Issue 19. September 2009

  Frances Katzen, EVP

Pertinent Articles:


Home Prices in Major Cities Rise for a Second Month

By Nick Timiraos

Home prices in major U.S. cities rose for the second straight month in June in the latest sign the housing market may be steadying after years of declines.

The S&P/Case-Shiller index for home prices in 20 major cities in the three months ended June 30 was up 1.4% from its level in the three months ended May 31. It was the first time the index rose two months in a row since mid-2006. Prices gained in 18 of 20 markets, but were still down 31% from their July 2006 peak.
[The Wall Street Journal]



Northeast Home Resales Climb 17 Percent in July

By The Associated Press

NEW YORK (AP) -- Home resales in the Northeast recorded its fourth straight monthly gain in July, mirroring the national numbers that show the housing market is on the mend.

The nine-state region registered 105,000 home resales last month, up nearly 17 percent from June and 4 percent higher than a year ago, the National Association of Realtors said Friday.
[The Associated Press]



Some real estate agents in NY's Hamptons see rally

By Frank Eltman

EAST HAMPTON, N.Y. — Few real estate markets got hit harder by the recession than the Hamptons, Long Island's summer playground for the rich and famous.

After all, the people who live in East Hampton estates and Southampton mansions had been the prime beneficiaries of robust Wall Street profits.
[The Associated Press]



An Uptick for Real Estate Ads Online

By Alexn Mindlin

The price being charged for a real estate ad in one of online advertising’s two major pricing plans has more than doubled since the last quarter of 2008, according to Adify, an online network builder and ad broker.
[The New York Timesl]
Quarterly Reports:
Frances Katzen
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Fantasy Financing
Affecting New
York Market

FHA loan restrictions
A limit on FHA loans in a condo
No right of first refusal
Time frame after plan is effective
A minimum number of units has to be sold
Stacked against NYC co-ops and condos
Yosarian regulations

Today, 65 percent of the transactions in Manhattan are under $1 million as buyers who were priced out of the market or renting find they can afford to buy.  These buyers are finding enormous inventory and tremendous flexibility on the part of sellers. 
The buyers are looking at prime neighborhoods, which provide good schools and a solid long-term investment.  They are purchasing larger units of about 1,000 sf for the same price range as the previously 600 sf. Median prices have adjusted from a blended average of approximately $1,600/sf to ask prices at $850 - $1,000/ sf.

Many transactions have been fueled by low-rate mortgages from lending institutions.  In addition, the Federal Housing Administration (FHA) has stepped in with additional funds.  It raised the lending ceiling to $729,750 and has lower financial requirements than the private lenders.  While the government backing has spurred single-family home sales in the rest of the country, too many stringent restrictions for co-ops and condos are hindering deals in New York. Co-ops, in fact, do not qualify for FHA loans.

Yet, this is just one of the many issues that we face today in what I call Fantasy Financing. 

Developers are working to obtain FHA-approval for their condos, a lengthy and expensive proposition, which in theory facilitates obtaining a FHA-backed loan. But even that does not guarantee that a qualified buyer will be successful. Just recently, a client lost out on buying a one-bedroom condo in a downtown prewar conversion when she sat down at the closing and learned her financing was rejected. End of deal.  The reason: a loophole preventing FHA-insured loans until one year after the condominium plan has been declared effective. 

This presents a Catch-22 situation.  Many buyers need a mortgage to purchase a condo, yet institutional lenders won’t provide a mortgage until a significant number of units are sold.  The FHA-backed loans are not an option as they have the same, or even more stringent, requirements.  Adding to this is a regulation starting on October 1 where the FHA will limit the number of its loans to 30 percent of the buyers in an approved project.

The difficulty in obtaining FHA loans is placing a barrier to sales in New York City because FHA loans ease the financial outlay of buyers with lower interest rates, as the government insures the developer will get paid regardless of default, less stringent financial requirements and smaller down payments.  Many lending institutions require 20-25 percent or more upfront while FHA-loans can require less than 5 percent.

If a project is not FHA approved, buyers can seek what is called a spot loan, but that has numerous caveats:

  • The condo association cannot have the right of first refusal, a practice common only in New York City.  Some developers are amending the offering plan to remove this provision.
  • The project cannot be subject to additional phasing or annexation.
  • There must be no special assessments or legal actions pending against the association.
  • At least 90 percent of the units must be sold.
  • At least 51 percent of the units must be owner-occupied.
  • No single entity can own more than 10 percent of the units.
  • For projects over 30 units, only 10 percent can have FHA loans; for those 30 units or less, no more than 20 percent can have the loans.

As you can see, while the programs exist, there are stringent requirements that preclude many New Yorkers from using government-financed loans and helping to revive the New York housing market.  Fantasy Financing is available, but the buyer must understand the procedures and requirements before seeking to use this financial option.




© 2006 An Independently owned and operated member of Prudential Real Estate Affiliates, Inc. is a service mark of Prudential Insurance Company of America Equal House Opportunity. All material presented herein is intended for information purposes only. While, this information is believed to be correct, it is represented subject to errors, omissions, changes or withdrawal without notice. All property outlines and square footage in property listings are approximate.

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