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Are Condos An Affordable Housing Solution In The Bay Area?

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As the Bay Area’s housing market continues to be dominated by skyrocketing mortgage rates and exorbitant listing prices, a crucial question for those looking to purchase their first home: Have you considered purchasing a condo?

Over the past three years, since the onset of the pandemic, more homebuyers have turned to condominiums and townhomes as an alternative to pricier single-family homes. For some, these options provide the best opportunity to build equity in a starter property, be closer to work or even be in a more walkable area.

According to data from the California Association of Realtors, the median sales price for existing condos in the Bay Area stood at $788,500 in May, significantly lower than the staggering $1.3 million price tag for typical single-family homes.

While both condo and single-family home prices experienced marginal increases of 1% and 4%, respectively, during the busy spring homebuying season, they were still down approximately 11% from their peak in May 2022. The surge in mortgage rates contributed to this decline in demand. Oscar Wei, an economist with the realtors association, explains that during the initial wave of the pandemic in spring 2020, many first-time buyers seized the opportunity to enter the condo market due to historically low mortgage rates of 3%. However, as rates surpassed 6% in the fall of 2022, resulting in significantly higher monthly payments, prospective buyers, including non-first-time buyers, turned to condos for their affordability.

Consequently, the share of condos sold in the Bay Area has risen from 23% in April 2020 to approximately 27% in April 2022, leveling off at 26% in April 2023, according to Wei. This trend is expected to persist as long as mortgage rates remain high due to the Federal Reserve’s efforts to control inflation by keeping borrowing costs elevated.

Examining various counties in the Bay Area, the price difference between condos and single-family homes becomes even more evident. In Alameda County, the typical condo costs $710,000 compared to $1.26 million for a single-family home. In Contra Costa County, the figures are $622,500 and $888,000, respectively. Santa Clara County sees prices of $960,000 for condos and $1.79 million for single-family homes, while San Mateo County’s numbers stand at $915,000 and $2.01 million. San Francisco presents a similar contrast with condos averaging $1.15 million and single-family homes priced around $1.65 million.

The realtors association reveals that only about a third of first-time homebuyers in the Bay Area can afford an entry-level single-family home comfortably. Recognizing this challenge, California lawmakers have implemented policies to incentivize the construction of condos and townhomes in recent years. One notable bill passed in 2022 facilitates the conversion of underutilized strip malls and commercial centers into multifamily housing. Consequently, multifamily projects currently dominate new housing developments in the Bay Area, although the ratio of rental properties to for-sale units remains unclear. Census data indicates that local officials issued building permits for over 12,100 homes in multifamily projects last year, almost twice the number of permits issued for new single-family homes.

Nonetheless, experts and officials agree that after decades of sluggish homebuilding, the region must construct significantly more homes across all categories to alleviate housing costs. Starting this year, state regulators have set an ambitious target of 441,000 new homes for individuals of all income levels by 2031.

Wei suggests that with remote work likely to continue in the Bay Area, the demand for condos in suburban areas surrounding major cities may increase. However, overcoming local development restrictions and opposition from established neighborhoods pose significant challenges to expanding multifamily housing in the suburbs. Building more condos remains a critical step in improving housing affordability levels.

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By utilizing video marketing and his local knowledge Roland strives to add value to every Bay Area resident possible. Whether that’s informing buyers in different cities or putting together an intricate listing video to put his seller’s home in the best light.

Roland preaches tech and the modern ways of selling homes to give his clients the best advantage over his competitors.

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