Wednesday, December 4, 2013

The year of the Condo?




According to the most recent Case-Shiller Index, home values climbed 13.3 percent nationwide for the 12 months ending September 2013. The jump marks the largest one-year increase in home valuation since February 2006.

Each of the Case-Shiller Index's 20 tracked cities posted annual gains in June, led by Las Vegas, Nevada; San Francisco, California; and Phoenix, Arizona. Home valuations in the Las Vegas are up 29% from 12 months ago, which claws back against the heavy losses sustained last decade in the area.

The "last place" finisher in the September 2013 Case-Shiller Index? New York City.
As compared to one year ago, home values in the city's five boroughs -- Manhattan, Brooklyn, Queens, the Bronx, and Staten Island -- rose just 4.3 percent, which is more than three times below the U.S. average.

However, the Case-Shiller headline figure tells just part of the story.
In New York City, the market is thick with condominiums and co-ops and the Case-Shiller Index just happens to ignore those homes types in its "main" housing market index. If we were to add back the New York City condos and co-ops omitted by the Case-Shiller Index methodology, we'd find that the city is performing quite well, actually.

In New York, condo values are up 10.2 % since last year -- more than double the city's Case-Shiller Index reading. Similar differences between condos and non-condos exist within other Case-Shiller Index markets, too.
  • Los Angeles, California : 5.5 percentage point improvement for condos
  • San Francisco, California : 1.7 percentage point improvement for condos
  • Chicago, Illinois : Condos 4.3 percentage point improvement for condos
  • Boston, Massachusetts : 2.8 percentage point improvement for condos
  • New York City, New York : 5.9 percentage point improvement for condos
With tight supply and limited construction, buyers of condos should plan for higher sale prices through the end of 2013 and into early-2014, at least.

Mortgages For Condominiums

Getting a mortgage for a condo can sometimes be a challenge. Last decade, lenders were burned on condos for a variety of reasons and so they've bounced back on condo loans a bit more cautious and a bit more wise.
Today's buyers of condos have fewer financing choices as compared to buyers of single-family detached homes.

As one example, buyers using conventional mortgage financing via Fannie Mae or Freddie Mac pay a premium for all loans with less than 25% equity. For this reason, buyers of condos and co-ops are encouraged to cap loans at 75% loan-to-value (LTV).

Condo loans above 75% LTV remain acceptable and approvable, however, the accompanying mortgage rate and/or closing costs will likely be higher.
VA loans for condos are available, too.

VA loans allow 100% financing with no mortgage insurance required. Mortgage rates tend to be relatively low with a VA loan because all VA loans are guaranteed by the government.

In nearly all cases, though, buyers of condominiums will want to verify a building's warrantability.
"Warrantability" is a mortgage term whether mortgages in a given condo building are eligible for purchase by Fannie Mae or Freddie Mac. Non-warrantable condominiums are sometimes denied for funding, but not always.
A building's warrantability is based on a host of traits, some of which include :
  1. No person owns more than 10% of the building units
  2. No more than 50% of the building's units are active rental units
  3. No more than 20% of the building is dedicated to commercial/retail space
To determine whether a building is warrantable or non-warrantable, mortgage lenders will often use a "condominium questionnaire", which addresses the lendability of a building.
Non-warrantable condos can still be financed, it should be mentioned. Product availability remains limited, though, and mortgage rates are sometimes higher.

To receive personalized rates please email me at eneal@athccorp.com with your available times to discuss your options.