With house prices over 65% higher than condos in Denver, I would believe there would be considerably more demand for condos and in turn higher appreciation. The data is telling the opposite story with house prices easily beating condo prices. What is causing condo prices in Denver to decline while house prices continue their upward trend? Will this reverse in the near term? is this trend unique to Denver?
What is in the data on condo prices in Denver
The median price of a single-family home sold in Denver is still up 5.6% as of October 24. The median price for condos and townhomes dropped -12% to $400,500 and that median is down nearly 5% over the past year.
At the same time the number of listings has risen almost double for houses vs condos and yet we are still seeing a larger decline in condos.
I was quite surprised when looking at the data on condo vs house prices to see such a huge divergence. Houses in Denver are holding steady while at the same time condos have started to decline.
Why are condo prices falling in Denver
Historically at lower price points like a condo you would expect to see substantially more demand an in turn more upside potential but the opposite is happening now due to three primary reasons. I’ve ranked them in order of importance below
- Most condos are in older buildings: There has not been a ton of new condo construction due to various liability laws that have made it more expensive to build condos than apartments. This in turn has led to most condos being older units. As we all know the older a unit is the more repairs/maintenance it needs. For example elevators, roofs, facades, windows, etc… all fail over time. In an association these costs are borne by all owners with special assessments. Repairs/maintenance has led to huge increases in monthly dues along with special assessments.
- HOA insurance has skyrocketed: just like homeowners insurance, property insurance has increased substantially for HOAs leading to huge jumps in assessments
- New HOA laws on collections: We haven’t seen this factor in yet, but there will be a tsunami of collections issues especially in lower cost condos. These huge expenses will be passed on to all the other paying members as many discover that with the new laws, there is not much leverage the HOA has to collect which will ultimately lead to substantially less revenue, here is an article I did prior with more details
The three factors above are greatly increasing monthly costs along with special assessments that drastically increase the costs for owning a condo.
Will condo prices continue falling compared to houses in Denver?
In Denver metro, I would say that Condo’s will underperform single family homes for the foreseeable future due to the three factors above along with one other trend we are seeing where a prospective condo buyer would opt for a newer apartment for less each month without the headache of an HOA, special assessments, etc..
Some Mountain condo markets are also struggling.
Although my stats focused on Denver, many Colorado mountain condos are also struggling, especially lower priced properties that have seen a surge in HOA dues increases due to taxes, insurance, and maintenance. In the lower priced properties the HOA dues are reaching a point that they in many cases now eclipse the mortgage payment. I see this accelerating in many mountain communities as the overwhelming majority of the condo units are older units that need substantial maintenance while at the same time insurance costs have gone through the roof.
Summary
I don’t see the trend in Denver of Condos under performing detached homes reversing anytime soon due to huge increases in HOA dues. These trends are further exasperated as the costs of owning a condo are now higher than renting a nicer apartment without the headache or long term expenses. Many prospective buyers are opting to rent leading to further strains in the Denver condo market. Long and short, a detached unit is a much better investment than a condo in Denver metro and likely will continue to be for the foreseeable future.
Additional Reading/Resources
- https://coloradohardmoney.com/new-bill-in-colorado-legislature-drastically-increases-hoa-fees/
- https://car-co.stats.showingtime.com/docs/lmu/x/DenverCounty?src=page
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Glen Weinberg personally writes these weekly real estate blogs based on his real estate experience as a lender and property owner. He is the owner of Fairview Commercial Lending. Glen has been published as an expert in hard money lending, real estate valuation, financing, and various other real estate topics in Bloomberg, Businessweek ,the Colorado Real Estate Journal, National Association of Realtors Magazine, The Real Deal real estate news, the CO Biz Magazine, The Denver Post, The Scotsman mortgage broker guide, Mortgage Professional America and various other national publications.
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