When it come to home ownership, condo prices are the last to rise and the first to go down. Given the glut of condos and unfinished condos in the bubble areas, the following article should not be surprising.
Please consider Experts: Plummeting prices have rendered condos nearly worthless by the Arizona Republic.
New federal loan-guarantee rules imposed to fend off future government losses from plummeting condominium prices have rendered condos utterly worthless, Valley real-estate experts said.
The Federal Housing Administration rules, which took effect Oct. 1, prohibit any new FHA-backed loans on condo units in projects that include more than 25 percent commercial space.
In addition, no single investor – including the developer – may own more than 10 percent of the units in a particular project. That particular restriction alone creates a catch-22 from which condo builders most likely cannot escape, said mortgage originator Jill Hoogendyk of Wallick & Volk in Glendale.
Another rule that has sellers and brokers scratching their heads prohibits FHA loans
in condo developments that aren’t “primarily residential,” which could be taken to mean the FHA won’t guarantee loans in future mixed-use projects.
“I’m predicting that what we’ll see is whole condominium complexes sitting empty,” Hoogendyk said.
The new rules are a reaction to substantial losses on federally insured condominium mortgages in the past year, government officials have said. In Maricopa County, condominium foreclosures have outpaced condo-unit sales by nearly two to one since Jan. 1, according to real-estate analyst Zach Bowers of Ion Data in Mesa. According to Bowers, lenders foreclosed on about 8,200 condo units between Jan. 1 and Sept. 30, compared with about 4,900 units sold during the same period.
Bowers said there are Phoenix-area condominium projects in which only a handful of buyers purchased individual units. The only viable use for such projects would be renting the unsold units as apartments, which many condo building owners already have been doing.
However, most have continued trying to sell units, hoping to eventually sell out as the real-estate market recovers. Because of the new rules, local and national experts seem to agree that owner-occupants in half-empty condo buildings are now practically doomed to foreclosure.
What applies to Arizona also applies to Florida, California, Las Vegas, and anywhere else there is a glut of condos.
On top of the above rules, it is going to be difficult to buy into buildings with less than 70% occupancy. Cash buyers can close of course, but I would not recommend it.
Mike “Mish” Shedlock
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