Condo demand red-hot but FHA policies chill buyers

WASHINGTON — Call it the condo conundrum: Demand for condominium units is rising in many urban areas nationwide, according to new real estate industry estimates, yet mortgage financing is getting squeezed for entry-level condo buyers by a key federal agency.

It's a little schizophrenic. List prices for condos in major markets are rising faster for single-family detached homes in the same area. Nationwide, condo sales are steadily taking away market share from traditional homes as suburban boomers downsize and other owners want to live closer to urban workplaces and center city attractions.

But here's the troublesome flip side: Significant financing barriers erected by the federal government are making purchases of entry-level condos by millennials and other first-time buyers more difficult. Despite indications from the White House as recently as last month that the government wants to loosen up on mortgage credit availability for middle-income Americans, the Federal Housing Administration continues to severely restrict the number of condo projects where it will make its low down payment insured mortgages available. The same restrictions make it impossible for large numbers of seniors who own condo units to obtain reverse mortgages ­— an important home-loan niche that the FHA dominates.

Despite these problems, condos on the whole are doing well. The real estate site Trulia reports that increases in asking prices in the 20 largest condo markets are outpacing increases in single-family asking prices. In Miami, list prices for condos in September were 17 percent higher than the year before, compared to single-family list prices, which jumped 11.7 percent. In Boston, condo list prices increased at a rate four times as fast as single-family homes. In the Washington, D.C., area and San Diego, condo list prices rose by nearly double the rate of single-family homes. Nonetheless, selling prices for condos remain significantly below detached homes on average nationwide, making them more affordable.

All of this points to rising popularity and market share for condos. Lawrence Yun, chief economist for the National Association of Realtors, estimates that condos recently have grown from roughly an 8 percent market share to between 11 percent and 12 percent. But in some urban markets, the condo share is considerably higher. During September in Los Angeles, according to CoreLogic's DataQuick, condos accounted for about 27 percent of home resales. In Miami, they were 44.9 percent.

The main problem in the otherwise surging condo sector, many housing experts say, is the unnecessary blockage of entry points at the lower ranges of the price spectrum. The FHA, which for decades was the go-to source of mortgage money for first-time buyers, currently will only consider insuring mortgages in less than 7 percent of the country's estimated 150,000-plus condominium developments. The agency has stopped approving so-called "spot" loans in condo projects that have not applied for and received special "certification" — a process that many condo
homeowner association boards consider burdensome and frequently leads to rejection.

David Stevens, who was FHA commissioner in 2010 when the agency banned spot loans and now heads the Mortgage Bankers Association, says "it's time" to bring them back with reasonable restrictions because for many young first-time purchasers, "FHA is the sole source" of low down-payment financing. Though the agency confronted significant condo foreclosure problems stemming from the housing bust, Stevens told me in an interview "that doesn't mean you keep 'these restrictions' on" when the crisis has abated, as at present.

So are there any fresh signs of a change of heart at the FHA — any reason to hope for an improvement? Maybe. The agency declines to comment on whether it might loosen its certification restrictions and allow spot loans to buyers and owners in uncertified developments that can qualify under financial stability criteria. But industry and other sources say the agency is feeling the political heat from real estate and mortgage lobbies as well as from Capitol Hill and is drafting a major condo proposal for 2015 that could bring back FHA financing to greater numbers of buyers and existing unit owners.

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Innovative pump delivers meds

One of MassChallenge's recent winners is a startup that says it has developed the first soft, flexible, bandage-like pump capable of delivering one or more medications simultaneously to a broad range of people, from a diabetic at home to a wounded soldier on the battlefield.

Laurence Alberts, CEO and co-founder of Cam Med, said for many diseases such as diabetes, Parkinson's and osteoporosis, whose treatment involves frequent delivery of injectable drugs, using continuous-infusion pumps often leads to better outcomes than multiple daily injections, resulting in healthier patients and lower health care costs because they don't run the risk of ending up in the emergency room if they miss an injection.

But many people are unwilling to use pumps currently on the market because they're too visible and "clunky" to wear, Alberts said. So one of his two co-founders, Yanzhe Qin, a visiting fellow at Harvard's School of Engineering and Applied Sciences, thought: Why not make a pump that's an extension of the body?

In May 2013, Qin and his roommate — and now co-founder — Zhifei Ge, a Ph.D. candidate in mechanical engineering at MIT, began working on the Evopump. At 2 inches by 1 inch by 1⁄4 inch, it is less than half the size of the most widely used pump, Alberts said. And unlike other pumps, which operate with an automated syringe connected to a motor or a metal alloy that expands or contracts to move the syringe, the Evopump is powered by a tiny battery and works through electrolysis.

An electrical current is applied to a material such as water or a salt solution, forming small gas bubbles that create pressure, which moves the medication from the pump to the body. And it can be either pre-programmed or controlled in real time by the patient.

The pump also can deliver multiple medications, making it ideal for medics to use on wounded soldiers, who might simultaneously need a painkiller, a coagulant to stop bleeding and medications to prevent infection and inflammation.

"When Yanzhe approached me through a mutual friend in August 2013, I was just blown away by it," said Alberts, whose background was in strategic consulting. "It was so different and better than everything else in the field. I decided on the spot to team up with them."

In January, the three established Cam Med and a few months later applied to MassChallenge — the world's largest startup accelerator and competition — with "zero expectation," Alberts said, of walking away with $50,000, money they'll now use to have a commercially manufactured prototype made so that they can begin to generate the kind of performance data that potential partners look for.

The Evopump still will need to undergo about two more years of testing, followed by another two years or more of clinical trials before it can be approved by the Food and Drug Administration, after which Alberts expects it to sell on par with existing devices, which today sell for between $30 and $35, and be available to patients with a prescription.

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