Welcome to HOA budget season 2024! Community association managers (CAMs) know how crucial it is to help HOAs and condo communities develop sound financial plans for the upcoming year, but in the wake of massive changes to the CAM industry, and an increasingly volatile economy, doing so is becoming more and more difficult.
Right now, interest and inflation rates remain staggeringly high (and still look to climb), and insurance premiums increased by outrageous amounts. Last year in California, one community’s fire insurance increased by almost 900% (no, that is not a typo). In Florida, the average anticipated increase is 40% but has been as high as nearly 1000% (again, not a typo). This is going to be a challenging year for many communities, not only when attempting to plan, but when it comes time to actually collect. Some communities had this struggle going into 2023, and ended up short, requiring special assessments on top of a monthly fee increase. It will be important to prepare your boards and community residents for the reality that these increases will lead to higher regular payments, and may need additional financial support throughout the year. Here are the most important takeaways when it comes to increases in insurance premiums, interest rates, and inflation:
After a prolonged period of historically low rates, experts predict that interest rates will gradually increase in 2024–something we’ve already witnessed throughout much of 2022 and 2023. These higher rates can have a significant impact on borrowing costs and financial planning for HOAs and condo communities.
When building the budget, it is essential to consider potential increases in interest rates that will affect loan payments, refinancing options, and future capital projects. Working closely with your HOAs and condo communities to identify cost-effective financing options and develop strategies to mitigate the impact of rising interest rates on long-term financial plans will be essential for unavoidable capital projects or maintenance needs.
In recent years, insurance companies have faced rising claim costs due to natural disasters, vandalism, and other unforeseen events. As a result, insurance providers have significantly increased costs, which has directly impacted HOA and condo community budgets.
To help anticipate future insurance premium increases, community association management companies must thoroughly review past claims data, assess the vulnerability of the community to potential risks, and work closely with insurance brokers to identify the most suitable coverage options. They must also look at the landscape of the state’s insurance providers (for example, if a slew of providers are pulling out of the state, as is happening throughout Florida, Louisiana, and Texas) to get an understanding of what other factors may be causing the massive spikes in insurance premiums. By being proactive in addressing insurance premium increases, community association management companies can help HOAs and condo communities allocate the necessary funds and prioritize risk management initiatives accordingly.
Inflation is a fundamental economic concern that can directly affect the budgeting process for HOAs and condo communities. Understanding the current and anticipated rates of inflation is crucial for accurately forecasting expenses and revenues.
As of this writing, the inflation rate is about 3%–a blessing considering 2022’s 9% peak–but experts predict that it may increase again in 2024. With rising prices for essential goods and services, community association management companies must help HOAs and condo communities account for potential cost increases. This may include higher utility costs, maintenance expenses, and labor costs for contracted services.
To navigate these challenges, community association management companies must consider a combination of cost-saving strategies, such as energy-efficient upgrades, negotiating vendor contracts, and exploring alternative revenue streams like community events or rental programs. By taking a proactive approach to mitigate the impact of inflation, HOAs and condo communities can maintain financial stability and avoid unexpected shortfalls.
At the end of the day, your managers play a vital role in helping HOAs and condo communities build strong budgets for 2024. Although everything looks pretty challenging financially, it’s important to encourage communities (condominiums specifically) to avoid the dangerous practices of deferring maintenance or minimally funding reserves.
Staying ahead of the anticipated trends of rising interest rates, insurance premium increases, and the current and anticipated rates of inflation will help your communities stay informed and make sound financial decisions. If your managers and staff accountants are handling this on their own, CINC Systems can help.
Contact us today to learn more about how CINC can support your community association management company during the budgeting process. Together, let’s build a strong financial foundation for a prosperous future!