condos are cheap, but you'd better
bring cash as mortgages dry up
Near the height of Orlando's real-estate boom in
2006, nine of every 10 condominiums purchased in
the local market were financed with conventional
So far this year, nine
of every 10 condos bought in Orange, Osceola and
Seminole counties have been cash deals, according
to an analysis of sales by members of the Orlando
Regional Realtor Association.
The reason for the
flip-flop: Government-backed mortgages that helped
fuel the Orlando area's overheated apartment-to-condominium
conversions five years ago have all but disappeared,
even as a growing number of would-be owner-occupants
are looking at condos as potential starter homes.
Explanations for why
mortgage money has become particularly tight for
condo purchases vary. Beyond the troubled finances
of many homeowner associations, condominiums have
lost their mortgage backing in part because federal
lending policies discriminate against multifamily
properties, according to a growing number of real-estate
brokers and agents.
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"Right now, condos
are almost impossible to finance, and it has little
to do with the homeowner associations," said
Orlando real-estate agent Roberto Baldor, who specializes
in foreclosed properties. "It's the Fannie
Mae and Freddie Mac rules and guidelines that deter
owner-occupants on those condo properties, which
could be a could starter home for a family."
One example cited by
Baldor: Fannie Mae's First Look program, which gives
families and other owner-occupants first priority
over investors in making offers on foreclosed houses.
for single-family [homes], but it's not doing anything
for condos," Baldor said.
Mae has had to balance pressure from the real-estate
industry to spur the condo market by easing its
lending requirements with the need to protect its
assets from mounting mortgage defaults.
In January 2010, Fannie
Mae initiated a program targeting Florida that was
going to make exceptions to its rules so it could
back mortgages in condominium projects that otherwise
would not have passed its qualifying tests. The
government-owned lending giant said it would start
granting certain condo complexes in the state "special
approval" designations — a sort of Fannie
Mae stamp of approval — even when the properties
didn't meet one or more of its established rules
involving delinquent HOA fees, financial reserves
and the percentage of owner-occupied units.
But so far, only 10
Orlando-area condo complexes have received Fannie
Mae approval through that program. A spokeswoman
for Fannie Mae said recently that the special approvals
in Central Florida show the program has been successful,
but others say it has been so limited that it hasn't
made a noticeable difference in the market.
John Tucillo, chief
economist for Florida Realtors, the statewide trade
association, said Fannie Mae and Freddie Mac need
to step back and take a holistic look at how best
to heal Florida' ravaged condominium market, rather
than tinkering with quick-fix changes and looking
at programs in isolation.
"Yeah, there are
problems," Tucillo said, but, "quite generally,
Fannie and Freddie — how shall I put this?
— have overreacted."
The median condo price
in the Orlando area has fallen 64 percent since
2006, near the height of the homebuying frenzy,
dropping from $166,100 then to $60,500 as of September.
House prices, meanwhile, have fallen 52 percent
during that time, from $262,900 to $125,200, according
to Florida Realtors. And while condo prices nationally
dropped 18 percent just from 2008 to 2010, they
fell 57 percent in the Orlando area.
Kevin Kennedy, vice
president of Orlando Financial Center Inc., said
the limited number of Orlando-area condo projects
that have qualified for federally backed Fannie
Mae and Freddie Mac mortgages is disappointing.
"Back in the heyday,
there was a streamlined condo-approval process that
was done by the lenders themselves, and you could
do maximum financing, and it seemed at the time
everyone was qualifying," Kennedy said. "They
even did it for condo conversions, too, which was
unbelievable to me."
parameters contributed to Orlando's leading the
nation in apartment-to-condominium conversions in
2005. And they have made it virtually impossible
for the condo to recover from the subsequent housing
slump, because investors bought most of the units
during the peak years of the homebuying frenzy,
and now condo complexes can't get on Fannie Mae's
mortgage-approval list because they have too many
"It makes them
totally impossible to qualify for any kind of financing,"
Kennedy said. "When you limit your pool of
buyers to only people with cash, you limit your
market to who can purchase, and it drives down the
prices. It's a never-ending problem.