House & Home: Housing affordability – The condo option
November 3, 2016
Housing affordability is the hot topic in the Reno-Sparks housing market. And, it's important to point out that we are seeing a slowdown in the rise of the median price for single family homes. The monthly year-over-year price gains have been in the single digits in 2016, with the exception of June and July, which are typically peak months. The median sales price is still 15 percent below its record high of 10 years ago at the peak of the real estate boom.
What we have not looked at as an affordable option in the Reno-Sparks area is the condominium market. The median price for area condominiums historically is an average of $131,000 below that of a single family home.
There are currently 140 condominiums available for sale in the Northern Nevada Regional MLS. For the first-time homebuyer, a condominium is an affordable option, but the viable method for financing this product has diminished over the years. The problem is that only 40 percent are eligible for FHA financing.
So what happened?
For homeowners associations, the process for certifying and re-certifying a condo project for FHA financing has been an arduous task. It's a task that homeowners associations, management companies or developers were unwilling to take on. A quick review of the HUD condominium list at hud.gov shows that the Reno-Sparks market, at one time, had 29 approved condo projects. Currently 22 of those project approvals have expired.
But there is good news on the horizon. The Housing Opportunity Through Modernization Act (H.R.3700), a bill strongly supported by REALTORS® and signed into law by President Obama on July 29, 2016, includes changes to FHA policies that could give current owners and potential buyers of condos access to more flexible and affordable financing, and a wider choice of FHA approved condo developments.
With the recent passage of the Housing Opportunity Through Modernization Act, the Federal Housing Administration's recertification process may be substantially less burdensome going forward. If the expired projects meet the HUD guidelines, they should be able to recertify through the new streamlined process.
The next roadblock for many condo projects was the requirement that the project have a 50 percent owner-occupancy rate. Of the 29 Reno-Sparks condo projects listed on HUD's website, 13 of them had notations of a 51 percent non-owner occupancy rate.
The Housing Opportunity Through Modernization Act may result in changes to that requirement. The National Association of REALTORS® is working with regulators to finalize this change. The new law provides that the owner-occupancy rates could be reduced to 35 percent.
On September 27, HUD announced its proposed regulations to address both of these issues. We are cautiously optimistic that positive regulatory changes will be made, however, changes won't be finalized until 2017. You can view the HUD press release at http://portal.hud.gov/hudportal/HUD?src=/press/press_releases_media_advisories/2016/HUDNo_16-146.
Of course, the cost of condo dues is always a consideration when purchasing in a homeowners association. Lender underwriting guidelines will still require that homeowner's association dues be taken into consideration when qualifying for a FHA loan to help prevent homebuyers from getting into a home they cannot afford.
The Reno/Sparks Association of Realtors (RSAR) is exploring ways to reach out to area condominium project leaders to inform them about changes in legislation, and encourage them to start the recertification process. This will not only help entry-level buyers into the market but will also raise property values for existing condo owners, opening the opportunity for them to move up or refinance their existing property.
William Process is the 2016 Reno/Sparks Association of REALTORS® president and a Realtor with HomeGate Realty of Nevada.