Condo conversions spreading

High prices are driving first-time home buyers into some long-neglected cities and Boston neighborhoods, fueling record condominium sales and bringing dramatic change to working-class enclaves.

Immigrants, recent college graduates, shop owners, and others are buying three-deckers and houses in cities like Chelsea, Fall River, and Worcester -- as well as in the less-fashionable sections of Somerville and in Boston neighborhoods like Dorchester and East Boston. The properties are being renovated, converted to condominiums, and resold for a profit.

In Lowell and Lynn, developers are converting factories to condos. The buyers include empty-nesters and well-heeled professionals seeking an urban lifestyle. Many are betting that real estate will provide better investment returns than the stalled stock market.

Condo sales in some urban frontiers are hitting record levels, even as economists grow increasingly concerned the US real estate market is experiencing a ''bubble," much as the stock market did in 2000, when prices were driven up rapidly by a frenzy of speculative buying before they collapsed.

Fears of a bubble resonate in Boston. The 1980s boom in condo prices caused a collapse in the housing market that led to several bank failures, including that of Bank of New England, then the state's largest. Then, individual investors were speculating in condos, hoping to benefit from rising real estate prices without fixing them up or moving in. When prices fell, investors who had no stake in the neighborhoods or the buildings simply turned the keys over to the banks.

Today, individuals and developers are renovating buildings to meet unprecedented demand. Many buyers, while enjoying persistently low mortgage interest rates, have been priced out of suburban and downtown Boston neighborhoods, real estate specialists say. And unlike investors, homeowners tend to ride out price declines.

In contrast to the 1980s, ''the people they're selling to are very stable," said Kevin Ahearn, president of Otis & Ahearn. His Boston real estate-services firm estimates that fewer than 15 percent of the city's condos are purchased purely as investments -- about half of the 1980s level.

While condo sales have long been strong in Cambridge and downtown Boston, their growth elsewhere is more dramatic. Between 2002 and 2004, for instance, Lowell's annual condo sales total nearly doubled, to 689. Chelsea's more than doubled, to 329 units. Brighton, Dorchester, South Boston, and East Boston had similar gains, according to Listing Information Network, or Link, which tracks real estate.

Statewide, sales of two-, three-, and four-family homes, fueled by condo conversions, hit 9,726 last year, smashing 2003's record of 8,086, the Massachusetts Association of Realtors said in April.

''The second a building comes on the market in the hot areas, you can't get your hands on it," said Ken Osherow, owner of At Home Real Estate Group in Dorchester. ''It sells immediately."

More and more, triple-deckers and Victorians that were once rented to blue-collar families and immigrants are being renovated as condos for young professionals.

In the past year, Kara Tondorf, 28, and Zoe Agnew, 29, have purchased six three-families and a two-family in Dorchester, for $500,000 to $700,000 each. Walls were tore down to create loft-like spaces, stereo speakers installed in each room, and kitchens customized for buyers.

Tondorf confessed to some anxiety: The pair owe about $2 million on the mortgages and ran up $50,000 in expenses on a credit card. But condo sales are strong: 15 of their 20 units have sold or are under agreement, for $250,000 to $500,000. ''The market's been so great," she said.

While a hot real estate market brings new money and improved services into hard-pressed neighborhoods, it also pushes rents beyond the reach of many workers

Change is especially visible in East Boston, once an Italian-American enclave that has become a magnet for Latin Americans. Longtime real estate agent Saul Perlera steers his Lexus through gentrifying neighborhoods, pointing to freshly painted condo buildings sandwiched between rundown rental properties or an occasional auto-repair garage. He envisions Jeffries Point, where a luxury waterfront condo project is planned, one day being ''like the South End, but with our own twist of mixed incomes and mixed nationalities."

Often, immigrants help to transform neighborhoods. After nearly a decade of working in pizza and cleaning businesses, Abelar Coelho has bought, renovated and resold eight properties -- a mix of single-families, as well as duplexes and triple-deckers, some of which were converted to condos. Since 1998, when he started, the Brazilian immigrant's profits have paid for a family home on Winthrop's waterfront.

Real estate is ''a great investment," said Coelho, 43, taking in a view of Logan Airport from a Victorian with curved mahogany banisters and marble fireplaces he's renovating as luxury condos on an East Boston hilltop.

East Boston rents have surged as property values have risen, though. A one-bedroom renting for $850 a month two years ago now costs about $1,300, said Gladys Agudelo, property manager for the nonprofit Neighborhood of Affordable Housing Inc., which helps low-income people find housing. East Boston used to be affordable, she said. Lately, ''People haven't been able to afford the rents." Many, she said, are fleeing to lower-cost places such as Lynn.

In Lowell, a former mill city hit by years of economic depression that experienced a renaissance in the 1980s, a new wave of condo sales began in 2003, reaching a high of 689 units in 2004. Developers bought up virtually every empty or under-used brick building downtown to create condos they sell for as much as $750,000.

Janet DeLuca, 50, sold her Billerica home and moved with her daughter to Lowell. The divorced high-tech executive likes the city's life, its architecture, and its appeal to other middle-aged buyers. ''It's developing into a really nice area," she said. Lowell developer John DeAngelis said he mostly sells to people like DeLuca. ''Years ago, we sold to a lot of investors," he said, but now ''the banks want owner-occupied" homes.

In his 2000 book ''Irrational Exuberance," Yale University professor Robert Shiller foresaw the bubble in tech stocks. He predicts real estate may be next.

But Matthew Kiefer, a real estate partner at Goulston & Storrs, said strong demand is a stabilizer in Boston. ''If there's a correction," he said, ''it will be a modest one."

Kimberly Blanton can be reached at blanton@globe.com.