Condos Not Selling Fast Enough: Blame FHA

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It is becoming harder to buy a condo. Part of the problem is the new changes to the Federal Housing Administration (FHA) insurance. These changes require a condo project to pass re-certification every two years. Even condo projects with healthy financials will find this process challenging.

Imagine the homebuyer has to qualify for a mortgage plus the condo building has to pass the FHA insurance test. This is too much to stress to place on a buyer considering our economic conditions.

One of the main requirements is owner occupancy. At least 50% of the units must be owner occupied. This rule keeps out real estate speculators. But it also saddles the existing owners with rising condo fees. Condo associations do not want to levy special assessment to raise more funds. The other alternative is to raise fees.

In addition to the owner-occupancy policy, the new rule also says that one investor can not own more that 10% of the unit in a condo complex. So investors are blocked from buying additional units in a building that they know very well. Consider a 500 unit building where the average condo fee is $300 a month. If 200 units sit vacant the condo association is losing about $720,000 a year in fees. This short fall could be crucial in the event that there is an emergency. The funding would have to come from the current condo owners, and this might force more owners to walk away from their homes and end up in foreclosure.

Allowing investors to buy more units is a solution. Prices will not fall as sharply and condo associations will be able to work within their budgets.

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