December 27, 2005
By ROBIN STANSBURY, Courant Staff Writer
Nick Lentino watched from the sidelines in recent years as the local housing market soared, unable to purchase a home of his own as prices escalated throughout the Hartford region.
"I thought it was important to make a step to own something that's mine, where I could paint the walls or put in a wood floor if I wanted to," said Lentino, 32, a longtime renter who earns less than $50,000 a year as a supervisor in the admission's office of Goodwin College. "But I looked at single-family houses and some of the new condos downtown, and it just wasn't affordable."
Then Lentino discovered The Webster condominiums, an apartment building in Hartford's West End that is being converted into 61 modestly priced condo units.
This month, Lentino purchased a one-bedroom unit plus a garage for $92,000.
"I'm done tossing rent out the window," he said.
So are many others.
Throughout the Hartford region there is high demand for lower-end condos.
In fact, while the number of days it takes a single-family house to sell has been slowly rising over the past five years, the reverse is true for low-end condos. It now takes an average of 30 days to sell units priced at $200,000 or less, compared with an average of 41 days five years ago.
Prices have also risen in recent years, at about the same rate as single-family houses. The median sales price of condos priced at $200,000 or less was $134,000 for the first 11 months of this year, compared with $87,000 for the same time period in 2000, an increase of 54 percent.
"Prices have gone up so high in this market that to get the kind of home they want, many first-time buyers or single professionals have been turning to condos," said Barbara Weinberg, owner of RE/MAX East of the River in Manchester. "You can get a lot of the champagne in a condo on a beer budget, so the market is still very attractive."
But perhaps most telling about the strength of the market, local real estate experts said, is the re-emergence of condo conversion projects such as The Webster. In at least a few places, developers are buying apartment buildings and converting them into modestly priced condominium units.
"It's a positive sign for the condo housing market because it says that demand is strong if developers can convert these apartments into units for homeowners," said Ron Van Winkle, a West Hartford economist. "There is a huge market at the low end that is still untapped because we are building so little inexpensive housing."
Land prices are so high in the region that there has been little new affordable condo construction in the past 15 years.
In fact, most of the low-end condos that exist in the region are in developments built during the 1970s and 1980s, and the thousands of units in former apartment buildings that were converted into condos during the roaring real estate market of the late 1980s.
It was these lower-end units, and especially the apartment conversions, that were so devastated during the real estate market crash in the early 1990s - the units were the first to lose value and have been the last to recover. Some units that were selling for $100,000 or more in the late 1980s dropped in price to less than $40,000.
Local real estate experts, though, said the lower-end condo market - although still vulnerable to a slowdown - would probably avoid such a dramatic decline because there are so few new condos in development and there is a demand for modestly priced housing in the region.
"It's not the same market at all. We are not experiencing the huge overbuilding that was going on in the 1980s," said John Clapp, a real estate professor at the University of Connecticut. "The condo market then was so over-inflated and that is not the case now."
However, the experts agreed, changing market conditions could quickly squash the move toward apartment conversions, as well as dampen demand for all low-end units.
Despite gains made in the past few years, lower-end condominiums have been showing the same recent signs of weakness that are evident in the rest of the region's residential real estate market. Local agents said that multiple offers have become rare, and that in some cases sellers are lowering their asking prices.
Rising mortgage interest rates are also a concern.
It should be just the first step in a process undertaken by the executive and legislative branches of government to resolve the school funding dilemma, without punting it to the judicial branch.
Fixed mortgage rates have been averaging about 6.3 percent in recent months, the highest levels in the past two years. Year after year, experts have predicted that rates could shoot up to 7 percent or more, and if that happens in 2006 it is likely to hit the low-end condo market especially hard.
"Higher rates hurt low-end buyers more than anyone else because they are already stretching hard to get into a home to begin with," said Steven P. Lanza, executive editor of The Connecticut Economy, the University of Connecticut's economic publication.
And if the overall real estate market continues to cool, as many experts predict, sales of lower end housing units like condos will slow more quickly - and more dramatically - than other types of homes, the experts said.
"Affordable housing is driven by lower costs and lower interest rates," Van Winkle said. "Rising rates disenfranchise people at the lower end more quickly because housing becomes rapidly unaffordable."
For now, the experts said, the low-end condo market continues to have legs and should continue to shine if interest rates stabilize.
Such condos can be a particularly attractive alternative for renters.
For example, a 30-year, fixed-rate mortgage of $89,000 at 6.3 percent interest would cost a homeowner $550 a month. Taxes and condo fees vary but could typically add $300 to $400 to the monthly payments, for a total of $850 to $950.
The income tax deduction on interest and property taxes could be worth about $1,800 a year, or $150 a month - resulting in a net monthly cost of $700 to $800. Condo values can rise or fall, of course, but with condo ownership, a portion of the monthly payments goes toward the owner's stake.
By comparison, rents vary greatly, but a typical one-bedroom apartment in Hartford's West End costs about $700 a month. And rents can go up.
How key are interest rates? The same size mortgage at a 7.5 percent rate would raise the payments by just under $75 a month.
At least for now, said Clapp, the UConn real estate professor, "with the tax deduction you get from owning your own home, buying a modestly priced condo makes sense for many people."
Reprinted with permission of the Hartford Courant.
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