Colorado Real Estate Newsletter – November 2017

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Colorado’s Condo Market and The Influx of Inventory

The condo market, just like the single-family home market, has been on fire the past six years. Every metric I measure has shown an enormous demand from condo buyers and a shortfall of inventory from sellers. As you would expect, this has led to competing offers and fast rising prices. Condo prices rose an incredible 12.3 percent in the past year.

 

What’s very interesting is that many people think condos are not as good an investment as single-family, detached homes. Or, that condo prices are less stable and fall faster and deeper than the prices of homes when the market drops. When a client tells me this (and they ALL do!), I just show them the data, because the data show this is not true.

 

If you look on page 4 you see the graphic of metro Denver condo sales from 1972 to the present. Remarkably, the price fluctuations over this 45-year period closely mirror the rises and falls in the single-family home market. What’s more, the condo appreciation over that 45-year period is 5.6 percent per year, just 0.7 percent per year lower than the home market – a rounding error.

 

Of course, the major difference in purchasing a condo is understanding the financial health and rules and regulations of the Home Owners Association (HOA). The effort to understand and qualify the HOA should be taken very seriously by anyone interested in purchasing a condo. HOA financial reporting can take some getting used to, but with a little effort you can grow in your understanding of how it all works. Take a long view of the HOA’s finances. Yes, it is important to remain aware of the here-and-now financial health of an association, but it is equally important to think about any major, upcoming expenses that you know about. The balance sheet, for example, provides a cumulative, complete picture of the association. The current year’s equity reflected on the balance sheet is the net income or loss being added or subtracted for the year’s operations. The balance sheet is a picture of the association, reflecting its financial position at a specific point in time. It is categorized into three areas: Assets, Liabilities, and Members’ Equity. The three are always in balance, thus the equation: Assets = Liabilities + Members’ Equity. A bad HOA makes for a bad condo purchase, plain and simple. The good news is there are well established metrics and rules to guide us in evaluating an HOA, so it’s not guesswork, it’s just work. And let’s not forget condos come with lots of advantages as well. They usually are more affordable than single-family homes, and all of the outside maintenance is taken care of by the HOA – a big advantage for many buyers.

Let’s look at a number of key metrics for condos to help understand the market better:

[/vc_column_text][vc_single_image image=”3815″ img_size=”full” add_caption=”yes” alignment=”center” onclick=”link_image”][vc_column_text]Let’s look at another neighborhood. In City Park West there has been a 9 percent rise in home prices in the past year. The average sale price is $643,000 and during the previous 12 months there have been 25 sales. Currently there are 5 active properties and 2.5 MOI. What this tells us is that City Park West is doing well but isn’t quite as strong as Wash Park West.

Look for your neighborhood and hopefully you find this tool helpful. Give me a call and I’d be happy to sit down with you with a full size 36” X 18” copy of the map so we can review it together and I can answer all your questions.[/vc_column_text][vc_single_image image=”3813″ img_size=”full” add_caption=”yes” alignment=”center” onclick=”link_image”][/vc_column][/vc_row]