Future HOA Membership Is A Growing Part Of Home Ownership Costs

November 11, 2024
  • More Than 80% Of New Home Sales Enter Homeowner Associations (HOA)
  • The Implementation Of Tariffs Across The Economy Will Snuff Out Rate Cuts
  • Financial Markets Tend To Be Wrong About Future Fed Cuts

I started writing this post thinking about the greater cost of homeownership we’ve experienced through larger homeownership association (HOA) costs higher mortgage rates, rising property taxes, and bigger home insurance premiums. Over the summer, I used to think what a relief it would be for homebuyers when mortgage rates fall. Ha. What a difference a couple of months makes in mortgage rate expectations. Now with post-election economic policy expected to favor 10% to 60% tariffs which are inflationary and seemingly unwavering strength on employment and wages, the odds of falling mortgage rates seem more distant. Although the prediction markets got the presidential election right (in contrast to my keen insight), it is well documented that financial markets are almost always wrong about the future of the Fed funds rate so market expectations about a slew of future rate cuts will probably be scaled way back. However, we still might see a modest uptick in sales in the form of pent-up demand.

Source: Apollo

The cost of living remains elevated even though the rate of inflation has nearly normalized. We’re all feeling the higher costs of everyday living. There is a fascinating Wall Street Journal piece The Fees Burdening Home Owners After They Buy (gift link).

Nearly a third of the U.S. housing stock is part of community associations, which include HOAs, condominiums and cooperatives, according to the Foundation for Community Association Research.

Hess Trucks Are The New Big Mac Index

When I was a kid during the 1960s, my family lived in a suburb of Boston. I still fondly remember getting a Hess Truck from my parents (or Santa?) for Christmas. When my family moved to the Washington, D.C. suburbs (The DMV), a girl in my 8th-grade science class remembered me as a classmate in a Boston nursery school as the kid who wanted to be a truck driver. Apparently, my dream was dashed.

Over the past six decades, the annual cost of a new Hess Truck has risen from $1.29 to $45.99 for a 6.14% annual rate increase. Using the rate of inflation as a guide, it should only cost about $13.16 today. Ha. Hess seems to be price-gouging so I’ll stick to Big Macs.

But I digress…

New Single Family Homes Are Pouring Into HOAs

More newly constructed single family homes are becoming members of HOAs. Their associated costs and overreach nuisances to both members and board members now come with the territory.

Source: WSJ

And unlike a mortgage payment, HOA costs tend to rise. Here are some recent Manhattan monthly HOA costs our firm tracks in Manhattan:

California, Florida, and Texas Lead The HOA Pack

California and Florida each have about 50,000 HOAs which is mindboggling.

Source: WSJ

Home Prices Have Surged Over The Past Five Years

There are signs of pushback from homeowners, as some taxpayers, mostly unsuccessful, tried to limit their exposure to higher taxes. Even though the following chart is annoyingly powered by the Case-Shiller Home Price Index (but not labeled as such), it still shows how much home prices have surged and then continued to hold steady since 2020.

Source: WSJ

Final Thoughts

With the new presidential administration’s economic tariff centerpiece, it is unlikely we will see mortgage rates as low as expected back in August. Throw in higher property taxes from the combination of a pandemic-related housing value surge, the home insurance crisis, and the inability of municipalities to cut additional costs coming out of the pandemic-era, inventory shortages remaining in certain parts of the country, the cost of homeownership appears likely to rise faster than wages.

Of course, there is no need to squint at these higher costs.

Monday Mailboxes, Etc. – Sharing reader feedback on Housing Notes.

November 6, 2024, Whether Your Tribe Was A Winner Or Loser On Election Night, Let’s Not Talk About It Today

  • Thank you so much.
  • Thanks for this. I’m taking an information break today for my mental well-being. Besides, no one knows anything yet. I’ve been reading Barry Ritholz forever and probably found you through him. I appreciate his deliberate approach, especially now. I can only worry about things I can control…..
  • You rock.
  • I write once a week, not daily, but my column this week is on datamining. I would love for you to tackle this subject in Housing Notes. I say that because you are so scientific, and our business is increasingly reliant on data, and knowing not only the inventory but the buyers profile. We saw this in the political campaigns, an attempt to dissect the behavior of swing state undecideds not based on polling data (what they tell us) but what they do.
  • You can’t be drinking diet, Mountain Dew. Do you know how bad that is for you?

Did you miss Friday’s Housing Notes?

November 7, 2024

Manhattan Contracts Soar As Miami Beach Contracts Decline Less

Image: ChatGPT

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