Condos lag in housing upturn

The recovery in the housing market has produced higher prices for single-family homes along with all-time record-high apartment rents. But condominiums have been late to the party.

The median sale price for an existing single-family home in the U.S. is now back up to what it was in 2005-2006, before the housing crisis. But the median sale price for an existing condo is still more than $15,000 below its earlier peak.

Some of the difference is due to tighter standards for condo mortgages that were enacted after the housing bust, when many condos went into foreclosure. Both Fannie Mae and Freddie Mac made it harder to get a condo loan, as did the Federal Housing Administration.

For instance, for new condo developments, the FHA will no longer back any mortgages until at least 30% of the units are under contract. For existing condos, the FHA requires that at least half the units are owner-occupied, and that no more than half are FHA-insured.

Many young people who would otherwise be inclined to buy a condo as a “starter home” are now choosing to rent instead … or to live with their parents.

Partly as a result of all these changes, new condo construction has plummeted. Condos now account for only 5.5% of all multi-family housing construction in the country, according to the U.S. Commerce Department. That’s the lowest rate since the government started keeping statistics back in 1974. (The average rate over that time was 24%, and the rate was over 50% back in 2005.)