It wasn’t easy it’s time to sell a condoand new financing rules that will come into force by early 2027 could make the situation even more complex.
Fannie Mae and Freddie Mac, the mortgage giants that back about 70 percent of the mortgage market, are tightening their standards for acceptable condo financing. “Limited reviews” that allowed many highly qualified buyers to obtain a mortgage after a quick review of a condominium’s financial and structural health were eliminated last month, in favor of more in-depth reviews for all but the smallest buildings. And starting in January, Fannie and Freddie will require condo associations to allocate at least 15% of their assessment revenue to their reserves, up from 10% today.
The financing changes are part of an ongoing effort to improve condo safety following the deadly collapse of an aging building in Surfside, Fla., in 2021. But they also represent a new hurdle in a market that has already seen falling prices, increasing supply and increased buyer skepticism toward special contributions and monthly fees.
“A well-managed, established HOA with solid reserves, acceptable finances, no major items like maintenance or litigation… should always be fine,” said Michael Belfor, mortgage banker and branch manager at American Pacific Mortgage in California. “But it absolutely creates more opportunity for failure.”
Learn more: How to choose between a condo and a house
Market struggles
Condominiums have historically lagged the single-family home market, with prices falling faster and rising more slowly due to their smaller buyer base. The gap has only widened in recent years as housing affordability has deteriorated and buyers have begun to shy away from association fees that can add hundreds or even thousands of dollars a month to a mortgage payment.
To make matters worse, many condominium associations have had to aggressively raise monthly fees or levy hefty special assessments to comply with state regulations governing deferred maintenance and reserve financing.
The result? Nationally, condo prices fell 2% from prices peaking a few years earlier, according to Zillow data. And in some parts of the country, notably Florida, the decline was much steeper. Prices in Punta Gorda, Florida, fell 35% from their September 2022 peak, while Tampa saw a 24% drop. Elsewhere, the median condo price in Austin, Texas, is down 28%, while prices in Denver and Raleigh are down more than 16%.
Buyer demand remains weak. Condominium sales fell 2.7% in August from a year earlier, according to data from the National Association of Realtors. Single-family home sales saw a more modest decline of 1.1%. Nationally, months on supply for condominiums – a real estate industry measure of how long it would take to clear all inventory at the current sales rate – is at a buyer-friendly 6.6 months, while single-family homes are at a more balanced 4.7 months.
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