Are condos a risky real estate investment? 

Fannie Mae and Freddie Mac think so. 

Earlier this month these two agencies imposed a .75 point fee to anyone looking to finance a condo with less than 25% down.   On a $200,000 loan this equates to an additional $1500 one time fee.  While it is true that on a national level the delinquency rates on condo’s are higher than on a single family detached homes,  but the numbers are exaggerated by the problems in Florida and Nevada.  In fact, some lenders have categorically refused to loan money on a condo in those two states regardless of the down payment.   

Are all condos a risky investment?  I don’t believe so, but further investigation of the individual development is more important now than ever.  The following is a list of questions you should ask  for existing condo projects. 

1)      Does any one individual own more than 10% of the units?

2)      What percentage of the units are owned by investors?

3)      What percentage of the unit owners are 30 days or more past due on their HOA fee?

4)      What is the number of units that are currently in some stage of foreclosure?

5)      Has control over  the association been turned over to the homeowners?

The point here is that the health of the association relies on the timely payments by all unit owners of their HOA fee.  This being said as more people become delinquent the more pressure there is on the others owners to make up the difference.  The lending rules on condo financing are changing rapidly so  speak to your lender about the property as soon as possible and ideally well before you  sign a purchase agreement.   Condos can be a great choice for your housing needs but to determine whether the risk is warranted or not you need to do some additional investigation.  Unfortunately, unless you put 25% down your lender will still charge you the .75 point fee.

Contributed by:

Tony Pigatti

Vice President Of Residential Lending

Archer Bank

TPigatti@ArcherBank.com

The hidden cost of foreclosures.

At first glance you may think that unless this happens to me I need not worry about this growing problem. 

Whether you own your home or rent the growing problem with foreclosures does impact you as in January of this year 233,000 people (nationally) received foreclosures notices up 57% from January of 2008.

From declining property values, to increased crime to the inability to obtain credit are all by products of an increase in foreclosures.  When a bank forecloses on a home and subsequently sells it possibly at a below market value, this has the impact of lowering all property values in an area. 

It is difficult to quantify the loss when a bank forecloses on a home but it can often range from 20% to 40% and more of the price of the home. Obviously, these losses are difficult for the bank to absorb so they become more conservative with their desire to extend credit not just for mortgages but for home equity loans, car loans and credit cards. 

This also creates problems for the Counties as in addition to the banks the real estate taxes are also not being paid which impacts our social services including the ability to support schools, police and fireman. .  There have been numerous studies linking an increase in crime rates to an increase in foreclosures as vacant homes seem to attract trouble.   Even for those that are renting just because you are paying your landlord does not mean the mortgage is being paid and that leaves the risk open for tenants to be evicted. 

Nobody wins with a foreclosure situation so the more the banks can do to slow this down the better off we all are.

Tony Pigatti

Vice President Residential Lending

Archer Bank

Office #708-237-4049

Cell #630-254-8946

www.metrobankgroup.com

Jim Cramer of CNN, the street.com and other business media has called a market bottom to the real estate market. Read what Jim said on his television show Mad Money. Or, see the video of Jim Cramer saying “Buy Real Estate Now”.

1. International buyers. Leading the way in this group are the Moscow millionaires. They are buying what they consider to be trophy properties located within a short distance to international airports. The monetary exchange rates have been helping these buyers as well. (See BryanBomba.com in Russian). Florida is leading the entire United States real estate market with this type of buyer. In fact, Florida has 26% of this market. Surprisingly, Illinois is a top ten state for international luxury home buyers.

2. Baby Boomers.  This sizable demographic group is now in their 40’s, 50’s and 60’s. From a housing point of view, they are moving up (in size and price), moving down (in size and price) and considering/entering the retirements markets.

3. Singles. Compared to the other demographic home buying groups, the single people represent the largest growing category. These are people form a wide variety of age groups. These buyers are newly divorced, first time buyers and investors.

4. Investors. The savvy real estate investor has entered the marketplace. These buyers recognize the long term values being offered in today’s real estate market. Further, they are capitalizing on the incentives that real estate sellers are offering.

5. Senior Citizens. This group of buyer has varying interests, but real needs. Most are interested in downsizing their homes. Many have interest in age-restricted developments and/or assisted living housing opportunities.

The Affluent Survey is an annual report put out by world-recognized affluent survey experts Ipsos Mendelsohn. A representative of the company presented a summary of findings and factoids to a group of Realtors who focus on the affluent home market in the united States. These Realtors were in attendance at the Leaders In Luxury conference this past week at the Hotel Gansevoort in Miami Beach. This annual realtor conference is the flagship event sponsored by The Institute For Luxury Home Marketing.

While the 2008 summary report of The Affluent Survey is 32 pages itself, here are some of the trends and findings:

• The affluent are now younger
• Foreign buyers are assertively buying trophy residential properties in the United States, particularly those home buyers from Russia (Moscow Millionaires) and Europe
• There a growth of conscientious consumption. These are green buyers with a decided social conscious.
• These buyers as the question of those serving them "What experience can you deliver to me?"
• Top four areas where the affluent spend money: housing, clothes, travel and entertainment
• Voracious appetite for media.
• Over 30% read blogs!
• Average time spent per week online: 27 hours (If this isn’t evidence that it’s all about online home marketing and not newspaper, I don’t know what is)
• 33% have second homes. This number is increasing.

Have you identified any trends of the wealthy not identified here?