Inflation!

Years ago, my wife and I bought a small condominium with the anticipation that someday when I retired, we could downsize from our current home and move into it. Well for a lot of reasons that has not happened yet, and it would probably take us years to get rid of enough stuff to even consider squeezing into the condominium. In the interim we have rented it and that has worked out pretty well.

That is not the real point of this short article. As readers of mine know, I have written and spoken about how inflation is still ravaging the American consumer today even after a yearlong battle by the Fed (via an unprecedented series of nominal interest rate hikes) to quell it. So far, their goal of 2% YOY increases in CPI seems like an extremely far away dream.

What got me to thinking about how invasive and prevalent inflation still is here in the United States was a recent thick package in the U.S. mail that contained among other things a lot of stuff that is required to be provided to condo owners on an annual basis like an election form for the Board, current financial statements, other disclosures and a proposed budget for the Homeowners Association for the year 2024. To be completely honest I have not ever read information like this in the past very carefully and usually just pitched it with the other “junk” mail into the trash.

But for the first time ever, I read most if not all of it and was amazed to read how much a single small unit (like ours) would be paying for condominium fees in 2024. The Board in the past has been careful to manage the condominium with a merciless approach to expenses and has been also very diligent to build up incrementally a rainy-day reserve to be in a position to deal with a financial disaster quickly.

The condominium Association also is very thorough, and it has in the past always required multiple bids/quotes on all large expenditures to prevent a rouge contractor (there are no short supply of these) from overcharging on a given job. The fact that the Condo is about 90% owner occupied also means that there has never been years and years of deferred maintenance to keep the condominium fees artificially low.

Even with this very prudent and conservative approach, the proposed condo fees per unit (based on the square foot size, etc.) is due to increase 11.8% in 2024 over 2023 monthly fees and I feel very fortunate to be able to afford these and of offset some if not most of them in higher rent to my tenant starting in January 2024.

But before I get into the details, I started thinking what happens to many others who are already stretched to the limit by spiraling upward costs of the basics like food, energy, gasoline, insurance and the like who simply are having a challenging time making ends meet today? To the 40+ million student loan debt holders who effective October 1, 2023, are now required to start paying off their deferred (not forgiven) obligations that average about according to EDI of $503 a month that could barely make a go of it financially?

This is why it did not come as a complete surprise to me that a recent Lending Club survey earlier this year revealed that 61% of all Americans now live paycheck to paycheck, and included in this staggering number were the 40% of higher income earners that said they also live check to check.

But back to my condominium math. The total increase for our small 863 square foot unit will be 11.8% in 2024 and the increase was only this modest due to the fact that many expense categories were either deferred or reduced to the quick in 2024. These included members being asked to waive having an annual audit in 2024, lower legal fees and the like.

So, with only a 12% increase projected, what were the individual categories where costs shot up in the proposed budget?

1.?????? Administrative expenses are budgeted to increase 20.22%, based almost entirely on higher personnel and fringe benefit costs.

2.????? Property insurance is budgeted to increase 28.73% in a single year, due to a combination of significantly higher premiums and several commercial carriers either leaving the State of Florida or that several are simply no longer writing commercial insurance in the State.

3.???? Contracts are budgeted to increase 14%. This is due to much higher costs from maintenance contracts, lawn maintenance, trash removal and the like. A recent unrelated article I read in our local online paper said that these types of services were up 30%+ locally due in large measure to the cost of gasoline jumping at the pump.

4.???? Salaries and wages are projected to increase 8.8%, due to a 5% increase in wages, 21% increase in medical insurance, and other related costs. Bonuses had to be paid to both attract and keep employees on the payroll in 2023.

5.???? Repairs and maintenance are projected to only increase 2.2%, due to the fact that most if not all of the mechanical systems had recently been upgraded, etc.

6.???? Reserve Budget was the only expense category left unchanged as the Association has historically monitored this carefully and is confident that the current annual allocation and total reserves are adequate.

As I mentioned above, I feel extremely fortunate to be able to absorb some if not all of these significant increases and or will be passing some along in the form of higher monthly rental income to my tenant. But there is a point at which the cost of rent can only up so much for it to remain competitive in the market and I sense we have either already reached that peak or are awfully close.

This leads me to conclude this short article by wondering how many millions of other Americans are facing double digit increases in the cost of shelter; either in these “hidden” costs or materially higher rent payments. How many Americans are getting 10% to 12% raises in compensation in 2024? Few, I bet.

If this indeed the case, the bottom line is that even with reasonable increases in compensation, more and more Americans could see their real buying power erode further in 2024. It was announced last week that the average Social Security check would increase due to COLA in 2o24 only 3.2%. While this is better than zero, the simple math on a single small condominium illustrates why many will feel like they are running a lot faster and not getting anywhere financially in 2024 than ever before in the United States.