What is the Fed Reserve Rate Cut's Impact on ECR and Home Sale Fees?

As the Federal Reserve began raising its benchmark rate in2022, earnings credit programs in the HOA/condo management industry proliferated. The Fed Funds Rate peaked in 2024 in the mid-5.00% range and has since declined, and in November 2024 the Fed voted to back a further rate cut to a 4.50-4.75% range.

While management companies should expect lower earnings credit income in 2025, they should receive some offsetting benefit in the form of greater housing market activity from slightly lower interest rates. While the housing market may not thaw completely as rates are still high relative to the last decade and more importantly, the 2021 housing boom, management company owners should anticipate greater transfer and escrow fee income in 2025.

See below a sensitivity analysis run by CAM Advisors in which a sample management company with 100 clients and 10,000 doors experiences a 2025 indicative of the broader U.S. housing market. Please note for simplicity the analysis assumes the management company's client and door count stays consistent from 2024 into 2025.

The sample management company should expect a decline in the sum of earnings credit + housing sales related income in 2025, shown in the chart as $638k declining by $98k to $540k. Despite the housing market's expected uptick in 2025, it will likely not be enough to outweigh the slightly negative impact of shrinking ECR benefits. That dynamic may flip in 2026 if the housing market truly thaws and the pace of rate declines slows.

The outcome above is heavily dependent on the aforementioned and other specific assumptions, including deposits managed, transfer and escrow fee rates. Please reach out to CAM Advisors if you would like to receive a copy of the backup document, which can be used to input your management company's figures.

For more information on the HOA management industry, valuation metrics, or other questions, please reach out to contact@camadvisors.co or visit camadvisors.co