Condominiums have been a great market for buyers of all ages, whether older or younger, because they have always been priced affordably. Everything changed when Champlain Tower in Surfside, Florida, tragically collapsed not that long ago. After the disaster in Surfside, Fannie Mae and Freddie Mac changed the rules nationwide for condominiums. For years, the HOA’s have been only required to hold 10% reserves for major repairs and upkeep for the units.
Now here lies the largest problem with this new law change. With this large increase in the required reserves, many condos’ HOAs will not meet these parameters; thus, they will be considered unloanable because of the “high-risk nature” of the inevitable repairs that will be needed over time without the funds to do them.
This is huge for the real estate world, as this changes how approachable condos will be for the unknown future. Being a huge backbone of first-time homebuyers, it will ultimately make the already huge housing crisis significantly harder to deal with as these will most likely be only cash deals if they are considered unloanable. This new law is absolutely something that has been needed to occur in the United States, as condos have had a reputation for ignoring important upkeep because of the cost. Yet, this is also cornering the already largely unaffordable market even more for most of the young adults in America.
With large hikes in the interest rates for mortgages and the almost insane valuation of homes past the hundreds of thousands in the matter of three to five years. This market has made purchasing a home very difficult for those who can only afford in the 100s of thousands, not two or three hundreds. A large majority of condominiums have been that solution for that group of buyers for some time now.
As of right now, a large majority of HOA’s are still not meeting these new requirements and are prolonging the fact that they simply don’t have the money for the 5% increase in their reserves. These rules will go into full effect this January of 2027, which makes right now the time to sell condos before the large majority of the market will be unable to purchase them.
This is just another factor that real estate will have to adapt to and change our ways in order to make these go smoothly in the future. So take the time to think about if this is the right time for you to up-size or to purchase and hunker down until these equalize again.