After about 1.5 years of having our condo on the market (with a few months break last winter for our new arrival), someone was actually going to submit an offer.
As with many buyers this year, they were pursuing an FHA-guaranteed loan. The FHA is a federal bureaucracy, and they subsidize low interest, low down payment loans by insuring them. This means lenders can provide capital for a loan but not bear the risk of default, which is transferred to the FHA (of course, taxpayers ultimately bear the risk).
According to mortgageloan.com, federally-guaranteed loans accounted for 36% of all mortgage applications in June. In our segment of the market (low to medium end condos), I suspect this number is much higher.
So the government offers taxpayer-subsidized loans at below market prices. There is a huge incentive for anyone who qualifies to get one of these loans. Perhaps the only reason that the number of FHA loans is not higher is that there are a few restrictions on what they can be used for. For example, they cap the value of the loan, so most very-well-to-do homes would not qualify.
Another limitation, as we recently found out, is that to be used for a condo, the association must have at least four units. Ours has three.
So to recap, here is how the government takes control of a market:
1. Offer a taxpayer-subsidized product that "competes" with what's on the market.
2. Set the price below what the market offers for similar products (which the government can do since the true cost is borne by taxpayers).
3. Voila! Now the bureaucracy gets to decide who gets what since everyone is channeled through their product.
Obscure, arbitrary FHA rules now decide which properties sell and which ones do not.
So between the fact that we had already lowered our price as far as we could go (2/3 of what we paid 5 years ago), and the fact that this FHA business makes it highly unlikely we could sell anyway, we took our condo off of the market. We will stay in Massachusetts for the time being and continue to save money for our next home.
