Today’s New York Times article about the problems condo owners are facing as the economy slows sheds light on a growing issue: Defaults and foreclosures and the multifamily market.
For months, we’ve heard about how bad foreclosures can be for a neighborhood of single-family homes: Unprepared to deal with property maintenance, banks sometimes let foreclosed properties fall into disrepair.
A foreclosed home drags the value of areas homes down and can hurt the neighborhood–for every one
foreclosure out of 100 properties, the violent crime rate grows by
2.33 percent, according to a 2005 study by Dan Immergluck of the Georgia Institute of Technology
and Geoff Smith of the Woodstock Institute, the Tuscon Citizen reported recently.
But little has been said about how such issues are affecting buildings with several units or more–until now.
Part of the appeal of living in a condo involves the fact you don’t have to handle some of the general maintenance: Somebody else vacuums your hallway. Somebody else mows any lawn out front. And somebody else tackles tough decisions about getting a new roof, repainting a foyer or hiring a contractor.
That’s one reason they’re selling big to young, urban dwellers and older, retired residents who don’t have the time or just don’t want the responsibility.
But, as more and more owners face financial troubles because of the weakening economy–just today, the Labor Department said that initial jobless benefit claims grew by 6,000 to 371,000 in the week ended May 10–buildings are feeling the burn.
Some of the resulting issues include:
- Extra fees. One source quoted in the article–Barbara Sanz–lives in a Miami building where almost one in six residents are facing foreclosure, and as their monthly condo assessment payments slow or stop altogether, the remaining owners’ have gone up. Sanz is one of the residents who not only had to kick in an extra $1,000 but has to also pay an additional $50 a month for cable and Internet, the Times said.
- Reduced maintenance. Because some buildings now lack the capital they used to have as a result of the reduced assessments, common areas like pools and laundry rooms may become dirty or broken.
- Bargaining with the bank. Banks don’t want to mow lawns, and banks don’t want to assume condo maintenance fees–even if that’s part of the deal with owning a foreclosed-upon unit. In some cases, banks are just overwhelmed because they’re foreclosing more properties than they’re used to assuming responsibility for. But some buildings live or die by condo maintenance fees–especially smaller buildings that don’t have large reserves to buffer a loss. Just ask Doris Wilson, who owns a one-bedroom apartment in Chicago. Wilson had to fight to get a lender to pay
$2,500 in assessments after it foreclosed on one of her building’s seven
units, which was needed to clean its sewer system.
In some buildings, things are so tough that residents are signing up for front door duties, according to the Times; and it’s likely to get worse.
Existing condo sales are down in the U.S.; and although buyers are becoming more excited about the deals they can get on foreclosed homes, condos just aren’t packing the same punch because of the potential extra costs and maintenance issues, the Times said.
Which is too bad. Condos are an important housing market component. For one, there are a lot of them–one in eight homes in the U.S. is a condo; and during the slump, they’ve held on to their value better than single-family homes have. Since early 2007, median condo prices have fallen just 3 percent, CNNMoney.com says.
But make condos seem like a high-risk investment, and that trend is unlikely to continue.
Exciting amenities, reduced responsibility and an urban location (location, location) are all great selling points–but if a unit comes with the potential for extra fees and the possibility that the water will be shut off, it’s not really going to be an easy sell, is it?