Investors’ Condo Buying Hits One of the Lowest Levels in 10 Years

The analysis, conducted by real estate brokerage firm Redfin, examined county-level home purchase records across 39 of the most populous U.S. metropolitan areas dating to 2000. Investors bought about 8,500 condos in the first quarter this year, down 3% year over year to the lowest level in 10 years. That is, with the exception of the second quarter of 2020, when “the start of the pandemic nearly ground the housing market to a halt,” Redfin said.

Contributing Factors

Contributing to the decrease has been Florida’s surging association fees and rising insurance costs “amid the increase in climate-driven natural disasters,” according to Redfin. “Additionally, many of Florida’s condo buildings are oceanfront, making them particularly vulnerable to climate disasters.”

Shift in Investment Preferences

A Safer Bet for Investors

While condo purchases have dropped 3%, other purchases have been holding steady: Investors’ purchases of U.S. homes increased 2% year over year in the first quarter. Greg Eisinger, a partner at the Eisinger Law firm, which focuses on real estate law, said that’s no surprise: “If I was an investor, I probably would look for single-family housing over condominiums,” Eisinger said. “I think that’s the safer bet for investors these days.”

Reasons for the Decline

Eisinger said one reason why condo purchases are down is because people are concerned about an increase in the number of hurricanes weathered by Florida, where there are many beachfront condos. John Cadden, managing principal at Condominium Advisory Group, said the decline in the condo purchases also has been caused by interest rates on condos doubling in the past few years. Cadden’s advisory group consults condo associations from around the state that are facing issues. “When interest rates started going up, that had more effect than the pandemic itself,” he said.

Boosting Safety

New safety guidelines were enacted after the 2021 collapse of the Champlain Towers South condo building in Surfside that killed 98 people. Condo associations also have raised fees to cover inspections of older buildings and reserve a set amount of funding for maintenance and future repairs, as required by the Florida Legislature. The changes were enacted to improve safety, but contributed to the rising costs. “Most associations try to keep the dues current while not increasing their expenses,” Eisinger said. “But now kind of everything has come to a head, and they have no choice.”

Legislative Response

In April, the Florida Legislature passed a bill that would give associations more time and flexibility while they gather funding to meet the reserve requirements. Gov. Ron DeSantis is expected to approve it. Florida condos’ dwindling popularity may ultimately benefit some buyers who’d face less competition — but only to a certain degree. “Florida bounces back,” said Cadden, from the advisory group. “It’s still a place for people to move to. It’s still a growing state.”

Conclusion

The decline in investor condo buying is a significant shift in the market, driven by a combination of factors including rising costs, safety concerns, and changes in investment preferences. While this may present opportunities for some buyers, it also highlights the need for ongoing efforts to improve safety and affordability in the condo market.

FAQs

• Q: What is the current trend in investor condo buying?
  A: Investor condo buying has hit one of the lowest levels in 10 years, with a 3% year-over-year decrease in the first quarter.
• Q: What are the main factors contributing to the decline in condo purchases?
  A: The main factors include surging association fees, rising insurance costs, and concerns over climate-driven natural disasters.
• Q: How have interest rates affected the condo market?
  A: Interest rates on condos have doubled in the past few years, making them less attractive to investors.
• Q: What steps have been taken to improve safety in the condo market?
  A: New safety guidelines have been enacted, and condo associations have raised fees to cover inspections and reserve funding for maintenance and repairs.
• Q: How might the decline in investor condo buying affect the market?
  A: The decline may benefit some buyers who face less competition, but it also highlights the need for ongoing efforts to improve safety and affordability in the condo market.