SPECIAL TO THE WASHINGTON TIMES
Published February 27, 2004
Last year, real estate experts pointed to the Washington-area condominium market as a hot spot in an already heated market. Condominium sales continue to push past the boiling point in early 2004, with demand and prices rising fast.
"We've seen 15 to 20 percent price increases in all three jurisdictions during the past year," says David Mayhood, president of Mayhood Co., a McLean-based property marketing firm.
"There's a strong demand for condominiums that's been around from 2000 and earlier, based not just on low interest rates but on the desire for an urban lifestyle," he says.
Condominiums are popular for many reasons, including demographics, low interest rates, traffic congestion and an interest in revitalizing urban areas.
"Low interest rates have helped housing generally, and the condominium segment of the market is no exception," says Len Bogorad, managing director of Robert Charles Lesser & Co., a real estate consulting firm headquartered in Washington.
"Condominiums have also grown in popularity in recent years indirectly because the overall market is so expensive. Even though condominiums are expensive, they are still sometimes a slightly more affordable alternative to single-family homes and town homes," says Mr. Bogorad, who points to traffic congestion as an additional factor creating condo demand.
"As commuting becomes more and more difficult, people look for alternatives which are closer to their jobs or to public transportation, and condominiums often fit that description," Mr. Bogorad says.
Says Tom Meyer, president and Broker of Condo 1 Inc. in Falls Church: "As traffic gets worse and worse, it becomes a quality-of-life issue. It means a lot to people to be able to get into D.C. in five minutes instead of an hour and five minutes.
"Even if they can't buy a place at a Metro stop, people want to be closer to D.C. even if they are driving or taking a bus," Mr. Meyer says. "A couple of years ago, the demand was strongest along the Metro line in Northern Virginia, but we've seen tremendous price hikes in those areas. Prices are almost double what they were a few years ago."
One reason prices continue to climb is the lack of supply. "Even though new buildings are going up, we still don't have as many condominiums as we need," Mr. Meyer says. "The supply right now is the lowest I've seen in 15 years, which is driving prices even higher, especially in the Ballston corridor."
John Fitzgerald, part owner of the Tenacity Group and a Realtor with the Condominium Network of Long & Foster Real Estate, says: "Most condominiums in D.C. are priced between $300,000 and $550,000. In the old days, the median price of a D.C. condominium was $259,000, but now, $359,000 to $379,000 is the median.
"For $300,000 to $359,000, you can usually find a one-bedroom place with a den and one and one-half baths," he says. "For $400,000, you can find a two-bedroom, two-bath place with parking."
Michael Albrittain, president of Dittmar Realty Group, says that "when interest rates went down and single-family and town-home prices shot so high that they became unaffordable for people, lots of developers started to build condominiums in the Arlington area.
"The idea was that they would be priced for the masses and more affordable and available for people who wanted to live close to the city," he says. "But Arlington, with its access to the Metro, became a desirable urban area with restaurants and nightlife with a downtown atmosphere. The transformation just kept feeding on itself, and prices have gone way up."
While condominium prices are changing, so are condominium buyers.
"The condominium market is a different animal now," Mr. Fitzgerald says. "A few years ago, condos were looked at as a product for people who couldn't afford a single-family home. People are no longer living in a condo because they couldn't afford a house. Now they are living in a condo because they want to be able to able to order room service."
Mr. Mayhood agrees.
"The condominium market is maturing beyond 'This is what I can afford' to 'This is the lifestyle I want,' " he says.
Many real estate experts anticipate an interest among empty-nesters in condominiums, but most buyers are still younger professionals, married or single.
"Generation X people have delayed marriage and childbearing longer than other generations," Mr. Bogorad says. "They are the largest group of condominium buyers in this area."
Mr. Mayhood says, "The most popular areas for condominiums are primarily downtown in D.C. and in urbanized suburban areas such as Reston Town Center, downtown McLean and Tysons Corner, plus along the Metro line in Northern Virginia.
"Washington clearly has a strong, stable economy with highly educated people and a high-income job base, and there's a youthful element of well-paid professionals buying condominiums in these urban areas," he says.
Mr. Mayhood explains that different neighborhoods where condominiums are for sale appeal to different buyers.
"In Penn Quarter [downtown near the Navy Memorial and National Archives], most of the buyers are very youthful, with an average age of 31 or 32," Mr. Mayhood says. "Buyers in this neighborhood enjoy being in an active, exciting urban area and an exciting new neighborhood."
Other neighborhoods attract different buyers.
"At the former Columbia Hospital for Women site in the West End, we're seeing more empty-nester buyers moving in from the suburbs," Mr. Mayhood says. "There, we really have two markets, one a group of people in their mid-30s and the other the over-50 market.
"Along 14th Street near P Street, we're seeing an almost Soho-type neighborhood develop with a diverse population and a lot of interesting local businesses," he says. "The buyers in that area are mostly young professionals in the 34- to 36-year-old range.
"We're seeing more empty-nesters wanting to buy near Reston Town Center who enjoy the urban environment but want to stay in the suburbs near their friends," says Mr. Mayhood, who predicts that among the areas to next experience significant condominium development will be Montgomery County.
"White Flint and Rockville Town Center are two areas with tremendous potential," Mr. Mayhood says. "There's a lot of affluence in Montgomery County, a strong younger demographic plus access to Metro."
As new condominiums are developed, some design changes are anticipated.
"While it's hard to predict the future, we do expect a continuing demand for condominiums for the next three to five years, with a larger percentage of buyers coming from the empty-nester market," Mr. Mayhood says. "Right now, one-bedroom-and-den models are the most popular for single buyers, and we're seeing the market evolving with the desire among buyers for a combined home office/guest bedroom.
"Empty-nesters more commonly want a two-bedroom-and-den or a three-bedroom home because they have accumulated more possessions and they want a place for their children and grandchildren to visit," he says. "Buyers are more sophisticated today and have a greater sense of what they want in a condominium."
"There are two sides to the condominium market," Mr. Bogorad says."Among the young singles with good salaries who are ready to buy their first home, the smallest units are selling the fastest. Even studios and small one-bedrooms are selling in urban areas to these buyers.
"A smaller but still significant segment of the market is empty-nesters who do not want to compromise on size," he says. "Some don't want to downsize too much; they are just looking for a more carefree lifestyle."
Condominium buyers, like any other group of home buyers, want to do their best to purchase a home that will rise in value over time or at least hold its value.
"Location is the most important thing in making sure a condominium will hold its value," Mr. Albrittain says. "Access to Metro and to restaurants and retail stores [is] important, and condominiums which will do well are those in urban areas which are re-creating themselves or in the new urban areas such as Reston and Arlington."
Says Mr. Fitzgerald, "A prudent condo buyer will look for a building that is well-built and well-maintained, because buildings that are well-managed will always hold their value.
"People should buy a place that they want to live in, where they will feel comfortable," he says. "Any home has to be functional for your lifestyle, with a grocery store nearby, along with restaurants and some sort of transportation."
Mr. Meyer agrees.
"People need to plan for the long run," he says. "The real estate market has gone up and gone down before, and it will fluctuate again. That's inevitable. People need to view the condominium as a place they may live for 20 or 30 years, and if it's a place they want to live, then they should buy it now."
While fitness centers, swimming pools, tennis courts and party rooms are sometimes part of a suburban condominium's amenities, real estate experts agree that these facilities are nice but not a critical factor in a building's future value.
"In the suburbs, there's a big advantage in terms of long-term value to being near a Metro stop, a town center or some type of mixed-use development," Mr. Bogorad says.
"In the city, location is an important factor, too," he says. "People are going into some fringy areas of the city, and sometimes it can be hard to predict whether the neighborhood is improving or not. It's a risk to determine which way a neighborhood is going to go, although buyers should be able to get a better price if they are making a compromise on location."
Predicting the future of individual neighborhoods can be as difficult as predicting the future of the condominium market.
"Two years ago, I thought we were near the peak of the condo market," Mr. Meyer says, "but obviously, I was wrong. I think prices should stay strong in the near future, but interest rates will be a critical factor. If rates go up, prices may drop pretty quickly."
Mr. Fitzgerald expects that within the District, supply will improve dramatically, even as soon as summer or fall.
"Buildings that were slated to be rentals have been flipped to condos, and lots of buildings which were rentals are being converted to condos," Mr. Fitzgerald says. "The big question is whether having a larger supply will simply create choice, or will it create an oversupply?
"If anyone had an answer to that, they would know more than most people," he says.
According to Mr. Bogorad, "There's been very little new supply of condominiums for years, and now we're seeing a balancing of that lack with a lot of new construction. We're cautiously optimistic that as long as interest rates stay low, the condominium market should stay strong. Well-executed, well-researched projects will do well in the future."