FHA Condo Approvals – What Difference Does It Make?

FHA Condo Approvals – What Difference Does It Make?

No, that is not in reference to Hillary Clinton’s statement.  It has to do with FHA condominium project approvals.

Real estate agents, mortgage brokers, condominium attorneys and property managers have all related to me that when a condominium project is approved with FHA, it has a positive impact on the units and their values.  One particular comment is “unless the project is FHA approved, the units won’t sell.”

Over the past several weeks, I have been compiling town condominium data in my state of Connecticut.  The goal was not to determine whether an FHA condominium project approval has impact, but rather, what data can be provided to demonstrate the positive impact.

Sale Prices

At first, I wanted to look at the potential impact of sales prices in FHA-approved projects and non-FHA projects.  However, once I examined the logistics of this, it didn’t make any sense.  Prices of units vary from project to project regardless of this certification.

For example, Manchester Gardens in Manchester is not FHA approved.  Manor Woods is approved.  The sales prices for the units in Manchester Gardens are around $70,000; those in Manor Woods sell for around $170,000.  To say this is because Manor Woods is approved with FHA would be absurd.

Days on the Market

If a unit sells quickly, this could be due to the number of available buyers to purchase the unit.  When a project is approved with FHA, there is a larger pool of potential buyers.  Prices of condo units are in the range of first-time buyers and right in FHA’s “sweet spot”.  With more available buyers, the unit should sell more quickly and for a higher value; aka, the law of supply and demand.

In some towns, I have seen a dramatic difference in the average days on the market.  For example, in South Windsor units in FHA-approved projects sold 2.5 times more quickly than those in non-FHA projects last quarter.  This, combined with other data from this town did suggest a significant benefit to being approved with FHA.

Percentage of Sales in Approved Projects

In most towns that I have examined, the average ratio of FHA-approved projects is around 20%, or 1 in 5 projects are approved. The range has been around 10% to 25%.

What I have found is that FHA-approved projects represent the minority yet account for nearly half of the condominium sales in a town, sometimes more.

Newington only has 9 condominium projects approved with FHA; this is 24% of the total.  The sales in just these 9 projects accounted for more than 40% of the sales in the town.

In Rocky Hill, there are 14 condos approved with FHA which is 18% of the total number of projects.  Condominium sales in just these projects accounted for 72% of the condominium sales!

Expired and Closed Listings

Finally, I pulled down listing data in different towns for calendar year 2013.  This was in response to hearing a real estate agent tell me that she and the other listing agents in a condominium project were not optimistic their listings would sell now that the project’s FHA approval expired.

Was there a difference in the ratio of expired and closed listings?

The answer to this was yes.  There is a difference and in some towns there is a STARK difference.  In nearly every town that I have examined, FHA-approved projects had a higher rate of closed listings and a lower rate of expired listings.  The only exception thus far was in South Windsor where they were about even.

In Rocky Hill, 72% of the FHA listings closed, 24% of them expired in FHA-approved projects.  In non-FHA projects, only 44% of the listings resulted in sales and 50% of them expired.  Translated: if your project is approved with FHA, you have a 3:1 chance of selling your unit; if it's not approved, you have a better chance of the listing expiring before you sell it.

In Manchester, listings in FHA-approved projects resulted in 57% closed sales and 22% expired.  In non-FHA projects, 45% of the listings closed and 40% expired.  Thus, if the project is FHA-approved, you have a 2:1 chance of selling your unit when in non-FHA projects it's about 50-50.

I will continue to crunch the numbers and compile the data but from what I have seen so far, the data show that an FHA condo approval has great positive impact on condominium sales in Connecticut. 

Images courtesy of Stuart Miles/freedigitalphotos.net

Calendar image courtesy of digitalart/freedigitalphotos.net