Homeowners Associations Struggle with Rising Insurance Costs

Homeowners' insurance is becoming scarce and expensive across the country, particularly for homeowners' associations (HOAs).

Similar to trends in the single-family home market, insurers are increasing premiums or exiting the HOA insurance market entirely. This is attributed to rising losses from extreme weather events and aging buildings.

Steeper premiums are passed on to individual owners through higher monthly dues. HOAs rely on master policies to cover common areas like sidewalks, playgrounds, and roofs (in multifamily buildings).

These inflated insurance costs add to the financial burden of homeownership. HOAs form a significant portion of local housing stock in many regions.

"Catastrophes and disasters have contributed to rising premiums," said Dawn Bauman, executive director of the Foundation for Community Association Research. "Every segment of the insurance market is affected."

The 2021 Surfside condo collapse exacerbated coverage challenges, especially for condo associations.

HOAs with single-family homes also face insurance issues, but they are more prevalent in multifamily communities due to the abundance of shared features.

Insurance broker Eric Skarnes has difficulties finding coverage options for HOA clients in Minnesota and Colorado due to hail damage concerns.

"We're lucky to get a renewal," said Skarnes, whose firm insures around 500 HOAs.

Mark Foster, board member of an 84-unit complex in Lakeville, Minn., has seen his HOA's premium quadruple to $236,000 since 2021. Despite escaping severe hailstorms, his association was dropped by their insurer once their insured property value exceeded $60 million.

"We were forced into the secondary market," he said. "It's incredibly expensive."

The HOA's monthly fees have doubled to nearly $700 to cover insurance, reserves, and maintenance. To prevent further hardship for owners, the board delayed projects like road resurfacing and irrigation upgrades.

Nationally, 31% of HOAs reported premium increases between $100 and $500 per homeowner in the past year, according to the Foundation for Community Association Research.

To reduce premiums, Foster's board considered an alternative insurance policy that lowers the total insured value but shifts the cost of rebuilding interiors to owners, requiring them to purchase additional individual policies.

"There are pros and cons, but we're shocked by the market shift," he said. "We haven't had any major damage."

Condo associations cannot go uninsured like some homeowners who have paid off their properties. In many cases, insurance is legally mandated or required by governing documents. Lack of insurance can hinder condo sales since most common mortgages require it.

In certain regions, HOA fees and insurance challenges are unavoidable. According to Realtor.com, 84% of condos for sale last year had HOA fees, as did approximately a third of single-family homes. Over 75% of listings in metro areas like Houston, Las Vegas, and Orlando are part of HOAs.

Wilson Leung, a real estate agent in California, observed a sluggish condo market as potential buyers are hesitant about fees and insurance costs.

"This has impacted the overall cost of living," he said.

Nationally, condo sales are declining, and inventory is growing. As of July 2024, condos under contract decreased by 5.5% year-over-year, while listings increased by over 27%, as per Redfin data.

The insurance crisis is particularly acute in disaster-prone Florida and Texas, where premiums and HOAs fees have risen rapidly. In Houston, the median condo sales price dropped by 6.5% between mid-2023 and mid-2024. Jacksonville, Fla., experienced a similar decline of 6.6%.

Despite these regional challenges, condo prices remain resilient on a national scale. Average sale prices increased by 3.9% through the middle of last year, even with increased inventory.

Foster remains optimistic about condo living in Minnesota, citing cost savings on bulk-billed services like internet and garbage collection. However, insurance expenses in his community have reached the same level as comparable single-family homes.

"Their insurance costs are now matching what we pay," he said. "In some cases, we might even be paying a little more."