The State of Condominium Lending

U.S. Housing Finance Update: March 2019

By Jacqueline Doty Housing Affordability, Mortgage Finance

CoreLogic has examined the state of condominium lending across the last year, including how things stand now and what might lie ahead.

Lending for condo purchases has held relatively steady over the last few years at about 8 percent of total mortgage originations. Hotspots with a particularly high share of condo sales include Washington D.C., at 37 percent, and Hawaii, at 42 percent.

The vast majority of condo originations are conventional loans, which represent about 80 percent of the total. Jumbo loans, while still a small portion of the whole, have enjoyed recent gains. This corresponds with the steady increase of existing condo sales with price tags over $1 million since 2009.

Share of Condo Loan Originations

Evidence continues to mount that condo sales will play a more significant role in the mortgage origination market in the next few years. One sign is that the condo market has become tighter than ever in recent memory. The average condo now stays on the market for only 60 days, the quickest turnaround we’ve seen since CoreLogic started tracking in 2000.

In addition, the largest age cohort in America, between 25 and 27, is poised to enter the age of peak purchase demand. With a flood of millennial first-time homebuyers soon entering the market for affordable housing, we can expect to see rising demand for condos in the near future.

Age Cohorts Compared to Purchase Demand

Lenders looking to take advantage of a potential condo rush may find that they’re being unnecessarily strict when approving condo loans. With the delinquency rate of condo loans sitting about 2 percent lower than that of single-family homes, there could be room to loosen condo lending guidelines.

Share of Loans 30 or More Days Past Due

Fannie Mae and Freddie Mac further loosened the market by making several updates on their own condo policies in 2018 that provide increased flexibility to lenders. Specifically, the GSEs made changes that:

  • Increase commercial space allowances from 25% to 35%
  • Relax the requirements for small 2-4 unit condo projects,
  • Streamline underwriting for certain low loan-to-value and investor loans.
  • Allow certain types of minor litigation to be present in the project when the litigation won’t have a significant impact to the financial stability of the project.

These new flexibilities will make it possible for more condo loans to be originated and sold to the GSEs going forward.

While condos remain a small part of the overall housing ecosystem, 2018 has provided good news for lenders interested in taking advantage of condo lending opportunities in 2019 and beyond.

© 2019 CoreLogic, Inc. All rights reserved.