Latest / Stagflation Conversations with Fexingo: High Inflation, Slow Growth, and 1970s Echoes / How Stagflation Is Reshaping the Condo Insurance Market
Transcript
- Lucas: If you own a condominium — or sit on a homeowners association board — you've probably noticed something alarming in the last couple of years. Your property insurance premium isn't just going up. It's going up by three, four, sometimes five hundred percent. Luna: And that's if you can even find a carrier willing to write the policy. I've been reading about associations in Florida that have been non-renewed by every major insurer. Lucas: Right. And Florida is the extreme case, but this is happening across the country. The underlying dynamics are straight out of the stagflation playbook: high inflation driving up replacement costs, high interest rates making insurers more risk-averse, and slow economic growth squeezing household budgets just as special assessments start landing in mailboxes. Luna: So let's break down the mechanics. Why is condo insurance specifically getting hammered? Isn't this a problem for all property insurance? Lucas: Good question. Single-family home insurance has gone up too — but condos face a unique vulnerability. Most condo associations carry a master policy that covers the building structure, common areas, and liability. That master policy is priced based on the replacement cost of the entire building. And replacement cost is tied to construction costs, which have been elevated for years. Lucas: According to the latest data, the producer price index for construction inputs is still running hot. Even though headline CPI has moderated a bit — the May CPI came in at 334, up from 332.4 in April — the embedded costs in building materials and labor haven't rolled over. Lumber, concrete, roofing — all up significantly from pre-pandemic levels. Luna: And the PCE price index, which the Fed watches more closely, also ticked up in April to 130.9. So the inflation we're seeing isn't just transient — it's getting baked into the cost structure. Lucas: Exactly. Now layer on top of that the interest rate environment. With the ten-year Treasury still yielding over four percent, insurers are earning less on their bond portfolios than they used to. So they need to raise premiums to maintain underwriting margins. And they're also reducing their exposure to catastrophe-prone areas — which for condo towers means wind, hail, wildfire, and especially Florida sinkholes. Luna: I've seen numbers from Florida's Office of Insurance Regulation showing that some condo associations saw premium increases of over four hundred percent in 2025. And that was before the 2026 hurricane season. Lucas: Right. And when premiums go up that much, the association has two choices: raise HOA dues dramatically, or impose a special assessment on unit owners. Either way, the owner gets a bill they didn't budget for. Luna: And if the association can't get insurance at all? That's a real problem. Lenders require proof of insurance before they'll issue a mortgage. So an uninsured building can become unmortgageable overnight. Lucas: That's the nightmare scenario. We've already seen it in some older high-rises in South Florida. After the Surfside collapse in 2021, regulators started requiring more frequent structural inspections. Many buildings found costly issues — and then insurers either refused to renew or quoted premiums that were essentially a polite way of saying 'we don't want your business.' Lucas: The result is a kind of death spiral. The building needs repairs to get insured, but can't afford the repairs because insurance is eating the budget. And the owners can't sell because no buyer can get a mortgage. Luna: So what's the data telling us about the broader market? Are there any signs that conditions might ease? Lucas: Not really, in the near term. The core PCE price index is still at 129.6, up from 129.3 in March. That's not disinflation — that's inflation persisting. And the job market, while still adding jobs — nonfarm payrolls hit 159 million in May — isn't growing fast enough to offset the cost increases for most households. Lucas: The unemployment rate is flat at 4.3 percent, which historically isn't terrible. But wage growth is only keeping pace with inflation, not exceeding it. Average hourly earnings are thirty-seven dollars and fifty cents — up about three and a half percent year over year, but that's roughly in line with CPI. Luna: So real purchasing power isn't improving. And that makes a five hundred percent insurance premium increase feel even more painful. Lucas: Exactly. Now, there is one potential relief valve: some states are starting to regulate. Florida passed a law in 2022 that limited roof replacement claims and reduced frivolous litigation. That helped stabilize the single-family market a bit. But for condos, the problem is structural, not just regulatory. Luna: Meaning what? The buildings themselves are aging, and the cost to rebuild them is permanently higher? Lucas: Exactly. The replacement cost index from Marshall & Swift — the industry standard — shows that construction costs nationally are about thirty-five percent higher than they were in 2020. That's not going to reverse. Even if lumber prices come down, labor shortages mean you're paying a premium for skilled trades. And condos, by their nature, are more complex to rebuild than single-family homes. Lucas: Plus, many condo associations have underfunded reserve funds. They deferred maintenance during the low-interest-rate years, and now they're paying the price. A building that should have set aside a million dollars for roof replacement over twenty years might only have three hundred thousand. Then the special assessment hits. Luna: Which brings us to the human side. I've talked to retirees on fixed incomes who bought condos thinking they'd have predictable housing costs. Now they're facing assessments they can't afford. Lucas: Yeah, and that's the part that doesn't show up in the CPI or the PCE. It's a quiet affordability crisis within the housing market. We talk a lot about rent inflation and home prices, but condo ownership has its own inflation vector that's flying under the radar. Luna: If today's conversation helped you understand what's happening in your own HOA or just made the economics of it click, this show stays ad-free because of listener support. We keep it that way by people who find value in it chipping in at buy me a coffee dot com slash fexingo. Lucas: Yeah, and it's a small thing that makes a big difference for us. Keeps the podcast independent and focused on what matters. Luna: So back to the condo insurance squeeze — are there any strategies that associations are using to cope? Lucas: A few. Some are raising deductibles significantly — moving from a ten thousand dollar deductible to a hundred thousand. That lowers the premium but shifts more risk onto the association. Others are self-insuring a portion of the risk through captive insurance programs. And a growing number are simply passing the cost through to unit owners as a line item on the monthly fee. Lucas: But none of those are great solutions. They all end up costing the owner more. And in a stagflation environment where wages are barely keeping up, that's a real strain. Luna: So the takeaway: if you're shopping for a condo, ask not just about the HOA fee — ask about the insurance premium history and the reserve fund status. Lucas: Absolutely. That due diligence is worth its weight in gold right now. Because the insurance market for condos is going to remain tight as long as inflation stays sticky and interest rates stay elevated. And with the Fed's new chairman, Kevin Warsh, signaling a cautious approach, don't expect a quick pivot. Luna: A slow bleed, not a crash. That's the stagflation way. Lucas: Exactly. And for condo owners, the bleed shows up on the monthly statement.