Most financially-savvy individuals, homeowners, property management firms, and association board members started feeling the effects of the economic downturn in 2006, when property values began falling from the record highs enjoyed in the early 2000s. The fall of housing prices cut deeply into home building and home purchases. The corresponding sharp rise in foreclosures resulted in the loss of hundreds of billions of dollars among the nation's leading banks and a tightening on credit options. Association boards and property managers faced the daunting task of keeping HOA budgets balanced in the face of drastic reserve losses and rising operating expenses.
It has been widely accepted that the housing market slump was both a cause, and a predictor of the recession’s broader economic troubles. Those troubles are still evident despite the belief by many that the worst is behind us. Former President Bill Clinton recently stated, “Whenever you have a financial collapse and a real estate collapse, [recovery] almost always, is out there at 10 years."
Using the former president’s formula, and the 2006 date as a starting point, places full economic recovery well in the future. So if it is too soon to relax association budget constraints, is it too soon to note a “surplus” in some HOA and COA budgets?
A surplus is defined as being in excess of what is needed or required, or excess receipts over expenditures, during a certain time period. While association budgeting is an ongoing effort requiring monthly reports and adjustments most HOAs work within an annual budget time period.
Daniel J. Haumann is president, and owner of Advocate Property Management, LLC in Naperville, and says that many associations are still experiencing higher than normal assessment delinquencies. Maintenance funds are often cut in order to balance the budget. A prolonged cutback on maintenance generally creates additional problems, and adds stress to an already compromised budget. “Only the healthiest associations are experiencing a budget surplus in today’s financial climate,” states Haumann. He has isolated a few reasons why a budget surplus might occur: