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CAI Survey: Associations Hit Hard by Housing, Economic Slump

10/25/2010  -  Alexandria, VA

More than half of the nation’s estimated 310,000 community associations continue to struggle with financial issues associated with the mortgage foreclosure crisis and related economic downturn, according to a national survey conducted by Community Associations Institute (CAI).

Forty-five percent of community managers say their client associations face "serious” problems as a result of the housing and economic downturn, while 9 percent describe the impact as "severe." The remainder say these issues are a nuisance or nonexistent.

Nationally, about 62 million Americans live in homeowners associations, condominium communities, residential cooperatives and other planned communities.

A quarter of community managers say more than 5 percent of their units are vacant. This is largely due to foreclosures, the inability of non-resident owners to sell or rent their properties or owners simply walking away from their mortgages—and homes. Another 29 percent report vacancy rates of 3 to 5 percent.

All of this has a negative affect on the ability of associations to collect assessments, placing a financial strain on associations and their residents.

Associations rely on homeowner assessments to fund services such as utilities, trash pickup, snow removal, road and building maintenance and landscaping. Assessments also fund a wide variety of amenities like swimming pools and playgrounds.

Assessment delinquency rates have more than doubled since 2005. Today, 65 percent of associations have delinquency rates exceeding 5 percent, up from just 19 percent of associations in 2005. More than 30 percent have delinquency rates exceeding 10 percent, and for one in 10—or close to 30,000 associations—the rate is more than 20 percent.

“High delinquency rates put a lot of pressure on associations to meet their obligations to the homeowners who are paying their fair share,” says CAI Chief Executive Officer Thomas M. Skiba, CAE. “When some owners—including banks that have foreclosed on homes and now own them—don’t pay their share, other homeowners often must make up the difference in higher regular assessments or special assessments.

According to a separate CAI survey, more than 70 percent of the bank-owned properties are not making timely assessment payments to associations.

Many associations, Skiba says, are also forced to curtail services, which can further depress property values.

Associations are taking a number of steps to address budgetary shortfalls:

  • 38 percent have postponed planned capital improvement projects.
  • 35 percent have reduced landscaping services.
  • 31 percent have reduced contributions to their reserve accounts, funds that are set aside for major maintenance and repairs.
  • 23 percent have borrowed from the association’s reserve account.
  • 16 percent have levied special assessments.
  • 12 percent are allowing residents to perform minor tasks in the community.
  • 6 percent have borrowed from banks and other lenders.

"Association boards strive to maintain the nature and character of their communities and meet the established expectations of all homeowners, but that’s often a daunting task in this kind of environment," Skiba adds. "They are making difficult choices because they have few alternatives. Board members in every community association manage the business of their communities, and businesses must pay their bills."

Skiba points out that the housing crisis adds urgency to CAI efforts to convince the Federal Housing Finance Agency (FHFA) to nix its recent proposal to ban community association transfer fees—dollars that have been used for years to help many associations fund reserve accounts and community improvement projects. CAI estimates that as many as 11 million homeowners would find it difficult to sell their homes if the government moves forward with plans to ban these fees.  Learn more about the FHFA proposal.More than 1,500 CAI member community managers responded to the September 2010 survey. See the full results.

CAI is a 30,000-member, national association dedicated to fostering successful community associations. Working in partnership with almost 60 state and regional chapters, CAI provides information, education and resources to associations and the professionals who support them. Our mission is to inspire professionalism, effective leadership and responsible citizenship, ideals reflected in communities that are preferred places to call home. Visit www.caionline.org or call (888) 224-4321.


 


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