New financing rules are about to make buying or selling a condo even more complicated

It hasn't been an easy time to sell a condo , and new financing rules taking effect between now and early 2027 might make it even more complex.

Fannie Mae and Freddie Mac, the mortgage giants that support about 70% of the mortgage market, are tightening their standards for acceptable condo financing. "Limited reviews" that allowed many highly qualified buyers to receive mortgages after a cursory look at the financial and structural health of a condo building were eliminated last month, in favor of closer reviews for all but the smallest buildings. And starting in January, Fannie and Freddie will require condo associations to allocate at least 15% of their assessment income toward their reserves, up from 10% today.

The financing changes are part of an ongoing effort to improve condo safety after the deadly collapse of an aging building in Surfside, Fla., in 2021. But they're also a new roadblock in a market that's already seen slumping prices, growing supply, and increased buyer skepticism toward special assessments and monthly fees .

"A well-run, established HOA with solid reserves, acceptable finances, no major items like maintenance or litigation…should still be fine," said Michael Belfor, a mortgage banker and branch manager at American Pacific Mortgage in California. "But it absolutely does create more places for it to fail."

Condos have historically lagged the single-family home market, with prices quicker to drop and slower to rise due to their smaller buyer base. The divide has only deepened in recent years as housing affordability has deteriorated and buyers have begun to balk at association fees that can add hundreds or thousands of dollars a month to a mortgage payment.

To make matters worse, many condo associations have had to aggressively hike monthly fees or levy hefty special assessments to get in compliance with state regulations governing deferred maintenance and reserve funding.

The result? Nationally, condo prices have fallen 2% from peak prices a few years earlier, according to Zillow data. And in some parts of the country, especially Florida, the drop has been far steeper. Prices in Punta Gorda, Fla., have dropped 35% from their September 2022 peak, while Tampa has seen a 24% decline. Elsewhere, the median condo in Austin, Texas, is down 28%, while prices in Denver and Raleigh have fallen more than 16%.

Buyer demand remains weak. Condo sales were down 2.7% in August compared to a year earlier, according to National Association of Realtors data. Single-family home sales saw a smaller 1.1% drop. Nationwide, months of condo supply — a real estate industry measure of how long it would take to sell off all inventory at the current sales pace — sits at a buyer-friendly 6.6 months, while single-family homes are at a more balanced 4.7 months.