Inflation has been a key point of discussion these past few months, and for good reason. It was reported that in February of 2022, prices rose almost eight percent compared to February 2021. This represents the highest level of CPI inflation in nearly 30 years. Though the job of the Federal Reserve is to control inflation, part of their job is also to avoid an economic recession. The Federal Reserve is now finding themselves looking at a double-edged sword where raising interest rates could end inflation, but also cause a recession.

The effect higher costs has on workers, employers, and business owners is being realized throughout the world, but what does high inflation mean for your HOA or Condo Association?

Inflation Prices

inflation

To start, your HOA’s expenses for things like landscaping, pool management, and even energy could go up. As the cost of gas and materials rises, companies have no choice but to eventually pass those costs on to those who receive their goods and services. Though inflation is good for home values, your board of directors might also be considering raising association dues to stay financially afloat.

Another way inflation can affect your community association is your reserve study. Most reserve studies are calculated to reflect an annual rate of inflation. It just so happens that the current rate of inflation is much higher than what is factored into the majority of reserve studies. For example, if your reserve study indicates you will need to repave a parking lot in five years, they apply a rate of inflation to those five years to calculate how much the job will cost down the road. If they used a 3% rate of inflation, but the real inflation rate is 7%, the HOA might not be prepared to bear the actual cost of repaving that parking lot when the time comes.

Inflation Preparation

association finances

There are several things your homeowners association can do to prepare for inflation and the financial risk it brings to the community’s wellbeing. The first is increasing reserve contributions. This sounds great in theory, but it is likely that the higher cost of services today will result in this being achieved through a special assessment or raising HOA dues, given the money left over from current operations is decreasing.

Your HOA may also look at getting a loan for major projects and completing them sooner rather than later. This is applicable when a project is ready to be completed now and the interest rate for the project’s loan is less than what the rate of inflation may be.

Inflation Planning

inflation

Your HOA manager should be directly involved in reviewing the association’s current financial health and planning for inflation. Making the right choice is essential to your community’s financial well being and can save the association a lot of money in the long run. If you think your association could use the help of an experienced and qualified manager to ensure its financial safety and health, MyArdent.com can help.

More often than not, having the right management company for your association far outweighs the cost of not having a management company, or having a management company that is reactive instead of proactive. Visit www.MyArdent.com today to learn how we can help your community association succeed.


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