Announced City Water Rate Increase

Chicago announced a 25% water rate increase to take effect in 2012. This will be reflected in our monthly water bills, because Wheaton gets its water from Chicago. However, it was reported that both water and sewer rates will increase. 

On Monday, January 2 the Wheaton City Council passed this vote, as reported in a local news outlet:

“Wheaton residents will start the new year with a 30 percent increase to their water and sewer rates in their next bill.

In a 6-1 vote Monday night, the Wheaton City Council approved the hike from $2.65 to $3.45 per 100 cubic feet of water. The combined rate for water and sewer services will be $5.50 per 100 cubic feet of water used. According to city documents, the average Wheaton customer’s water rate will increase by $9.60 per month, based on an average use of 9,000 gallons per month.”

It was also reported that the commission is expected to increase its rates by 20 percent in 2013, 18 percent in 2014, and 17 percent in 2015. "These increases are purported to be necessary to pay off a $70 million debt."

Well, I got my personal water bill yesterday and the rate for water did increase by 30%. So my water bill for 600 cubic feet was about $10 more than the previous month. 

Is Happiness a Worthy Pursuit?

As I enter a new year, I think it is useful to get some perspective for what lies ahead.

"The purpose of life is not to be happy. It is to be useful, to be honorable, to be compassionate, to have it make some difference that you have lived and lived well."- Ralph Waldo Emerson.

I'm not a big proponent of New Year's resolutions, but I will attempt to post weekly here, in 2012.

End of Year Summary - 2011

Well, it is the end of the year and the beginning of a new!

So, how did things go here at BLMH in 2011?? Well, I'd say it was a "mixed bag." For the most part it was good, and some not so good. Overall, I'm very satisfied with the achievements of the board in 2011; that includes myself and my "partners." This did not occur in a vacuum and it took considerable effort on the part of management, our loyal and hard working contractors, and of course, the board. This was also accomplished with the support, agreement and good will of our owner/shareholders, the majority of whom kept their agreements with the association. This meant paying their fees in a timely manner and keeping the rules and regulations. Thanks also to those owner/shareholders who took the time to attend association meetings and ask the hard questions! My hat is off to all! This is my personal perspective as a member of the board in 2011, as one of a small group who is truly "of service" to the association. It is also a looking forward into 2012.

When I took on this commitment, it was a two year agreement. I approached it as one which will end in 2012. I'm not saying I will not run for the board in 2012. What I am saying is, I have a finite amount of time to accomplish whatever it is I will accomplish on this board. My term will expire in September of 2012, and that is the time I have. Of course, events may occur which will limit my time of service. An irate owner  made a comment during an association meeting shortly after the election of 2010 and wanted me off the board, immediately! I publicly suggested that there was a mechanism in the bylaws to accomplish this. Their retort was "getting everyone in this association together to accomplish something would be impossible." So here I remain, until I am removed or other events transpire.

In 2011 the economy continued to sputter along. This placed several types of stress on all owners. It placed additional stress on those owners who would like to sell and the Realtors who represent them. It  was a buyer's real estate market, if one could arrange the financing. Some did and we had a modest number of unit sales. Of course, some owners have been frustrated by the prices offered. We're definitely off the peak which occurred in the spring of 2006. For owners who purchased real estate in 2006 with the anticipation of a wonderful investment, and a "seller's market" forever, it has been frustrating. For those with a longer term view and who compare the costs and benefits of ownership to those available when renting, and are able to maintain that perspective, it hasn't been as painful. What can I say? The economy is what it is! For those with a bit of savings, I'm sure they too are frustrated by the lack of reward, or return, for those savings. So this cuts across all finances. Not only did housing take a hit, so did other, generally accepted assets. Remember the "good old days" when your money could earn 5%?

I've checked the government sources. So what are the "official" number for houses "underwater" in the U.S., which is the term for those homes in which the owners owe more than the property is worth? It was 17% as of November 2011. So most of us in the U.S. are "above water." I can't state the numbers for the association. That information is not available to the board or to the public at large.

Do we like this economy? Of course not. There is a lot of uncertainty at present. The economy is beyond the capacity of the board and management. Some owners seem to have taken a position that it was "the fault of the board and management." How they came to that conclusion, I'll never know.

As for the things the board can be accountable for, or the things we can influence, I think 2011 was reasonably successful. If you think it was stressful as an owner/shareholder, believe me, it was an order of magnitude more difficult for the board, and even more difficult for management.

Assessments and Fees
We did get the new reserve study. Not an easy decision, spending money. However, this is the only unbiased method I am aware of to provide a board with long term financial planning information. That information is vital for determining fees, and fee increases for reserves. It is true that management can provide part of this, but a bona fide, independent reserve study consultant firm staffed by professionals who do this, and only this, is the only way. That's my opinion, and there is evidence to support this opinion.

The board has been committed to finding methods to avoid special assessments, and keep fee increases to reasonable levels. This while simultaneously performing the fiduciary duties of maintaining this association. It's my perspective that I approach these problems and issues as a true owner. I look at the spending of money as if it were from my personal checkbook. But it is actually more difficult than that, because of the very high expectations of the shareholders. I can state that in this, I'm not alone on the board.

Entanglements
There were some differing perspectives on the board and between the board and certain owners. Earlier in the year it was pretty "rocky," but as 2011 progressed I think it smoothed out. On an association board I do understand and agree that diversity is a good thing, if held within the context of being a fiduciary. Owner/shareholders have no such restraint or responsibility. So an owner can promote their personal agenda. Board members are also owner/shareholders, but we've supposedly agreed to set aside our personal agendas for the length of our terms. We are held to a higher standard. It is sometimes difficult to step back and ask "what should a fiduciary do" in any specific situation. To ask that question intelligently requires some knowledge of fiduciary duties, the Illinois Condominium Act (ICA), the Rules and Bylaws and any other covenants of the association. It also requires a willingness to openly communicate, frankly and honestly, with others. It's not about looking good. There were times in 2011 when I am sure I looked somewhat stupid to others. That's the price one pays to sit on the board. However, if there is trust present, then it isn't a big deal. My commitment was, is and remains to the association. That is a distinction from the wants and needs of individual owners. So in 2011 I attempted to serve the association, and in my opinion that meant that the owner/shareholder body was well represented.

I've taken a position that owners are shareholders first and owners second. Why is that? As an owner, they are responsible for their units and the elements so defined in the bylaws; in their units they have substantial freedom and responsibility. However, as members of the association, they are shareholders, and the board as representative makes the decisions for the common and limited common elements; essentially everything outside the units. From the perspective of maintenance, the board is responsible for decisions affecting the maintenance of the entire property for the shareholders. Owners may want certain things done on "their" building, but in fact, it isn't "their" building in the literal sense. The owner/shareholders are merely inhabiting a specific building. If all owners are truly equals and there are no permitted subgroups, then decisions affecting one building should have a rational basis determined by weighing the needs of the entire association. In 2011 I approached this as anything accomplished at one address should be part of a program for all addresses. In other words, we can only afford to do certain things and should do them if we can and will do them at every address with similar circumstances. That applies to roofs, driveways, drainage improvements, landscaping, and even paint touch-up, etc. There are programs in effect at BLMH, many are on a preset schedule, and some are determined by physical condition. Roofs which are in good condition are put behind those in poor condition when selection for re-roofing is made. In 2011 a long piece was written for the newsletter about the method of "grading" garage floors. This was provided as an example. Even so, there are owners who complained about "transparency." I encourage such owners to apply for committee, and volunteer for the board. However, I will ask them to leave their personal agendas at the door!

I really don't want to get entangled with any owner or members of the board. There were times when that became unavoidable in 2011. It is my perspective that it is important to set boundaries with other human beings. This is a business and for the most part, it is run as one. It is not a hobby. Frankly, I have better "hobby" uses for my time and I separate work from play. In 2011 some owner/shareholders didn't see it that way. I expect that 2012 may be more of the same. However, most owner/shareholders are aware of these distinctions and limitations.

Communications
In 2010 on joining the board I purchased a cell phone and published the number to the owner/shareholders via the newsletter. However, that number is also published in web, via the newsletter. I prefer to use email because I think that there is a different level of responsibility. I, or the other person on the line can say just about anything, but to put it into writing is preferred. In 2011 I usually sent emails where appropriate, with copies or bcc to management and other board members. I view much of what goes on in communications as a dialog, and a conversation. I am somewhat hesitant to make commitments, but some owners attempt to force an agreement.

I prefer email for such a conversation because everyone on the board is included and receives exactly the same information. Since the ICA prohibits subgroups in associations, I have taken that to apply to the board as well as to owner/shareholders. It would be particularly undermining to the association to exclude management and/or specific board members. To make quality decisions requires quality information, and a range of opinions from various experts as well as the board in general. When someone asked me in 2011 "why did it cost so much" I hope that there was ample information to make a conclusion. Somewhat lengthy emails not only provide a "why" but the "how."

In this I was reasonably successful. I was however chided because some of my emails are lengthy. In my defense, I'll state that it take a lot longer to write these than to read them, and I am a busy man. I prefer when dealing with other responsible parties to provide the basis for my decisions. As we all know there are three levels of communications; opinions, assertions and facts. When I make statements, if I don't provide substantiation, then it is reasonable for the listener to take my statements as opinions. The problem with opinions are, any opinion is valid. For example, if I were to state that the world is flat, and the sky is green, these are both completely valid opinions. For most of us such statements are not factual. Decisions need facts.

In 2011, when working with the board, management and owners/shareholders, I attempted to avoid unsubstantiated opinions. I was reasonably successful. To do so required providing more detailed emails, somewhat detailed monthly reports to the board, and more information in the newsletter.

I do understand that others may not agree with what I was doing, but I intended that they be provided with a basis for understanding; WHY I was doing it. In my capacity, I am empowered to make certain decisions. I think it's appropriate to share my rationale. Why does it sometimes take a bit of time to present a technical position? Well, it is somewhat of an art to cull useless information but not lose the readers, who have differing backgrounds and capacities.

I pressed for a shift in the newsletter, and the board permitted this to occur. To accomplish this I prepared spreadsheets from which I made graphs and charts, as well as expanded articles. This accelerated in 2011. I was once taught in a "communications" course that "everything can be resolved through communications." BLMH is a wonderful opportunity to put this into action. However, resolution does not mean that "one gets their way," or that people will be completely satisfied, and that includes me! Resolution means having or making a firm decision. There is nothing in resolution about "keeping people happy" nor is that a board's responsibility. Furthermore, it is mandated by the Illinois Condominium Act that there be only one class of owner. Expanding the type of information provided in the newsletter is a means of enforcing such single ownership class. Knowing me, or others on the board should not be a privilege, nor should privileged information be provided by a board member to a specific group of owner/shareholders. I think to a certain degree, the newsletter has been successful in this. It has also provided information in about as transparent a manner as is practical.

I did have some apprehension about the newsletter, because it is the association's decision to publish it on the web. So I think it's important to present an even handed presentation of the association to the world. Some of the readers may be interested in a purchase. Some information should, however, be reserved only for owner/shareholders. It's our business and no on else's. We have paid for that privilege.

Of course, not everyone was "happy" and in 2011 there were a few complaints about the identity of the owner of the photographs in the newsletter. In my case, any photos I take are my property. I provide them to the association as a service and for a specific purpose. I have abstained from copy-writing these photos, but I do earmark them. The photos aren't a hobby, are provided for a purpose, including providing visual explanation, or substantiation of statements.

The revised newsletter became less of a neighborhood bulletin, and had a more business like tone. I realized that too was probably not going to make everyone happy, and apparently not everyone was happy with the result.

In 2011 I decided to provide the board with a monthly "Architecture and Maintenance" report. This provided summaries of projects, provided information about problems, photographs, stated timelines and made requests and provided "by when" dates. It was partially successful. I say that because when the "by when" dates came, they sometimes "went" as new concerns were raised by other member(s) of the board.

For 2012 I am re-considering having (as in, paying for) a separate cell phone so owner/shareholders can reach me. For the holidays it was "off" because I was on vacation and because I pay for all received calls. I would prefer email communications, but not all of our owner/shareholders use email. As stated earlier, I prefer written communications. Most emails I receive are forwarded with comments to other board members and management. I can't do that with voice communications, and with voice communications it is always possible for a person to say "I said this" while I insist I heard something else. Or vice-versa.

Maintenance
In 2011 we did accomplish most of the maintenance tasks which were identified. We have a few driveways that are on the list which were not resurfaced. However, it's important to do the garage floor work before the driveways. If we don't, then we spend money twice; once to do the driveway, and again to patch after the garage floors are done. For this reason, in 2011 I made it a priority to survey every garage.

Because the concrete work was to be done late in the year, it became impossible to do the driveways; not really a serious problem. None are in very poor condition; the worst were done in 2010. So we'll resume this in 2012. In 2011, it was expected that asphalt prices would be stable in 2011-2012. So there was little price urgency.

The landscaping director has been dealing with some thorny issues regarding the willows on the property. The removal of one cluster in 2011 has now created the opening to deal with the below ground stream pump located in that area. That too will be considered in 2012.

Overall I'm satisfied with the maintenance programs in 2011. Was it perfect? No it wasn't. We must balance expenditures with cash receipts and coordinate projects. It is not possible to do everything in the current budget, so we established priorities. Not once, but ongoingly throughout the year. So some things were postponed to 2012. That's the way it is with human beings which at our best remain "perfectly imperfect" beings.  We did get most of the items on the agenda completed, but it was a press to do so. Coordinating exterior painting, roofing projects, garage projects and driveway projects as well as drainage improvements can be difficult when some of these are identified and anticipated to occur on a single building, in a single year. So some items were "tabled" at certain addresses and will resume in 2012. However, all critical projects were completed.

In 2011 several possible projects or improvements were identified, but did not occur. I'll be taking another look at these in 2012. A list is being made, and plans formulated this winter, so that, when the board makes the decisions of what to tackle in 2012, we will be ready to begin when spring has sprung!

Time-lines
One of my frustrations in 2011 was the length of time it sometimes takes to accomplish something. Some of this is beyond the capacity of the board, which is to say, out of our hands. Some simply is the nature of the association, and what I would call a project cycle. Some problems have to be identified, then a solution discussed with specialists, management and contractors. This solution, or perhaps several are then presented to the board. If the board agrees, then and only then can the solution go forward. If the board disagrees, then the process begins anew. In such a case, 30, 60 or 90 days can be lost.

As an example, the survey of all garage floors was made in April of 2011. Using this information, discussions were then held in May with the board and management about which floors to replace in 2011. During subsequent meetings, the board agreed. On this basis, specifications were prepared, reviewed and then were revised. The specifications were presented to the board, after revision and the board approved the specifications. Bidders were then selected and presented with the bid documents. After receipt of bids, which had differences, the bidders were questioned to assure that all requirements were met, and clarification achieved. A summary document was prepared and presented to the board with comments. The board made a selection and the bid was awarded and contract documents prepared and signed. Permits were then acquired by the contractor. After receipt of permits the work began, and was expected to occur over about 4 weeks. However, while doing the work several problems were discovered (literally uncovered) at several of the addresses. This required a delay while the problems were assessed. A decision was made about the best method to address these problems which were beyond the initial scope of work. With the agreement of the contractor, management and the empowered board member, the city was approached for approval. Approval was delayed while the city reviewed the problem. Approval was made, but then was rescinded. A second approach was presented and was approved by the city. How long did it take for this entire process? The necessary, additional work was performed and finally completed nearly 7 months after the initial garage survey had been made! Of course, while this project was going through the phases of determination through completion, there were also roofing, driveway sealcoating, drainage improvements, stream pump replacement, etc. going on at the same time. For good measure throw in a few "emergencies" and then financial planning, reserve study, tree removal, etc. and the board had an incredibly full agenda! This was all above and beyond normal association operation and maintenance!

In an association in which outdoor related maintenance work can only occur during about 8 months of the year, a 2 or 3 month delay makes completion in a calendar year difficult or impossible.  Once begun, some projects must be completed in a single year and while weather is good. In some cases, if not a critical item, it can be completed in the following year. That however, presupposes that the board of the association in the next year will pick things up where they were left off. There is no assurance that will occur. In 2010/2011 I made it a priority that there would be continuity. So we will continue as planned unless the board majority decides otherwise

In 2011 there were other delays, and some affected the roofing project. One was a board member request about which roofs were on the list, based on current events. Another was some code issues discovered in the attics of several buildings. Another was window delays, sometimes by owner approval, and another the discovery that the wrong window had been ordered, or shipped! These accumulated to delay the project beyond what I declared to the board as "by when" dates, including bid release and actual beginning date for the roofing project tear offs, and final completion. However, Mother Nature cooperated and all work was completed during moderate and acceptable temperatures. For 2012 we've identified and discussed some improvements to the process.

Of course, for all of these projects, only after the board agrees on a course of action and a specification is written and approved, do we go for bids where that's appropriate. We then evaluate the bids, award the contract and finally the work can begin.

In certain emergency situations (loss of water, plugged piping, roof leaks, etc.) there is no opportunity to bid. There are also realistic minimums. I've watched earlier boards argue about $500 concrete work. There are practical limits.

Time Limitations
There are only so many hours in the day. Boards are comprised of volunteers, and we each have differing responsibilities and that limits our availability to the association.  It is also true that one person's "mandatory" is another's "optional." Sometimes things simply didn't occur in an order that resulted in a reasonable timeline. If information arrived after an association meeting, that frequently resulted in a 1-month delay. Giving the appropriate time to thoroughly read and analyze a 90 page management report also can be challenging. We are supposed to be fully prepared for each association meeting.

It is my opinion that an HOA such as ours presents an oxymoron. People purchase to have some "ownership." On the other hand, the attraction of an HOA also is the limitation of responsibility for individual owner/shareholders. We would like to have the best of all worlds. Apartment style living with many services provided, while getting the financial and decorative/self-determination benefits of ownership. Unfortunately, ownership in an HOA sometimes requires involvement beyond occupying one's unit. At BLMH perhaps 10% of the owner/shareholders attend a monthly meeting. That was the driving force to expand the newsletter. In the absence of most owner/shareholder involvement, beyond personal issues or complaints, how to present more about the day to day workings? I was surprised when a water main break was stated by an owner to be "a city problem." They did not understand WE own those mains, and I discovered this was the position of more than a few. So how to address this? It could be addressed through better communications and education.

In 2012, this will continue as the board directs. However, there are real limitations to the total amount of time that the board volunteers can provide for the association. Tasks will be prioritized and  those at the top of the list will be completed. If there are ample board and committee people available, then all tasks will be completed. If there are not, then some will not be completed. That's the way it works. It has been said that people get the leadership they deserve, and so it is!

Disagreements
In 2011 there were disagreements. Some involved owners, and some involved board members. Dealing with these issues can be time consuming and costly, in time and in money. I can state so based on my personal experiences last year. As the year went on, the disagreements became less and less. Perhaps on the part of some owner/shareholders, there was concern about a perceived "slow start."

Will 2012 be better? I certainly hope so. We can disagree, but we should be civil. We should also keep our focus on the prize, which is running this association as a business and doing an adequate job. Board members as well as owner/shareholders should work together to make this association a fine place to live. In general, I think we, and by that I mean all of us, are succeeding.


Notes: 
1. I'll be putting more information about all of the plans for 2012 in the newsletter, unless the board prevents this from occurring.

COD Construction Update

Our neighbors at the College of Dupage began a construction project along our easterly border this fall. According to the information at the COD website, this was described as a "2011 Parking Improvement Project."

This project began as a surprise, with no notice from the college to the association or management. When the construction fence went up, it raised questions. These included: what is the nature of the project and when would it be completed? According to the information provided at the request of the association and the COD website, this was to have been completed in October.

A meeting was arranged with the Project Manager and the association discovered that this project included a bermed retention pond, with trees, grass, etc.along our easterly border.

This was of concern to some of the residents and so a meeting was arranged. The college responded to a request to send a representative to attend one of our association meetings, but to my knowledge our board never received a reply to several questions that were raised during that meeting, as promised.

So, on December 3, what's the current status of the project? I went to the COD "Construction News" website this morning, and the first item was more of the brick throwing competition with the Village of Glen Ellyn:

"Village Responds to COD Overtures with Three Citations and Two Stop Work Orders
On the same day COD President Robert L. Breuder contacted Village of Glen Ellyn President Mark Pfefferman to develop an agreement for a smooth de-annexation process, the Village served the College with three citations and two stop-work orders."

Well that was of no help!

So, I went further into the construction information site and after reading through all of the "awards" and other propaganda (What does any of this have to do with "construction news?") I finally found this last item:

"2011 Parking Improvement Project
 Phases I and II of the Parking Improvement Project will take place between July 11 and Nov. 15."

Going further into the labrinth of a website, I discovered this statement:

"In our continued effort to inform the COD community, Facilities Planning and Construction has issued this Official Communication to provide more detailed information regarding the 2011 Parking Improvement project. Phase 1 Construction is anticipated to occur July 11 through Sept. 5. Phase 2 Construction is anticipated to occur Sept. 6 through Nov. 15. [See attached map for phase 1 and 2 locations.]"

Going to the map, yes there is "stage 1" right along our fence, with a note "Stage 1: Approximate dates of construction: July 11 through September 5."

I continued to the COD "Master Plan" area of their website and clicked on the "Live Webcam" link.I thought, wow that will be neat! So I clicked and here's what I saw; apparently the webcam is out of action! However, after this image, there's a link and you can try accessing it, yourself:

Here's a Link to COD'S "Live Webcam."
Click Here for Live Webcam

So I returned to the COD website, went to the "Facilities Master Plan" area and then to the "Construction Projects" Page. Here is the list of current projects. The one along our easterly border with the college is not listed here, nor under "Current Projects Construction" Here is what is listed:

ATHLETIC FIELDS #3/SOCCER FIELDS
BERG INSTRUCTIONAL CENTER, STUDENT RESOURCE CENTER AND COLLEGE CENTER ADDITION CULINARY AND HOSPITALITY CENTER HEALTH AND SCIENCE CENTER and TECHNICAL EDUCATION CENTER
LANDSCAPING IMPROVEMENT
HOMELAND SECURITY EDUCATION CENTER
McANINCH ARTS CENTER GRAPHIC ARTS RENOVATION

So, it seems the project of interest is completed? Not really. Here's a couple of photos taken on December 2. Note: clicking on the photos will enlarge them.

Notes: 
1. Link to Naperville Sun article dated December 1:

Click for Article "college of dupage moves to leave glen ellyn"

2. Link for the Construction News information at the College of DuPage website:

http://home.cod.edu/newsEvents/constructionNews.aspx

3. Link to the current diagram at COD which shows various construction projects. You will note that the project shown in the photos above, is no longer on this diagram. That's interesting!

http://www.cod.edu/Maps/CampMap2.gif

Housing - A Time to Buy?

Morningstar, a well known financial and investing website, has an article which might be of interest. At present, it does not require a log-in or subscription to access. The article is by Dr. David Kelly, chief market strategist and  David M. Levowitz, market analyst, both for JP Morgan Funds. This is a link to the original article, but I'd suggest you read this post first:

 Click for Morningstar- Housing- A Time to Buy?

The article subtitle is: "Home prices look downright cheap, not only from the perspective of mortgage rates and income, but also relative to the cost of renting or the cost of constructing a new home."

The article includes a few metrics I've found to be useful over the years. There are a number of charts in the article, and they are all somewhat interesting, in my opinion. It is important to remember the "all real estate is local." That means that to make generalities from articles such as the one at Morningstar, or to accept general statements, whether made by me here, or by a Realtor, may be asking for trouble. It's easy to quote out of context and to pick and choose information. Such an approach is considered to be intellectually dishonest. So, as a caveat, I suggest the reader who is interested, go to the Morningstar website and read the entire article, or do further research on their own, and then draw their own conclusion.

I do think generalities are somewhat useful. But I would never purchase anything because of generalities. For example, to say that "Long term, stocks are a good investment" is a truism and can be substantiated. However, I'd never purchase a stock in any company, or even a mutual fund, based solely on that statement. Why? Because it can also be stated that we have experienced "a lost decade in stocks." My point is, converting generalities to specifics may involve stretching the facts, misinterpretation, or being untruthful.

With that said, here are a few comments on the information contained in the article.

The authors state "Although the U.S. housing market remains extremely depressed, we believe that given current valuations and demographic dynamics, now may be the time to consider an investment in housing." They then go on to say "Few financial manias in history have had as devastating an economic impact as the American real estate bubble of the 2000s. From soaring boom to dismal and continuing bust, it has shipwrecked the financial plans of millions of American families, led to an absolute collapse in the construction industry and, through the magic of modern financial leverage, led to the biggest global recession since World War II."

It was too much of a good thing? Well, it does seem to have been a binge. Is the hangover now subsiding? I think there is some daylight. Nationally, revolving debt which was mostly credit card debt, peaked at over $22,000 per household. Recently it was reported to have dropped below $18,000. So it seems some households are slowly getting their financial 'house in order.' The dark side of this statistic comes with the realization that these are averages, and there is a possibility that for every household which is living with no revolving debt, there may be another with $36,000 in credit card and other revolving debt. Ouch! I do know that's a simplification of the statistics, but it is sobering. With the tightening of home mortgage standards, many households today cannot be qualified for a home mortgage, and with good reason.

However, there are also many households which do qualify. Mortgages are available, but will again require some financial wherewithal to qualify. Saving for a down payment is not repression. It's an opportunity to demonstrate that the homeowner has sufficient financial discipline and the income to pay for ownership, which is a long term commitment.  Signing that mortgage is a promise to repay a debt. Or it was, until recently. Today, for the millions who most likely would qualify for a home mortgage, the question remains, is this an opportune time for a home or condo purchase? This post is one of a series which attempts to provide the reader with some insights into that question, and sources of possible answers.


Why do the authors state "A Time to Buy?" 
Are the authors optimistic at this time? The authors look at several metrics, including these three; the first is affordability as a measure of the price of the housing compared to annual income. The lower, the more affordable. Second is percent annual income spent on housing, and again, the lower the more affordable. Third, monthly rent versus monthly mortgage payments, when comparing comparable properties. There are other metrics and they are included in the article, but I think these three are the most important.

According to the authors, since 1966, the median price of an existing single-family home in the U.S. has varied between 150% and 251% of personal income per household. However, roughly three-quarters of the time it has been in a relatively narrow band between 185% and 230%. In September 2011, the ratio was just 153%.

Of Specific Interest in the Article
One item of interest is "Chart A," which is a graph of average, per-household personal income and home prices over the period 1966 to the present. Comparing adjusted, average personal income to the price of housing gives a good indicator of the "affordability" of housing. That graph shows two housing bubbles. One occurred in the late 1970s and the other began in 2000 and peaked in 2006-7. I recall the exuberance of the early 1980s in DuPage country as depicted in the chart. That's when housing in south Wheaton and Naperville "took off." At the time of the bust, about 1984, there were partially completed houses sitting empty and fallow. That downturn was not nearly as nasty as the current one because it wasn't nearly as pronounced, housing was not overbuilt, as it is today, and households had no where near the current debt. The chart indicates that from about 1989-2001 was a good time to buy, with prices stable relative to income. The lowest period since 1989 was 2000-2001 which appears to have been an ideal time to buy. After 2001 housing prices soared, becoming less and less affordable until the "bubble burst" in 2008.

In 2001 a home was priced at about double the average annual personal income, or 190%. By 2006 it was about 250%. Today is the lowest on the chart, at about 153%. In other words, housing on a dollar basis, is implied to be a good investment today; the best since the chart began in 1966. This is based on median existing home prices.

"Chart B" indicates the mortgage paid as a percent of personal family income. That too, indicates that it is the lowest since the chart begins, in 1966. At 6.9% that is lower than the average 14.4% according to the authors. This can be attributed to the Federal Reserve policies and those of our government. For anyone who has accumulated some wealth, be it in certain annuities, in money market funds and CDs, etc. it is a conscious decision on the part of the government to slowly throttle your returns, and for retirees who live beyond certain social security and other pensions, this directly reduces your income and lifestyle.

Savers are being penalized by the government in an attempt to stimulate the economy and that include stimulate housing and the construction industry. That's the way the cookie crumbles, and if you, the reader don't like this, complain to your Congressman or woman, Senators and President Obama.

"Chart C" indicates another measure of affordability, and that is the cost to buy versus the cost to rent. Since 1988, the beginning of the chart, these two measures usually tracked. However, according to the chart, in 2008-9, the price of a monthly mortgage dropped substantially, thanks to the government policies, and today it is less costly to buy the median house than to rent that same house. The chart indicates rent is $694 per month and purchase is $590 per month. The difference, or $1248 per year, may not be sufficient to offset the real estate taxes. On the other hand, rent is money spent. A mortgage payment is money invested. There is a difference.

There are several other charts, but I found "Chart I" to be particularly interesting.

"Chart I" pertains to the percentage of mortgages which are greater than 90 days delinquent. This is of personal interest, because it's important to understand how a relatively few individuals caused this financial crisis.  Currently, about 3.6% of all mortgages fall into this category. The chart peaked at about 5% in 2010. What does this mean for you and I, who I assume are current in our mortgages, and don't fall into this category? Well, I draw several conclusions. 1) Greater than 96% of all mortgages are current, or only slightly past due. 2) Since 1990, "home ownership" increased about 5% due to aggressive government policies. That is coincidentally about equal to the percentage of foreclosures in the US. 3) Of all homes in the US, about 32% are owned outright. That means that about 68% have mortgages, and that means that about 2.4% of the total homes in the US are distressed.

I suggest you read the article, and draw your own informed conclusions.

A Personal Perspective
The current 153% average, per-household personal income ratio to home prices is a very low value for this measurement. I personally used that measurement as a past indicator of an opportune time to purchase, and it is one of the reasons I did make my most recent decision to buy in 2001. At that time, the prices were about 180% and had dropped slightly to below the general prices for the previous 15 years, as compared to income. In hindsight, it was an ideal time to buy. Not because it was the lowest possible, but because it provided me with an opportunity to buy at a time which was very affordable. That, of course is very important. It is also why the authors make the statements they do. Will housing be less costly in the future? Who knows. However, the other two indicators, which are related to interest rates and to the price of rentals, also support the author's conclusions.

In the end, one has to live somewhere and there are advantages to owning as opposed to renting. Some advantages are lifestyle choices and others are financial. Both are important when making such a decision. Financially, the authors apparently think this is a historically good time to purchase housing. I do know there are others who think that housing prices will continue to decrease; in other words, they would say "it will be a better time tomorrow." However, will interest rates continue at this low rate? Already, inflation has increased. Will the Federal Reserve continue current policies? Can they continue current policies? They have pledged to keep rates low until mid 2013, but economic reality may interfere. Interest rates, and inflation have been below the long term historical averages; it is implied that this window of opportunity will close.

At present, it seems some potential buyers are having a problem because of tighter lending standards. It also seems true that there are also potential buyers who are sitting on the sidelines, waiting for even better prices. It's the old "wait for the lowest price to buy" and that dictum applies to real estate as well as to stocks. Of course, the problem is, one never knows the future, and to draw a comparison, in the relatively fast paced world of stocks, many financial advisers caution against attempts at market timing. In housing, even the experts, and that includes the National Association of Realtors, have been somewhat inaccurate with recent predictions. We all remember the rosy "this is the bottom" projections that the NAR has published in recent years.

I won't argue with the market timers, because I really don't know if this is the bottom of the housing market, which means the lowest possible prices, or not. Neither do they. However, pricing on websites such as Zillow.com seems to indicate that we have "bottomed out." Of course, we're attempting to talk rationally to buyers and sellers. That didn't work in 2003-2006 when the euphoria was "prices will just keep going up" and home purchasing became a bidding war. Today the opposite is true, and now it's "prices will just keep falling." I realize we're dealing with human nature here, and some of these are the same people who sometimes purchase lottery tickets, fully expecting to win, when the odds are such that it's much more likely that they today will die in an automobile accident (assuming they get into a car) or die of food poisoning, or even be struck by a bolt of lightening, than win the lottery. So you see the problem, and you now understand why I avoid certain arguments.

I do see some good in the current situation. From 2003 to 2006 there were an awful lot of people who purchased because of the prevailing attitude "you've just got to own a home." That was, and is, nonsense. For a time, too many people fell for the rhetoric, and many apparently weren't financially or emotionally ready to be owners, but piled into the housing market, anyway. Today, there is just a bit more sanity. Not 100%, as the promotions I get for "5/1 ARMs" seems to hint. I mean, after all the wealth destruction caused by the recent housing meltdown and defaults, you would think the government would be a bit more cautious, but some of the dim bulbs in Congress have been pressing Edward DeMarco, the acting director of the Federal Housing Finance Agency, to loosen up lending standards. The FHFA regulates Fannie Mae and Freddie Mac, which it is expected will require about $250 billion in total to cover failed mortgages; only one-quarter of a $Trillion. I guess that simply isn't enough failed mortgages, so our representatives want more. I don't know if Congress and the Obama Administration will succeed in their aims. Recent history indicates that standards will remain tight for new borrowers, and government financial firepower will be directed at existing mortgages which are in trouble. So new buyers may be on their own.

If you believe housing is awful, then don't buy; you can rent forever, and your landlord can pocket the profits. In south Wheaton, rents this year are up about 9.5%. However, if you consider housing a useful alternative to renting and a prudent means to assist you in building long-term wealth, then this may a good time to consider such a purchase.  It is also true that about 30% of home sales in the US are from "bottom fishers" who are buying distressed properties. Some of these new "home owners" will either be happy with their lowball purchases, or will be a new wave of slum landlords. Which is true? Time will tell!

Enough for Generalities, here's a 'real world' example
I'm glad I purchased in 2001, and that probably colors my perspective. But facts are facts, and as I have stated in previous posts, housing ownership is a long term purchase, and that's how I've approached it, each time I have purchased. It should be compared to the price of equivalent rental, and also to the possible advantages. My spouse did not like renting. We had some interesting experiences, including an owner who didn't like to spend money on snow plowing. So we and our neighbors had to shovel out the apartment parking lot several times, so we could drive to work. We discovered he and his spouse would 'disappear' for a few weeks each winter; apparently they were in Florida. From time to time, if a renter had a problem, we were on our own. I have learned that finding a good landlord can be as difficult as finding a good tenant. At the time, we deliberately went with a "less desirable" rental, and had been saving the difference between renting and owning, with intention that if we decided to again purchase a home, or decided to go "upscale" and rent a much better apartment or home, we would have the funds to do that. It was a good idea, as it provided an opportunity when the time came.

When we did decide to consider a home or condo purchase, we weren't 100% enthusiastic. We understood the financial consequences, and some of the risks. Here at BLMH, after reading all of the governing documents, and the financials, we had some real doubts. On the other hand, just about everything we looked at was a trade-off. So we categorized the risks and established some priorities. That made it easier to make a rational decision which we could live with.

My spouse DID NOT like our unit when we first saw it. The problem was the kitchen. I told her "I can fix this" and I made the promise and the commitment to do so, and I did just that. Now, 10 years later, after a "lost decade" in stocks, she is quite satisfied with the financial and lifestyle outcome. She has come to really like South Wheaton, and the proximity to stores and shopping, both here and at Yorktown and Oak Brook Malls.

True, we could have invested that money into stocks, or into bonds, or our local bank, and continued renting and dealing with landlords. But that rent would have been gone. How much rent? Probably about $144,000 as of last year. For comparison, my condo is worth about what I paid for it when I purchased it, and possibly more. I'm not unique. Many home or condo purchases prior to 2003 are today worth a dollar amount equal to that paid, not accounting for inflation.

If I compare the cost of purchase plus fees plus real estate taxes to rent, it indicates I've saved about $8,300 on the average, each year, as opposed to renting. That's not a huge amount, but if it were possible to put it in the bank each year, it would amount to $83,000. That's a nice chunk of change. It also seems that even in this "distressed market" it's likely I'll get back 100% of what I paid for the unit, when I sell (or if, and I expect at some time in the future I will sell). So was this a "bad" investment? I don't think so.

According to the data in the article, the financial situation is even better today than it was in 2001. So today's potential home buyer is in an even better situation than I was 10 years ago.

Will this be so in the future? Who knows. But I do agree with the authors of the article at Morningstar, that this is a good time to look at the possibilities of ownership.

Have the Fundamentals of Condo Ownership Changed?

I don't think the fundamental rules of house or condominium ownership have changed. Ownership always should have been about affordability, which is about making a choice between renting or owning and making the financial decisions required by those two modes of living. In recent years, those who can consider buying has changed, primarily because house and condominium ownership is now considered a long term venture. That makes highly financed, short term purchase difficult or impossible, and has raised the bar on financial requirements for ownership. Condominium ownership makes sense for a lot of people, but not for everyone. This might be for the better in condominium associations.

Today, lenders may again require the ability to demonstrate sufficient stability and financial wherewithal to meet the obligations of the loan and ownership for a number of years. Certainly, the home ownership calculators I have used indicate that ownership for less than 5-6 years with modest appreciation is the minimum break even when compared to renting. However, during the "housing bubble" home buying became gambling. The gamble of the owner was the ability to flip out before all of the appliances broke or significant maintenance was required, and move into something else, with minimal additional cost. It was musical chairs and there was an illusion of little risk. How wrong the experts were!

Condominiums continue to be a viable option for home ownership, especially for those looking to downsize, or younger people who won't or can't get involved in the maintenance issues. With an aging population, there should be a lot of people who do want to downsize. The problem according to some experts, is a housing market in which they can't easily sell their current home.  However, the state of the housing market is not the consideration of this post.

Condominium ownership isn't for everyone. There are trade-offs for achieving the benefit of minimal maintenance by the condominium owner. Some maintenance is required by the owner, in particular for their unit and the "elements" for which they are entirely responsible, and the cost of such is entirely by the owner. A condominium unit is not an apartment with a superintendent, and the board and management are not substitutes. When purchasing a condominium, the new owner gives up most maintenance and specifically exterior maintenance and upkeep headaches. In exchange, the owner surrenders some self determination. True, the owner can decorate and within the rules, can remodel the kitchen or bath, paint, alter the type of flooring or carpeting, and get the satellite TV of his or her choice. Modifications to walls, etc, may carry risks to roof or building supports and such improvements or alterations require association approval. Such approval is not guaranteed.

That wonderful view from the patio may change over time. As the trees mature, the canopy may spread and become more dense and grass in new shade may become more sparse. Mature trees will age, and may die or require extreme pruning or removal. The replacement will certainly not be a mature, 20 year old tree! Those and many other decisions are carried out by the board, which is looking at maintaining the entire association with the fees collected. Is it fair? Well, if you purchase a unit and two or three years later the building in which your unit resides receives a new roof, how was that paid for? Certainly the fees paid by you were inadequate. The fees of all owners, over a period of years, were accumulated in reserves so roofs can be replaced on all buildings. It is immaterial if an owner has been on the property for one year or twenty.

If you had purchased a house, the cost of such re-roofing would be your responsibility. You would have to save or get a second mortgage in order to pay for it. So for the condominium owner in "manor style" homes, there is a real advantage to living in a large community in which all contribute. That is a fundamental requirement in condominiums. All owners are equal and all must pay their fees. Failure puts an unfair burden on the other owners. So condominium owners have a real interest in the financial well being and capacity of their neighbors. Any owner who is over extended, is a risk to the financial health, stability and maintenance of the association. Long term owners have the knowledge and financial experience gained while living in the association. New owners don't have that benefit.

Other maintenance and operation expenses are paid for with the monthly fees to support them. As costs increase, so do the fees. When, or if, fees increase there is no choice for the owner. After a few years, even newer owners, who apparently are caught unawares or ill prepared, may complain "our fees are too high!"

In a condominium association, most units are similar, or there are only a few choices in floor-plans. At BLMH, there are a variety of views, from water to lake to green-space, and there are choices including first floor patio with walking to the green, or second floor and possibly better security, and different floor plans. Some of those differences are a matter of preference, and so it's up to individual buyers to decide that preference. But the interior basics because of floor plans, are similar.

When an owner decides to sell, there may be several competitive units also for sale. So amenities and improvements, the condition of the interior, age of furnace and appliances and so on, may all have an impact not only on the selling price, but also for how long a unit may be on the market. Owners who are attempting to sell a unit are competing with their neighbors, who share similar units, and are also selling. So what can an owner do? One thing is keep the unit up to date without overspending. That's been my personal preference and I get the benefits of enjoying the upgrades as I install them. I also have an opinion that incremental improvements are easier on the pocket book and provide choices. I'd never want to be in the situation of an aging furnace, hot water heater, and other potentials for problems, all at the same time. These are however, personal decisions, which are a benefit to the owner in a condominium; there are some decisions we can make and others we cannot.

What about the finances of condominium ownership?
The financial decision includes not only the basic purchase price, but also the cost of servicing the loan, taxes, fees and other owner paid unit maintenance. In the current real estate market, one of the reasons some house owners are squirming is because they are now living in older properties requiring exterior maintenance, and possibly with high debt load, or appliances from furnaces and air conditioners to hot water heaters, stove and microwaves all aging and in a few cases, falling apart. And many don't have the financial wherewithal to pay for these things. Some didn't save enough. Others never did and never intended to. So they didn't plan or prepare adequately. Home owners now say "I never thought it would get this bad."

The good news for owners in our association is, the association is doing some of that planning and preparation for us. House owners who did not save for major exterior repairs, are not as fortunate as we are. If an association is run reasonably well, and there are no catastrophes, then fees collected and saved as reserves will handle those big ticket items, such as roofs, driveways, entryway improvements, etc.  

When considering condominium ownership, it's prudent to not only include the cost of real estate, taxes, insurance and association fees, but to also consider the maintenance cost of the amenities of the owner's unit, including major appliances, the furnace and air conditioning, and hot water heater and even bathroom vent fans. These will age and over time will require repair and/or replacement. I've put together and posted a budget elsewhere in this blog. It might be a bit of a shocker, if a condominium owner thinks they are living in an apartment. The real issue is determining how long things will last, which is to say, at what time should certain items be replaced. That in turn, determines how much I should be putting in a cookie jar to handle these repair and replacement items. Of course, a loan may be an alternative, and furnaces can be paid over time.  Another way to look at this is, if at the time of purchase there is a possibility to live here for a decade or more, it would seem to be prudent to plan on paying for some of the maintenance or replacement of the stuff included in "my" unit.

The good news is, in our association, exterior maintenance is the association's responsibility, with the exception of cleaning the patio and optional painting of patios between normal cycles. There's minimal snow shoveling (e.g. individual patios) and snow melt by owners. Other normal exterior maintenance is by the association, including gutter cleaning, tree trimming, lawn care, exterior painting, etc.

However, if an owner doesn't plan on maintaining the remaining things that are integral and included in their unit,  including some of the plumbing or even the electrical wiring and fixtures, then when problems do occur, it can be difficult or a surprise.

A problem for some owners is the realization that when one purchases a condo, one gives up most of the maintenance and upkeep headaches in exchange for losing financial and other self determination. Exterior maintenance is by the association. Owners can advise management of problems or issues, but the determination of the "when and how" of exterior maintenance is out of the individual owner's hands. There are monthly association fees to be paid, and if the association increases them, there is no choice for the owner. It's great to live on 40 acres with two lakes, manicured and landscaped grounds, hundreds of trees, waterfalls, central patios and walking paths. But those too have to be maintained, and operating costs do increase from year to year, even if only by 1%. If electricity goes up, fees for lighting, etc. must go up to accommodate this. If gasoline prices go up, so does the costs of maintenance and landscaping. Etc., etc., etc.

Real estate taxes have also increased and even with a terrible economy, in the three recent years, taxes went up by 5.4%, 3.7% and 1.3%. That's something an owner needs to budget for. In a terrible economy, those future wage increases may be smaller than expected. Ditto if that Adjustable Rate Mortgage, or ARM does in fact, adjust upwards. So how does one pay pay for these cost increases? After a few years, even newer owners, who may be caught unawares or ill prepared, may complain "our fees are too high!"

One of the advantages at BLMH is a lack of special assessments. This is due to good management and financial planning. But things can go wrong, and it is possible for unforeseen or unanticipated events to occur.  If they do, a special assessment may someday in the future be a necessity. I have friends, who have owned condos in other associations and they have received a special assessment. I have not, to date!

To special assess or not, may also be the result of long term board philosophy. I know owners who don't like fee increases to cover reserves. The alternative is worse, in my opinion, and would require assessments from time to time. Some associations seem to prefer such assessments, or may be unable to avoid them. Everyone does their best, but outcomes are not guaranteed. The skills sets of managers and boards have considerable variation.

For a comparison, when owning a house, it's possible for the owner to defer certain maintenance if their personal financial situation won't allow it, or if the owner decides to put their money elsewhere. As a house owner, one can patch the roof indefinitely, let the driveway degrade, paint rotting wood and generally let the property go into ruin. A house owner can choose to ignore the Americans with Disabilities Act. Condo boards are required, as fiduciaries to maintain the property 'within reason' and associations are held to a higher standard than are individual homeowners.

The bottom line for me
I purchased a condominium about 10 years ago. Am I glad I did? Yes, overall I am!

Prior to that I was once a homeowner, and I rented apartments for several years while debating a condominium purchase and looked for an acceptable association. So I have had a range of experiences.

It is true that in the past 10 years the fees have increased, and it is also true that the association isn't perfect. However, I've been able to keep my financial head above water, and I've also been able to say my unit was a good purchase, as in "a wonderful place to live for the past 10 years."

Am I happy with the current situation and the economy in the U.S.? Of course not. It's been very difficult for many, and I've experienced the consequences of it. But one has to live somewhere, and all of those alternatives have pros and cons. Life is imperfect, and so is house or condo ownership, in my experience. I should also say that I have had reasonable expectations. If my expectations were unreasonable, as in "no fee increases" or "fee increases of 1% forever" and no maintenance issues, perfect neighbors, a forever spiraling real estate boom with ever increasing home values, etc., etc. then I would probably be unhappy today. I assume "unreasonable expectations" is why so many people in the popular press are unhappy. Of course, I suppose one could choose to make the argument that their personal expectations are reasonable, and that life and the economy are unfair.


Could I sell today for more than I paid for my unit? 
That's one of the measures of success in real estate, some people tell me. The personal answer is difficult to say, because the simple question is "would today's sale price, after Realtor commission be more than the price of purchase?" However, to be realistic and honest, I should compare the price of rental of an equivalent unit with indoor and close parking for the past 10 years to the price paid including fees and real estate taxes. Of course, there is also the "cost of money and inflation." There are also intangible benefits. We not only have the benefit of the park across the street, the grounds, parking, etc. but we also got the ability to upgrade the kitchen to something we considered acceptable, and painted and did other improvements to our liking. I couldn't do that in the apartments I looked at, and we really like our kitchen and the views. In fact, I have an award winning gardening friend, and she loves the views I have, including from the kitchen window and the living room. I doubt I could have matched that in a rental; I certainly tried. So what are those views, the trees, and so on, worth to me? Ditto for the proximity to the college nearby. These are personal perspectives and we each have an answer for what we want. For example, in Chicago, there are condo owners who have a wonderful view of the lake, or Grant Park, or both! They are paying for that location and view.

I will say this. At the time I purchased, I included what I believed were realistic fee increases over the next decade in my purchase decision, and real estate taxes with modest increases. I also included the cost of certain anticipated improvements and possible maintenance items (such as a new water heater).

To date, when comparing buy versus rent, I can say that I have saved enough "rent" to pay for the cost of ownership to date and the improvements I have made. I will also say that I didn't use the Zillow rental estimate, but compared the price of more basic and lower cost rental units. Note: Zillow wasn't available as I recall in 2001. One of my favorite calculators is as the New York Times, and it has improved with age:

Link to New York Times buy-rent-calculator

Disclaimer
It's important for each and every one to honestly evaluate their personal financial situation. It's also important to do your homework thoroughly when considering any condominium purchase. This blog is neither an endorsement nor a recommendation for a lifestyle or an association. It is a statement of my experiences, perspective and opinions.