According to a new Point2 study [1], when the pandemic forced many Americans to settle into remote work, single family homes — preferably with a backyard — became a fast-growing trend for homebuyers. Consequently, homebuyers went into a real house hunting frenzy, jumpstarting a period of bitter bidding wars and rapidly escalating asking prices.
Now, single family home prices that shot into the stratosphere are currently undergoing a dramatic price correction. But the same is not true for condos. After demand for space drove house prices to historic highs, making them totally unattainable, homebuyers started shifting their attention toward the more affordable option — condos.
As a result, the trend that is becoming increasingly evident is that house prices are falling almost twice as fast as condo prices. In fact, the evolution of single family home and condo prices in the 100 largest U.S. cities shows that increasing demand for condos makes prices in this segment hold up much better than single family home prices.
House prices drop 8.6% YoY, while condo prices only decrease 4.4%
Currently, the average house spends 15 more days on the market this year than last year. The average condo only added nine more days than last year.
House prices decreased in 88 of the 100 largest U.S. cities, with Irving, TX leading the way with a -22% decline in just a few months. Toledo, OH followed suit, with a similar drop. Likewise, in 10 other cities, house prices contracted between -15% and -20% compared to their spring peaks.
Condo prices, on the other hand, only decreased in 65 of the 100 largest U.S. cities. And, while the markets where prices kept growing were fewer, the price increases were much more spectacular: The most significant condo price increase was recorded in Oklahoma City, OK, at 79%. For comparison, the largest house price increase was a much more subdued 11% in Tulsa, OK.
The current trend reversal is a direct result of houses — especially big houses — dominating the mindset of buyers all throughout the nation for two whole years during the pandemic. The need for space was felt so acutely during lockdown that renters and even existing homeowners were extremely determined to find more spacious homes to accommodate their new lifestyle.
And, more than just determined, buyers were also willing and able to pay increasingly more for more space. When interest rates were hovering around 3% (although sustained demand pushed prices higher and higher) buyers still had the courage to take the plunge.
But increasing interest rates were the straw that broke the buyers' back, forcing them to take into consideration the more affordable alternative. Those who still wanted to make the move to homeownership were now choosing condos over houses.
Since spring peak, condo prices declined in only 65 cities, but single family home prices fell in 88 large cities
The largest condo price drop was Stockton's -29%, while the biggest single family home price drop was Irving's -22%.
After their spring peak, prices started decreasing, revealing the new market conditions: While the pandemic may have dictated the race for space that fueled the buying frenzy of 2020 and 2021, new mortgage rates are dictating a shift in preferences.
When it comes to condo prices, the decreases were far less generalized than single family home price drops, but slightly more consistent, with the top 10 steepest decreases ranging between -15% and -29%. For instance, in Stockton, CA (the city with the biggest drop) condo prices fell from $252,500 in May to $180,000 in October. Plus, condo prices contracted more than 20% in four other cities: Raleigh, NC; New Orleans, LA; Omaha, NE; and Glendale, AZ — which saw condo price drop -21% to -25%.
Zooming in on the cities with the most significant single family home price contractions, some of them displayed dramatic differences: The median single family home price in Irving, TX went from $450,000 in May to $353,000 in October following a -22% contraction. Further North, Toledo, OH experienced a similar contraction — but here, house prices dropped from nearly $125,000 to $100,000. Our analysis also revealed 10 other large cities where house prices fell between 15% and 18%.
Record-low mortgage rates, remote work and the need for more space fueled the pandemic's housing boom. But now, record-high rates and inflation — coupled with historic-high prices and market volatility — are all forcing a real cool down in America's largest housing markets.
Price Increases Point to Same Trend of Growing Demand for Condos
In Oklahoma City, Oklahoma, condo prices jumped an astounding 79% since May. At the same time, the biggest price increase for single family homes was 11% in Tulsa, Oklahoma.
The price correction that started to ripple through the market in the spring engulfed most large cities. Even so, both condo prices and single family home prices kept rising in some markets. And if the generalized price contractions make sense given the current economic conditions, the cities and markets where prices adamantly continue to grow are quite the outliers.
That said, even price increases follow the same two-speed market pattern: Condo prices are growing faster, thereby supporting the idea that demand for condos is outstripping demand for single family homes.
Condo prices kept rising in 33 of the 100 largest cities, whereas single family home prices only continued their upward trajectory in 10 cities. Additionally, while single family home prices barely went up more than 10% in just one large city, condos recorded price jumps of up to 80%.
And the state that stands out in this category was Oklahoma. In particular, Tulsa experienced the biggest price increases for single family homes of all of the cities in the analysis, and Oklahoma City recorded the sharpest spike in condo prices. Plus, these numbers were all the more spectacular because home prices are generally on a descending slope.
Aside from Oklahoma City, condo prices increased by more than 10% in nine other markets, with Tampa, FL trailing Oklahoma City with an impressive growth of its own: Condo prices in Tampa went up 40% — from a median of $257,500 in May to $360,000 less than half a year later.
Both the price increases and especially the price contractions swiping the housing market show that buyers aren't giving up on their homeownership dreams, but merely adjusting them to fit the new, harsher market conditions. Although the need for more space is still buyers' main driver, affordability concerns are starting to take precedence. Because of the rising mortgage rates, single family homes are becoming increasingly unaffordable for homebuyers across the nation, making condos the next best thing.
To read the full report, including more data, charts and methodology, click here [1].