Why Isn’t the Condo Market Rebounding?

Castro CondosWhile construction of single-family homes and multifamily rentals is on the rebound, condo construction has sunk to new lows. A condo rebound has been delayed by stringent rules on condo mortgages that took effect post-housing crisis, as well as stronger demand among young people for rentals, The Wall Street Journal reports.

Condo construction in the first quarter comprised only 5.5 percent of all construction of multifamily housing — the lowest ratio since the Commerce Department began tracking such data in 1974. Historically, condo construction falls at a 24 percent average.

Condos traditionally offer higher returns for investors than apartments. “Many developers would rather be building condominiums,” says Peter Bazeli, senior vice president at New York-based real estate consulting firm Weitzman Group. “With condos, you’re paying down debt with every closing and then putting money in your pocket right away.”

But many factors are hampering the condo market’s recovery. For one, economists note that young adults have been flocking to rentals instead, and condos typically cater to entry-level buyers. Also, developers say construction loans are limiting the supply of condos they build. Developers say they can get a construction loan for about 75 percent of the cost of building an apartment complex, but only about 50 percent for a condo complex because lenders are deeming it a higher risk.

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