The operative phrase in your post relating to condos is that they are “the lower priced alternative”. I agree that condos will get hurt first and hardest, but that doesn’t mean it’s a completely separate market of it’s own and the houses won’t follow suit in order to compete with this alternative.
Water seeks its own level. I think the downtown condos are a fantastic bargain – just not at these prices or anything close to them. If they are actually priced to be the reasonable alternative more people will buy.
Letsee. Market rents for a 2bd condo downtown are in the $2,000 range. Add in a 25% ownership premium to pay for the right to enjoy the tax break and the possibility of eventual profit on resale and we can justify paying up to $2,500/month to cover the mortgage, taxes, HOA dues and other expenses. As a housing expense this is a reasonable payment for a $100,000 household income or a lower household income who is bringing some equity to the table to reduce the mortgage.
Okay, working backward through iteration and assuming a cheap $300/month HOA fee, $100 in average maintenance/reserves expenses; $300/month for property taxes, that leaves about $1,800/month for the mortgage payment. At a 6% fixed rate mortgage that would service a $300,000 loan on a $330,000 purchase, because unlike many recent buyers, our prudent buyer actually has a 10% down payment and can pay their own closing costs. Obviously, the $330,000 purchase price is about 45% less than our current average listing price of $595,000 for 2bd condos of 1200 SqFt or less.
At this price range, every time the interest rate on the loan increases by 1/2% the amount of the mortgage financed by the $1800 mortgage payment gets reduced by $15,000. Presumably that reduction will be translated directly to the sales price.
So yeah, at $325k or so, a lot of our downtown condo renters probably would consider buying their rental unit to be a no-brainer – assuming they weren’t concerned about the prices continuing downward. AND assuming that rents don’t decline.
