Downsizing to a Condominium – Is it Too Soon?

When baby boomers consider downsizing, moving to a condo is often high on the list of options. We have certainly thought about a condo as one future housing option.  Thus, I have made it a habit to keep tabs on condo prices in our area.

Starting 3-4 years ago, there was tremendous surge in condo developments in our city, many in prime midtown or downtown locations.   Many of these condo developments have been recently completed or are just now finishing up.  When the projects were first announced, the asking prices were lofty, running in the $350-$400/sq. ft. range.  I don’t consider a move that is down in size but up in price to be a desirable downsizing strategy for us.

However, things are changing rapidly.  Even though detached single-family residential housing values in our area have remained stable compared to many other parts of the country, condo prices have fallen dramatically. As one example, a large condo development in a prime location has been running ads in an attempt to sell its last remaining units.  The ads include listing prices from December 2008 compared to current asking prices.  Here are some examples:

Size	2008 Price	2009 Price
806 sq. ft.	$288,700	$229,900
1,004 sq. ft.	$349,000	$259,900
1,276 sq. ft.	$482,800	$379,900
1,466 sq. ft.	$495,000	$379,900

As you can see, the price drops from late 2008 to early 2009 are substantial.

Does this mean that it is time to buy?  Maybe, but I think it may be too soon. I expect condo prices to fall even more.

Standard & Poor’s publishes the well-known and respected Case-Shiller Home Price Index. Recently, S&P has begun separately publishing the index for historical condominium values.   The most recent data was published on January 27 and reflects condo price changes through November 2008.  This is the 2008 data for six major metropolitan areas.

YEAR	MO	LA	SF	Chi	Bos	NYC
2008	1	251.80	192.18	155.52	166.99	227.20
2008	2	245.36	188.27	155.07	165.13	227.88
2008	3	237.53	187.13	154.32	164.50	229.56
2008	4	232.33	186.34	154.52	164.31	226.63
2008	5	228.68	185.13	154.74	167.62	223.62
2008	6	225.48	182.69	154.65	167.44	222.34
2008	7	222.72	177.73	154.45	168.69	222.87
2008	8	218.68	172.68	153.78	168.26	223.71
2008	9	215.11	167.06	152.87	168.30	222.57
2008	10	210.98	161.83	150.73	166.16	221.29
2008	11	205.72	157.43	148.73	161.44	219.59

To me, the important feature of this data is the general downward condo price trend in each geographic area throughout 2008. (By the way, the peak condo values were in 2005-2006 so this downward trend has existed for close to three years.)

What this tells me as a potential condo buyer is that I should wait while keeping an eye on this index. When the downward trend slows or stops, that would probably be a good time to look for a bargain.  Right now, I could get a good deal but maybe in 2010 I might find an even better deal.   I don’t see a price risk in waiting because I hardly expect condo prices to go up in the foreseeable future.  Financing costs could increase but since I will probably be a cash buyer, that doesn’t concern me.

The other thing to be alert for is the ongoing viability of management in condo complexes that are struggling.  That is definitely a concern with developments that have had financial problems with either developers, buyers, or both.

Have you ever considered downsizing to a condo?  What are your current thoughts?

Photo credit:  Elvis Santana

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