Condos Being Left Behind in Housing Rebound

According to this article in the Wall Street Journal the condo market has not rebounded like its apartment and single family cousins and there’s a variety of reasons:

With the housing market in its fourth year of recovery, construction of single-family homes and multifamily rentals is rebounding.

Not so for condo construction, which has been slammed by tough rules on condo mortgages enacted after the housing bust as well as stronger demand among young people for rentals and tight lending conditions for builders.

In the first quarter, condo construction accounted for just 5.5% of all construction of multifamily housing in the U.S. That was the lowest ratio since the Commerce Department started tracking the figures in 1974, and far below the 24% average…

The building slump comes after years of overbuilding and speculative flipping led to a historic bust. Foreclosure rates on condos hit a high of 5.2% in late 2010 and early 2011, the highest rate since CoreLogic Inc. began tracking the figures in 2000.

As a result, the Federal Housing Administration, which backs mortgages made to low-wealth buyers, tightened its lending standards in a series of moves from 2008 to 2012. Under the new rules, in order for the FHA to insure mortgages in a given condo complex, at least half of the units must be owner-occupied and no more than half can be FHA-insured, among other requirements. For condo projects under development, at least 30% of units must be under contract for sale before the FHA will start backing mortgages there. Mortgage giants Fannie Mae and Freddie Mac tightened their standards as well.

While many developers would prefer to build condos versus apartments, right now the market just isn’t there, and it doesn’t look like it will be for the foreseeable future.