condo conversions

Earlier this year, Fannie Mae stopped guaranteeing mortgages in new or newly converted condo developments in which fewer than 70 percent of units have been sold or are under contract.

Fannie's previous rules set the cutoff at 51 percent. Freddie Mac recently sent a bulletin to sellers and servicers announcing plans to adopt similar restrictions beginning July 1.

The restrictions essentially raise mortgage rates for otherwise conforming mortgages (i.e. under $417,000 in Texas) where the condo development is effected by any of the following issues:

Last year, 824 Austin apartments were converted to condos. This year, that number is expected to grow to 1,167.

As downtown condo prices have skyrocketed to $400 / SF or more (sometimes much more), a wave of Central Austin rental properties are being converted into more-affordable central condo buildings.

One argument frequently trotted out against zoning for greater density is that it encourages the redevelopment of low-income rental.  But it is silly to believe that zoning can maintain the stock of affordable housing.  When rents lag behind home prices, owners will simply convert the apartments into condos.