Condo prices are falling in major Florida and Texas metros as inventory piles up and buyers back off, according to a new report from Redfin.
This comes as high homeowners’ association (HOA) fees and insurance costs make condos a tough sell.
In Tampa, Fla., for instance, the number of condos for sale in July soared 57.2 percent from a year earlier, pending sales dropped 18.9 percent and the median sale price fell 4.9 percent. In Houston, condo inventory is up 35.9 percent, pending sales are down 35.3 percent and prices are down 6.5 percent. There’s also more supply than demand for single-family homes in Florida and Texas, but the market for them is faring a bit better, and prices are generally increasing, according to Redfin.
Nationwide, condo inventory is increasing and pending sales are falling — though not as much as in Florida and Texas — and prices are still rising.
Redfin said there are several reasons why demand for condos is falling and inventory is piling up in Florida and Texas:
- Surging HOA fees in Florida. A separate Redfin analysis found that HOA dues are up more than 15 percent from last summer in Tampa, Orlando and Fort Lauderdale. They’ve also risen more than the nationwide average in West Palm Beach and Jacksonville. HOA fees are increasing because the Surfside condo collapse led to additional maintenance requirements for condos, and because of rising insurance costs.
- Climate disasters contribute to soaring insurance premiums. Frequent and intense natural disasters in Florida and Texas are also a major factor in skyrocketing insurance costs, which contributes to surging HOA fees in condo buildings as maintenance costs are passed on to unit owners. Some buyers in Florida and Texas struggle to find homeowner coverage at all as insurance companies leave the states. Those rising costs, along with the natural disasters themselves, are scaring off condo buyers and motivating condo owners to sell. Rising insurance costs also impact single-family homes, but condo owners are hit particularly hard because many condo buildings are on the waterfront, where insurance costs are higher. Owners of single-family homes on the waterfront are more likely to have enough money to pay high insurance costs or pay cash to avoid insurance altogether.
- Investors have backed off. Real estate investors are less interested in condos than they used to be; nationwide, investor purchases of condos fell 3 percent year- over-year in the second quarter. Florida Redfin agents are reporting investors aren’t buying condos anymore; instead, those who bought condos to rent them out a few years ago are trying to offload them.
- New construction boom. Texas and Florida are building more new homes, including multifamily buildings, than anywhere else in the country. That includes many new condo buildings, some of which were built in the wake of the Surfside condo collapse, which revealed that many older condo buildings on the Florida coast needed to be replaced. That’s adding to the surge in condo inventory, which is piling up as buyers turn away.
“The condo market isn’t moving,” Steven Weiss, a Redfin Premier agent in Tampa, Fla., said in a release. “Most of today’s buyers want move-in ready single-family homes. It’s much more difficult to sell a condo. Buyers are aware we’re at somewhat of a tipping point for condos, and that their value may continue to decline as HOA fees rise and people grow more wary of buying in a waterfront building.”
Pending sales of condos fell 5.5 percent year-over-year nationwide in July, dropping to the lowest level of any July on record. For the sake of comparison, pending sales of single-family homes were essentially unchanged from a year ago.
The number of condos for sale rose 27.1 percent from a year ago, a major increase but substantially smaller than what Florida and Texas are seeing. The mismatch in supply and demand hasn’t yet pushed down prices nationwide; the median condo-sale price is up 3.9 percent year-over-year.
The downturn in the national condo market is being driven by the downturns in the major Florida and Texas metros discussed above, as well as other Sun Belt metros like Phoenix and Nashville, Tenn.
But Redfin agents in other parts of the country report slow condo markets, too, partly because of rising HOA fees. In San Jose, Calif., for instance, condo inventory is up 50.7 percent year-over-year, and prices are down 3.2 percent. In Denver, pending sales of condos are down 25.4 percent and prices are flat, according to Redfin.