In 2021, many of us were shocked by the tragic collapse of a condo building in Surfside, Florida, which resulted in the loss of nearly 100 lives. While I recall hearing about it in the news, the story seemed to fade quickly from the mainstream media. Recently, as I was reading an article on why condos aren’t appreciating as well as single-family homes, this tragedy came back to my attention, and it highlighted a broader issue in the condominium market that’s been affecting property values across the country. Let’s dive into what’s going on and why the condo market is lagging behind.
The Numbers Behind Condo Sales
An article on Realtor.com caught my attention. It discussed how, despite condos often being a more affordable option compared to single-family homes, sales have been declining. In July 2024, condo sales were down 12% year-over-year nationwide, while single-family home sales dropped only by 1%.
This trend isn’t limited to Florida or the Surfside tragedy. It’s happening all over the country. Over the past year, condo sales were down 17% in the Midwest, 15% in the South, and 11% in the West. Interestingly, sales in the Northeast remained flat. Dr. Yun, an economist at the National Association of Realtors (NAR), noted that condo inventory reached its highest level in four years by July, with supply outpacing demand.
The Pricing Gap: Condos vs. Single-Family Homes
You might think that condos, which are often cheaper than single-family homes, would still be appealing to buyers. In July 2024, the median price for a condo was $392,500, while single-family homes were at $449,900. That’s roughly a 10% difference in price. However, it’s not just the purchase price that matters.
Condo owners face significant additional costs, including high HOA fees and insurance premiums. These fees are rising, making condos less affordable than they initially appear. The average monthly homeowner’s association (HOA) fee for condos listed on Realtor.com is around $650 a month. And that’s before you consider potential special assessments for things like deferred maintenance, which are becoming more common as many condo buildings, built in the 70s and 80s, are now over 40 years old and in need of serious repairs.
The Impact of Rising Costs
Rising HOA fees are discouraging buyers from considering condos as an alternative to single-family homes. Even though the square footage price of a condo might seem cheaper in urban areas (around $500 per square foot), the combination of fees makes the overall monthly cost much higher. For instance, if you have a $3,000 mortgage payment, but also need to pay $650 in HOA fees, that $650 isn’t going toward your equity like a mortgage payment would. It’s just an additional cost that keeps going up.
And when those fees rise due to necessary maintenance or updated regulations (like the one passed in Florida after the Surfside tragedy, which increased reserve fund requirements), they can add hundreds of dollars to your monthly expenses for years. This is a huge factor behind why many condos, especially those in older buildings, are sitting on the market for longer than expected.
The Tragic Lesson from Surfside
In 2021, the Champlain Towers South in Surfside, Florida, collapsed due to deferred maintenance issues, tragically claiming 88 lives. The building, constructed in 1981, had reports of water leaks and structural damage as early as 2017, but repairs were delayed due to a lack of funds. This highlighted the risks of letting maintenance issues go unfixed and led to new regulations in Florida, making it harder for condo associations to delay necessary repairs. However, these regulations have also resulted in higher costs for condo owners as associations now have to maintain larger reserves for repairs, leading to more frequent special assessments and rising HOA fees.
Why Condo Markets Are Struggling
So, what’s really behind the struggling condo market? Here’s my take on a few key reasons that the article didn’t touch on:
- The Pandemic Effect: During the pandemic, many people felt unsafe living in shared spaces like condo buildings. The need for more space (for home offices, for example) led many condo owners to move out and buy single-family homes. The demand for single-family homes surged, while condos became less desirable.
- Downtown Degradation: In some areas, particularly urban centers, the surrounding neighborhoods have become less safe or less desirable, affecting the appeal of condos in those areas. I’ve had listings in downtown areas where crime and safety concerns made it difficult to sell.
- Rising Insurance and Maintenance Costs: As insurance premiums and maintenance costs continue to rise, condos are becoming more expensive to maintain. Buildings over 40 years old require substantial repairs, and many condo associations simply don’t have the funds to cover these costs without raising fees.
- HOA Management Issues: From my experience, many HOAs are not well-managed, often prioritizing keeping fees low at the expense of maintaining healthy reserves. When this happens, condo owners are hit with sudden special assessments, further increasing their costs.
My Final Thoughts
While condos can still be a better option than renting for some, especially if you can find one with reasonable fees, they are struggling to keep up with single-family homes in terms of appreciation. The combination of high HOA fees, rising insurance costs, and aging buildings makes them a less attractive option for many buyers.
If you’re considering buying or selling a condo, especially in areas like the Portland Metro, feel free to reach out to me. There are still opportunities in the condo market, but it’s essential to understand the full picture before making a decision.
If you’re in the Portland, Oregon market and considering selling your home, feel free to reach out. I’m here to help and happy to guide you through the process.
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Disclaimer: The content in any of Shawn Yu (Shawn Realty) Youtube videos or this website shall not be construed as tax, legal, insurance, construction, engineering, health & safety, electrical, financial advice, or other & may be outdated or inaccurate. Shawn Yu/Shawn Realty is a licensed principal real estate broker/brokerage doing business in Oregon. To contact Shawn Realty for selling, buying investing in Oregon, please email shawn@shawn-realty.com or call 503-515-4499.
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