Things to Think About Before Buying That Luxury Condo

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Things to Think About Before
Buying That Luxury Condo

By June Fletcher

Question: I'm a baby boomer considering buying a luxury condo. But I wonder, with units costing over $1 million to start, who will buy this unit from me when I need assisted living later on?

-- Binnie Footer, Philadelphia

Binnie: Only six months ago, when housing was inflating faster than the Garfield float in Macy's Thanksgiving Day parade, few people spent much time wondering about resale values. After all, wasn't a seven-figure home something nearly every urban dweller could aspire to -- at least on both coasts?

Ah, what a difference several hurricanes, a shaky economy and rising interest rates make. In many parts of the country, sales and prices of all types of housing are starting to cool rapidly, while inventory levels and days on the market are on the rise. The sudden hex on housing, coming after five years of double-digit appreciation in cities all around the country, has sent both sellers and buyers scurrying for their security blankets. With a new Roper poll that shows three out of four investors claiming housing across the nation is overvalued, foreclosures up for the first time since 2002, and fixed-rate mortgages at six-year highs, suddenly buying a home doesn't seem like a sure bet anymore.

According to the National Association of Realtors, in the third quarter of this year, sales of single-family houses and condominiums increased to a seasonally adjusted, annualized pace of 7.24 million, a record high , but the trade group's chief economist, David Lereah, said that he was "fairly confident" that this pace will be the high point of the five-year housing boom.

Most housing economists now also say that double-digit price gains, like the 19% third-quarter rise to $230,600 in the Philadelphia metro area, can't be sustained much longer. While real-estate markets are invariably local -- and you may be looking to buy in a gold-plated area with great job growth that proves to be an exception to the rule -- keep in mind that National City Corp., a financial services company, recently found that Philadelphia's housing was 11% overvalued, compared to the city's historical norms.

So your caution is smart. By the time you're ready for assisted living a decade or more down the road, most other boomers will be, too. So you can scratch 76 million people off the list of potential condo buyers. And while their children, the 80 million members of the so-called "millennial generation," will be richer then, they also, for the most part, will be paired off and obsessing about good school districts and quality lawn care. For them, the most attractive investment may well be what most boomers are now trying to escape -- that big box in the suburbs.

Question: I am looking at buying a home that had wind damage due to Hurricane Katrina. The roof sustained some damage, which the homeowner had repaired. But the new shingles don't match. I suspect that the insurance company paid for an entire new roof. If that was the case, is the homeowner obligated to have a new roof installed?

Answer: The terms of your contract govern what the seller is obligated to provide. What the insurance company paid the seller has no bearing on it.

But if you don't have a contract yet, then you can always ask for a complete new roof in your purchase offer, or cash to have the repair redone. The seller doesn't have to comply with your demand, but you'll never know unless you try.

And don't forget to get a thorough home inspection to catalog any other damage that may have occurred and that may not be so obvious.

-- The "House Talk" column appears most Fridays on RealEstateJournal.com. Email your questions about the residential real-estate market. Please include your name, city and state. If you don't want your name used in our column, please indicate that. Due to volume of mail received, we regret that we cannot answer every question.

Email your comments to june.fletcher@wsj.com.

-- November 18, 2005