2011 Condo Report

Welcome to 2011

What's in store for the Condo Market in 2011?

Everyone knows that we are in uncertain economic times.  Today the uncertainty extends beyond the normal economic data and brings into question the underlying assumptions behind the the economic system itself.  I'm just a Real Estate Broker I can not tell anyone what is going to happen to the economy but last Spring I predicted condo price depreciation for the remainder of 2010 of 20%.  Now it looks like prices have probably dropped about 20% since that time.  I am making 2 predictions for 2011.

I am predicting general price stability for 2011 condo sales based on 4Q2010 sales and Rent vs. Buy price analysis.  

I am predicting the market will return to equilibrium before 3Q2011.  The market is not currently in equilibrium and many reported sales show prices that are above the true market value.  Overpricing has stagnated volume. 

Buyers better educate themselves.  You need to work with an agent who is NOT going to hardsell you on the first place you look at.  Think about it.  There are 468 available units in Center City right now.  33 sold in the last 30 days.  To me that means at least 435 are overpriced.   If you really look at the 33 that did sell about 20 of them sold for the right price and 13 people overpaid ie got suckered into paying too much. 

There are simple facts we can all look at:

1. The Philadelphia area has a strong a diverse economy.  Overall employment figures have remained stable.
2. People still want to move to Center City Philadelphia.
3. Condo prices have moved downward particularly in the last quarter of 2010.
4. Auctions and foreclosures have reset prices.
5. The buildings that were ridiculously overpriced are mostly not selling but there are still many unexplainable overpriced sales.
6. Most sold units are now priced comparably to their value as rentals which probably means the market has found the right price.
7. Inventory has decreased with any withdrawn and expired listings but sales have slowed.
8. Interest Rates are the big question in the short term.
9. Medium and longterm outlook are good without major economic upheavals.

I want to expand on each of these topics but I don't have that much time today so I am skipping to the end.  Let's look at 8 and 9.

8.  Interest rates are the big question.  I base my prediction that prices have stabalized based on a simple observation.  The cost of ownership is now comparable to cost of renting.  An upward move in interest rates will upset that balance and force prices down in the short term.

9.  In the medium term we need to look at basic operations of the Federal Reserve.  The Fed has introduced quantitative easing.  The idea is inflate the currency.  Regardless of whether or not this is a good idea (I say not) inflation will over the next few years force the price of everything up.  When prices move up due to inflation and if interest rates are also high homeownership will be an affordable alternative for fewer people.

In the long run the cost of construction will rise along with everything else.  Demographic trends are well known.  Baby boomers are retiring, selling thier houses in the Suburbs and moving to the Cities.  Energy and transportation costs are rising and people are moving to Cities.  If it costs more to build and demand increases then prices must rise.