As the U.S. economy braces for a challenging year, homeowners associations (HOAs) face rising costs, inflationary pressures, and complex economic risks that could impact homeowner delinquencies and collections. The past year has shown how inflation, central bank policies, and regulatory changes continue to shape HOA fee structures and operational costs. There’s much uncertainty, too: Will inflation cool down? Will we head into a recession? Will HOA insurance costs continue to spike? And of course, how will these economic factors impact our homeowners’ ability to pay assessments?
While we can’t predict the 2025 U.S. economic landscape with certainty, we can draw on trends from 2024 to offer insights that empower management company executives to effectively assess delinquencies for the coming year.
Rates on the Rise: The Impact of Increased Wages and Insurance Premiums on Assessment Pay
Rising fees are becoming the new norm for HOAs, with 91 percent of HOA and COA boards reporting unexpected cost increases as early as December 2023. Many boards are responding by raising fees between 5 and 10 percent, and in some cases as high as 25 percent, to cover expenses.
Is it just because of inflation that is causing these fee hikes? Indeed, increased costs lead to increased wages for boards to pay. But reserves funding, emergency preparedness, and insurance costs are also some of the key reasons why it is getting more and more expensive to live in a professionally managed community.
Natural disaster risk has become increasingly unpredictable and problematic. As of November 1st, the U.S. experienced 24 confirmed natural disasters with losses exceeding $1 billion each. As a result, many associations face no choice but to build up reserves. Stricter reserves requirements due to deferred maintenance concerns – stemming from tragic events such as the Surfside Condo Collapse – have also increased costs for associations. As a result of this and other cost factors, HOA insurance costs are skyrocketing. Florida, in particular, has experienced a 68 percent increase.
One can assume that HOA and COA fees will continue to rise in 2025, and these increases may result in greater delinquencies.
U.S. Economic Outlook: Challenges and Risks
The U.S. is projected to see slower economic growth in 2025, with GDP expected to slow from 2.8% to 2.2%. A few key risk factors may impact delinquencies and overall financial health in community associations:
- Inflation and Central Bank Policies: While inflation is easing, it remains a concern. Continued high interest rates may curb economic growth if maintained too long.
- Geopolitical Tensions: Conflicts in Ukraine, the Middle East, and trade disputes with China could disrupt energy supplies and economic stability, adding to financial pressures. These trade issues may also further increase costs for vendor needs within an association, including landscaping supplies.
Will Homeowner Delinquencies Rise?
Given the economic challenges, there’s a moderate risk that homeowner delinquencies will increase in 2025. Factors include:
- Home Equity: Stable home prices have helped keep delinquencies low by providing a financial buffer, but if prices stagnate, this cushion could weaken.
- Mortgage Market Stability: Mortgage rates are stabilizing, which may limit severe financial strain, but elevated rates could still affect housing demand.
- FHA Loan Vulnerability: Homeowners with FHA loans are especially at risk, as they typically have less equity and may struggle to meet assessments if inflation outpaces wage growth.
HOAs should consider these trends when planning their budgets for 2025. From increased reserve funding to adapting for potential delinquencies, the coming year will require careful financial planning.
How Can Management Companies Combat HOA Delinquency Risk?
If delinquencies increase, here are several strategies management companies can implement to maintain financial stability:
- Establish Flexible Payment Plans: Offer customizable payment plans to help delinquent homeowners manage their dues without falling further behind, reducing the likelihood of prolonged delinquencies. Digital wallet options, including Apple Pay and Venmo, are especially important to support homeowner needs.
- Proactive Communication: Use automated, data-driven communication tools to remind homeowners of due dates and overdue payments. Consistent reminders based on the homeowners’ channel preference will reduce the chance of a past due balance moving to third party collections.
- Improve Cash Flow Forecasting: Monitor cash flow closely and adjust budgets based on delinquency trends, prioritizing essential services and setting aside reserves as needed.
- Leverage Data Analytics: Analyze trends in homeowner payments to identify at-risk accounts early, and take preemptive action to support those homeowners before they fall behind.
- Increase Reserve Funds: Build up reserve funds in anticipation of higher delinquency rates, creating a buffer to cover operational expenses without immediate reliance on homeowner dues.
- Engage in Board and Community Education: Inform board members and homeowners about the impact of delinquency on financial stability, encouraging transparency and proactive support across the community. Boards don’t want to see their homeowners go into debt, and through proactive, AI-fueled technology, that doesn’t have to happen.
By combining these strategies, management companies can mitigate the impact of delinquencies, maintain financial stability, and support the overall health of the community.
AI at the Helm
When it comes to managing HOA delinquency in 2025 and beyond, AI is key. For an in-depth analysis of these trends and what they mean for your community, read the full 2025 Economic Forecast on HOA Collections and AR Recovery in our latest report, AI at the Helm.
