After receiving billions of dollars in taxpayer funded bailouts, Fannie Mae continues to deny financing for more than 90% of the beachfront condominiums in Florida. As a result, most condo purchases are now transacted in cash or through non conventional mortgages that have high interest rates, adjust after three to five years, and require down-payments of 30% or more.
Since few buyers have enough cash to buy a condo outright, and even more are unwilling to accept non-conventional mortgages, demand has stalled. This artificial stifling of demand by Fannie Mae has resulted in sellers having to aggressively lower condo prices to entice buyers to part with their cash or accept non-traditional mortgages.
The absence of conventional financing has a tremendous negative effect on values of all assets. In fact, any asset that sells on a cash basis sells for much less than those where financing is readily available. For example, if there were no loans available for cars, then cars would be worth far less. What would you own today if you had to pay cash for everything? Probably a lot less than you do now. Condos work the same way. When financing is unavailable, they are worth a lot less.
The majority of beach front condos in Florida are used as second homes or vacation rentals. Common sense would tell us that these types of properties are higher risk than primary residences and might explain why Fannie Mae has tightened lending guidelines. However, Fannie Mae is still providing conventional loans for houses that are used as second homes and vacation rentals throughout Florida so that can't be the reason.
Why is Fannie Mae unfairly attacking condo owners? The answer isn't clear but a few things are certain:
Fannie Mae was more than willing to provide conventional loans to condo buyers during the market boom.
Fannie Mae's underwriting criteria for condos hasn't materially changed in the past 5 years but they have now arbitrarily decided to tighten their interpretation of that criteria.
Existing Condo Owners are impacted the most. In fact, the price drop caused by Fannie Mae's unwillingness to finance new buyers is pushing many owners into foreclosure.
Many people would not own condos today had Fannie Mae not loaned them money a few years ago. This brought more buyers into the market and inflated prices. The lack of financing today, has reduced demand and condo values accordingly.
Since Fannie Mae is singling out condos, many would-be buyers are purchasing homes instead, artificially inflating their values.
I know a family that purchased a nice two bedroom beach front condo in 2005. They were well qualified and able to obtain a conventional loan from Fannie Mae fairly easily. The purchase price on the condo was $440,000 and the inflated price reflected the ease of financing available to buyers. Today, that same family has seen a decline in their income and is trying to sell their condo. Unfortunately, since Fannie Mae will not provide new buyers with financing, they have few people looking at their unit and will have to sell for much less than they paid.
While most would agree that more restrictive guidelines were needed to prevent future real estate bubbles from occurring, the way Fannie Mae arbitrarily shut down condo financing is causing undue stress on owners of beach front condos in Florida.
If you want to take advantage of the great deals on Destin Condos, check out Destin Condos For Sale with Tim Shepard. To view more Destin Real Estate News, check out Tim's Destin Real Estate Blog, local communities, and other area information.
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