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Condominiums still in the game

Like the California Condors which were recently rescued from near extinction, the American Condo is likewise making a comback, although they are not yet soaring quite so high.  Since the mortgage crisis descended upon the nation and the mortgage industry virtually self destructed, real estate sales have been slow to say the least.  Condo sales have been even slower.  That is due in large part to regulations imposed by Fannie Mae and FHA soon after the mortgage crash.

FHA regulatiosn restrict condominium financing to developments where there are no more than 50 percent rentals, no more than 25 percent of the space devoted to commercial use, and no more than 15% of the units are more than 30 days late on their homeowners association dues.  Fannie Mae imposes the same requirements as the FHA with regard to the HOA dues, but it also requires that no one entity own more than 10% of the complex and no more than 20% of the space be used for commercial business.  These restrictions have kept most mortgage lenders from loaning money on condos, because to do so would make it impossible for them to bundle them and sell them in the secondary market.

However, the Federal Housing Administration and Fannie Mae have begun to lighten their restrictions, but on a case by case bsis.  Consequently, some major lenders are beginning to return to the condo market.  one of those is U.S. Bank.  Others will likely follow soon.

So whose buying condos and how have they done it?  To begin with, not many condos have been sold in recent years.  Those that have are primarely situated in highly desirable locals such as Miami Beach, or San Diego.  Where condos in hightly desirable locals are concerned, wealthy investors have purchased them with cold hard cash and purchased at fire sale prices.  The luxury condo market has been open season for those with cash and patience.

Notwithstanding the forecasted easing of mortgage restrictions, condominium owners would be well served by an association that can marshal contol over their HOA dues and the ownership divisions.  Well managed condominiums will likely survive, while those that are poorly managed will likely spiral into the vacation rental abyss.  High end luxury condominiums generally have less trouble with these issues, but they are not totally immune.

Still, condos continue to be a popular choice for those who want maintenance free living or a vacation home in a desirabe location.  Many are betting on a comeback and are jumping in with both feet now.  While the future of real estate is still somewhat uncertain, it is still a good bet that the market that everthing else is built on will recover in the future.

The national median existing-condo price is $157,200.00 as of mid year 2012.  That is up 3.4 percent over the first quarter of 2011.  Thirty-four out of 52 markets surveyed showd declines in sale prices.  Eighteen markets showed strong increases.  Economic forces all but halted construction of condos over the past six years and therefore supply of available condo units have fallen.

To the extent that current condo sales are made up of second home or vacation home purchasers, the typical buyer of those investments are 50 to 59 years of age.  Economists and market watchers believe that sales of real estate for the immediate future will be made up of largely younger first time buyers or well vested seniors with the financial wherewithal to do as they please.

Condominiums continue to serve a purpose and attract buyers as banks continue to loan money for their purchase, albeit under strict limitations.  The condo, like the California Condor, will be a survivor, but it will take strong HOAs to protect the bottom line.


Discussion

#1 Posted by Glenn Weaver at 7/9/2012 1:39 PM
Thanks for listing the finance requirements. It helped out a lot.

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