The Condo Market Is Broken: How HOA Fees Killed Buyer Appetite

Condo prices dropped 1.9% over the last year, marking the worst market performance since 2012. More than 10% of condos nationwide are underwater, meaning owners owe more than the units are worth. HOA fees accelerated faster than wages, insurance, or property taxes. The Surfside collapse fallout triggered reserve study requirements that exposed decades of deferred maintenance.

This isn’t a temporary correction. The condo ownership model has a structural problem: collective liability meets individual affordability limits, and when those forces collide, nobody wins.

The 1.9% Decline Understates The Problem

Wall Street Journal data showed condo values fell 1.9% year-over-year, the first sustained decline since the 2012 housing recovery. Single-family homes appreciated 3.8% over the same period. That 5.7 percentage point gap represents $22,800 in lost equity on a $400,000 property.

But average price declines hide geographic severity. Miami condos dropped 8-12% depending on building age and reserve funding status. Chicago lakefront properties fell 6-9%. Boston and Seattle saw 4-7% declines in buildings with significant capital needs.

New construction condos held value better, down only 1-2%, because buyers knew exactly what they were purchasing: modern systems, funded reserves, and no immediate special assessments. Older buildings built in the 1970s-1990s got hammered, down 5-15%, as buyers priced in deferred maintenance risk.

The 10% underwater figure is equally misleading. That’s a national average. In markets with aggressive HOA fee increases and special assessments, 20-25% of owners are underwater. They bought at 2021-2022 peaks, put down 10-20%, and watched values erode while carrying costs accelerated.

These owners can’t sell without bringing cash to closing. They can’t refinance to lower rates because they lack equity. They’re trapped in properties with rising monthly costs and declining values.

HOA Fees: The Hidden Affordability Killer

Median HOA fees nationally reached $350-450 monthly for typical two-bedroom condos. In major metros, fees run $600-900 monthly. Luxury buildings in Miami, New York, and San Francisco charge $1,200-2,500 monthly.

Those fees increased 6-8% annually over the last decade, far outpacing wage growth of 2-3% and general inflation of 2-4% (pre-2021). Since 2021, HOA fee increases accelerated to 10-15% annually as insurance costs, labor expenses, and deferred maintenance bills came due simultaneously.

Here’s the affordability math that breaks buyers: a $400,000 condo with a $700 monthly HOA fee requires the same payment as a $485,000 single-family home with no HOA. At 6.8% mortgage rates, the condo buyer pays $2,640 monthly for principal, interest, taxes, insurance, and HOA fees. The single-family buyer pays $2,590 monthly for PITI with no HOA.

The single-family buyer gets more square footage, private outdoor space, no shared walls, and control over maintenance timing and costs. The condo buyer gets amenities they may not use, shared decision-making with neighbors they don’t know, and exposure to special assessments they can’t predict.

When monthly costs equalize, buyers choose single-family overwhelmingly. Condo sales volume dropped 22% year-over-year while single-family sales declined only 8%. The preference isn’t subtle.

Surfside Changed Everything

The June 2021 Surfside collapse killed 98 people and fundamentally altered condo governance in Florida and beyond. The immediate cause was structural failure from decades of deferred maintenance. The underlying cause was a reserve funding model that let HOA boards kick problems down the road indefinitely.

Florida responded with sweeping legislation requiring reserve studies, mandated funding levels, and structural inspections for buildings over 30 years old. Other states followed with varying requirements. The intent was sound: prevent future tragedies by forcing proactive maintenance.

The unintended consequence: exposing the true cost of condo ownership that buyers and boards had been ignoring for decades.

Reserve studies revealed $50,000-200,000 per unit in deferred maintenance across thousands of buildings. Roofs needed replacement. HVAC systems were past lifecycle. Concrete required remediation. Elevators needed modernization. Plumbing and electrical systems were obsolete.

Boards faced a choice: levy special assessments immediately or increase HOA fees dramatically to fund reserves over 5-10 years. Either option destroyed affordability.

Special assessments of $30,000-80,000 per unit drove many owners into financial distress. They couldn’t pay, couldn’t sell for enough to cover the assessment, and couldn’t refinance without equity. Some buildings saw 15-20% of owners default, forcing remaining owners to cover their share of building costs.

The fee increase path was nearly as painful. Raising HOA fees from $500 to $900 monthly added $4,800 annually to ownership costs. For a household earning $85,000, that’s 5.6% of gross income gone to fees alone before mortgage, taxes, and insurance.

Why The Model Breaks Down

Condo ownership creates collective liability with individual financial constraints. When the building needs a $3 million roof replacement, that cost gets divided across 100 units as $30,000 per owner. Some owners can pay. Some cannot. But the roof serves all 100 units equally.

Single-family homeowners face the same maintenance realities but with critical differences. They control timing of repairs, can defer non-critical work, can choose budget materials, and can DIY portions of projects. They have flexibility.

Condo owners have none of that. When the board votes for a new roof, you pay your assessment regardless of your financial situation, regardless of whether you think the timing is right, regardless of whether you’d prefer cheaper materials. You’re locked into collective decisions.

This works fine when all owners have similar financial capacity and risk tolerance. It breaks when ownership demographics diverge. A building with 40% retirees on fixed incomes, 40% young professionals with high debt-to-income ratios, and 20% investors faces impossible decision-making.

The retirees can’t afford special assessments. The young professionals won’t vote for fee increases that blow their budgets. The investors want to minimize expenses. No coalition exists to fund necessary maintenance adequately.

The result: deferred maintenance until crisis forces action, at which point costs are catastrophically higher than incremental upkeep would have been.

The Investor Calculation That Changed

Investors traditionally loved condos for several reasons: lower purchase prices than single-family homes, minimal exterior maintenance, built-in property management through HOA, and predictable expenses.

That calculation reversed. HOA fees now eat 15-25% of gross rental income. Special assessments can wipe out two years of cash flow in a single bill. Restrictive rental caps and approval processes limit flexibility. Shared decision-making creates management headaches that offset the maintenance convenience.

Run the numbers on a $350,000 condo versus a $450,000 single-family home in the same market:

Condo: $350,000 purchase, $700 HOA fee, $2,100 achievable rent, annual HOA increases of 8%. Net operating income year one: roughly $16,800 after HOA, taxes, insurance. NOI in year five: $11,200 as HOA fees compound.

Single-family: $450,000 purchase, no HOA, $2,400 achievable rent, exterior maintenance of $2,400 annually. Net operating income year one: roughly $19,200. NOI in year five: $20,800 as rents increase and maintenance costs stay flat or grow modestly.

The single-family home costs 28% more to acquire but produces 85% more NOI by year five. It also appreciates faster, has better financing options, and gives the investor control over all decisions.

Investors figured this out. Condo purchases by investors dropped 35% year-over-year. Single-family investor purchases dropped only 12%. When sophisticated buyers with spreadsheets abandon a market segment, retail buyers should pay attention.

Geographic Hotspots Of Pain

The condo crisis isn’t uniform. Markets with older building stock, aggressive insurance cost increases, and new reserve requirements got hit hardest:

Miami: Surfside’s direct impact plus insurance crisis. Many buildings saw HOA fees double 2021-2024. Condo values dropped 8-12% while single-family homes appreciated 5-8%.

Chicago: Aging building stock from 1970s-1980s construction boom, high property taxes, and population decline. Condos fell 6-9% as young professionals moved to single-family homes in suburbs.

Boston: Older buildings near water with salt exposure and deteriorating concrete. Special assessments of $40,000-70,000 per unit common. Values down 4-7%.

Seattle: Combination of older building stock and tech layoffs reducing buyer pool. Condos declined 5-8% while single-family homes held steady.

Markets with newer construction and stable insurance costs fared better. Austin, Nashville, and Raleigh condos built post-2010 held value within 1-2% as buyers perceived less maintenance risk.

What Happens To Trapped Owners

The 10% of underwater owners plus the larger group who are technically above water but can’t afford to sell after transaction costs creates a trapped population. They can’t move for jobs. They can’t upsize for growing families. They can’t downsize in retirement. They’re stuck.

Some will default, particularly if special assessments exceed their capacity to pay. This creates a cascading problem: when 5-10% of units default, remaining owners must cover those shares of building expenses, which pushes marginal owners into default, which increases the burden on remaining owners further.

Banks and HOAs will foreclose on defaulted units eventually, but the process takes 12-24 months. During that time, the units remain occupied by non-paying owners or sit vacant, while the HOA’s financial position deteriorates.

Buildings with 15-20% default rates may become functionally unfinanceable. No bank will write a mortgage in a building where one in five owners isn’t paying assessments. This creates a doom loop: defaults rise, financing disappears, values collapse, more owners default.

A few buildings in Miami and Chicago are in early stages of this pattern. They’ll likely end in bulk sales to investors who can buy multiple units for cash, clear the defaults, and stabilize the building. But the individual owners lose their equity entirely.

The Single-Family Alternative

For buyers choosing between condos and single-family homes, the math increasingly favors single-family even when entry prices are higher.

A $450,000 single-family home with a 20% down payment requires $90,000 upfront. Monthly PITI runs roughly $2,850 at current rates. Maintenance averages $3,000-4,000 annually, or $250-330 monthly. Total monthly cost: $3,100-3,180.

A $350,000 condo with 20% down requires $70,000 upfront. Monthly PITI runs roughly $2,240. HOA fees add $700. Total monthly cost: $2,940.

The condo saves $160-240 monthly but requires $20,000 less down payment. That $20,000 difference invested at 6% returns $1,200 annually or $100 monthly, narrowing the true monthly advantage to $60-140.

For that $60-140 monthly savings, the condo buyer accepts shared walls, limited control, special assessment risk, and historically worse appreciation. Most buyers conclude the trade-off isn’t worth it, especially when HOA fees will increase 8% annually while maintenance costs on single-family homes increase 3-4% annually.

Within five years, the monthly costs equalize. Within ten years, the single-family home costs less monthly and is worth $50,000-80,000 more.

Can The Model Be Fixed

Theoretically, condos could work if:

One: Reserve studies were required and funded from day one, preventing deferred maintenance accumulation.

Two: HOA boards had fiduciary duty to unit owners with legal liability for negligence, forcing competent governance.

Three: Special assessments required 75% owner approval except in emergencies, giving owners control over major expenses.

Four: Insurance costs were subsidized or regulated in high-risk coastal areas, preventing affordability spirals.

Five: Financing treated HOA fees differently, perhaps excluding them from debt-to-income ratios up to a threshold, expanding the buyer pool.

None of these reforms exist or are likely. The condo model will continue operating under current rules, which means current problems will persist and worsen.

Investment Implications

For small investors, the message is clear: avoid condos unless purchasing distressed inventory at deep discounts for rental arbitrage.

The only scenario where condo investment makes sense is buying a foreclosed or distressed unit at 50-60% of pre-crisis value, in a building that has already completed major capital improvements and funded reserves. You’re buying post-crisis, after other owners absorbed the pain.

Even then, HOA fee growth and rental restrictions limit upside. You’re better served buying single-family homes with similar post-distress discounts, where you control the maintenance timeline and avoid collective liability.

The broader lesson: shared ownership models break down when financial capacity diverges among owners and when deferred liabilities accumulate. Condos demonstrate both problems acutely. The 1.9% price decline isn’t a cyclical dip. It’s a structural repricing of an ownership model that doesn’t work at scale.