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What To Do When Your HOA Goes Rogue!

Terry Story, Problem with HOA

With Terry Story, 28-year veteran Real Estate Agent with Coldwell Banker in Boca Raton, FL

Townhome Sales On The Rise

The fastest growing segment of the single-family housing construction market of late has been townhomes, up 18% in 2014 alone.  Terry speculates that the reason may be the relative affordability of this class in a market saturated with first-time home buyers on a budget.  Other advantages over standard homes include not having to keep up with maintenance and repairs (these are handled by the homeowner’s association), a certain level of trendiness in terms of design, and close proximity to good schools, shopping, and restaurants.

Vacation Home Sales Declining

In contrast, sales of vacation homes have been falling in the past couple of years.  Median sales prices are up, a reflection of limited inventory, but actual sales have plummeted 36% since their peak in 2014.  The reasons for this decline are somewhat hard to ascertain, though there’s some evidence that flat income among affluent households in 2015—when stock market returns were drifting sideways—may have put a dent in vacation home sales.  Terry notes that this is true for both vacation and investment homes.  Perhaps the growth in average sales prices is dissuading buyers from pulling the trigger at the moment, and people believe they can wait out the market for a few more years. Terry mentions that Airbnb has made it easy for people to try out different vacation homes all over the world, and wonders if this isn’t contributing to a decline in the desire to own a vacation property.

Housing Market Risks Low

Steve turns to the subject of risk in the housing market, asking Terry what the risks are at the moment for a decline in home prices.  Terry’s answer is that all the evidence suggests that there’s “virtually none” nationally, and only some elevated risk in North Dakota, Wyoming, and Alaska.  She notes that the Arch MI Risk Index’s statistical model for Spring 2017 shows only a 4% likelihood of widespread home price declines over the next 2 years.  She argues that it would take some kind of catastrophic economic collapse to cause a major derailment of housing at this point.  Supply and demand, the fundamental driver of the housing market, is positioned for more gains in home prices thanks to high demand, low inventories, and relatively low new home construction.  Terry believes that the market will eventually tip in the other direction for cyclical reasons, but that does not appear to be on the horizon for the next couple of years.  Steve observes that while it’s impossible to predict the future, for now the housing market is enjoying a favorable environment where interest rates and inflation are low, employment is near full, and the economy is moving ahead at a modest but positive pace.  Circling back to the three states where there’s elevated risk of a housing decline— North Dakota, Wyoming, and Alaska—she notes that they are all being hammered by a collapse in energy prices which is causing companies in that industry to shutter operations and shed jobs.

What To Do With A Rogue Condo Board President

The last topic Steve brings up is from Terry’s “Survival Guide”—“is it worth suing a rogue condo board president?”  The question comes from someone who lives in a community association where the president of the board is violating multiple statutory provisions and rules.  When challenged by a homeowner at a board meeting, the president invited the owner to just deal with it or sue him.  Terry says that the president of the board can’t just tweak the rules to whatever he wants them to be for himself.  The best course of action would be to try to talk with other owners about exactly which rules are being broken and if they are truly harmful to the community, you should consider taking legal action.   Determining whether a behavior is harmful or merely technical is the important question to ask because seeking a legal recourse will probably be expensive and time-consuming.  It’s always better to try to find another way to work out the problem, like convincing this board president to change their rule-bending ways for the betterment of all.  If all else fails, you can try to vote the jerk out in the next board election!

Disclosure: The opinions expressed are those of the interviewee and not necessarily United Capital.  Interviewee is not a representative of United Capital. Investing involves risk and investors should carefully consider their own investment objectives and never rely on any single chart, graph or marketing piece to make decisions.  Content provided is intended for informational purposes only, is not a recommendation to buy or sell any securities, and should not be considered tax, legal, investment advice. Please contact your tax, legal, financial professional with questions about your specific needs and circumstances.  The information contained herein was obtained from sources believed to be reliable, however their accuracy and completeness cannot be guaranteed. All data are driven from publicly available information and has not been independently verified by United Capital.

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Steve Pomeranz: It’s time for Real Estate Roundup.  This is the time every single week we get together with noted real estate agent, Terry Story.  Terry is a 28-year veteran with Coldwell Banker, located in Boca Raton, Florida.  Welcome back to the show, Terry.

Terry Story: Thanks for having me, Steve.

Steve Pomeranz: Well, we’ve got townhouses, we’ve got homes, we’ve got …  I don’t know, lions, and tigers, and bears, but I understand that townhomes are having their moment in the sun, again.

Terry Story: That’s right, Steve.  Townhomes are the fastest growing segment of what they consider single family housing construction market.  They’ve actually surged about 18% from 2014 to 2015, and you gotta say, “Well, why is that?” Well, part of the reason is, in the last couple of years we have a high level of first-time home buyers, and it just comes down to affordability. It’s more affordable to buy a townhome than it is a single-family home.

Steve Pomeranz: Sure.

Terry Story: But there’s some real good advantages to having a townhouse.  For example, if you’re living a crazy lifestyle, you don’t have time to deal with the outside maintenance of a property.  That’s all being taken care of for you, they tend to be a little trendier and more walking distances to good schools, shops, that sort of thing.  So, it has its appeal, and it seems to be the fastest growing market right now for the single-family construction.

Steve Pomeranz: Interesting, on the other hand, we’ve got a report here that says that vacation home sales plummeted in 2016.  What’s going on there?

Terry Story: Now, we’re talking about the sales not prices.  Now, the number of sales for them apparently have been decreasing, and I don’t know necessarily why.  That’s the second consecutive year they have fallen.  They’ve actually gone down 36% from their peak of 2014.

Steve Pomeranz: This is the sales.

Terry Story: This is the sales.

Steve Pomeranz: The number of units sold has gone down.

Terry Story: The number of units, correct. To give you an idea, in 2015, there were 920,000 sales, and back in 2013 it was 717,000, but this past year it was 721,000.  So we’re back to almost 2013 in the number of vacation homes.

Steve Pomeranz: I see.  Do they give any reason for that, do you think?

Terry Story: Well, they do.  There seems to be some velocity in the financial markets in late 2015 that’s put a dent on the affluent household incomes.  That seems to be-

Steve Pomeranz: I guess.  Well, the markets were flat in 2015, so-

Terry Story: Yeah, that seems to be one excuse, but we do have tight inventory conditions, which is pushing up that median sales price.  That’s both on the vacation home and investment home so that it is making it maybe a little more expensive, and maybe folks are deciding they don’t need to make that move.  I don’t know.

Steve Pomeranz: Well, you know, also maybe with the advent of Airbnb, a lot of people are using their homes as a secondary source of income.

Terry Story: That’s a good point.

Steve Pomeranz: Right?  And there’s not as much inventory on the market there, as well.  That’s a possibility, right?

Terry Story: They don’t all have to come to south Florida for vacation, if you’re doing Airbnb, you can go to different locations each year.

Steve Pomeranz: You know, I saw the interview with the founder of Airbnb, I’ll make this really quick, but he said that he was looking for a place to stay in San Francisco, and his friend said, “You know, I really don’t have any room, but I’ve got some air beds.” So, it’s like they got, “Oh!  Air-bnb.”

Terry Story: I wondered where that came from.

Steve Pomeranz: So it all started …  I know.  It’s like, “Hey, that’s pretty cool.  I never would’ve realized that.” So, we’ve been doing this a long time, and we’ve been talking during very strong market cycles in real estate.  You know, ’04, ’05 and so on, and incredibly weak, and now they’re getting strong again.  So, home prices have risen fairly well, especially in the last few years.  What do you think the risk of home prices going down are now?

Terry Story: Well, if you’re talking nationally, across the country, I’m going to have to say virtually none.  The likelihood of the next two years of that occurring is about 4%, according to the Arch MI Risk Index’s statistical model of spring 2017.

Steve Pomeranz: Okay.

Terry Story: Overall risk was stable this quarter.  There’s no state that had a greater than 50% chance of home prices declining according to this study.  So home prices grew 6% if you look back at 2016.  In order for it to reverse course so dramatically, it would have to be something rather monumental to occur, and it always comes down, Steve, to supply and demand.  We have such low levels of inventory that demand is high.  There will be a tipping point, and it is always cyclical.  Every market has its season, but it’s just not now, unless we have some kind of catastrophic economic collapse of some sort.

Steve Pomeranz: Right, and that’s always impossible to predict, but the way things look at this moment, inflation is benign, interest rates are low, the economy is chugging along at a modest pace, we’ll say.  By some measures, we have full employment and other things like that, so it’s kind of a good environment for housing and for the stock market as well, but the future is always uncertain.

Terry Story: That’s right, and the three states at risk, if there’s any kind of risk, that would be North Dakota, Wyoming, and Alaska, and that’s because of impact by weak employment and home sales.

Steve Pomeranz: Okay.

Terry Story: Due to unwinding energy boom and high inventory supply [crosstalk 00:05:39].

Steve Pomeranz: Yeah, so North Dakota has a lot of fracking, and things like that, so as oil prices decline, it becomes more difficult to make a profit in those areas, and so activity declines, and that’s going to hurt housing.  You know, I love your Survival Guide, as we call it.  Here’s a question, is it worth suing a rogue condo board president?  The question is, I live in a community association where the president of the board is violating several statutory provisions and community rules.  When a homeowner brought this up at a board meeting, the president told the audience to deal with it, just sue him.  What should we do?

Terry Story: Oh, boy.

Steve Pomeranz: You’ve got one minute.

Terry Story: Okay, the president can’t just bend the rules into whatever he wants.  Your best course of action would be to try to discuss the matter with the individuals to see what the actions are, but his actions have to be truly harmful, and if they are, then you need to take legal action.

Steve Pomeranz: Yeah, which is expensive.

Terry Story: Well, exactly.  You have legal fees, a loss could get expensive.  Is he just breaking a technical rule, or does it have a real negative impact on the community and yourself?

Steve Pomeranz: Yeah.

Terry Story: It’s probably not worth spending a lot of time and money and energy in a lawsuit.  Just try to work it out.  You could always go and try to vote him out of that position in the next election.

Steve Pomeranz: Okay.  Terry Story.  Terry is with me today, as she is every single week, and you can find more about Terry Story at terrystory.com.  Thanks, Terry!

Terry Story: Thanks for having me, Steve!