Why Isn’t the Condo Market Rebounding?

July 24, 2015

NEW YORK – July 23, 2015 – While construction of single-family homes and multifamily rentals is on the rebound, condo construction sunk to new lows. Any rebound in the condo construction market has been delayed by stringent rules on condo mortgages that took effect post-housing crisis, and stronger demand among young people for rentals.

Condo construction in the first quarter comprised only 5.5 percent of all construction of multifamily housing – the lowest ratio since the Commerce Department began tracking the data in 1974. Historically, condo construction falls at a 24 percent average.

Condos traditionally offer higher returns for investors than apartments.

“Many developers would rather be building condominiums,” says Peter Bazeli, senior vice president at New York-based real estate consulting firm Weitzman Group. “With condos, you’re paying down debt with every closing and then putting money in your pocket right away.”

But many factors hamper the condo market’s recovery. For one, economists say young adults have been flocking to rentals instead, and condos typically cater to entry-level buyers. Also, construction loans limit the supply of condos built. Developers say they can get a construction loan for about 75 percent of the cost of building an apartment complex, but only about 50 percent for a condo complex because lenders deem it a higher risk.

The Federal Housing Administration (FHA) tightened its lending standards from 2008 to 2012, which has made condo funding even tougher, too. In order for the FHA to insure mortgages in a condo complex, at least half the units must be owner-occupied, and no more than half can be FHA-insured. For condo projects under development, at least 30 percent of units must be under contract for sale before the FHA will start backing mortgages.

Economists say those factors have kept the condo market sluggish and still far from recovery. The median condo resale price in May was $216,400, about $15,400 less than its pre-crisis peak in June 2005. On the other hand, the median resale price for single-family homes in May was $230,300 – only $600 less than its pre-crisis peak in July 2006.

But some developers see glimmers of a condo rebound forming.

“Rising apartment rents provide renters more reason to buy instead of renting,” the Journal reports. “Job growth is improving for young would-be buyers. And real estate lobbyists say they are making inroads in Washington to build support for easing the FHA restrictions on condo mortgages.”

Source: “Condos Left Behind in Housing Rebound,” The Wall Street Journal (July 21, 2015)

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Some Good Signs for the Real Estate Market

January 26, 2012

Daily Real Estate News | Tuesday, December 27, 2011

Sales ticked up for existing homes and new homes, several real estate market indicators revealed last week, pointing to a housing market that may finally be entering recovery mode.

In the most recent report, the Census Bureau reported that the new-home market continued its rebound, with sales of new houses once again inching up last month. New-home sales rose 1.6 percent from October to November to an annualized rate of 315,000, and sales were up nearly 10 percent compared to November 2010.

Other recent good news for the housing market: November sales of existing homes increased 12 percent year-over-year, new-home building starts were up nearly 21 percent year-over-year, andmortgage rates reached new record lows last week, pushing housing affordability even higher.


Source: CNNMoney