December 2023 CT

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Our Communities’ Challenges in a High Inflation Environment By Robert Arnone, MSRE, AMS, CPM RCA Management, LLC

T he average 30-year fixed mortgage rate in the sec ond week of October 2023 was around 7.57%. The last time it was this high was 23 years ago, dating back to the year 2000. The average home ownership is 13 years, according to First American Data & Analytics and Redfin. With these statistics in mind, most people in our communities financed their homes at much lower rates than what is available today. In the 1990’s, there were peaks and troughs, with interest rates as high as the 10.5% range to as low as just below 7%. Over the past ten years, rates have reached sub 3%. In fact, before the rise of interest rates, which started in early 2022, interest rates over the past ten years averaged below 4.5%. A quick calculation excluding all other costs, the difference in monthly mortgage payments from 4.5% to 7.5% on a $400,000 home, is more than $400 a month or almost $5,000 a year. Why do interest rates rise? The interest rates are tied to the Federal Reserve’s lending rate. The Federal Reserve will increase interest rates in a high inflationary environment to reduce the consumer’s purchas ing power. If the consumer purchases fewer goods, the mer chants selling these baskets of products will have to slow

down price increases or reduce the cost of those goods. The net result is lowering inflation. Our community members are experiencing numerous changes with the current inflationary environment. This arti cle not only aims to help community leaders consider how rising interest rates are shaping our communities, but also to consider a developing trend that began before the rise of interest rates. People either don’t feel the need to move or the option of staying where they live outweigh moving to a new home. Recent statistics vary, but for the most part, the consensus is that people are living in their homes for an average of 13 years. Compare that to the early 2000s, when the average length of home ownership was less than half or approximately six years. If you’re a regular visitor to the monthly issues of Community Trends ® , you have read arti cles about the importance of reserve studies. The actual association board conversations don’t always follow what the professionals recommend. With reserve studies gener ally beginning with capital structures with useful lives of five years or more or the projected life before replacement, it was natural for community owners to think, “why should I CONTINUES ON PAGE 32

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DECEMBER 2023