Monthly Archives: April 2016

Occupancy requirements for condos

When President Obama signed the “Housing Opportunity Through Modernization Act of 2016” into law a few months ago, many celebrated because it changed the Federal Housing Administration’s rules for condominium financing, among other changes.

At the time, the National Association of Realtors said that law would “dramatically improve long-fought restrictions on FHA financing for condominiums.”

And Wednesday, the FHA announced that it is indeed changing some of its rules around condo financing, lowering its owner-occupancy requirements on certain condo developments.

Under the FHA’s current rules, approved condominium developments must have a minimum of 50% of the units occupied by owners.

The new rules, which go into effect immediately, would lower this requirement to 35% for existing condo developments provided the project meets “certain conditions,” the FHA said.

“While having too few owner-occupants can detract from the viability of a project, requiring too many can harm its marketability,” the FHA said in a statement. “It is FHA’s position that owner-occupants serve to stabilize the financial viability of the projects and are less likely to default on their obligations to homeowner associations than non-owner occupants.”

According to the FHA, for some condominium projects, the existing owner-occupancy requirement is “necessary” to maintain the stability of FHA’s Mutual Mortgage Insurance Fund.

But the FHA said that it in certain instances, it now believes that it would be possible to protect the MMIF while allowing a lower percentage of owner-occupants.

“(The Department of Housing and Urban Development’s) experience shows that higher reserves, a low percentage of association dues in arrears, and evidence of long-term financial stability allow for a lower owner-occupancy percentage without undue risk to the MMIF,” the FHA said.

To be eligible for the lower owner-occupancy rules, the condo development must be more than 12 months old. Additionally, the requirements for the lower owner-occupancy rules are:

  • Applications must be submitted for processing and review under the HUD Review and Approval Process (HRAP) option
  • Financial documents must provide for funding of replacement reserves for capital expenditures and deferred maintenance in an account representing at least 20% of the condo development’s budget
  • No more than 10% of the total units can be in arrears (more than 60 days past due) on their condominium association fee payments
  • Three years of acceptable financial documents must be provided

According to the FHA, for condo projects that are proposed, under construction, which includes existing projects that are less than 12 months old, or “gut rehab” conversions, the FHA will maintain its current owner-occupancy percentage of 30%.

NAR President Tom Salomone welcomed the changes, but said that NAR hopes the FHA will go even further with these new rules.

“NAR has been fighting for changes to FHA’s condominium rules for years, and the mortgagee letter announced will bring some much needed relief to the market,” Salomone said.

“Condominiums will have a much easier time getting certified by FHA, and Realtors will have more options for clients looking to purchase a condo with an FHA mortgage,” Salomone continued. “This is a big win for NAR, and while we believe all condominiums should have the rules applied to them equally, we also believe FHA has heard the concerns of Realtors and is moving in the right direction.”

Predictions bring bad news for housing

unduhan-6After last month’s uptick in construction, ADP now predicts yet another drop in its monthly National Employment Report.

Overall, the company predicts an increase of 147,000 in total nonfarm private sector employment in October. This is compared to September’s increase of 156,000.

“Job growth appears to be shifting from small to large companies due to the lessening impact the global economic environment had on large companies earlier in the year,” said Ahu Yildirmaz, vice president and head of the ADP Research Institute.

“This is also true because large companies often have the resources to attract workers with better pay and benefit packages,” Yildirmaz said.

Click to Enlarge

ADP

(Source: ADP, Moody’s Analytics)

“Job growth remains strong although the pace of growth appears to be slowing,” Moody’s Analytics Chief Economist Mark Zandi said. “Behind the slowdown is businesses’ difficulty filling open positions. However, there is some weakness in construction, education and mining.”

Here is a breakdown of the sectors where the changes occurred:

The goods-producing sector decreased by 18,000 with decreases in these areas:

Construction: Decrease of 15,000

Manufacturing: Decrease of 1,000

Natural resources, mining: Decrease of 2,000

The service providing sector increased by 165,000 with increases in these areas:

Trade, transportation and utilities: Increase of 17,000

Information: Increase of 3,000

Financial activities: Increase of 18,000

Professional, business services: Increase of 69,000

Education, health services: Increase of 22,000

Leisure, hospitality: Increase of 38,000

Other services: Decrease of 2,000

The decrease in construction does not bode well for housing, which is already struggling with low inventory levels and high home prices. Many of the gains, however, occurred in the professional and business sector, which could help consumers afford higher-priced homes.

Home Pricing the market too high

Speaking before a packed house gathered Wednesday on the 7th floor of the Newseum in Washington, D.C., CoreLogic’s chief economist, Frank Nothaft, told the crowd of housing insiders that anyone waiting for any dramatic shifts in housing, interest rates, or otherwise is likely to be left waiting.

Nothaft, speaking at the “Data, Demand, and Demographics: A Symposium on Housing Finance” presented by the Urban Institute and CoreLogic, told the crowd that housing is entering a new normal.

And that new normal means interest rates will be staying low, well below 5% for the next several years, amid shifting demographics bringing new homebuyers to the market.

“I think mortgage rates are going to be with us for a long period of time,” Nothaft said. “The expectation in capital markets is no rate change from the Federal Open Markets Committee today. We may see an increase in federal funds rate in December.”

Nothaft added that Wednesday’s FOMC announcement could provide more of an indication on the willingness of FOMC members to increase rates before the year is out.

But even if the FOMC does raise rates, mortgage interest rates will stay low, Nothaft said, but perhaps not as “dirt cheap” as they are right now.

“I think we’ll see rates rise from dirt cheap to a very low level as we move into next year, still remaining below 4% all through next year,” Nothaft said. “We’re evolving into a new era in mortgage rates.”

Nothaft also projects four other trends that will emerge over the next several years that will shape housing’s new normal.

Chief among those is a shift in household composition and a change in demographics as more Millennials approach homebuying age.

Nothaft presented a chart during his presentation that highlighted the difference between the largest age cohort in the U.S. population, ages 24 and 25, and the average age of the first-time homebuyer, which is 31.