Condos have been the segment of the housing market that has been the slowest to recover from our most recent real estate recession. However, due to lack of current inventory (there is now less than a two-month supply of condos for sale between $150,000 and $250,000) condos are enjoying a fourth quarter comeback with a 4.08% rate of appreciation in 2013. That’s the largest one-year appreciation rate in over five years. Over the last six months, approximately 100 condos have sold per month. That’s a lot of field goals from an all-time low of 35 condo sales in January 2012. All geographical areas have benefitted from this resurgence with an overall 16% increase in the number of units sold and a 32% decline in days on the market in 2013.
However, extending the metaphor on this Super Bowl Sunday, there’s a lot of locker room strategies, planning and practice that go into making a successful condo association which is the governing body of a condo community. There have been very few new condo developments in the past five years and many existing homeowners associations are struggling with heavy dues and assessments for replacement of common areas. Depending upon whether the condo development was organized as a site condo with limited common areas or as a full service condo community, replacement and repairs can be a heavy burden on condo owners. And the higher the dues, the more difficult it is to find a qualified new condo buyer as the required dues figure prominently in their ability to qualify for a mortgage. An inadequately funded HOA can also result in loss of long- term mortgage investors like VA and FHA, the most popular mortgage programs for condo financing.
And, unfortunately, most of our condos were built in the early 1980s or 1990s and they are now reaching the age where roofs and driveways need to be replaced, exteriors repainted, decks replaced, et cetera. If there has not been adequate reserves collected as part of the monthly homeowners association dues, special assessments have to be levied. That’s where our state housing authority (AHFC) has come to the rescue with a winning strategy. Recognizing the aging condo supply, AHFC has devised a loan program available to HOAs which finances major improvements and/or repairs to common areas. The loan amount is determined by AHFC to complete a project and/or restore reserves. The loan term is up to 15 years and the interest rate is established at the time of underwriting based on AHFCs multi-family rate.
The collateral is secured by a note and unrecorded assignments of income. It does not lien the individual units or require a special assessment. The caveat to this program is that 75% of unit owners must approve the loan request. Getting 75% of unit owners to approve anything is always nothing less than a logistical challenge, but this program is worth the effort for HOAs facing special assessments. The upkeep and replacement of common areas, including fencing and landscaping, add value to a community and individual units. This relatively new and little known AHFC program is an overtime touchdown for struggling associations. To apply, visit the AHFC website (www.ahfc.us), tab under other loan programs and look for Association Loan.