Condo sales lag behind single-family homes amid rising costs

The condo market is experiencing a significant downturn, surprising many homebuyers who often view condominiums as a more affordable alternative to single-family houses. In July, condo sales fell 12% nationwide from the previous year, compared to a 1% decline for single-family homes, according to data from the National Association of Realtors® (NAR).

This trend is not confined to Florida, where condos are prevalent but affected by rising insurance premiums and new laws increasing assessment fees. Over the past year through July, condo sales dropped 17% in the Midwest, 15% in the South, and 11% in the West. Sales in the Northeast remained flat.

“The condominium market appears to be softer than single-family, and it doesn’t appear to be specifically related to the Florida market,” said NAR Chief Economist Lawrence Yun during a recent call with journalists. Yun noted inconsistent trends within Florida itself, with some areas like Fort Myers seeing an increase in condo sales while others like Daytona Beach experienced declines.

Nationally, the share of active listings composed of condos has increased each month since May 2023. In July, condos made up 21.2% of active listings compared to 19.5% one year earlier and 17.0% in July 2019.

“Condo inventory reached its highest level in four years in July as supply outpaced demand,” said Realtor.com senior economic research analyst Hannah Jones.

Despite home prices nearing record highs, making condos seem like a more affordable option with lower entry barriers, Jones pointed out that condos are often located in high-priced urban areas. This results in higher pricing per square foot for condos compared to single-family homes.

Although the price-per-square-foot premium for condos has decreased from nearly 60% in early 2021 to 35.8% in July, it remains significant. The median list price for condos was $296 per square foot versus $218 for single-family homes that month.

“Still-high mortgage rates and home prices seem to have taken a bigger toll on the condo market than the single-family market as buyers look for more bang for their buck,” Jones explained. Consequently, condos are spending more time on the market than single-family homes.

In July, condos spent an average of eight more days on the market than single-family homes—58 days compared to 50 days one year prior. Condo prices have also fallen annually each month since November 2023. Although still higher than pre-pandemic levels by 30.9%, condo list prices were down 5.4% from a year earlier compared with a slight gain of 0.2% for single-family homes.

Nick Irwin, a broker at Onward Real Estate in Nashville, TN remarked that "the single-family is going to appreciate more and quicker from an investment standpoint." He added that many people find themselves unable to sell their properties as quickly as they could if they were single-family homes.

Rising homeowners association (HOA) fees further discourage potential condo buyers. Nationwide, average monthly HOA fees for listed condos on Realtor.com stand at $650.

"Property values have risen substantially over the last five years, as have association fees," said Patrick Wraight, director at Insurance Journal's Academy of Insurance. Maintenance issues are also raising costs outside Florida due to aging buildings requiring extensive upkeep.

In response to maintenance issues highlighted by incidents such as the partial collapse of Champlain Towers South building in Surfside, FL—which killed 98 people—Florida enacted laws raising reserve fund requirements for condos leading to special assessments and increased fees.

Across various states, property insurers have paid out more claims than collected premiums recently due partly to climate-related disasters resulting in higher insurance costs passed onto condo owners through increased HOA fees covering property insurance and liability costs.

"We are seeing anything that has any kind of significant HOA fee really sitting on the market," Irwin observed regarding Nashville's real estate trends where high HOA fees impact affordability even further amidst already stringent qualifying conditions.

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