“Something has to happen for this product to be marketable. I just find the whole thing ironic that FHA is providing financing for luxury housing.”
-Jonathan Miller, Miller Samuel Inc.
That’s my pal JM discussing condos in today’s WTF?! article. Via Bloomberg, we learn:
“The Federal Housing Administration agreed in March to insure mortgages for apartments at the 98-unit Gramercy Park development, known as Tempo. That enables buyers to make a down payment of as little as 3.5 percent in a building where apartments range from $820,000 to $3 million.”
The irony Jonathan refers to is due to the history of the FHA (which Bloomberg misstated). They were created in the midst of the Great Depression (1934) primarily to assist homeownership at a time when banks were collapsing, and credit had disappeared for low-to moderate-income Americans.
Are we merely throwing money at anything housing related to get the economy moving? Providing a “lifeline to new Manhattan luxury condominiums after sales stalled” makes very little sense to me.
The Manhattan real estate market has held up better than the vast majority of the country, despite the collapse in Wall Street employment.
Why? Coop Boards.
Yes, its true: New York buildings’ busy body neighbors, who are ordinarily thought of as odious organizers of an onerous application process, prevented a full blown RE meltdown in the Big Apple. While the banking industry was creating No Doc Liar Loans, Co-op boards were looking at 10 years worth of financials and tax returns. When most banks were pushing 0% mortgages, Co-ops insisted on at least 30% down. And while the vast majority of the eventual defaulting buyers bought much more house than they could afford, the intrusive boards did the banks jobs for them: They ensured buyers bought only so much property as they could hold and withstand during an economic downturn.
But condos have no such board. Hence, the scramble to find buyers as the defaults rise, condo prices fall, and foreclosures occur. So one of the few regions of the country that did not engage in aggregate risky behavior (thanks to Co-ops) has found a sliver of homes — there were 8,700 new apartments in Manhattan empty as of June — that they can stimulate with yet more risky lending.
Bloomberg adds “At least nine Manhattan condo developments south of 96th Street have sought approval for FHA backing…”
Manhattan Luxury Condos Try FHA Backing in Sales ‘Game Changer’
Bloomberg, August 13 2010