Short Sales and The Condo Bubble

The Trouble with Townhomes and Condos in Today’s Market

 

We all know that today’s real estate market is struggling, as the correction of values after the bubble burst plods onward, the market sheds value, and the banks take their losses. Many homes can be tough to sell, as buyer demand is not as strong as in years past.

 

Townhomes and Condominiums can be even harder to sell than regular houses.

 

Why?

 

They are still great homes, to be sure, and there is still a demand for them from people in the marketplace that want a lower-maintenance lifestyle. There are, however, a few reasons why they are struggling in the marketplace-

 

1) Homeowners Association Dues- While real estate prices have dropped across the board, HOA fees have not. They have escalated as the cost of services inflate without regard to the real estate market. This means that if a townhome was worth $100,000 and the HOA was $200 a month, in today’s market the value may have dropped to $60,000, yet the HOA dues are still $200 a month. It’s true that the home is now more affordable than it was at 100K, but the HOA dues seem disproportionately high, and act as a deterrent for buyers who are watching every penny, and are very sensitive to monthly expenses.

 

2) Owner Occupancy- When a complex has more renters than homeowners living in the units, it changes the outlook for the complex. FHA, VA, and many conventional loans will NOT make or insure loans in a complex with too many renters. The reason, it would seem, is that the loans could be more likely to become losses, because an abundance of renters can cause significant decline in the quality of the complex. Unfortunately, once it crosses this 50/50 mark, it rarely comes back, because so many buyers, especially first time buyers, rely on FHA and VA loans to buy their first home (often a nice affordable condo) and these buyers are not able to get financing to buy in these complexes, meaning that for the most part, only investors will be able to buy the units, and of course, they would become more and more rentals. This can cause values to decline, as demand declines, and conditions worsen.

 

3) HOA Delinquencies- If too many units are in arrears on their HOA payments, it can cause the whole complex to disqualify for almost all normal financing, including FHA, VA, and Conventional products. Understandably, the lenders don’t want to make loans in a complex where the HOA is in serious financial distress… but it is difficult to remedy in a recessed economy, as people struggle to make ends meet. Of course, the HOA may even have to raise overall dues to cover their losses, accelerating the problem.

 

SOLUTIONS-

 

The premier solution I have always hoped for is that FHA and VA, instead of refusing to make or insure loans in these complexes… would instead give INCENTIVES to people who would buy the homes to personally live in, to encourage them to buy! This would bring many complexes “back from the dead” so to speak, and would improve the owner-occupancy rate and the overall value of the complex, thereby improving the risk factor for the lenders as well!!  I have attempted contact with the Federal Housing Association, to implore them to consider my logic, but have yet to have a breakthrough there.

 

Homeowner Associations would do well to fight hard to keep the dues current with the residents, and the costs down! If the homeowners could even agree to pitch in around the complex, it could keep maintenance costs down, and prevent fee increases, which directly diminish property values.

 

 

What this means for people who own townhomes and condos that paid higher prices during the bubble, is that there are many who are ‘underwater’, and need our help. We are well-versed in the art of short-selling these properties, and we offer a high level of service for those who need to get out from under a too-high mortgage. We are especially good at problem solving the different issues that can become obstacles in successfully selling and closing short-sale condos and townhomes.

 

 

What this means for people who are considering buying a condo or townhome- whether to live in or rent- is that there are some AMAZING deals out there to be had. Many properties are so inexpensive in these complexes that the combination of a low price and awesome interest rates means that paying the HOA won’t hurt so bad… and that many of them are so affordable, you have a much better shot and paying them off! It’s a lot easier to pay off a $40,000 condo than it is a $200,000 house. These will be excellent rentals in future years, and we expect to see a strong rebound in their values, as the price cycle of real estate swings back upward, as it historically does.

 

Condos and Townhomes are EXCELLENT bargains right now!

 

We consistently have a strong inventory of listings available for condos and townhomes, because we are darn good at getting people out, that need out… and getting new buyers in at great prices… and the losses get stuck with the bank, not the consumer. Their loss is your gain!

 

Call us today and get the answers you need!!

 

Sam Solomon of: 

KEY CONCEPTS LLC

 (303) 995-5440

 

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