Rising insurance costs are impacting condo affordability and forcing some owners to sell their units. The rising cost of insurance is driving up condo fees, making some properties too expensive for their owners to hold on to them.
Rapidly Rising Insurance Costs Pressuring Condo Associations
Rapidly increasing insurance premiums are putting pressure on community associations and their members. In a 2023 survey of condo associations, 91% said that their insurance premiums increased at the last renewal. The increase in insurance premiums is a major factor behind rising condo association fees. Condo dues rose 20% between 2022 and 2024, according to an analysis of 1,800 associations in 44 states by real-estate tech company Rexera.
The rise in these costs is squeezing homeowners when home-buying affordability already hovers around its lowest level since the 1980s. Property taxes and home-maintenance costs are also climbing in much of the country.
Condo Associations’ Response to Rising Insurance Costs
Many condo associations have responded by passing the rising insurance costs on to homeowners through increased dues or special assessments. This financial strain is leading some homeowners to consider moving rather than absorb the higher fees, which is understandable given the added financial burden.
For associations, the options mentioned—such as raising dues, using operating funds, or even taking out a line of credit—show the lengths they are going to manage these increased costs. However, the increased fees due to rising insurance costs are not easily absorbed by individual homeowners. When too many homeowners fall behind in their condo fee payments, the condo association may have to consider foreclosures in order to recoup the lost fees. At a minimum it may put a lien on the condo in order to ensure that the fees will be repaid if the owner sells the property. For individual homeowners, especially those already struggling with payments, the prospect of foreclosure due to unpaid fees adds another layer of concern.
Insurance is Not the Only Increasing Cost
The challenges facing condo and townhome owners, as outlined, highlight several significant issues impacting affordability in these communities:
- Rising Monthly Fees: Increased insurance premiums and other operational costs are leading to higher monthly fees for condo and townhome owners. This can make these properties less attractive or affordable, especially for first-time buyers and retirees on fixed incomes who are often drawn to these housing options due to lower initial purchase prices.
- Rapidly Increasing Home Prices: The sharp rise in home prices, nearly 50% since the end of 2019, further exacerbates affordability concerns. This trend not only affects prospective buyers but also puts recent homeowners under financial strain, potentially limiting their ability to absorb additional costs like higher monthly fees. Many buyers have turned to condos recently because the purchase price is more affordable than a single family home, but buyers need to look carefully at the actual costs of homeownership – the mortgage, taxes, insurance and condo fees.
- Impact of Mortgage Rates: Mortgage rates around 7% add another layer of financial pressure, making borrowing more expensive and potentially deterring buyers who rely on financing to purchase homes.
- State Regulations and Compliance Costs: Specific state laws, such as those in California and Florida requiring older buildings to meet new structural safety standards, are imposing additional expenses on condo owners. Compliance with these regulations can lead to significant costs that are passed down to homeowners through increased fees or assessments.
Thinking of Selling Because That Condo Has Gotten Too Expensive?
Given these challenges, it’s understandable that some condo owners may consider selling and moving to more affordable housing options or locations. For those looking to stay, it could be beneficial to explore options such as renegotiating insurance policies, advocating for more flexible payment plans from associations, or seeking out financial assistance programs if available.
Navigating these financial pressures requires careful consideration of individual circumstances and proactive communication with community associations and financial advisors. Are you or someone you know currently dealing with these issues firsthand, or are you seeking more information on how to manage these challenges effectively? If you are having problems with your condo association in the DC Metro area, I would love to talk with you. I can be reached at 240-401-5577 or by email at lise@lisehowe.com.
As a Buyer, Should You Look at Condos or Skip Them Entirely?
With the price of homes going up so quickly and mortgage rates staying high, it is hard to find a “bargain” in this market. Many first time home buyers are considering condos since they can’t afford a single family home with high prices and 7 percent mortgages. Still, condos tend to be less expensive than a single family home and less expensive than most townhomes. That makes them appealing to the first time home buyer.
However, there are a few expenses that a first time home buyer needs to be aware of. That condo mortgage is going to be a 1/4 percent higher than for a single family home. In addition, condos in some condo communities are difficult to finance if there are too many absentee homeowners. Finally, the condo fees typically go up rather than coming down.
When you ratify your contract, the seller in the DC metro area is obligated by law to give you the condo documents to review. These documents should include information about the organizational structure of the condo community, the by-laws and rules and regulations, the budget for the next year or two, financial reserves and any planned special assessments that might be scheduled. It is very important that you take the time to review these documents and make sure that the condo is financially stable and that it has adequate reserves for the size of the community and its amenities. Understand when the last time the fees were raised. What does the master insurance policy cover. Find out if there are any ticking time bombs in those condo documents. In most cases, the association is in good financial condition and you can understand and live with the rules and regulations – but it is up to you to make sure.
Condos are a great option for a first time home buyer with limited funds – as long as you do your due diligence and make good decisions. If you have questions about buying a condo in this market, let’s talk! You can reach me at 240-401-5577 or email me at lise@lisehowe.com.
