I’m trying to decide if buying a house with a homeowner's association (HOA) is worth the headaches. A lot of websites mention that HOAs maintain housing prices better but I couldn’t find any specific numbers. Is there any third party independent research comparing the changes in pricing between HOA and non-HOA neighborhoods?
If it matters, I’m looking at single family houses in the $800k-1m range with HOA fees of $100-200 vs houses without an HOA.
I doubt there is good data on the topic because HOA's vary wildly in terms of what services they provide and what restrictions they impose on homeowners. Regardless of what happens on average, you need to evaluate on a neighborhood by neighborhood basis. The notion that HOA's can help property values is often attributed to the idea that they can force a minimum level of upkeep, but many cities have rules that are intended to do the same. The effectiveness of such rules also varies wildly.
Focus on the area you're interested in living, then find out if there's an HOA and what it does/doesn't do. Some HOA's are very hands off and only exist to fund upkeep of some common areas, some seem to control most everything. If you're looking at an area where the HOA has substantial financial responsibilities (like a condo/townhouse complex where they replace roofs/paint exteriors, etc) then make sure when you review the HOA finances that they have healthy cash reserves. It's also worth talking to potential neighbors to find out about the HOA. If buying in a new city/county, make sure to read up on their codes/ordinances.
What is the purpose of you buying this home?
If price appreciation is the only goal then the key is to make money on the buy. What home in your area is currently undervalued that will be higher valued later? HOA or non-HOA has nothing to do with that question.
If the purpose is to buy a home, and rent rooms to supplement your income then you need either a weak or no HOA. Most HOA's have rules against such, they want a single family living in a single family home.
If the purpose is to live in the home, then you should do what makes you happy. Two friends recently sold their homes to move to a different setting. They both used to be in a strongish HOAs with similarly sized homes and properties. One couple moved to a lake front property with no HOA and a large yard. The other couple moved to a townhome with an even stronger HOA. Both were very happy with their purchase.
HOAs might in some situations increase property value, but research suggests properties without HOAs increase in value more.
Here's an article that summarizes one such study. Here are some highlights:
In short, housing developers created HOAs and told people that such agreements would increase property values by making things uniform. (If I had to guess, I'd say this was enhanced by the 1950s emphasis on uniformity and superficial appearance in the USA.) I'm guessing people bought into it enough to make prices rise temporarily due to demand. At any rate, these promises by developers increased demand and caused more HOAs to spring up.
HOAs work great if there's a whole neighborhood of people that share common values they want to collectively impose on each other. They also work great for certain situations like paying for maintenance for a shared private road. But society is changing, public awareness is increasing about HOA disputes, and demand is dropping.
Despite the relatively lower gains in property value, HOAs can provide useful services to the community, like maintenance. If you want to be able to police your neighbors (sometimes the police don't want to get involved, e.g. for loud music late at night), perhaps that's worthwhile to you. However, they also can impose restrictions on your freedom as a homeowner.
Weighing the value of an HOA is up to YOU. If you find a place you like, read the HOA agreement carefully, line-by-line. Know that some HOA dues may increase. Figure out whether the terms of the HOA are flexible (e.g. by vote) or set in stone. If the terms can be changed by popular vote, try to figure out if the people in that neighborhood share your values.
There is unlikely to be a long-term difference in price appreciation, for the following reason. Imagine two otherwise comparable houses, one with an HOA and one without. (The same argument applies to any other stable feature, say one with a pool and one without.)
If the houses are currently the same price, and if house A appreciates say 2% per year more than house B, then in 35 years house A will be twice the price of house B. These numbers are just an example -- the point is that any sustained difference in appreciation will lead to an increasing price gap over time.
If the basic nature of the houses and the HOA is not changing, then while it's understandable that the market might put a premium on house A or B, there's no reason for the premium to steadily increase without bound. The houses are competing in the same market. In 35 years, the houses will still be physically similar, and whatever difference the HOA makes to the resident experience will be similar, so it doesn't make sense that one would be worth double the price of the other (or in another 35 years, quadruple, etc.).
Significant changes in the (perceived) attributes of HOAs would lead to differences in appreciation while the changes are occurring, but then appreciation would equalize unless there are further changes.
This specifically refers to price appreciation. Note that price appreciation is only one component of investment return, which in turn is only one component of the rewards (economic and personal/psychological) of home ownership.
Each prospective home buyer will weigh their own percieved costs and benefits of an HOA. Some may be willing to pay more for an HOA, some less, and the supply-demand balance will determine market prices. HOA fees and any differences in "quality of life" will affect the comparison to "equivalent rent" and thus affect the level of house prices. However, the relative differences are likely to fluctuate in some stable range rather than in a secular exponential trend.
If you can buy with or without an HOA at the same price and be equally happy living there, then you can save the HOA fee and so your total return (including appreciation, equivalent rent, and ongoing costs) on the non-HOA house will be higher. If everyone felt that way, then the price of the HOA house would be lower (since the HOA fee partly offsets the equivalent rent), so as to make the total return on both houses the same. In both cases, the expected percent appreciation is equal for the two houses.
It's difficult to find that sort of comparison data because neighborhoods generally have more differences than just the presence or absence of an HOA.
For example, I live in an HOA neighborhood. I'm a couple of miles outside city limits in an "unincorporated" part of the county, and the HOA exists to replace the city services that we don't have access to. They pave the roads, keep the streetlights working, manage the water infrastructure, etc. The deed restrictions implement things that would be covered by zoning laws in city limits. Our property values are slightly lower, but is that because of the HOA? Or is it because we're farther away from downtown? Or because we're serviced by a volunteer fire department instead of the city fire department? Too many variables changed, so it's hard to come up with real numbers.
My parents also live in an HOA. They live in city limits, so their HOA only exists to manage the neighborhood swimming pool and maintain the landscaping in the roadway medians. Their property values are higher than the next neighborhood over, but is that because they have an HOA, or because they have a well-maintained community pool?
Take a good hard look at why the HOA exists for your neighborhood in question. The HOA management will generally give you a copy of their requirements and deed restrictions if you let them know you're a prospective buyer. If it's nothing but rules for homeowners and the HOA isn't managing common assets, then it's probably more hassle than its worth. If the HOA is managing community assets/amenities, then those amenities will likely impact the property value more than the presence of the HOA.
I've also found it helpful to ask your potential neighbors about what they think of the HOA. Many neighborhoods also have Facebook groups that are open to join, and there's a lot of information to be gleaned from there (but don't forget that internet comments are highly biased towards complaints). If you've got too much free time, you can pull the HOA's records (required to be public in some locales) and see how much they typically bring in each year in fines. Those records will also show you what they're spending their money on, which is a good indication of where their priorities lie.
The average cost is more than $300 per month
Cool, so a $100k mortgage for 30 years at 4% is $477/month. $777/month with HOA.
For $300 more per month why not just get into a nicer house to begin with?!?!
A $160k mortgage would be $764/month.
I am willing to bet that the $160k house is going to be worth more than the $100k HOA house by the time you decide to sell it.
