Friday, July 14, 2006

Condo Conversions Affect Median Price

The political heat may soon be off of condo converters. In the City of Los Angeles, protests have followed would-be converters in an effort to stifle the putting-out of renters. Many of whom are paying rents well below the market averages for similar apartments.

An out-of-work actor, Gary Watts told LA Times reporters, that he is being kicked out of his $950 a month, 2 bedroom apartment (which, if not in a rent control district would command $1800- $2000 per month) and has lived in for the last 15 years. He says his apartment building is being converted to condos which will be offered for sale at or around $500,000. A price he cannot afford.

While protestors badger real estate investors, (with little effect) it’s reported that condo conversions are down, and continuing to slow. The Director of USC’s center for real estate, Delores Conway cites, rising interest rates and a slowing market.

“The speculators are gone”, she said. The argument made by protestors is that converting apartments to condos removes low-cost housing from the city and are seeking a moratorium on conversions. The other side of the argument is that many conversions are purchased by the units previous tenant which, puts them in a  better position.

Condo conversion are a necessary evil in the Real Estate world. Recently converted condos are usually sold at prices significantly lower than their established counterparts. This of course means ‘affordable housing’ for those who would not otherwise be able to afford a real estate purchase. On the other hand, though, a large number of condo conversions has an adverse effect on the local real estate market by artificially lowering the median price of homes, which, in turn, makes it appear that the market itself is either slowing or in some kind of trouble.

Evidence of this is shown by looking at markets where condo conversions have been frequent and in large numbers. Ignoring Los Angeles for a moment, San Diego, reports a 1% decline in their median price. An indicator that the market is falling. According to another Gary Watts of Orange County, this is a false indicator. In the past months and years, condo conversions in San Diego were prominent. Those units sell, again, at rates lower than established units lowering the entire median. The real estate market according to Sheila Anderson, a real estate agent, “there’s a lot of inventory”, the real story is that the market has stabilized.

In Long Beach, property values have continued to climb. In fact the property values in Long Beach increased 12.6 percent in the last 6 months. The indication there, is that this market is strong. In the city, there are quite a few new construction projects, condos and homes, especially in the downtown area. Condo conversion has been relatively light, so, we’re not as affected by false medians. According to the Los Angeles County Tax Assessor, Long Beach has shown the highest growth rate of all the 10 Los Angeles County cities with the highest property values.

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