Young adults: the condo generation?

Compared with the privacy and autonomy of owning a single family residence (SFR), condominiums may be second choice to some. But condos are also rising in popularity, especially for the younger set of homebuyers unconcerned with the drawbacks of condo ownership.

Nationally, condos average 8% of all mortgage originations. However, CoreLogic forecasts demand for condos will increase in the coming years. This positive forecast is partly due to today’s record-low age of condo inventory. Specifically, the average condo remains on the market for 60 days, which is the lowest average inventory age since CoreLogic began tracking condo sales in 2000.

The other reason why condos are expected to increase in popularity in the coming years has to do with shifting demographics.

Today, the peak age for homebuyers to purchase a condo is 33. These young adult homebuyers are well-suited to condos, which tend to be smaller than traditional SFRs and in more convenient locations, closer to amenities and jobs. They also tend to be less expensive than SFRs, though the trade-off comes with high homeowners’ association (HOA) fees. Still, these qualities together make condos ideal starter homes for first-time homebuyers who may not need as much room as older adults with families but who prioritize being close to jobs and amenities.

Regarding CoreLogic’s forecast for rising condo sales, since demand for condos peaks around age 33, a growing population of young adults means demand for condos will swell alongside young adult numbers. Specifically, the largest group of young adults is currently aged 26-27. As an age group, they are about 10% larger than the current group of peak condo buyers who are 33 years old. Therefore, if the trend continues, demand for condos is likely to rise at a similar rate over the next six or seven years.

Construction catch up

The only problem: even if demand for condos continues to rise with the growing numbers of young adults, will construction rise to meet demand?

If recent history is any indicator, then no. Construction starts rose dramatically during the Millennium Boom, only to plummet in the lead-up to the 2008 recession. In the years since, construction has increased marginally, but still remains well below what is needed to keep up with current demand for SFRs and condos alike.

The next peak for condo starts is expected to arrive in the years following the forecasted 2020 recession. Factors influencing this peak — including whether it will be enough to meet the appetites of young first-time homebuyers — will take into account:

evolving tariffs on construction materials;
the status of the construction worker labor shortage;
the focus of new legislation designed to encourage denser housing near city centers and public transit; and
perhaps most significantly, shifting zoning laws to allow multi-family housing in areas traditionally guarded by not-in-my-backyard (NIMBY) advocates.

Real estate agents: keep an eye on your local condo scene in the coming years, and don’t be surprised if you notice more interest from young homebuyers. If demand for condos is not being met in your community, consider attending a city council meeting when permitting and zoning for these buildings is discussed. Become an advocate for more housing — and more home sales.

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