Beth Hood, 32, decided this year to buy her first home, wanting to take advantage of super-low interest rates and to get in before a rising market priced her out. But single-family homes within commuting distance of her job at a San Francisco environmental nonprofit were too expensive.
Instead, she opted for a condo. Like many buyers this year, she was outbid several times before finally settling on a new unit at Oakland’s Uptown Place near the 19th Street BART Station.
“The rental market has changed so much that it’s cheaper to own (in Oakland) than rent even a studio in San Francisco,” she said. “A condo was the right fit for me. I couldn’t afford a single-family home unless I lived way far away.”
Many other Bay Area home buyers, especially first-time buyers, investors and empty nesters, are making similar calculations. As the real estate market heated up in 2012, condo sales surged, particularly at existing complexes. (Supply of new units remains low as home building has been stalled for the past several years.)
Most since 2006
A total of 15,853 resale condos changed hands in the Bay Area in the first 10 months of 2012 , the highest level for that time period since the bubble days of 2006, when 16,720 sold, according to San Diego DataQuick, a real estate information service.
“It’s a traditional first foothold in the housing market for a lot of people,” said Andrew Le-Page, a DataQuick analyst. “In a year where mortgage rates were unbelievably low and prices started to ratchet higher in many Bay Area communities, condos looked better to a lot of people. Both first-time buyers and investors were getting pushed out of single-family markets because of price or lack of inventory.”
It’s a big turnaround from the downturn days.
“Two or three years ago you couldn’t give condos away,” said Davey Cetina, an agent with Better Homes Gardens Real Estate in Berkeley who specializes in condos. In 2008, for instance, fewer than 10,000 condos changed hands in the first 10 months of the year.
One big reason sales fell was because tight financing guidelines often meant that condo purchases had to be all cash. Too many delinquencies on homeowner dues and too many condos that weren’t occupied by owners scotched the ability to get a mortgage at many complexes.
Condos can come with other problems, too. Older complexes may have deferred maintenance projects that can result in higher homeowner assessments down the road. Homeowner association dues, usually a few hundred dollars a month, add to the costs. But still, their affordability outshines that of single-family homes.
“The purchase prices are significantly less than single-family homes because there is no land involved, so we are still able to find condos under $500,000, even under $300,000,” said Zanna Knight, an agent with Coldwell Banker in Berkeley. “For first-time buyers, a condo is a nice transition to homeownership. They don’t have to worry so much about upkeep and can graduate into a single-family house when their circumstances permit.”
“It tends to be a fall-back category for people who either can’t afford a single-family home in a decent neighborhood or have gotten beaten up with rejected offers too many times,” said Jeff Weissman, an agent with Highland Partners/BHG. “I also see condo buyers who are coming back into the real estate market after family issues or having lost a house to foreclosure, as well as a few empty nesters.”
Condo prices are still far off their peaks. The median price in the Bay Area is $295,000, or $256 per square foot. That’s only a tad higher than the trough reached in 2011 of $257,000, or $229 per square foot. At the peak in 2007, the median was $505,000, or $432 a square foot.
“Condos are the last to go up in price (in a rising market) and the first to drop off when things change,” said Rick Turley, president of Coldwell Banker Residential Brokerage.
Investors are an increasingly potent force in the Bay Area condo market, with absentee buyers accounting for about a third of resale condo purchases in 2012, DataQuick said. That’s almost double their share in 2008, when they were 18.5 percent of the market. But in the cheapest county, Solano, where the 2012 median condo price was just $82,000, investors account for 62 percent of sales, DataQuick said.
“Condos are an appealing investment because rents relative to prices are pretty good and they are a manageable size,” said Andrew Jeffery, principal of Cirrios Real Estate, an investment firm in San Francisco. As a sideline to his company’s business of buying apartment buildings with outside money, he and four partners are investing in a few Oakland condos.
“To buy a $60,000 or $80,000 condo is a bite-sized chunk for us,” he said. “If we see one we like, we all pony up small amounts of cash.”
In late 2011, the group bought two one-bedroom condos in the Adams Point neighborhood near Oakland’s Lake Merritt, a neighborhood that they deemed “up and coming ” – one for $60,000 plus $25,000 in renovation costs, the other for $50,000. Both bring in enough rent to cover 15-year fixed-rate mortgages, homeowner dues and other expenses. The partners just made an offer on a third one for $92,000.
“None of us are going to retire off of them, but they’ll fund my golf habit or whatever I want to do with the (rental income) in 15 years when they’re paid off,” Jeffery said.
Carolyn Said is a San Francisco Chronicle staff writer. E-mail: firstname.lastname@example.org