Insurance Premium Hikes Strike Condo Associations

Insurance costs are exploding for condo associations across the U.S., raising the cost of homeownership and making it harder for some owners to sell their units.

Source: WSJ | Published on June 17, 2024

High insurance costs for condo associations

Board members of the Highland Park Community Association in Mission Viejo, Calif., braced last year for a rise in insurance costs.

Yet they were still shocked to receive a quote for over $170,000, which was more than four times what the association paid in 2022. Another 12 insurers declined to offer quotes, because wildfire risk has made insurers less willing to do business in California.

The new policy provides up to $70.9 million in property coverage to this community of 208 townhomes and condominiums. But in the case of wildfire damage, the maximum coverage would be $2 million, said Mark Speros, the board’s president.

“It was like a bombshell,” he said.

The board raised residents’ dues by 20%, the most the association allows per year, to $474 a month. “This is not the direction any of us wanted to go, but there is simply no choice,” Speros wrote to homeowners.

Insurance costs are exploding for condo associations across the U.S., raising the cost of homeownership and making it harder for some owners to sell their units.

Major losses from years of expensive natural disasters and higher rebuilding costs have pushed up property insurance prices for residential and commercial buildings in the U.S. At the same time, many condos are aging and have deferred maintenance, making insurers wary of the potential for water-pipe leaks and other damage, insurance brokers say.

The increase in insurance premiums is a major factor behind rising condo association fees. Condo dues rose 20% between 2022 and 2024, according to an analysis of 1,800 associations in 44 states by real-estate tech company Rexera.

The rise in these costs is squeezing homeowners when home-buying affordability already hovers around its lowest level since the 1980s. Property taxes and home-maintenance costs are also climbing in much of the country.

In a 2023 survey of community associations, 91% said their insurance premium increased at the last renewal. More than half of communities surveyed paid for the increase by raising annual dues or imposing a special assessment, according to the Foundation for Community Association Research. Another 43% paid for the increase out of operating funds, and 2% took out a line of credit.

If homeowners fall behind on condo association fees and are unable to pay, associations in some cases can foreclose on homes to recoup the payments.

Some condo owners are looking to move rather than absorb higher fees. Mindy and John Dunbar, who are retired and live in a community of duplexes in Aurora, Colo., are paying $399 a month to their homeowner association, but they expect the cost to keep rising because of higher insurance premiums and maintenance needs. They plan to list their home for sale soon and rent instead.

Condos and townhomes are often a starting point for homeownership. They are typically cheaper than single-family homes, which also appeals to retirees on fixed incomes. But higher monthly fees, alongside home prices that have climbed almost 50% since the end of 2019 and mortgage rates around 7%, are making these units less affordable for home buyers.

Many of the hardest-hit communities are in California and in Florida, where a new state law requiring older buildings to meet structural safety standards is also pushing up condo owners’ expenses.

https://www.wsj.com/personal-finance/big-jump-in-insurance-costs-strikes-condos-617c102a?mod=hp_lead_pos5