The demographics and financing policies of the past were stacked against the condo market. The demographics have changed with baby boomers retiring and downsizing and with millennials becoming first time home buyers, while still wanting the walk-able community life of their former apartments. Now the government in a fleeting and surprising moment of bipartisanship have helped to boost the condo market.
In years past the FHA had been a major player in condo financing. However, they have very strict guidelines for FHA approval of these condos. Over time the approved condos have dwindled to 14,000 of the 152,000 condo associations in the U.S. Every two years condo associations had to jump through hoops in the complicated process of FHA re-certification. Many associations just threw in the towel and decided not to play the game anymore.
Along comes bill H.R. 3700 which should correct many of the key problems of the FHA certification process. The bill allows condo associations to have a 35% owner-occupancy ratio, down from the previous 50% benchmark. This is especially helpful as the housing bubble caused many condos to be underwater and many instead of taking a loss or going through a short sale elected to rent their condo, thus causing higher owner-investor ratios.
In many communities it makes good financial sense for the condo building to rent out space to commercial tenants. Not only does it give a good revenue stream, but also puts amenities within seconds of the residents. Previously FHA considered much of this commercial component excessive, but with the new bill they can judge on a case by case basis and allow for more commercial use.
The new law also prompts the FHA to streamline the now complicated certification process. This will very much help persuade condo associations to certify or re-certify.
Condo associations often charge a small transfer fee when new units are sold, which are spent to benefit all residents. These once disallowed fees to qualify for FHA financing will now be allowed.
It may take some time for FHA to put these updated procedures into use. Consequently, for condo associations to get back on board and become certified. Out comes the crystal ball, I do strongly feel that with time the condo market will see greater appreciation in prices and lower relative average interest rates once these changes get rolling.
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