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 with your available times to discuss your options.