November 2022

State Migration and the Effect on our Communities By Robert Arnone, MSRE, AMS, CPM, RCA Management, LLC

W hen starting the research for this article, the real estate cycle was different three to four months later. Then, the housing market was in hyper supply; developers were trying to keep up with the demand. As a result, prices increased, and buyers were bidding over the asking price. Economists are predicting a recession. Many opinions vary on the depth of the recession before we enter the recovery stage of the real estate cycle. With interest rates at historically low levels, borrowing money as recent as the first quarter of this year was below 4%, whereas today, they are over 6%. So, with cheap capital, investors piled into real estate. We must consider another statistic to understand how this affects community associations. As published by Redfin, an added variable was that last year, investors were purchasing a record over 18% of single-family homes, up from 12% in 2017 and 6% in 2000, respectively. So, naturally, investors will find opportunities in community associations. Investors have a single focus. Whether in the stock or real estate market, the invested money expects a rate of return. The intent, though, is not to put a bad light on investors purchasing into communities, so it’s important to mention some of the good. For example, if investors buy in neigh borhoods with low supply in a Hyper Supply cycle, it will drive the value of all the homes within the community. It’s simple economic supply and demand. When the pandemic peaked, there was a great migra tion out of the state. In 2020, more people moved out

of New Jersey than any other state, according to a study by United Van Lines. While New Jersey has held that title for three years, the pandemic was the primary concern in 2020. The exciting part is that real estate prices continued to rise, where investors had their most significant influence. Finding the numbers of what percentage of people pur chasing in community associations that were investors was not easy to track. However, after speaking with various industry brokers and experiencing it firsthand, the buyers in our communities were actively represented by investors with the intent to rent. How does this affect communities? First, the community association sponsor or developer submitsa Public Offering Statement to the New Jersey Department of Community Affairs. Then, the Governing Documents (i.e., Master Deed or Declaration, and By-Laws) guide the operations and the rules of living as a member of the association. What many experts in the condominium industry know is there are no two sets of Governing Documents that are the same. Some Governing Documents will call on the board to create rules and regulations. However, most Governing Documents include an expressed authority for the board to establish rules and regulations they see fit for the improved opera tions of the condominium association. As time passes, owners may move out and rent their apartment or townhome, selling to an investor who leases to a tenant. A documentary you may find interesting is called Push, about the commodification of housing. Unfortunately, CONT I NU E S ON PAGE 34

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