Condo Catch 22

55WestWe are finally seeing some positive numbers which indicate the housing market is stabilizing.  It has been a long road; but ever since January of this year the sales in Orlando have gone up and the housing inventory has gone down.  The decline of inventory is almost astounding.  In January of this year there was over 21 months of inventory on the market.  According to the latest statistics for June 2009 from the Orlando Regional Realtor Association, we have only a little over 8 months now!  After only 6 months!

This is all great news for single family homeowners; but what about the condo homeowners?  I used a photo of 55 West to the left because it will always be a reminder of the Downtown condo market and the troubles we have seen.  Lately, the prices for Downtown Orlando condos are so tempting; but the problem is unless you have cash you probably cannot buy one (a few buildings excluded).  It is understandable that banks tightened the restrictions on condos a while back (and without those restrictions we may not have seen such a huge drop in prices).  After all, condos are considered riskier investments especially when so many have deficient HOAs due to the high number of pre-foreclosure properties.  However, how are the condo buildings suppose to stabilize without the ability to sell the distressed properties!

When I have to tell a buyer who is interested in purchasing a condo that in most cases they cannot physically buy one – there is only one look I get – Confusion.  If it is such a great time to buy, why won’t the bank lend me money?

Well it is a good question and the Federal Housing Administration has finally done something about it.  FHA loans are government secured loans and among the most popular type of financing right now.  FHA recently reduced the owner-occupancy requirement from 51% to 50% for condo buildings; but is that really a sufficient change?  The National Association of Realtors (NAR) does not think so and neither do I.  The problem is that a condo building has to be 50% sold prior to FHA insuring a mortgage.  What about the condo projects that were completed after the market shifted.  They missed the window and are now stuck in a catch 22.  They need to sell these units to ensure the stability of the building; but the building must be stable and half sold before they can sell.  The prices continue to drop in some of these buildings because people are desperate to sell; but the only people able to buy those are investors with cash hence increasing the owner occupancy dilemma.

NAR has proposed an additional change that could potentially alleviate some of the financing issues.  They propose that FHA increase or temporarily suspend the FHA concentration requirement, reducing or eliminating the requirement that 50% of units must be sold prior to FHA insuring a mortgage in the project.  I think even temporary relief could boost condo sales and hopefully FHA will consider the proposal.  In the meantime, there are still great deals on single family homes in the area!

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