Insurers Dropping HOAs: A Looming Threat to the Condo Market

The condominium market in Florida is facing a significant threat as insurance companies are increasingly dropping homeowners associations (HOAs) from their coverage, leaving condo owners vulnerable and the market in a state of uncertainty. This trend, driven by rising natural disaster risks and insurance costs, is contributing to a decline in condo sales and prices in major Florida metros.

The increasing intensity of natural disasters and rising insurance costs have significantly impacted the affordability of condo ownership in Florida. According to the provided materials, the average cost of homeowners insurance across Florida increased by about 40% in 2023 alone, making it the most expensive state in the U.S. to insure a home. This increase, coupled with the rising intensity of hurricanes and other natural disasters, has led to a decrease in condo sales and an increase in new listings in major Florida metros. For instance, in the Jacksonville metro, the median condo price declined roughly 7% year over year in January, sales declined 27%, and new listings increased 32%. Similarly, in Miami, condo prices fell 3%, sales dropped 9%, and new listings rose 27%. These trends indicate that the rising cost of insurance and other expenses are making condo ownership less affordable and attractive to buyers in Florida.

The primary factors contributing to the decline in condo sales and prices in major Florida metros are:

1. Increasing Natural Disasters and Insurance Costs: The increasing intensity of natural disasters, particularly hurricanes, has pushed up home insurance costs in Florida. This is a significant factor driving down condo sales and prices, as insurance costs are a substantial burden for condo owners. According to reports, the average cost of homeowners insurance across Florida increased by about 40% in 2023 alone.
2. Rising HOA Fees: In the wake of the 2021 Surfside condo collapse, new condo regulations have been implemented, requiring HOAs to regularly assess the safety of condo buildings. This has led to an increase in HOA fees, further adding to the financial burden of condo ownership. Redfin agents report that condo owners are facing shocking increases in maintenance fees, with some fees doubling or even tripling.
3. Mortgage Challenges: In some situations, it's more difficult to obtain a condo mortgage than a single-family home mortgage, even though condos are often considered a more affordable option. Lenders require borrowers to have enough money to cover HOA dues and also consider the financial health of the condo building before writing a loan. This can make it more challenging for potential buyers to secure financing for condo purchases.

These factors are not as prevalent in the national trends, where condo prices are rising, sales are holding steady, and new listings are increasing at a much slower rate. For instance, in the U.S. as a whole, condo prices are rising, sales are holding steady, and new listings are increasing at a much slower rate compared to Florida.

The rising cost of insurance and HOA expenses are making condo ownership less attractive, leading to a decrease in demand and sales. According to a report by Redfin, condo sales in Florida are slow due to the increased cost of buying and owning a condo. The average cost of homeowners insurance across Florida increased by about 40% in 2023 alone, and HOA fees are multiplying for many condo buildings. This is causing buyers to rethink their plans and pushing prices down, despite condo prices still being much higher than before the pandemic.

In conclusion, the increasing intensity of natural disasters and rising insurance costs, coupled with rising HOA fees and mortgage challenges, are threatening the condo market in Florida. As insurance companies continue to drop HOAs from their coverage, condo owners face increased financial burdens and uncertainty, contributing to a decline in sales and prices in major Florida metros. Investors and potential buyers should be aware of these trends and consider the implications for the condo market in Florida.