Florida Housing Prices: Look to Condo Market to Gauge Future Trends

Trying to get a read on how much the Florida housing market is slumping? You may be looking at the wrong indicator.

As the National Association of Realtors (NAR) tracks sales of both single-family homes and condos, the prices of Florida condos may be more relevant to market direction than the prices of houses.

In the third quarter of 2005, NAR stats for single-family homes show that prices fell 1.2 percent from a year earlier, with 30 percent of markets showing declines.

Latest home prices

Condo prices not only dropped more steeply, 2.1 percent, but 46 percent of markets showed declines.

Which gives a truer picture? Adam Koval, a former investment banker who now runs SocketSite.com, which covers San Francisco’s real estate market, insists condos are the way to go.

“Look at the same building six or eight months after the first sales were made,” he says. “The prices then will be a pretty good indicator of what’s going on.”

The reason: It’s an apples-to-apples comparison. With condos, there’s, “no adding floor space or big improvements,” says Koval. If you see a price change, it’s usually pure appreciation - or depreciation.

Contrast that with single-family house stats.

NAR prices, for example, do not account for the differences - especially the improvements - in homes. New houses, for example, have grown much larger, to an average of about 2,400 square feet from 1,500 in 1970.

To be more accurate, you’d have to see what the same houses sell for at different times, in order to determine South Florida housing prices accurately. An index constructed by the Office of Federal Housing Enterprise Oversight (OFHEO) index does compare same-home sales, but it doesn’t account for investment in that home, such as a big remodeling project.

Other shortcomings: The OFHEO data doesn’t do a good job capturing luxury home sales, because they track only transactions with conforming Florida home loans, which are limited to $417,000 for most of the nation. And it does capture values listed in refinancings, which are based only on appraisals.

Why condo prices are so useful

Chief economist for the Mortgage Bankers Association, Doug Duncan, says there are several reasons why condo prices are more accurate.

“A smaller percentage of people who own condos occupy them; many are bought as second homes and for investment purposes,” he says. “There’s less friction in that market; it’s more liquid.”

More condo sellers react to market changes and act quicker than owners of single family homes, who tend to hang onto property in the face of lower prices.

Single-family house owners act like buy-and-hold value stock investors, riding out market peaks and valleys. They sell when they go through a life change - raising a family, retiring or moving for a new job, for example. Otherwise, they remain in place for the duration of their Florida mortgage.

Condo owners act more like growth stock investors, who bet on the hottest companies and trade in and out of stocks much more often, reacting to what they perceive is happening in the market.

In looking back over the historical data of when the national housing market peaked, Duncan pinpointed July 2005 as the top. He also found it was the first month in four years that condo price appreciation was less than that of existing single-family houses.