout of the complex, privacy is a big factor for many homebuyers. Layout of the complex is mentioned as there are those where the ownership is as a condominium but the design and layout of the units are detached, similar to a single family residential community. Most condo units are in buildings that are apartment style with shared walls on two sides for most units, and depending on location units above and or below you. While many neighborhoods in Southern California have very little space between neighbors, there is still that space and no common walls.
- With a SFR you own everything on the plot of land, including the land, where you home sits. The grass and dirt, the roof and ceiling, the stucco siding and drywall inside. Everything is yours and your responsibility. The general rule of thumb for a condo is you solely own everything you can see inside your unit. You own the drywall but not the studs to which is attached, the carpet or other flooring choice, but not the subfloor (the layer below the flooring to with the flooring material is attached). You own the switch plates but not the electrical wiring, the toilets and sinks but not the plumbing. Everything you cannot see is jointly owned by everyone in the complex and the responsibility of the HOA to maintain, repair, and replace.
- In a condo the HOA can restrict your decorative choices, whether you can have a pet and if so what size, mandate special assessments, and create rules with which you are not real happy to have. My advice to clients who purchase a condo is to get on the HOA board so you have some say and input on major decisions that affect your home, quality of life, and in the long-run the value of your property.
From a mortgage and house buying perspective, earlier this week a client and I were working through the numbers for a new home purchase. The monthly housing cost (PITI, principal and interest on the loan, property taxes, insurance and HOA for the condo) was the same for a $600,000 with $500 per month HOA dues and a $700,000 home. Filtering through all the factors above she is leaning to a condo in an area she prefers at her maximum qualifying price than a single family residence at her maximum qualifying price.
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Slowing, but growing was the message in the first estimate for GDP for the 4th quarter of 2022. The economy grew at a 2.9% annual rate in the final quarter of 2022, after a 3.2% rate of growth in the prior quarter. For the year the economy grew at a 2.1% clip, almost a third lower than 2021’s very robust 5.9% growth. Partially fueled by consumer spending up 2.3% in the quarter, and two quarters of 3.7% increases in government spending, the economy shook off negative growth in the first two quarters to expand over the year.
Prices are increasing at a slower rate through the end of the year, however high interest rates and prices are slowing consumer spending, which has many experts thinking the economy will start 2023 as it did 2022 by contracting and going into recession. Should this thinking be accurate the questions to be answered are whether such a recession will be as short and shallow as 2022’s, or deeper and longer?
Rates for Friday January 27, 2023: The economic data this week was met with a shrug of the shoulders from investors, who had felt the data would be no surprise in either direction. The slowing growth, slowing inflation, and slowing consumer spending has many thinking the
Fed will slow the pace and size of its rate increases. Comments from several members of the Fed bely that thinking as they feel there is more slowing that needs to occur before they slow, or change, course. Meanwhile rates for conforming back down after last week’s bump higher.
FIXED RATE MORTGAGES AT COST OF 1.25 POINTS LOCKED FOR 45 DAYS FOR PURCHASE TRANSACTIONS:
30-year conforming 5.875% Down 0.125%
30-year high-balance conforming 6.50% Flat
Please note that these are base rates and adjustments may be added for condominiums, refinances, credit scores, loan to value, no impound account and period rate is locked. Rates are based on 20% down with 740 FICO score for purchase mortgages.
I am very excited for the Conference Championships this week to see which teams will play in the Super Bowl. The four best teams in the NFL will be playing, which doesn’t always happen in this round of the playoffs, which should make for tight and exciting games.
I will be cheering hard for Philadelphia in the first game, being an almost life-long Eagles fan. My fandom started in 1970 when I saw my first game in person. My best friend, who I met right after moving to the Philadelphia area from Tulsa, would invite me to several games a year as his dad had season tickets and the two brothers could rotate who they invited.
Since October I have told my friends that the Niners were the team that worried me the most when, if, they both make the playoffs, hopefully Sunday will prove my worrying was for naught.
As for the afternoon game between the Bengals and Chiefs, it is a rematch from last year’s AFC Championship of what I consider to be two of the best three quarterbacks in the game (the third being the Eagles’ Jalen Hurts). Like the San Francisco-Philly game, the Cincy-Kansas City game should be excellent.
Whichever two teams advance to the Super Bowl we will have a great game on February 12th that should have most people caring more about the football being played than the commercials and halftime show!
Go Birds! Fly Eagles Fly!
Have a great week,
Dennis
Past Weekly Rate & Market Updates can be found on my blog page at my website www.DennisCSmith.com/my-blog
