The condo market is facing a significant challenge as insurers are increasingly dropping coverage for Homeowners' Associations (HOAs), leading to a ripple effect that threatens the entire sector. This trend is causing a surge in insurance premiums and HOA fees, making condo ownership more expensive and potentially less attractive for buyers14.
The Insurance Dilemma
Insurance companies are either hiking premiums or exiting the market to cover HOA common properties. This shift is primarily due to:
- Increased frequency of extreme weather events
- Aging infrastructure in many HOA-managed buildings
- High-profile incidents like the 2021 Surfside, Florida condo collapse
As a result, HOAs are struggling to find affordable coverage, with some seeing their premiums quadruple in just a few years12.
Impact on Homeowners
The consequences for condo owners and potential buyers are significant:
- Higher monthly HOA fees to cover increased insurance costs
- Potential for reduced property values
- Difficulty in securing mortgages due to lack of adequate insurance
In some cases, HOA fees have nearly doubled, reaching as high as $700 per month in certain communities4.
Market Trends
The condo market is showing signs of strain:
- Condo sales are declining, with a 5.5% decrease in units under contract as of July 2024
- Inventory is accumulating, with listings surging by over 27%
- Some areas, like Houston and Jacksonville, have seen condo prices drop by 6.5% and 6.6% respectively.
Looking Ahead
While the situation is challenging, it's not all doom and gloom. Condo prices nationally have maintained an upward trend, with a 3.9% increase in average sale prices through mid-20242. However, the ongoing rise in insurance costs could potentially reverse this trend if not addressed. For those considering condo ownership or currently living in an HOA community, it's crucial to:
- Research the HOA's insurance situation before buying
- Stay informed about your community's financial health
- Be prepared for potential increases in HOA fees
As the market adapts to these new realities, we may see changes in how condos are insured and managed. Homeowners and HOA boards will need to work together to find innovative solutions to keep condo living affordable and attractive in the face of these insurance challenges.
