Note from Dan 4/10/2015: This article has been updated to include the latest market statistics from March of 2015.
We recently wrote a short post about the low levels of condo inventory in the Madison area. In this article we'll dig a little deeper to show why the Madison metropolitan area needs more condominiums. We'll take a look at some key condo statistics for the county, city and some of the major condo developments in town. The picture we paint will show more than a tight condo market but a market where there is a clear shortage of condominiums. In this market buyers face some clear challenges, while sellers have never experienced a time of greater opportunity.
Dane County Condo Trends - Active Listings
Each month we publish the number of active condo listings on our sister site, DaneCountyMarket.com. The graph below shows the number of Dane County active condo listings at the end of every March going back the last 8 years. New condo construction has been at a virtual standstill since 2008, with the number of active condo listings decreasing by 69%. Even these numbers are artificially high, because they include listings which have accepted offers. If you remove the accepted offers from the March 2015 totals there are only 491 active condo listings for the entire county.
These inventory numbers are artificially elevated for one other important reason: Condominiums are selling very well across most local condominium developments. However, within Dane County there are a handful of condominium developments with a large number of units that aren't selling (for now, we won't get into the reasons why). These developments account for dozens of active listings. If we subtracted these listings from our numbers the inventory totals would move much closer to 400 units for sale.
Months of Supply
Another way of looking at condo inventory is to look at the months of supply. The graph below shows the Dane County months of supply over the same 8 year period of time. At the end of March there were only 5.2 months of supply, which once again includes condo listings with accepted offers. Removing the accepted offers this number is effectively reduced to 3.7 months of inventory.
A market with 6 months of supply is considered to be balanced, where there is neither an overabundance nor a shortage of condos relative to the demand in the marketplace. This graph suggests condo inventory transitioned into "shortage" territory in 2014, when supply dipped below 6 months of inventory and kept moving lower into 2015.
Condo Supply by Price Range
The inventory numbers become far more interesting when we look at the data by price range. Months of supply are especially low for condos priced under $225,000. When we remove accepted offers from our inventory numbers, the "adjusted months of inventory" for every price category under $225,000 are well below 4 months, with most categories well under 3 months.
Another interesting dynamic is the high number of active listings which are already under contract. For every price category between $125,000 and $225,000 over 38% of all listings already have an accepted offer. The market for condos priced between $175,000 and $199,999 is especially competitive. A total of 47.9% of all condos in this price category are scheduled to close soon.
Our competitive condo market can be especially frustrating for buyers who are using public-facing portals such as Trulia or Zillow for their property search. As many as 40% (and more) of the condo listings on these websites are already scheduled to close, but you wouldn't know it by looking at the listings. Many buyers who rely on these sites as their main source of information end up spinning their wheels researching properties that will be closing very soon.
In this competitive condo market we recommend you hire a buyer agent to help you focus your search on condos that are still available for sale. If you're someone who enjoys searching for real estate on your own, you can still do that, but use a website that displays the accepted offer status and helps you filter out the listings that are already under contract. As an example, this article explains how you can use our site to focus your search on properties that don't yet have an accepted offer. In addition to our site, more and more local search providers are making this feature available to the general public.
There are many local consumers who want to buy a condo but have not been able to accomplish their goal. With inventory in short supply, many condominiums are selling in a matter of days or hours, with multiple competing offers, and for prices close to or above the list price. Condo sales jumped significantly in March of 2015. However, sales volume is currently being restricted due to the lack of inventory. If condos were in greater supply, sales would be trending higher than their current levels.
Pending Condo Sales
Madison area pending condo sales are up significantly from last year. As of March 31st, there were 22% more accepted offers recorded in the MLS compared to the same day in 2014. This data points to increasing sales volume in April and May, which will work to keep condo inventories low.
Condo Days on Market
Our days on market data provides more evidence of a condo market with too little supply. The average condo is now selling in 3.5 months compared to about 7.5 months just 3 years ago. Keep in mind this data comes from condo listings that closed in March. Many of these March closings were the result of accepted offers that occurred during the winter season - which is when buyer activity is slowest in our market. As our Spring market continues to heat up, we believe the average days on market will move to about 30 days, a level that is unprecedented for our market.
Condo Listing Success Rate
Here is more market data which shows a condo market with tight supply. Traditionally the month of March has been one with listing success rates at 50% and under. A success rate below 50% means more condo listings are expiring than selling. In March 2015 there were over 4 sold condo listings for every listing that expired. This level of success is a new high for the month of March. We fully expect success rates to reach 90% and higher during the Spring and Summer months.
Market Dynamics in Madison Area Communities
As of this post, our market data shows very low levels of inventory throughout the Madison metropolitan area, with condo supply in many municipalities well below 3 months.
Months of Supply in Madison Metro Condo Markets
All of Madison: 3.4 months
Downtown Madison: 2.7 months
Madison East Side: 2.4 months
Madison West Side: 2.0 months
Fitchburg: 2.5 months
Middleton: 2.2 months
Sun Prairie: 2.5 months
Verona: 2.3 months
In some price categories, condominiums are extremely scarce. For example, currently there are no condos available in the city of Middleton between $200,000 and $300,000. In Fitchburg, a market with a traditionally large supply of condos, there are only 2 condos in this price range without an accepted offer. In Downtown Madison, there are only three condos.
Months of Supply by Condo Development
Most condo developments in town are now completely sold out of their original new construction units, and all that remains is re-sale inventory. Several years ago it was common to see many condo developments with over two years of supply. Now the most popular condo developments in Madison have very limited inventory.
Months of Supply by Madison Condo Development
4th Ward Lofts - Downtown: 0.0 months
Bedford Court - Downtown: 0.0 months
Capitol West - Downtown: 1.3 months
The Loraine - Downtown: 3.6 months
Metropolitan Place - Downtown: 2.6 months
Nichols Station - Downtown: 0.0 months
Monroe Commons - Near West: 2.4 months
Sequoya Commons - Near West: 1.0 months
Tamarack Trails - West: 0.0 months
Kennedy Point - Near East: 0.0 months
New Construction is Booming in Madison
Drive anywhere around town and it's plain to see new construction is booming in Madison. A recent article by Mike Ivey makes it abundantly clear local developers are fixated on large-scale apartment buildings. This is also the trend nationally. This graph from Calculated Risk blogger Bill O'Brien shows housing starts for single family and multi-family units are clearly on the rise.
O'Brien points out in another recent article that demographic trends will be favorable for both single unit and multi-family construction over the next few years. Locally, we've certainly seen an increase in construction for both single family homes and apartments, but by and large the need for more thoughtfully planned condominiums continues to go unmet. Will there be a developer that separates from the herd and starts building communities centered around condominium living?
Apartment Bubble on the Horizon?
Ten years ago all of the large scale development efforts were focused on condominiums. Building after building went up in and around Madison and soon the condo market was more over-built than anyone could have imagined.
We're seeing the same type of frenzied development right now, except this time the focus is on apartments. Will there be a day, several years from now, when the apartment bubble hits Madison? History does tend to repeat itself. An apartment bubble could be the trigger that puts the focus back on condos. Maybe then we'll see some of these shiny new apartments converted to shiny new condominiums.
This article is published courtesy of: Dan Miller, REALTOR Mad City Dream Homes & RE/MAX Preferred