Declining Condo Values
As of April 2026, the U.S. condominium market has experienced a significant downturn. Sales have plunged to record lows, with some reports indicating condos are acting as a major drag on overall housing volume. Inventory in the condo and cooperative segment has fallen dramatically, with some areas seeing a 29.9% drop from a year ago (Reuters). At the same time, the gap between the single-family and condo markets is widening. Rising HOA fees and spiraling insurance costs for multi-family buildings are making condo ownership less attractive by the month.
With the way recent policy changes are stacking up, you don't need bad luck or a housing crash to lose your shirt on a condo. All you have to do is own one, pay your dues, and wait.
Let’s walk through the greatest hits of how policy, profit motives, and lobby-influenced bureaucracy have conspired to make condo ownership a uniquely risky proposition in 2026.
The $25,000 Surprise
A new nail in the Washington D.C. condo coffin: the D.C. Condominium Insurance Amendment Act of 2025.
On its face, it sounds dull. In reality, it quietly raised the deductible pass-through cap, which is the maximum a condo association can charge an owner for damage originating in their unit, from $5,000 to a whopping $25,000 (more details here).
Here’s how this plays out: a pipe issue floods two units, and the association points the finger at you. Even if it’s a common area pipe, you could be on the hook for up to $25,000. Your insurance? Most HO-6 policies cap loss assessment coverage well below that, and some won’t pay at all if fault is unclear or they object to your association’s subrogation clause. So you’re paying out of pocket, hiring a lawyer, or facing fines, liens, and the real risk of losing your home. All because the rules changed after you bought in.
This proposed change to the D.C. Condo Act gives condo associations a powerful incentive to shift costs onto owners instead of fixing underlying problems. Deferred maintenance, building defects, and even systemic water issues can all result in bills landing squarely in unit owners’ laps. Associations are also shielded from subrogation claims. Your insurer cannot even try to recover the money. Owners’ recourse is limited, expensive, and often out of reach (see full breakdown).
The bill is in review status. Now is the time to speak out against it.
The Fannie and Freddie “Fix” That Isn’t
On the federal level, Fannie Mae and Freddie Mac just rolled out a sweeping condo lending overhaul, trumpeted as a win for affordability and access. In reality, the big winner may be Fannie Mae’s balance sheet.
By raising conforming loan limits and loosening some credit requirements; such as eliminating the strict 620 minimum credit score from its Desktop Underwriter (DU) system; Fannie Mae can now buy mortgages from a much bigger pool of borrowers, including many that were previously ineligible (FHFA). It can also accept previously excluded investor-heavy condos now that the 50% investor ratio cap has been eliminated (with the exception of new conversions and new construction at initial buy-in). There’s even an option to use crypto as collateral for your down payment, thanks to new token-backed mortgage products.
While some see these as steps toward inclusion, others see it as a concerning lowering of standards and warn that expanding eligibility, particularly when combined with higher reserve requirements and novel risk models, introduces more risk into the system. Critics draw parallels to the pre-2008 era, when rapid growth in loan volume and relaxed standards contributed to instability. Defenders counter that today’s underwriting still involves holistic risk reviews and alternative data, not just a blanket lowering of standards.
The real-world impact? More borrowers and condos qualify for loans, but with higher fees, more limitation in home choice with Fannie and Freddie’s new 15% reserve requirements, and the kind of overall market uncertainty that makes buyers and lenders nervous.
Owners in Washington DC are already watching property values drop due to the fallout from federal job losses and mortgage rate increases as monthly expenses climb due to higher insurance and utility costs. At the same time, condo owners are looking at potentially large increases in 2027 condominium dues, and in some cases, special assessments.
Is a lowering of standards and simultaneous squeeze on an already-struggling sector of the real estate market really an antidote for anything but the GSEs’ valuations?
The Reserve Fund Trap: The Data
Speaking of those higher reserve requirements, Fannie and Freddie’s new rules demand that condo associations set aside at least 15% of their budgets for reserves. This sounds prudent, but the reality is bleak. Recent industry research is sobering:
Over 70% of HOAs and condo associations are underfunded relative to industry benchmarks (FirstService Residential, HOA Start);
Roughly one-third of associations are severely underfunded, with reserves below 50% of recommended levels, a status considered high risk (HOA Start);
As for the old 10% reserve target, 2021 data showed that 99.85% of condo associations needed more than 10% of their budget for reserves. In other words, virtually all associations relying on a 10% allocation are falling short of capital needs (Association Reserves).
Layer this on top of today’s market, where condo sales are at record lows and inventory is evaporating (Reuters). With the 15% reserve rule coming in January 2027 and association budgets already set, a massive share of American condos are likely to become unwarrantable, meaning buyers can’t get conventional loans, demand dries up, and values plummet (eclipsecommunities.com, realestateinthedistrict.com).
Potential Market Consequences
Equity Loss: Units in “non-warrantable” buildings often see a 5% to 30% decrease in market value because the buyer pool shrinks primarily to cash-only investors (KSN Law);
Higher Fees: To hit the new 15% reserve mark, many boards will be forced to implement emergency special assessments or significant dues increases before the January 2027 deadline, compounding affordability challenges for current owners (KSN Law).
If you bought at the peak, you’re underwater. If you want to sell in an unwarrantable building, good luck finding a buyer who can get (or wants to get) financing. And if your association tries to catch up by jacking up dues or slapping you with a special assessment, you’re paying for the privilege of losing equity. With HOA fees and insurance costs soaring, the math just keeps getting worse.
Why Is This Happening?
Simple. The people who profit from these changes aren’t the ones paying the price. Fannie Mae, Freddie Mac, and the policy architects get bigger loan pools, higher fees, and a shot at privatization windfalls. They do this while socializing the risk. Condo associations escape accountability for deferred maintenance by passing the bill to owners. Politicians get to say they “fixed” things.
The losers are ordinary condo owners, who are left with higher fees, assessments and liability, but less protection and fewer options. You can do everything right, pay your dues, buy insurance, follow the rules, and still lose thousands—even your home—when the next wave of policy changes rolls through.
The Takeaway
If you want a masterclass in losing money on real estate without really trying, buy a D.C. condo in a building without 15%+ in reserves this year. Between local laws that shift risk onto owners, federal policies that destabilize financing, soaring costs, and associations incentivized to kick the can down the road, the deck is stacked.
Condo ownership was supposed to be the affordable path to homeownership. In today’s market, it’s starting to look more like a trap. The exit is getting harder to find.
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