Overnight on June 24, 2021, the Champlain Towers South building located in Surfside, Florida, partially collapsed, killing 98 people.
As a result, states enacted legislation to increase safety requirements around condominiums and the mortgage secondary market imposed tighter underwriting rules.
Five years later, some say those rules have gone too far and are hurting financing availability for condos.
On a national basis, the condo share of sales has held steady over the past decade, in the 8% to 10% range of total activity, Molly Boesel, senior principal economist for Cotality said at a recent conference.
But this is down from a 12% peak in 2005.
"That pattern may be picking up some of the effects of the post-Surfside regulatory environment, including increased attention to inspections, reserves and association costs," Boesel said in her presentation. "It is difficult to isolate regulation as the only driver, but the decline in condo share is most visible in Florida markets where condos are a larger part of the sales mix."
Outside of Florida, the largest decreases were concentrated in a few metro areas, with Boesel mentioning in particular South Carolina and Hawaii.
"In most markets, condo share has not fallen: 78% of metros recorded either no change or an increase in condo share compared with the earlier benchmark year."
Boesel's data also included a comparison for New Jersey in 2023 and 2025. Newark was the only metro to show a decrease during the period, by just 1 percentage point.
The slowdown in Florida condo sales comes as expenses are on the rise and obtaining financing is still being affected by underwriting changes made by the secondary market.
What are the reasons for the condo slowdown
"It's a combination of insurance costs as well as mortgage finance constraints," said Dawn Bauman, CEO of the Community Associations Institute.
It's not just one-to-four family properties subject to homeowners' premiums rising in Florida, let alone flood and windstorm coverage.
First among the lasting effects of the disaster is anyone financing condos needs to apply more scrutiny at the property level today than they did a decade ago, said Theo Ellis, CEO of AI pre-underwriting platform Friday Harbor.
An otherwise qualified borrower can encounter financing challenges because of the building itself.
"Project questionnaires, reserve funding and insurance coverage are increasingly important parts of the mortgage process," Ellis said. "Lenders need to consider complex condo document reviews in the context of the borrower's full financial picture and not in isolation."
These additional costs, including homeowner association fees, are trickling down to the borrower. For higher end condos, this is not going to move the needle much in terms of demand, said Marc Halpern, CEO of Foundation Mortgage, based in Miami Beach.
But the additional documentation requirements affect someone looking to purchase a $300,000 property, and as a result, people are having problems obtaining financing, said Halpern, who is also the president of his HOA.
What are the alternatives to the conforming market?
If the engineering report on a condo building notes structural or safety issues, the securitization market is likely to reject the loan.
"Specific to the South Florida market, there are local lenders, balance sheet banks, FDIC banks that will lend in those projects" Halpern said. "They have some guard rails around it, but there are opportunities to get financing in those buildings."
For newer buildings, a litigation route exists, but even then it could take time.
So if the loan does not fit Fannie Mae or Freddie Mac guidelines, opportunities exist to obtain financing in the non-warrantable space, Halpern said.
Post-collapse, the government-sponsored enterprises issued temporary guidelines, which later became part of the guide, noted Danny Casillas, condo review specialist at Foundation.
"It took a little for the industry to adjust and even understand," Casillas said. "I was already underwriting for non-QM lenders when all of this was taking place," adding the GSE guidelines are "the gold standard" for condo lending.
State law changes require buildings to meet certain standards, and to bring it up to those, repairs have to be made.
"We want to have safe buildings, but with the increased investment many condo buildings are making in critical repairs, critical projects that are taking several years, it kicks them out of eligibility for Fannie Mae and Freddie Mac," Bauman said.
By modernizing their facilities, these buildings are being penalized by the GSEs because conventional financing cannot be obtained, she continued.
"The conventional stance is until they get done with those milestone-required repairs, it's not eligible for conventional financing," Casillas said. "So it's a huge, wide open door for us in the non-agency space, where you know we can really get a sense of whether there's really something going on with the project or not."
Losing out to cash buyers
However, the door is also opened to cash buyers, typically investors, to come in and swoop these properties away, Bauman said.
"We all want safe buildings; we all want policies that make sense," she said. "We want Fannie and Freddie to mitigate their risk, so that they're making the right investments, but we don't want these restrictions that are causing a bottleneck in the marketplace."
For example, a condominium project which is working in good faith to increase its reserve fund for future repair and replacement of major components, but are now no longer in compliance because they're acting in good faith, Bauman argued.
People are still bullish on the Florida condo market, Casillas said, and with the conforming market removing some of their geographic restrictions, things are getting better.
Educating condo buyers helps
Another good sign, Halpern said, is real estate salespeople are educating their clients and potential buyers are asking questions about the health of the condo, including what are the financials and what the reserves look like.
Consumers need to make sure they are being referred to the right loan officer or mortgage broker when buying a condo, Halpern said, who made the analogy, "you're not going to go to a patent attorney because you have a slip and fall."
The good loan officer will ask the questions about the financials up front.
A lot of positives are on the horizon, including changes to insurance requirements, including roof coverage being actual cash value, Casillas, who will be an HOA president in 2027. Both Fannie and Freddie have raised their allowable deductible for insurance, Bauman said.
However, Fannie Mae will also be raising the budget reserve financing to 15% next year.
While it could hold back a project from getting conventional financing, Casillas said Foundation Mortgage has the ability to find clients the right investor, "so that'll be a big opportunity for us there as the market adjusts."
What the secondary market needs to do
The secondary market needs to moderate their stance, sources said.
"Right now it's challenging for condo projects to know whether they are eligible or ineligible," Bauman said. If the insurance problem was fixed, including Fannie and Freddie easing their requirement even further.
Then they need to allow for condo lending in buildings which are undergoing critical multi-year good faith repair projects. She did applaud the GSEs for continuing the dialog.
"If they allow for underwriting in buildings that are making the necessary improvements and modernizations, and not penalizing those, that would help a lot, especially in Florida," Bauman said.
