Can’t afford to buy your Bay Area dream home? Have you considered a condo?
That’s the question real estate agents across the region now are asking house hunters squeezed by soaring mortgage rates and sky-high listing prices.
Since the pandemic upended the local housing market three years ago, more buyers have opted for condominiums and townhomes instead of pricier single-family homes. For some, it’s their best chance to build equity in a starter property. Others have grown tired of the headaches of renting and sought to flee cramped apartments as they’ve spent more time working from home.
“They want to have control over their future,” said Mary Pope-Handy, a real estate agent in Los Gatos.
In May, the median sales price for existing condos in the Bay Area was $788,500, according to the California Association of Realtors. Compare that to an eye-popping $1.3 million for the typical single-family home.
On a monthly basis, prices for condos and single-family homes ticked up 1% and 4% amid the traditionally busy spring homebuying season. But prices for both kinds of homes were down around 11% from their near-record peaks in May 2022, before higher mortgage rates cooled demand.
When the pandemic homebuying boom kicked off in the spring of 2020, many first-time buyers took advantage of historic-low 3% mortgage rates to jump into the condo market, said Oscar Wei, an economist with the realtors association.
But more recently, as mortgage rates have spiked over 6% since last fall — boosting monthly home payments by sometimes thousands of dollars — home seekers “who may not necessarily be first-time buyers are opting for condos, just for the affordability issue,” Wei said.
As a result, the share of homes sold in the Bay Area that are condos increased from 23% in April 2020 to around 27% in April 2022 and 26% in April 2023, Wei said. He expects the trend to continue as long as mortgage rates stay high in response to the Federal Reserve keeping the cost of borrowing elevated to tamp down inflation.
For Omeed Siadati, who’s set to move from Dallas to the Bay Area this August to study biology at UC Berkeley, buying a condo with his father as an investment property could be a better alternative than trying to find an apartment in the university town’s notoriously competitive rental market.
“We went to at least 20 apartments in south and west Berkeley these past few days,” Siadati, 18, said. “Most of the places that are around $2,000 per month have mold in the bathrooms.
In Alameda County where Siadati is looking, the typical condo goes for $710,000 compared to $1.26 million for a single-family home. To the east in Contra Costa County, the typical condo goes for $622,500 compared to $888,000 for a single-family home. In Santa Clara County it’s $960,000 compared to $1.79 million. In San Mateo County, it’s $915,000 compared to $2.01 million. And in San Francisco, it’s $1.15 million compared to $1.65 million.
“The prices are crazy compared to Texas,” Siadati said. “Absolutely wild.”
In the Bay Area and across the state, only about a third of first-time homebuyers can comfortably afford an entry-level, single-family home, according to the realtors association. To make homeownership more attainable, California lawmakers have in recent years phased in new policies aimed at spurring more construction of condos and townhomes. That includes a high-profile bill passed last year to make it easier to convert underused strip malls and commercial centers into multifamily housing.
Already, the majority of new homes being built in the Bay Area are multifamily projects. However, it’s unclear how many are rentals compared to for-sale properties. Last year, local officials across the region issued building permits for more than 12,100 homes in multifamily projects, almost double the number of new single-family homes, according to census data.
Even so, housing experts and officials agree that after decades of sluggish homebuilding, the region needs to add many more homes of all kinds if it hopes to bring down housing costs. Starting this year, state regulators have set an ambitious region-wide target of 441,000 new homes for people of all incomes by 2031.
Wei said that with remote work likely here to stay in the Bay Area, there could be growing demand for condos in suburban areas outside of big cities. But local restrictions on development and entrenched neighborhood opposition are significant challenges to overcome in building more multifamily housing in the suburbs, he said.
“From the perspective of upping or increasing the housing affordability level,” he said, “we do need to build more condos.”
(Mercury News staff writer Tarini Mehta contributed to this report.)
