In the past I’ve shared with my friends my fears about the coming tsunami of world economic collapse and a housing bubble unlike any this country has ever seen. My degree is in Political Science and not Economics but I am a successful investor and money manager. I also do a lot of reading about economic issues.
So, what’s my concern today? A new CNBC report talks about coming interest rate increases and how that will cause ‘massive volatility’ in the markets. The interest rates that are coming will crush the mortgage and housing industry.
After years of moderating and running this blog and years of writing and researching my book, “Neighbors At War,” I firmly believe that people in Homeowners Associations are going to be the first ones slammed by the coming mortgage crisis. I’ll list the reasons why HOA properties are Bull’s Eye Number One.
1. Potential home buyers are getting a whole lot wiser about the dangers of HOA living. The HOA industry has done no favors to homeowners by earning such names as ‘the lawn Nazis,’ ‘HOA Nazis,’ ‘the HOA Mafia.’ People aren’t stupid. They read these stories of the bullying of people in Homeowners Associations, the assessing of ludicrous fines, the abusive (if not illegal) practice of artificially running up legal fees in an effort to get homeowners to try to stand their ground against bullying. The more a homeowner tries to assert his property rights in a dispute, the bigger his financial fall when the HOA wins. This kind of knowledge in the hands of homeowners and home buyers means HOA property values can only go down.
2. A massive wave of foreclosures hurts HOAs more than non-HOA property. An HOA which has 15 to 25 percent foreclosures is pretty close to bankruptcy. Lose 25 percent of your dues, you have to savage the remaining owners for dues increases. If not, the community swimming pool turns green, the lawns don’t get cut, and the roads don’t get plowed. A potential buyer won’t make an HOA investment when he sees the neighborhood falling apart. On the other hand, non-HOA property owners have no problem surviving when a large number of foreclosures hits a neighborhood. Those properties are quickly bought up, especially in neighborhoods where homeowners have voluntarily worked to keep their properties looking good.
3. HOAs which restrict the percentage of rental property do themselves no favor. Being able to rent your condo or house in an emergency is a great escape valve for a homeowner. It saves his equity and he doesn’t have to turn the property over to foreclosure. HOAs with ‘no rentals’ regulations will be the first to suffer catastrophic collapse.
4. Idiotic court decisions like the recent one in Nevada, in which a super priority lien (HOA fine) can extinguish a first deed of trust (the bank’s mortgage) create a lose/lose situation for mortgage companies. Why would they invest in such a state? Why would mortgage companies not demand massive down payments and arbitrary monthly dues to handle an HOA’s excesses. Such new mortgage requirements will crash property values, and the coming financial tsnami will ensure those neighborhoods crash first.
Readers of this blog will have many more reasons why the approaching economic collapse will hit HOAs first, and I encourage you to leave those reasons on our comments page.