Why Fannie Mae and Freddie Mac don’t like Condos….
by Tom on October 6, 2009
in house prices
Here’s an example of why it’s so hard to get a mortgage on a condo approved by Fannie Mae or Freddie Mac. Let me explain:
- The City Center condo project in Las Vegas was started in 2007. Buyers who signed a “pre-construction” contract for a condo there are being given a 30% price reduction. So the developer has lost 30% of the total project’s expected revenue already.
- If you look at the chart below, it shows that prices in Las Vegas have dropped 55% since this whole mess started.
So, if Fannie Mae or Freddie Mac loaned 80% of purchase price on one of these condos, according to the chart, they’d be 25% upside down before they even start.
That’s why it’s hard to get a mortgage on a condo right now. The volatility in prices and the risk to one unit if the project goes “down” is a lot greater than it is with a single family residence.
Tom Vanderwell
Calculated Risk: CityCenter Las Vegas Cuts Condo Prices 30% for Existing Buyers
Press Release: CityCenter Announces Residential Price Reductions (ht Charlie)CityCenter … on the Las Vegas Strip, has announced that a 30 percent price reduction will be offered at closing to the existing buyers of CityCenter’s three luxury residential offerings: The Residences at Mandarin Oriental, Las Vegas, Veer Towers and Vdara Condo Hotel.
“We believe that in this economic climate this price reduction is an appropriate step to take on behalf of our buyers so as to provide them greater flexibility in closing on their residences,” said Bobby Baldwin, president and CEO of CityCenter.
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