CHICAGO CONDO MARKET - Tighter Lending Rules Stalling Already-Sluggish Sales!
CONDO SELLERS FIND IT IS TOUGHER TO SELL, SINCE MANY PROSPECTIVE BUYERS FAIL TO QUALIFY!
The number is scary! Downright scary!
In the City of Chicago, Condominium Unit Sales are down 56%, according to data from the Chicago Area MLS, Midwest Real Estate Data LLC. Although the fall-off in median pricing is less severe than that being suffered in the single-family home market, new tighter lending rules by U.S. Mortgage and Investors Fannie Mae and Freddie Mac have many selling condos left without a sale.
And many would-be condo buyers fail to qualify for their desired purchase - even if they have down payments and FICO Credit Scores many would call attractive.
In a story written by Reporter Mary Ellen Podmolik in today's Chicago Tribune Real Estate Section, since the beginning of 2009, roughly 4,700 new condos have come to the market here in Chicago. Today, more than 40% of these new-to-market condominiums remain unsold.
Tougher lending rules may answer much of the "Why?"
Effective March 1, 2009, Fannie Mae no longer guaranteed loans in condo developments that were less than 70% sold. Freddie Mac followed suit July 1st. Previous Rules set the minimum at 51%.
These new rules come on top of a boatload of new fees for condo buyers with less-than-perfect credit, and less than 25% down payment.
The option for low-down-payment borrowers with somewhat-dinged credit? FHA insured loans! These loans require as little as 3.5% down payment, although they do require a very stiff 1.75% up-front Mortgage Insurance Premium, plus a 0.55% premium on the amount of the loan, divided by 12, added to a buyer's mortgage payment each month.
Further, many condo buildings, new and old, are not approved under FHA Lending Rules, although more and more new projects are applying for FHA Approved Status each day in Chicago. Other rules on FHA loans, one requiring a minimum one year since the condo project was turned over to its Board of Directors from its original developer, and another prohibiting FHA loans in buildings where the Condo Declaration indicates a Right of First Refusal to purchase for-sale units, sometimes stymie buyers who have written a purchase contract. They often scare away others even considering to buy.
Although a few of these restrictive rules will go away after October 1, 2009 (for many, the elimination of The Right of First Refusal restriction cannot come soon enough), continued tight FHA inspection requirements often disqualify certain buildings - although conventional funding is becoming more condition-restrictive as well these days.
Also on October 1, the FHA is streamlining its approval rules for new and existing condo buildings. No longer will each previously-unapproved building need to be subject to an FHA Spot Approval, which often delays the overall loan approval process.
Despite the drawbacks, however, FHA loans have enjoyed quite a resurgence within the past year, as other types of low-down-payment loans have almost disappeared. Across the U.S., the share of new home loans going FHA jumped 23% since May, 2008. And the share for FHA Loans is bound to go up, as many builders of new and redone condo units opt to get their project approved FHA early in the construction process.
But, these days, with the condo market here in Chicago struggling to rebound, any loan qualification rule or procedure which inhibits purchase is bound to add to the sale and purchase stress level, for both those attempting to sell their condo unit, and those who consider their purchase.
DEAN MOSS & DEAN'S TEAM CHICAGO
