While there is no doubt that the Florida housing market has slowed since the height of the post-pandemic homebuying boom, the state’s condominium market has been especially hard hit, according to local agents.
“It has definitely slowed,” said Cyndee Haydon, a Seminole-based agent for Future Home Realty. “Inventory has gone from a three-month supply a year ago to at least six months, so really we are into a buyers’ market now.”
Data from Altos Research supports Haydon’s assertion. In the Tampa Bay metro area — which Seminole is a part of — the 90-day average Market Action Index score for the condo market as of July 19 was 31.59. Altos considers anything above 30 to be indicative of a seller’s market.
Additionally, condo inventory jumped from a 90-day average of 2,926 units a year ago to 5,623 units in mid-July 2024, according to Altos Research.
Haydon said the additional inventory combined with cooler market conditions has resulted in properties sitting on the market for much longer. Altos’ data shows that the 90-day median time on market jumped from 49 days a year ago to 70 days as of mid-July.
While it may be easy to attribute the slower market conditions to the state’s well-publicized insurance issues, local agents say there is a perfect storm of factors.
“It is actually collision of the condo safety act and increased insurance prices,” said Dyan Pithers, co-team leader of the Coldwell Banker Realty-brokered The Pithers Group.
“What is happening with condos is that we have the condo safety act that was implemented, and the milestone inspections, and then the reserve fundings that are going to be required,“ Pithers added. “And for a long time, these buildings have been transient — full of either snowbirds or retirees, so the condo boards are made up of either absentee owners or people on a fixed income.
“This means that a lot of times, over the years, when discussions of partially funding reserves or doing repairs comes up, there is a tendency to keep those fees low and not fund the reserves, or do the repairs because owners don’t want an increase in their monthly fees.”
Surfside response
The Florida Legislature passed the Condo Safety Act in late 2022 in response to the Surfside condominium collapse of June 2021. The act allows condo associations to levy special assessments on unit owners in addition to their regular monthly homeowners association dues. In light of the Surfside tragedy, all condos in Florida must now undergo a “milestone inspection” if they are 30 years old, or 25 years old if they are within three miles of the coast.
Additionally, the law states that condos can no longer waive funding reserves for building components that are deemed critical to structural soundness. At many complexes, which have undergone milestone inspections this year, this means that owners in condo complexes like the ones referenced by Pithers will have to potentially contribute hundreds of thousands of dollars after years of not contributing to the building’s reserves, which was previously allowed under state law.
“Now that those inspections are being forced and that they have to be fully funded by certain dates, those numbers on condo maintenance have increased so much — sometimes double, even triple — which has made affordability challenging,” Pithers said.
As the reality sinks in of what these special assessments mean for owners and prospective buyers, local agents say they have certainly had an impact on the state’s condo market.
“When you put that together with increasing insurance costs, the condo market is not nearly as affordable, and for the investors in the market, the return on investment just isn’t there,” Pithers said.
While she hasn’t seen widespread instances of declines in sale prices or property values, Pithers noted that in one community — where owners are facing a special assessment of up to $60,000 per unit unless management can get some of it financed — there has been a slight drop.
“In that particular complex, we are seeing a little bit of a drop in value because a larger group of people are saying, ‘I don’t think I can afford this. I need to get out,’” Pithers said. “And when you start to see a build in inventory, then your absorption is less, so you have no other lever to pull than to reduce prices.”
But agents say it isn’t all bad news for condo associations and owners.
“The condos that may have been more financially responsible or proactive with repairs, those are the ones people really feel comfortable purchasing at a time when many feel like the risk might not be worth it,” Haydon said. “I am anticipating that the biggest challenges in the future are going to lie with the older condo stock as many people already only want to look at newer complexes.”
Insurance hurdles
As both Haydon and Pithers noted, the milestone and special assessments, as well as the need to fund reserves, aren’t the only things taking a bite out of owners’ monthly budgets. Insurance is still a major hurdle for many.
“Even here at the Ritz-Carlton Residence in South Florida, where the building is only a few years old, our board looked at line items and general property insurance was the biggest line item on expenses,” said Darin Tansey, a board member at the Ritz Carlton Residences and a local Douglas Elliman agent.
While condo complexes have their own master insurance policies, some of the cost of these policies is passed to owners through monthly HOA fees. Meanwhile, measures that some complexes are taking to decrease their insurance costs are forcing unit owners to insure more of the property on their own.
Despite the recent news headlines, insurance industry experts say there is a lot to be positive about in the Florida residential insurance market.
“The Florida insurance industry is in its best financial position in nearly a decade,“ said Mark Friedlander, director of corporate communications at the Insurance Information Institute. “One of the big positives we are seeing is that all Florida residential insurers have adequate reinsurance coverage, which ensures they will not deplete their reserves to pay storm claims, which is essential because, in past years, there were concerns about that.”
Friedlander also noted that the insurance market has stabilized, with actual insurance premiums for the year coming in at roughly 80% less than his organization had estimated.
Although the news is positive, Friedlander said things do not look as good for master insurance plans.
“Since the Surfside collapse, we have seen a lot of instability in the master condo market,” Friedlander said. “No. 1 is fewer companies writing the coverage, and those that are have much tighter underwriting standards. This means more scrutiny for the older structures, especially those that are oceanside like Surfside was.
“As a result, condo owners are paying the price in increased fees because we’ve been seeing master plans running 100% to 500% more a year.”
But John Lee, the vice president of insurance firm FirstService Financial, said that things aren’t all terrible for those in the market for a master insurance plan.
“Things have gotten a little bit better this year, but it is a very low bar because the pricing increases over the past several years were so drastic,” Lee said. “Then those milestone inspections are forcing associations to do work that makes their complexes more attractive as an insured risk. So, right now, a lot of them are asking how to lower their insurance costs, and one answer is to make the repairs discovered in the milestone inspection.”
Mortgage implications
Despite any small improvements in costs, most condo associations are still looking for ways to cut down and manage insurance costs.
According to insurance industry professionals, some condo complexes have done things like raising their deductible, which not only transfers more of the financial risk to the unit owners but, in some instances, higher deductibles can put the community out of compliance with conventional lending rules, making it impossible for prospective buyers to get a mortgage backed by Fannie Mae or Freddie Mac.
“The new per-unit deductible requirements that they have are our biggest hurdle recently,” said Patty Brown, senior vice president of underwriting at Atlantic Bay Mortgage Group.
“If they have those per-unit deductibles on the policy, if it is over 5%, then we can’t lend on the property because we can’t meet their exceptions. The exceptions do say that the borrower can purchase an H06 policy for the above and beyond to help cover that deductible, but those policies are for geographical peril, so that wouldn’t cover something like water damage from a sprinkler leakage.”
Lee added that in addition to potentially limiting the pool of prospective buyers, condo associations and managers need to remember that by raising their deductibles, they are assuming more risk for themselves.
“Raising the deductible is an option, and yes, it may save you on your insurance premium, but there is an element of self-insurance there too,” Lee said. “If you are raising the deductible, you are raising your out-of-pocket exposure. Even if you move from a 3% to a 5% deductible, on a property that is worth millions of dollars, that is millions of dollars in additional exposure for you.”
Although the Insurance Information Institute has not done research into complexes that opt for a higher deductible, Friedlander said they have seen similar issues with insurance caps.
“With some of the big hurricanes or in Surfside, customers realized that they have insurance caps on their master plan, so the association didn’t cover everything, and then the burden falls on the individual condo owner to make up for that coverage, meaning that they need to buy more coverage than normal,” Friedlander said.
As current owners and prospective buyers seek to navigate these challenges, lenders and agents say they are ready and willing to assist consumers.
“It can be a good time for some people to buy into the market right now,” Pithers said. “But as an industry professional, I have to protect my client by doing things like requesting 12 months of board minutes, making sure I look over the milestone inspection report and the reserve studies, talking to board members and even other agents in the community to make sure there is nothing missing from disclosures.
“But people need to remember that right now, condos are a risky investment, especially with these milestone assessments coming up for many of them.”
