Rising Insurance, HOA Fees Impact Condo Market

FORT LAUDERDALE, Fla. – Sharp increases in what it costs to own a condominium in Florida are driving down prices that owners can get when they sell their condos in the state, according to a report released Tuesday by national real estate brokerage Redfin.

The report, written by Redfin data journalist Dana Anderson, cited higher costs of insurance and homeowner association fees as reasons that the number of condo listings in Florida increased by 28.2% in January compared to the previous January, and compared to 11.1% in the nation overall.

“Condos are sitting on the market much longer than they used to, with less interest from buyers,” the report quoted Jacksonville Redfin Premier agent Heather Kruayai as saying. “Sky-high HOA costs are pushing buyers out of their monthly budget.”

Median sales prices, the report said, increased by just 2.4% in Florida compared to 8.4% nationwide over that time period. Median prices fell 6.5% in Jacksonville, by 4.8% in Orlando, 2.5% in Miami and by 1% in Tampa.

Increases in median sales prices in Cape Coral (6.5%) and North Port (7.1%) occurred largely because they were at a low point a year ago following Hurricane Ian, the report said.

Meanwhile, demand for condos is falling in several metro areas in Florida, a data chart accompanying the report showed.

Sales fell by 27.4% in Jacksonville, 8.7% in Miami and 4.1% in Tampa, the data chart showed, and rose only in Orlando, by 6.6%.

Sales in Florida fell by 6.8% while remaining flat nationwide, according to the chart.

Redfin says it relies on data from multiple listing services and insights from the brokerage’s real estate agents across the country.

The report said that Florida’s market for single-family homes is faring better than the condo market. In Miami, the median sale price of single-family homes increased by double digits compared to January 2023 while sales rose 9% and new listings increased by 13%.

Redfin agents say that Florida’s condo sales have slowed because purchase prices have increased, while listings have jumped because the costs of owning a condo are up.

The story cited the Insurance Information Institute’s estimate that property insurance increased by 40% in 2023 – and cost homeowners three times more than the national average in Florida – and mentioned that HOA fees are “multiplying for many condo buildings.”

“Condos that used to have a $400 monthly maintenance fee may now have a $700 fee,” Juan Castro, a Redfin agent in Orlando, was quoted as saying. “It’s causing buyers to rethink their plans.”

HOA fees, the report said, are increasing because a new state law enacted in 2022 requires more frequent safety assessments while eliminating the ability of associations to waive or partially fund required reserves. The law was a response to the Champlain Towers South collapse that killed 98 people a year earlier.

Roy Lemus, a loan officer and real estate broker at Sterling One Realty in Miami, said on Tuesday that increases in costs of commercial insurance policies that associations must buy to cover roofs, buildings, and other common areas, have also pushed HOA fees higher.

Despite the lower prices of many condos, bank financing can be more difficult to obtain for condos than single-family homes, the report said, because lenders require borrowers to have enough money to cover HOA dues. Lenders, adhering to requirements of federal loan guarantors Fannie Mae and Freddie Mac, must also verify whether condo associations have sufficient reserves before approving mortgages, it added.

Fannie Mae maintains a blacklist of condo properties it will not back, forcing buyers to find alternative financing, the South Florida Sun Sentinel reported in November.

Lemus said that tougher lending rules “in my opinion is the biggest obstacle” and the leading cause of why more condos are languishing on the market in Florida.

Lenders require a 25% down payment to buy a condo if the association doesn’t maintain a proper reserve or carry recommended amounts of “master” insurance, Lemus said. Most condos in South Florida fall into this category, he said. Finding one that can be purchased with 10% down “is like finding a needle in a haystack,” he said.

“If a unit is priced at $350,000, you will need close to $100,000 to close the deal with closing costs,” Lemus said. “I really feel that if we create better loan programs with low down payments, that would overcome the cost of higher HOA fees.”

Ryan Paton, a Coconut Creek-based mortgage broker who specializes in condos, pushed back against the report’s assertions.

High insurance costs and HOA fees “are definitely an issue for some condos in Florida,” Paton said on Tuesday, “Some of them are in big trouble.”

But he added, “It needs to be said that the condos that chose to be run properly, before the insurance crisis, are in a much better position and are doing fine through the insurance crisis in South Florida and (their owners) are not in panic mode or seeing values drop and inventory increase.”

South Florida condo prices, he said, increased more than in most markets during the pandemic “because so many people wanted to live here.”

The price increases achieved during the pandemic couldn’t be maintained, he said. “I just think we were so far ahead of the curve, and now we are taking a breather. (They’re) not declining because people can’t or won’t want to pay the HOA or high insurance costs in Florida.”

Interest rates, he added, have fallen “substantially” since Christmas. Purchase applications picked up over 75% compared to the previous month.

“So as rates keep improving, more people are getting back into the game and our numbers will continue to improve in South Florida,” Paton said.

© 2024 South Florida Sun-Sentinel. Distributed by Tribune Content Agency, LLC.