Colorado Housing Market: Challenges and Opportunities for The Community Association Industry

By Danielle Holley

We get it. You’re tired of hearing about the housing market. You already know that our state is full to bursting with newcomers. You already know that we have a housing shortfall. You already know that Front Range home prices are ridiculously high. Good. The basics are sufficiently covered. We are Colorado housing industry professionals after all.

Let’s talk about other issues, things Aldo Svaldi (a) doesn’t write about. Two housing market issues that the Colorado community association industry should be able to talk about are:

1)      Millennials (those guys again) want to buy houses, but many can’t. Those who can already have.

2)      The apartment industry is training your future homeowners. Do you know what they’re learning?

 

Yeah, Sure. Millennials Want a House Like I Want a Root Canal…

There are a lot of economic factors at work here, but if you were in the industry in 2010, you probably worked on at least one half-built, ghost town community. During the Great Recession from 2007-2009, over four million foreclosures were completed and nearly eight million more were initiated resulting in over seven million Americans losing their homes, financial security, and more (1). While only the older Millennials may have owned houses during the critical Recession years, nearly all experienced—themselves or through their close network— the pain of a home loss.

The American standard for “bouncing back” from something like The Great Recession is approximately seven years. That means that 2016 is the year. However, some studies are showing that the long-term effects of something so traumatic may be longer lasting than we initially thought. With a focus on Millennials in this segment (the impacts on all generations could be a whole ‘nother article): Northwestern University (2) performed a study of over 60,000 school-aged children during The Great Recession and they report that grades went down dramatically in line with home values during that time. Their initial findings are that with lower grades came fewer scholarships, leading to greater college debts and/or no college at all and an assortment of emotional stuff that can be untidily labeled depression/anxiety/inadequacy issues (3). With the job market also in the dumps, the kids who graduated high school in or around that time had few options and were almost obligated to take on college debt.

Now we have a little temporal perspective to work with and there seems to be a question of whether Millennials even want their own homes. The simple answer is: of course they do, eventually. In fact, some sources suggest that nine in ten Millennials want to own a home someday and that their collective future housing purchases will be worth almost $1.3 trillion (4). The better question is whether they will be able to make (and willing to risk) the purchase. According to a 2015 Allstate/National Journal Heartland Monitor poll (5), nearly one-in-five young respondents felt that while homeownership is a smart decision, it’s not financially viable for them. The Great Recession created a generation of people who are risk and debt averse. The purchase of a home represents more than the biggest debt of their life, but potentially the biggest risk to them and their families.

In a recent article by Forbes (6), it will take the average Millennial a little over a decade to repay their student loan debt. By then, most will be in their thirties. Will they want a wedding? A house? Babies? Surely. Does the average person wait to do those things after getting out of debt? Surely not, so the debt cycle continues. The thing is, due to the Great Recession, this generation is typically more conservative with their debt (7). A conjecture: many Millennials may see personal and national debt as the causes of the Recession leading them to limit their personal debt and avoid homeownership until they can be assured it will be a low risk decision. Millennials who currently feel safe making a home purchase have jumped in with both feet. As of December 2015, 35.8% of Millennials in America owned homes and 48% expect to make a home purchase in the next five years (4).

As a final thought on this issue, it is widely understood that due to the economic and financial instability of their youth, many Millennials tend to prefer experiences over consumer goods or career status (8). This inclination makes amenity-rich living valuable to them. They are the founders of the shared economy after all. Why have a pool when it’s more affordable and often more fun to have a community pool? This suggests that homeowners’ associations with a strong community component may be the most attractive options for this market. You want to sell homes to Millennials? You have to bring their American Dream to them because they won’t and don’t have to settle.

 

Apartments are Training Future Homeowners?

Speaking of amenity rich living, in a tight market like Denver, apartment communities work hard to differentiate themselves by including amenities, services, and experiences so that residents won’t move across the street. Currently, Millennials in the US spend over $600 billion on rent (4) making the apartment industry hot, hot, hot! The bar is constantly being raised with everything from resident appreciation events to newly installed dog runs and free wifi in the clubhouses. Many of today’s renters will become our homeowners in the future. We should be mindful that the amenity rich environment of many apartment communities will impact the expectations of those transitioning to homeowners, including how they will integrate into our common interest communities.

This is not just about Millennials. During the Recession, millions of Baby Boomers, the Silent Generation, and GenXers lost their homes and moved into apartments. They got a taste of that sweet, amenity-rich living. As of 2016, many are newly eligible for a mortgage loan again (b) and may choose to reenter the homeownership club, but they may also choose to stay renters or become pickier about what they expect from their new community.

In September 2015, over 33% of the Denver Metro Area’s households are apartments. In Colorado overall, this percentage is about 13.3% (9). Nationally, rentals account for 37% of all households (10). What this means for the community association industry is that nearly everyone who buys – or rents – a home in our portfolios has experienced the professional apartment industry. And these apartments are the ones who are working to keep your future homeowners as their residents.

It’s worth noting that according to some studies, as much as 19% of the American population – with similar numbers in Europe – have indicated that they may never choose to own a home (4) or own a home again. That number could well go up. This is not only a demonstration of the impact that The Great Recession made on many households throughout the world, but also an indicator that people are becoming more savvy to what they really want in life and what they’re willing to do to achieve it.

If you run a quick Google search on why not to buy a home, there are a plethora of arguments out there. Keep in mind, since the Recession, people are more worried about their money and their credit. Houses – dollar for dollar – are arguably as good of an investment in a person’s future as investing in the stock market. Also, in finance land, rent is an expense not a debt which frees up quite a bit of debt to income ratio. And then we look at tax deductions. These have been used by realtors for years as a reason to increase the sale price of a home, but at the end of the year, the credit we get for itemized mortgage interest hardly compares to what was actually spent. This list goes on… Forbes has a great article on it (11).

How often have you had a homeowner call you to complain about snow on their drive or a broken garbage disposal? Maybe they want to know the wifi password or when their trash will be picked up from by their door. It’s funny how many odd questions community managers get on the day to day. But if you look at it from the homeowner’s perspective, is it that odd? Often these questions come from past renters that received those amenities before they moved to your community and they’re now paying as much, or more, for their home than they were for an apartment.

The whole point is that apartments are essentially HOA training wheels. They have all of the rules and they are uniformly enforced. They have strict payment policies. And they understand that one community does not necessarily fit all. Yes, some people buy houses because they want to get away from that rules-y lifestyle, but in theory, those people would not choose an HOA either.

Apartments are overwhelmingly for-profit businesses and operate from a completely different platform than community associations. The difference is clear if you work in this industry. Unfortunately, many renters turned homeowners don’t always see the distinction. This is where we should consider honing our craft. Yes, it’s cliché. Improve the experience… Follow the rules… Etc.… Hello: this is our opportunity. We have an enormous population of people who are threatening to purchase a home in the next five years or who are realistically just now able to purchase a home again. They have been being trained by apartments to pay on time, to behave (more) professionally, to expect the rules to be enforced, to expect certain things to be maintained, and to anticipate feeling wanted in their community. These people were meant for HOA living. Overwhelmingly, people like rules and that means we need to run our associations like the multimillion dollar businesses that they are for the people that live in them.

 

Opportunity is Calling…

What this all comes down to is that the role played homeowners’ associations and management is more relevant than ever before. The Great Recession impacted many people in a lot of different ways. For us, the realities of those long-term impacts are just settling in. Although Colorado’s market has been well ahead of the rest of the county in its recovery, coming in at 17th for price of living in the US (12), we can’t get too comfortable.

Businesses all over the country reevaluated what they do and how they do it in the wake of the Recession. The community association industry should be no exception. This year marks the first real year where both Millennials and people who were foreclosed on during The Great Recession might realistically start buying homes in our communities. We need to be ready. If we are strong and forward thinking, we can be the group that the rest of the country looks to for how to provide the community association services America’s biggest generation of homebuyers is looking for.

 

This article was written and published in the August 2016 CAI RMC Common Interests Magazine. Danielle Holley is the Client Services Director for Hearn & Fleener, LLC. She has been in the community association industry since 2009 when she moved from America’s Rust Belt to Denver seeking opportunity and a little adventure. You may contact her at dholley@hearnfleener.com

 

References & Notes:

1. Aldo Svaldi is a reporter for the Denver Post with a focus on the local economy and residential real estate.
2. Conventional home loans, backed by Fannie Mae or Freddie Mac require a waiting period of seven (7) years after a completed foreclosure before a person becomes eligible again. FHA and VA offer shorter periods, but often require certain goodwill demonstrations such as a certain amount of savings or efforts to rebuild credit.
3. 2012 https://ncsu.edu/ffci/publications/2012/v17-n1-2012-spring/bennett.php
4. 2014 http://www.ipr.northwestern.edu/about/news/2014/IPR-research-Great-Recession-unemployment-foreclosures-safety-net-fertility-public-opinion.html
5. 2012 http://furmancenter.org/files/publications/HousingandtheGreatRecession.pdf
6. 2015 http://www.ibtimes.com/home-ownership-millennials-could-jump-housing-market-2016-2244360
7. 2015 http://www.theatlantic.com/business/archive/2015/06/millennials-housing-purchase-money/396293/
8. 2016 http://www.forbes.com/sites/jmaureenhenderson/2016/04/07/the-scary-truth-about-millennials-and-student-loan-debt/#46bb95beb8ae
9. https://www.creditsesame.com/blog/whos-sabotaging-their-credit-how-americans-manage-credit/
10. https://eventbrite-s3.s3.amazonaws.com/marketing/Millennials_Research/Gen_PR_Final.pdf
11. 2016 http://nmhc.org/Content.aspx?id=4708#Large_Cities
12. 2015 http://nmhc.org/Content.aspx?id=4708#Rent_and_Own
13. 2013 http://www.forbes.com/sites/kellyphillipserb/2013/09/27/11-reasons-why-i-never-want-to-own-a-house-again/#3c4db38658dd
14. 2016 https://www.expatistan.com/cost-of-living/index/north-america