Condo Lending

CoreLogic has taken a look at the state of condominium lending. Where things stand now… what’s changing and what’s not…or at least not changing fast enough for some participants.

Through November of 2016, lending for condo purchases was running at an annual rate of $74 billion, or 8 percent of total purchase originations. Meanwhile, lending for condo refinances was running at approximately the same rate, which means that in 2016, when all the numbers are tallied, condo lending will represent around 7 percent of total mortgage originations.

Overall, condo sales were relatively flat through the first half of 2016, coming in at just under 600,000 condos.

The average sale price was $300,000 in the first half of 2016, up 3 percent when compared to the prior year. Days on market was a very fast 78 days (down from 85 days a year earlier) thanks to a tight supply of condos on the market, which was running at about 4.3 months as of December.

For some time now, CoreLogic has been forecasting that condos will be a bigger part of the mortgage origination market. Our outlook is based on the strong demographic tailwind of first time millennial homebuyers and down-sizing baby boomers – two large cohorts that will be gravitating toward the condo market. The timing of this potential condo-buying wave has been harder to predict. But improving employment growth and continued relatively low interest rates should begin to change this picture.

As followers of the Insights blog know, there are some headwinds to condo lending: mainly the need for lenders to underwrite the condo project as well as the borrower. This requires lenders to understand differing investor eligibility requirements and to deal with the more than 140,000 condo associations in the US. All of which can add time, cost and risk to condo lending.

Lenders, condo owners and borrowers all got some good news last year when Congress acted to ease rules that have made FHA condo loans more difficult to get. Specifically the new rules lowered the owner-occupancy threshold from 50 percent to 35 and made other changes to bring FHA policies in line with the less-restrictive approach used by Fannie Mae and Freddie Mac.

Although condos remain a relatively small slice of the overall single-family market, this category plays an oversized role when it comes to affordable options for first time buyers, low-to-medium income borrowers and graying baby-boomers.

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