Once upon a time, there was the “American Dream.” A home was a place where people lived for a long time. Young newlyweds would purchase a modest home, furnish it, and then spend the next two decades raising children there. Grandparents might live in a house nearby, or move in with their adult children later in life. Nearly all the other houses on the block were also occupied by families, most of them homeowners, with the occasional tenant. Most families owned one home, perhaps a duplex with one half reserved for extended family. People owned the same house for decades, paid off the mortgages before retirement, and often had a tidy equity nest egg to show for it.
Multi-family buildings were owned by investors, and were divided into apartments for rent before condos arrived on the scene in the 1960s and 1970s. Then someone had the bright idea of selling individual units, to share in the risk and allow buyers to acquire their own small piece of wealth. Not long afterward, the notion of real estate as an investment began to take root. By the 1990s, it was common to think of one’s home as an equity piggy bank, ready to be tapped or cashed out on a moment’s notice. It seemed as though home value would always continue to climb, so mortgage credit became incredibly easy to get. “Are you alive? Can you sign right here?” Boom! You’ve got a mortgage, perhaps two.
It was in this giddy, wheel and deal, real estate environment that the Homeowner’s Association (HOA) industry was able to capitalize on its claim of “protecting property values” by preventing your neighbors from painting their houses purple and putting their cars up on blocks – as if these had ever been common occurrences. Of course the market appeal of HOAs, and condos in particular, was selling a modern, “carefree” lifestyle at an “affordable” price. That is, until prices started to spiral out of control and became affordable only with creative (some say predatory) mortgage financing.
The real estate frenzy took hold through roughly 2006, and then came crashing down. Suddenly millions of homeowners found themselves upside down on their mortgages, and condo owners were holding onto units that were now worth a fraction of what they had paid just a few years earlier. So much for the protection of property values.
Although condos were marketed as starter or retirement homes, a large number of individual buyers had purchased their units mainly as investments, never intending to live in them. Instead, these owners intended to lease them on a short or long-term basis, perhaps take a vacation now and then, and then sell or simply move into the unit when ready to retire. Real estate investment was no longer limited to big-time investors. Lots of regular people got in on the game with a little extra cash and easy credit terms, buying more than one unit in hopes of multiplying their equity.
Condo conversions – creating condos out of what were once apartments or hotels – and brand new towers were begun by developers, but then ended abruptly in the real estate downturn, resulting in empty, unsold units. After prices tumbled, many buyers defaulted on their mortgages, and then developers filed for bankruptcy. In recent years, well-funded investment firms have snatched up the majority of undervalued condos. Many condominiums have now morphed into shared investment communities, with relatively few resident-owners. Some are controlled by a single investment group. Others are led by a group of investors who cannot seem to agree on business strategy, resulting in uncertainty.
Was this what the real estate industry had intended, or merely the unintended consequences of the boom-and-bust real estate market? Only time will tell.
Deborah Cassano Goonan is a Florida-based freelance writer and consumer rights advocate.