Condo sales prices are dropping, but new rules may complicate affordability

By Samantha Delouya, CNN

(CNN) — In a housing market where affordability is increasingly out of reach for many buyers, Vic Bulbon is looking at a type of property that’s becoming less expensive: condominiums.

With national home prices near record highs and mortgage rates topping 7% in recent weeks, buying a home remains out of reach for many Americans. Condos appear to offer a rare bright spot, with prices falling across the country.

But even with cheaper sales prices, rising homeowners’ association (HOA) fees and one-time special assessments are driving up ownership costs.

Now, guidelines released this year by Fannie Mae and Freddie Mac, the government-sponsored agencies that back nearly half of all US home purchases, aim to reduce the financial and structural risks of condo buildings. Real estate agents told CNN that the changes could add pressure to the condo market by further driving up HOA fees, increasing the total monthly bill for condo owners, and potentially eroding the savings of a lower purchase price.

As of mid-October, condo sales prices lagged behind single-family home prices in 99 of the 100 largest markets in the United States, according to data from financial services company Intercontinental Exchange provided to CNN. Nationally, single-family home prices rose 1.5% from a year earlier, while condo prices fell 1.1%.

Bulbon lives in Seattle, which saw the steepest decline in condo prices of any of the 100 markets: Prices dropped nearly 7% over the past year, according to Intercontinental Exchange. In more than a quarter of the markets, condo prices fell at least 3% from a year earlier.

“Condos tend to underperform in a softer market because they are often the entry point to ownership, where demand reacts first to higher rates and prices, and new condo supply can be added quickly where construction has been heavy,” said Andy Walden, head of mortgage and housing market research at Intercontinental Exchange.

Bulbon, who is blind, said he would only consider a condo at this point in his life because having neighbors and building amenities feels safer than being on his own in a single-family home. But he said he’s aware that buying right now could be a financial risk.

“If I get a condo, I’m gambling that it doesn’t go much lower,” Bulbon said of condo prices. “I don’t know if it’s a safe bet or not.”

New condo rules could drive up ownership costs

The reckoning in the US condo market intensified after the 2021 collapse of a building in Surfside, Florida, which killed 98 people.

Investigations revealed that the aging building needed major repairs but lacked the reserve funds to pay for them.

Florida implemented new safety rules that triggered special assessments, extra, mandated fees charged to condo owners. That impacted condo prices and inventory statewide.

“Certainly the condo market is in trouble and has been for a while in Florida,” said Sharon Ross, a real estate agent based in South Florida. “HOA boards were not really wanting to pay attention to safety regulations, and suddenly they all had to get on board with it.”

Buying a condo is fundamentally different from buying a single-family home. With a single-family home, a person generally owns both the house and the land beneath it. With a condo, a person owns an individual unit and a shared interest in common areas, such as hallways, elevators and amenities. That difference also affects who pays when something breaks. A single-family homeowner is typically responsible for their own repairs, while condo owners share the cost of maintaining common areas through their HOA.

The new Fannie Mae and Freddie Mac rules, which take effect in January 2027, require condo associations to keep larger reserves for their buildings for new buyers to qualify for Fannie- and Freddie-backed mortgages. The goal is to ensure HOAs have more money set aside for major repairs and maintenance.

But the changes could also force associations to raise monthly fees, adding to the cost of condo ownership. This could particularly impact buildings that have historically had low HOA fees.

“Requiring certain levels of insurance and higher levels of reserves is effectively increasing the cost of getting into an ownership situation with a condominium – but you’re also increasing costs for existing owners,” said Andrea Boyack, a law professor at the University of Missouri who has researched the legal structure of condos.

“People’s pockets are already empty right now anyway. Affordability is completely out of control and on top of that, we’re going to increase people’s housing prices. I’m not sure some people can come up with that money,” Boyack added.

Many condo owners who face the prospect of such large repair bills or higher HOA fees are motivated to sell their condos, even if they don’t earn money from the sale, real estate agents in multiple cities across the United States said.

“As a condo owner, you cannot stand your homeowners’ dues doubling or tripling. People don’t like it,” said Brock Harris, a real estate agent in Los Angeles. The city is home to many aging condo buildings; many will eventually need structural repairs.

“And when special assessments come due, buildings are asking owners to pony up $25,000, $30,000, or they will foreclose on you,” Harris added.

Bulbon, who is shopping for a condo in Seattle, hopes to find a one-bedroom unit between $300,000 to $400,000, with help from his parents to finance the purchase. He said some of the HOA fees he’s seen are “eye-watering,” but he sees both benefits and drawbacks to condo ownership.

“If you own the land, it’s always good. With condos, you’re at the whims of a lot of things: the quality of the building itself, the city’s housing laws and the city’s economy in general,” Bulbon said. “But at the same time, condos are probably easier to rent out than houses if I need to move at some point.”

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