December 2023 CT

INFLATION... from page 42.

first glance, it appears that this could only be a good thing. However, as the old saying goes, for every action there is an opposite and equal reaction. Although the return yields on investments increased quite significantly since 2020, the cost to borrow money has experienced similar increases.

underfunded for the projects due to the unforeseen increase in material costs. Many of these sites were left with no other option than to levy a special assessment and/or obtain third party financing. Another trend that we have seen in recent years has portrayed itself as a double-edged sword. It deals with investment yields and interest rates. If we rewind back to the time when boards were preparing their 2020 and 2021 budgets, the line item for investment income prob ably included a nominal dollar amount, if anything. The reason for this was the extremely low rates of return being offered on debt securities. Association boards are already limited in their investment options, many sticking solely to certificates of deposit and treasury bonds (both are types of debt securities). Back in 2021, a “good” rate of return on a certificate of deposit or treasury bond was about 0.25%. Fast forward to 2023, and we are seeing banks offer interest rates just shy of 5.00% on these investments. At

“Although the return yields on investments increased quite significantly since 2020, the cost to borrow money has experienced similar increases.”

No matter what type of loan you are applying for, the rates offered in 2023 far exceed those offered just three years ago. This financial environment created a perfect storm for many associations last year. As discussed earlier, associa tions that undertook capital projects in 2022 and 2023

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DECEMBER 2023