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Rising Costs and Limited Options: The Insurance Challenge for Homeowners’ Associations

Insurance availability and affordability are becoming increasingly challenging across the United States, particularly impacting homeowners’ associations (HOAs).

As in the single-family housing market, insurers are either raising premiums significantly or withdrawing from providing coverage for HOAs. This is largely due to escalating losses attributed to extreme weather events and the deterioration of older properties. Consequently, these higher costs are typically transferred to individual homeowners, resulting in increased monthly dues.

HOAs, which accommodate around 74 million residents, rely on master policies to safeguard shared spaces such as sidewalks, recreational areas, and essential structural elements in multifamily housing units. Given the also rising prevalence of HOAs within the housing market, the growing insurance costs add an extra burden to those looking to buy homes in these communities.

“The rise in catastrophic events has been a substantial factor in escalating premiums,” remarked Dawn Bauman, the executive director of the Foundation for Community Association Research. “This trend isn’t limited to just condominium associations; it resonates throughout the entire insurance landscape.”

One notable incident that heightened insurance scrutiny was the tragic condo collapse in Surfside, Florida, in 2021. According to Bauman, the aftermath has rendered coverage more elusive for condo associations. However, the impacts of insurance challenges are felt more keenly in communities composed of multifamily dwellings due to their shared features.

In the Minneapolis suburb of Lakeville, insurance broker Eric Skarnes faces growing difficulties finding suitable policies for his clients in Minnesota and Colorado, where hail damage poses a significant risk to roofing structures.

“The variety of options has diminished dramatically,” noted Skarnes, who manages insurance for approximately 500 HOAs. “Associations are often just relieved to achieve renewal.”

Mark Foster, a board member of an 84-unit complex in Lakeville, explains that since 2021, his HOA’s master insurance costs have quadrupled to $236,000. Despite narrowly avoiding severe hailstorms in the region, the association’s insurer dropped them after their insured property value exceeded $60 million. “We were forced into a secondary market,” he confessed. “It’s exceedingly costly.”

The ramifications of these rising premiums extend to monthly fees, which have also doubled to nearly $700, prompting the board to defer necessary maintenance projects, particularly affecting retired residents on fixed incomes.

Nationally, data from the Foundation for Community Association Research indicates that 31% of HOAs experienced premium hikes ranging from $100 to $500 per homeowner over the last year, while an additional 35% reported smaller increases of under $100.

In search of cost-effective solutions, Foster’s board is considering a change to insurance policies that would deliberately lower their total insured value while passing on some rebuilding costs to individual owners, an arrangement likely to necessitate more expensive personal policies. “Although this idea has its benefits and drawbacks, we are astonished by the current state of this market,” he commented. “We have had minimal damage.”

For many condominium associations, opting out of insurance isn’t feasible, as coverage is often mandated by law or outlined in association bylaws. Without insurance, property sales could plummet, as most lenders require proof of coverage for mortgage approvals.

In various regions, the reality of HOA fees coupled with burgeoning insurance costs creates a challenging environment for prospective homebuyers. According to Realtor.com, 84% of condominiums listed for sale last year were associated with HOA fees, as were approximately a third of single-family homes. Notably, over 75% of properties listed in major metropolitan areas, including Houston, Las Vegas, and Orlando, belong to HOAs.

Real estate agent Wilson Leung from the Bay Area of California has observed a slowdown in the condo market compared to single-family homes as potential buyers hesitate over increased fees and insurance expenses. “This situation has undoubtedly influenced the overall cost of living,” he said.

Current trends show a nationwide decline in condo sales and a rise in inventory. Redfin data reveals a 5.5% drop in condos under contract as of July 2024 compared to the previous year, alongside a 27% increase in listings.

This issue is particularly pronounced in regions prone to disasters, such as parts of Florida and Texas, where HOA fees and insurance premiums are rising rapidly. In Houston, the median price for condos dropped by 6.5% from mid-2023 to mid-2024, while Jacksonville experienced a similar decline of 6.6% in that time frame.

Despite the challenges, condo prices nationally have held steady, with average sale prices increasing by 3.9% midway through last year, even as inventory rises. Foster, while appreciating the benefits of condo living, now observes insurance costs in his HOA that rival or even exceed those of similarly priced single-family homes. “We are now paying what they are for insurance, and possibly even more in certain situations,” he stated.

Source
finance.yahoo.com