Lending Changes Coming for Condos; The SCMR for March, 2026

And welcome to the latest edition of the SCMR (Seattle Condo Market Review). As always, to skip right to the stats, you can do so by watching this video. For more information on what's going on in the Seattle condo market, continue reading below!

As if I haven't been enough of a broken record over the past years detailing the struggling Seattle condo market, changes in agency lending are on the horizon that could bring additional despair. But before that, there are some positives. See below.

First, a shout out to Kyle Bergquist of Cross Country Mortgage who put these bullet point changes together in an easy to understand format. 

Fannie Mae announced a few “minor” changes to their condo approval guidelines.  Turns out, these could have a giant impact on the condo market.  Check it out:

·       Condo projects with 10 or fewer units may qualify for a review waiver (so long as they’re not part of a master association or larger development) – Verdict: Positive, but likely little to no impact.  Under previous rules, condo projects with 4 or fewer units already qualified for this same waiver… So we’re really just expanding this guideline to cover the condo projects that have between 5 and 10 units, which does not greatly expand the waiver in practice (since there aren’t many additional condo projects that are now included in this guideline). Very few projects in our area are this small to begin with.

·       There is no longer a 50% investor cap – Positive, but likely little to no impact.  As long as a condo buyer was putting more than 10% down and purchasing the condo as their primary residence, this guideline didn’t apply under the previous Fannie Mae condo guidelines anyway.  Therefore, just like the first update, great that they’re getting rid of the cap, but in our experience lending on condos in our area, this cap was rarely a failure-point for condo approval in the first place.  

·       Elimination of limited review for larger condo projects – Unideal and potentially hazardous.  Under current guidelines, as long as a condo buyer was putting 10% or more down and buying the condo as a primary residence, they would qualify for a “Limited Review”.  This meant that condo balance sheets and financials weren’t scrutinized and lenders didn't need to worry about the 50% investor cap. Eliminating the limited review opens up a lot of failure points in the condo approval process, especially because many HOAs don’t prioritize balancing their books and ensuring they remain within Fannie Mae approval guidelines. This could open up a can of worms that might not have been a problem under current and past guidelines. 

·       Condo Reserve Requirement increases to 15% (from 10%) - Very Unideal and potentially hazardous.  The condo reserve requirement currently only applies to buyers putting less than 10% down. Now this requirement will apply to all condo buyers, regardless of down payment. The issue here is two-fold: In my experience, many condo associations had a tough time meeting the 10% reserve requirement to begin with.  So, to graduate from a requirement that HOAs were already having a tough time of meeting, and requiring them to increase their reserves by 50% of the previous minimum by January 4th, 2027?  I’m not sure how HOAs are going to be able to accommodate this rule change without increasing dues or levying an assessment. As if financial solvency wasn't already an issue for some buildings, the requirement now just got tougher!

·       Lenders must now rely on the highest recommended reserve amount in the study – Not Ideal and potentially VERY hazardous.  Under current guidelines, Fannie Mae only required a 10% reserve. Under these new guidelines, if a reserve study is conducted and it states something like “Based on the budget, the minimum reserves should be X dollars, but with pending roof, siding, and window replacements, we recommend the reserve minimum to be Y dollars…” Lenders are going to be required to go with the higher number even if the lower number meets the new 15% reserve percentage guideline.  Said another way, a 15% reserve fund is the minimum.  The actual required reserve amount could be higher dependent on what the reserve study states. This could be completely disastrous for any buildings with capital projects on the horizon.

·       Increased allowable insurance deductible to $50,000 per unit, and the use of “Actual Cash Value” instead of full replacement cost for HOA master insurance policy coverage – Not Ideal.  This is a classic short term profit for long term loss paradox. The guideline update will save condo owners money on their insurance coverage now, but if something happens and a claim needs to be filed in the future, insurance coverage is almost guaranteed to not cover the replacement cost of whatever was damaged.  This could result in higher HOA dues to cover the difference, or a large one-time assessment if something happens to the building. 

Well, there you have it. As if the condo market wasn't already challenging for a multitude of reasons, tightening lending standards being one of them, things will get even more difficult starting early next year.

One thing I always tell my buyers whenever they close on condo purchase is to get involved in the HOA. Each HOA is its own democratic government. Some are governed better than others. The common sentiment I find among problematic buildings is owner apathy. Disengaged owners, apathetic to what's happening in their building create a ripe environment for a special assessment that could have been prevented, or minimized at the least. Don't get confused, some of these apathetic owners might think their problematic buildings are challenges only for prospective buyers. Not true. This also impacts the ability for any owner to complete a mortgage refinance. Tightening lending standards apply to anyone seeking financing, not just buyers. 

If I were a condo owner, I would be presenting these changes to the HOA at the next board meeting and seeing what can be done to get ahead of this. Price, HOA dues, location, layout, etc all still matter, and will forever matter when it comes to real estate and attracting buyers and/or maximizing resalability, but buyers are now growing increasingly cognizant regarding the dangers of poorly managed HOA's. A well run and prepared HOA can potentially increase the value of those units relative to similar units in poor financial health. 

Other issues detering buyers; a lack of parking, no in-unit washer/dryer, and overly restrictive rules and regulations, specifically involving pets and rentals. Let's face it, Seattle treats dogs better than most human beings so not allowing any dogs, or restricting them to a weight limit, can result in lost opportunity. This is exactly what happened for a Queen Anne condo that had a full price cash buyer under contract within the first week of being re-listed earlier this year. The buyer backed out after the HOA was inflexible in amending their pet policy to accommodate their dog over 40lbs. In the 3 months since, the unit has remained unsold with not a single showing. Ouch. It may seem like an insignificant variable, but any of these deterrents can singularity be the difference between sold and stale.

Onto the stats - For March 2026, the median sale price for a Seattle condo registered $602,750. That was down 4% YoY and up just slightly MoM from $596k+. Inventory is elevated, but not by as much as it was this time last year, with 17.3% more units on the marketYoY. The months of inventory remained flat MoM at 4.54 months. 

Enjoy the spring and best of luck avoiding allergies! Onward!