<p>I was reading the following article. I wonder…</p>
<p>[Condo</a> sales picking up in Bay Area - SFGate](<a href=“http://www.sfgate.com/realestate/article/Condo-sales-picking-up-in-Bay-Area-4207185.php]Condo”>http://www.sfgate.com/realestate/article/Condo-sales-picking-up-in-Bay-Area-4207185.php)</p>
<p>I think we need to return to the model that one buys a home - any home, condo or house, as a place to live and perhaps a long term investment, with some tax breaks thrown in for good measure. The concept of buying a home and selling it within a few years at a profit is pretty tarnished. Yes, prices have come way down in many areas, making good deals more common, but we still have no idea of where the housing market will be in a few years.</p>
<p>Add in uncertainties like the possible elimination of the mortgage interest deduction and ever tightening mortgage lending rules, and who knows what prices will be doing in the future. So, no, I do not think buying a condo with the express goal of building equity to buy a more expensive house a few years later is a great idea.</p>
<p>And as someone who works in mortgage lending and talks to people all over the country ever day who are very upside down on their mortgages, I don’t see a significant improvement in prices in most areas.</p>
<p>Buying a house or condo with a mortgage give you a leveraged investment. This means that you can build a lot of equity if real estate prices rise, but end up with negative equity if real estate prices fall (enough).</p>
<p>Ucb is right.</p>
<p>Rockvillemom, what you wrote is very interesting to me. You don’t see much improvement? I thought things were getting better in residential real estate. I know standards are really tight. Are these low interest rates helping buyers buy homes? Helping homeowners refinance and thus saving them money?</p>
<p>How much more do prices have to rise so we have a serious decline in underwater mortgages?</p>
<p>I work for a lender who participates in the HARP refinance program. There are so many people who want to refinance and would benefit from doing so, but are so underwater that they can’t even get approved for HARP. Very depressing. The housing recovery is very uneven. </p>
<p>I am particularly concerned about some of the mortgage lending reforms that will start going into effect next year. For example, a lender needs to adhere to a 43% debt to income ratio in order to meet the standards for a “qualified mortgage” and be protected from consumer lawsuits. That’s going to disqualify a lot of borrowers. Right now, we routinely go up to 47% or 48% if the borrower has good credit and we are reducing their payment. Making it harder for people to refinance will lead to more people walking away from their homes. More foreclosures brings down prices even further. Vicious cycle.</p>
<p>It’s called the “escalator to equity”. It’s the normal process only you substitute “condo” for “starter home”, though they really are the same thing. </p>
<p>I discourage people from paying a premium for new condos because in resale they’ll be old condos. But otherwise, it’s just real estate where you don’t own the actual walls.</p>
<p>“But otherwise, it’s just real estate where you don’t own the actual walls.”</p>
<p>Except when it’s not. Condos have large monthly fees, restrictions on what you can do inside (like install hardwood floors over a neighbor). But most of all, there is the liability of the infrastructure that depends on a competent condo board.</p>
<p>One of the other problems with condos is you may end up with lawsuits. In our state, there have been quite a number of expensive lawsuits, relating to Boards of Directors, construction defects, and other issues. These can get expensive, no matter whether the association/Board prevails or not.</p>
<p>Maintenance fees in condos and apartments can also get quite high and need to be factored in. Worse, they can rise over time, especially if improvements are needed (e.g. repainting the building, replacing the elevator, etc.) The condo units H owned when we were married were both negative cash flow, meaning we had to pay more in maintenance and mortgage than we were able to get in rental income.</p>
<p>In HI, the real estate market never really went down much and is rising, but you still have to purchase VERY carefully and expect to hold a considerable length of time if you want to have the best chance of making a profit instead of taking a loss (especially after paying real estate commissions).</p>
<p>The infrastructure liability is the biggest difference, which gives more opportunity for incompetence or corruption in the HOA*. However, many new detached house developments have monthly fees for private roads, private parks, private rec centers, groundskeeping, have restrictive rules on how you can modify the house (e.g. approved paint colors) or what you can do (e.g. leave your garage door open, fix your car, etc.), and have HOAs that attract petty dictators to seek office in.</p>
<p>*Of course, you personally deal with your own detached house maintenance and repair, but you don’t have to go through HOA politics.</p>
<p>Rockvillemom, thanks for the info.</p>
<p>Lifelong lookie looer here. I’m on the multiple listings weekly and often go to open houses in my area. IMO, buying the right investment condo requires some expertise and a little luck. </p>
<p>Along with everything others have mentioned regarding HOA’s, condos just don’t always have the best resale value compared to single family homes. A lot depends on your market and the neighborhood. </p>
<p>Interesting insight, Rockvillemom. DH and I just refinanced at the behest of our lender. They pursued us and the refinanced at no cost to us. This has cut our payment in half. Conversely, I’m trying to get my elderly parents’ mortgage refinanced and it’s been a nightmare.</p>