HOA boom reshapes homebuying landscape

[UNITED STATES] The landscape of homeownership in the United States is undergoing a significant transformation, with Homeowners Associations (HOAs) becoming an increasingly prevalent feature of residential communities. This trend has far-reaching implications for prospective homebuyers, who must now navigate the complexities of HOA-governed properties. As we delve into the rise of HOAs and their impact on the real estate market, it's crucial to understand both the benefits and potential drawbacks for those looking to purchase a home.

The Growing Prevalence of HOAs

Homeowners associations have experienced remarkable growth over the past few decades. In 1970, there were only about 10,000 community associations serving approximately 2.1 million residents. Fast forward to 2023, and the landscape has changed dramatically. According to the U.S. Census, about 65% of newly constructed single-family homes were located within HOAs, a significant increase from 49% in 2009.

This surge in HOA prevalence means that buyers are more likely than ever to encounter properties governed by these associations during their home search. Currently, common-interest communities make up about 30% of the nation's housing market, accommodating approximately 75 million Americans.

Understanding HOAs: Structure and Function

Homeowners associations are self-governing organizations that make and enforce rules for a group of residents in a subdivision, community, or residential building1. They are typically run by a board of directors elected from among the community's residents. The primary functions of HOAs include:

• Collecting fees for maintenance of common areas
• Enforcing community rules and regulations
• Managing shared amenities
• Overseeing the upkeep of the neighborhood

The Financial Aspect: HOA Fees and Property Values

One of the most significant considerations for buyers looking at HOA properties is the financial impact. HOA fees can add substantially to monthly housing costs, but they may also contribute to maintaining or increasing property values.

HOA Fees

The average monthly HOA fee nationwide is $259, though this can vary dramatically depending on location and the type of property1. For instance, fees tend to be higher for condos than single-family homes, and cities like New York and Boston have significantly higher average fees.

It's important for buyers to factor these fees into their budget when considering a property within an HOA. As Dawn M. Bauman, senior vice president for government and public affairs at the Community Associations Institute, notes, "When you're looking to purchase a home, you need to factor in not just your mortgage payment, but also your assessment fees."

Impact on Property Values

Despite the additional costs, homes in communities with HOAs tend to be worth 5% to 6% more than similar homes without an HOA1. This premium suggests that many buyers value the benefits provided by HOAs, such as maintained common areas and enforced community standards.

Pros of Buying a Home with an HOA

1. Enhanced Property Values

HOAs often maintain high standards of upkeep for the community, which can positively impact property values. This attention to detail can make HOA properties attractive to future buyers as well.

2. Access to Amenities

Many HOAs provide access to amenities such as pools, fitness centers, parks, and community gathering spaces. These facilities can enhance the quality of life for residents and provide opportunities for recreation and socializing.

3. Maintenance of Common Areas

HOAs take responsibility for maintaining common areas, which can relieve homeowners of certain maintenance tasks and ensure a consistent standard of upkeep throughout the community.

4. Enforced Rules for Better Living Environment

HOAs enforce rules that aim to maintain a certain standard of living and appearance within the community. This can lead to a more harmonious and aesthetically pleasing neighborhood.

Cons of Buying a Home with an HOA

1. HOA Fees and Financial Obligations

The additional cost of HOA fees can be a significant drawback for some buyers. These fees can increase over time, potentially straining homeowners' budgets.

2. Restrictions on Property Modifications

HOAs often have strict rules about what homeowners can and cannot do with their properties. This can limit personal freedom in terms of home improvements or decorations.

3. Potential for Mismanagement

Not all HOAs are managed effectively. Poor management can lead to financial issues, inadequate maintenance, or conflicts within the community.

4. Limited Decision-Making Freedom

Living in an HOA community means adhering to collective decisions, which may not always align with individual preferences.

What Buyers Should Consider

When considering a property within an HOA, prospective buyers should:

• Review HOA documents thoroughly, including bylaws, rules, and financial statements
• Understand the HOA's financial stability and history of special assessments
• Evaluate the impact of HOA membership on future resale potential
• Communicate with current residents and the HOA board to gain insights into the community's dynamics

The Future of HOAs and Homebuying

The trend of HOA growth shows no signs of slowing down. The Foundation for Community Association Research predicts that developers will form more than 3,000 new HOAs in 2024 alone6. This continued expansion means that buyers will increasingly need to educate themselves about the implications of HOA membership.

As Dawn M. Bauman explains, "It's important for potential homebuyers to understand what they're getting into when they purchase a home in a community association. They need to be aware of the rules, the financial obligations, and the benefits that come with living in these communities."

The rise of homeowners associations represents a significant shift in the American housing landscape. For buyers, this trend means a higher likelihood of encountering HOA-governed properties in their search for a home. While HOAs can offer numerous benefits, including enhanced property values and access to amenities, they also come with financial obligations and potential restrictions that buyers must carefully consider.

As the prevalence of HOAs continues to grow, it's crucial for prospective homeowners to thoroughly research and understand the implications of living in an HOA community. By doing so, buyers can make informed decisions that align with their lifestyle preferences and financial goals, ensuring a satisfying homeownership experience in this evolving real estate environment.