Published on: September 28, 2020
Although the housing market remains impressively resilient, the pandemic and the uncertainty of efforts to control it continue to cloud the broader economic outlook. “Continued healing in the housing market is a positive for the overall economy,” Danielle Hale, chief economist for realtor.com, told CNBC.com. “But elevated jobless claims raise concerns about how sustainable this housing demand [will be] especially in the face of rising prices.”
The August employment report did little to assuage those concerns. Employers added 1.4 million jobs and the unemployment rate fell to 8.4 percent from 10.2 percent in July – both positive signs. But the jobs deficit remains large, with 11 million fewer jobs today than before the pandemic struck in March. And the unemployment rate, though much improved from the 10 percent peak it hit in July, remains elevated, more than double the half-century low of 3.5 percent recorded in February.
The employment picture improved overall in August, but there were worrying signs, among them: The Department of Labor tallied more than 500,000 permanent job losses for the month, pushing that total to 3.4 million, and the long-term unemployment picture also remains grim: More than 8 million workers have now been unemployed for 15 weeks or more.
The employment gains over the past three months have been welcome, Beth Ann Bovino, chief U.S. economist for S&P Global, told the New York Times. “But we still have a long way to go.”
Uncontrolled wild fires on the west coast and multiple hurricanes battering coastal areas in rapid succession have provided recent evidence of the environmental devastation climate change is bringing. A new government report documents the financial damage resulting from it.
“A world wracked by frequent and devastating shocks from climate change cannot sustain the fundamental conditions supporting our financial system,” the report, commissioned by the Trump Administration’s Commodity Futures Trading Commission (CFTC), warns.
An advisory panel consisting of financial analysts, academicians and environmental experts produced the report, which focuses on the economics of climate rather than the science behind it., Robert Litterman, a founding partner of Kepos Capital, who chaired the committee, explained. “Rather than saying ‘what’s the science?’ this is saying, ‘What’s the financial risk?’” he told the New York Times.
The report is significant for three reasons, the Times report suggested: It is the first government-sponsored analysis to focus specifically on the financial impacts of climate change; it comes from an entity consisting of three Republicans and two Democrats, all appointed by President Trump, who voted unanimously to undertake the study; and it is unequivocal in its conclusion that doing nothing about climate change should not be considered an option.
“This is members of the entire community involved in financial markets saying with one voice, ‘This is a serious problem, and it has to be addressed,’” Litterman said.
Builder confidence, measured by a National Association of Home Builders (NAHB) Wells Fargo index reached an all-time high in September, blowing past a record set the previous month. Confidence levels for home buyers and sellers are following the same upward trajectory.
Fannie Mae’s Home Purchase Sentiment index, which had slipped in July, regained its footing in August, increasing 3.3 points to 77.5 as five of the six components measured ticked upward. The only negative reading was in the expectations for price growth, which slid slightly, with 23 percent of respondents expecting prices to fall, up from 20 percent holding that view in July.
“Near record-low mortgage rates” fueled confidence gains for both buyers and sellers, Doug Duncan, the NAHB’s chief economist said. Fifty-nine percent of respondents said this is a good time to buy, up from 53 percent in July, while the ‘bad time-to-buy response declined from 38 percent to 35 percent. Nearly half (48 percent) of sellers said this is a good time to sell, up from 45 percent; while 44 percent had a negative view, down from 48 percent in July.
Home builders are, if anything, even more upbeat. Their index increased by 5 percent in September to 83 following a six-point rise in August that had tied the previous high set more than 30 years ago.
“Historic traffic numbers have builders seeing positive market conditions,” Chuck Fowke, chairman of the NAHB, said in a statement. But rising lumber prices and shipping delays for building materials are a source of growing concern, he cautioned. “More domestic lumber production or tariff relief is needed to avoid a slowdown in the market in the coming months,” he said.
Amazon has taken another big step toward delivering goods via drones in the U.S. thanks to the Federal Aviation Administration (FAA), which issued an essential 135 air carrier certificate to the company. The certification process required the FAA to evaluate more than 500 safety and efficiency procedures and protocols, Amazon officials noted in a press statement. UPS and Wing, a subsidiary of Google’s parent company Alphabet, received their certifications last year and are now providing limited drone deliveries – UPS to two hospitals in North Carolina and Wing to customers in Christiansburg, VA.
Amazon has been working for years to develop a drone delivery service that would meet its goal of providing 30-minute deliveries. The company actually completed its first drone delivery in England almost four years ago, but progress had slowed since then. The pace picked up earlier this year when Amazon hired David Carbon, a former Boeing executive, to head the effort. “We will continue to develop and refine our technology to fully integrate delivery drones into the airspace, and work closely with the FAA and other regulators around the world to realize our vision of 30 minute delivery,” Carbon said.
AFFORDABLE BUT UNATTAINABLE
Prospective home buyers are finding that low rates are making mortgages affordable, but tight lending standards are making it excruciatingly difficult to qualify for them. A Mortgage Bankers Association (MBA) index measuring credit availability declined by 4.7 percent in August, to its lowest level in more than six years. Joel Kan, an associate vice president at the industry trade association, attributed the drop to “a reduction in supply from both conventional and government segments of the [mortgage] market…. A further reduction in loan programs with low credit scores, high LTVs, and reduced documentation requirements also [contributed to] the overall decline in credit availability,” he added. Mortgage availability declined in all market segments: By 8.7 percent overall for conventional loans and 1.4 percent for FHA and VA mortgages. Within the conventional category, jumbo loans and conventional loans shrank by 8.9 percent and 8.6 percent, respectively. Despite that downward shift, the MBA is still predicting that record low interest rates will push mortgage originations this year to a 15-year high of nearly $3 trillion, with refinancing totaling $1.7 trillion – the highest level since 2003.
IN CASE YOU MISSED THIS
Connecticut has sued Exxon Mobil Corp., accusing the oil company giant of misleading the public about the impacts of climate change. Massachusetts, Minnesota, the District of Columbia and Delaware have filed similar suits against members of the fossil fuel industry.
Ohio has joined a growing list of states offering COVID liability protection to businesses. Legislation enacted recently provides nearly blanket civil immunity from damage claims resulting from the exposure, transmission or contraction of the virus, as long as the entities targeted have not “blatantly disregarded” government health and safety guidelines.
The federal debt load is expected to equal 100 percent of U.S. gross domestic product in the fiscal year beginning October 1, exceeding the 98 percent ratio expected for this year, which was the highest since World War II. With the Federal Reserve committed to keeping interest rates at zero for the foreseeable future, the Wall Street Journal points out, “the government still has plenty of room to borrow.”
A “back to normal” index created by CNN Business and Moody’s Analytics shows the economy operating at around 76 percent of where it was before the pandemic struck. That reflects significant improvement since March, a CNN analysis notes, but it also suggests “there’s still a long way to go.”
A federal court has overturned a Trump administration rule that significantly reduced the risk that businesses would qualify as “joint employers” and incur expanded employment obligations and liabilities as a result. A U.S. district court judge said the rule was “arbitrary and capricious,” because the Department of Labor failed to justify it. He also held that the rule conflicted with employee protections provided under the federal Fair Labor Standards Act.
The declarations of many condominium associations contain language specifying that the covenants will expire unless amended before the specified expiration date. The obvious solution is to amend the documents to avoid that result. But what happens if that solution is impossible to achieve?
That was the question raised by plaintiffs in this case (Diamondhead Country Club and Property Owners Association Inc. v. Committee for Contractual Covenants Compliance Inc.), who argued that the margin required to amend their community’s declaration (from 85 percent to 100 percent of owners) was unreasonable and should be reduced.
Three board members and another owner filed a friendly suit against the association, which supported the request that the Chancery Court reduce the approval requirement to 60 percent to avoid serious damage to the association. Another group of owners (the Committee) intervened. These owners acknowledged that failure to amend the declaration could have adverse consequences for the association, but argued that the declaration’s terms were unambiguous and should be enforced as written. The Chancery Court agreed and the plaintiffs (Diamondhead) appealed.
Both sides agreed the declaration’s language was unambiguous. The key questions before the Appeals Court were whether the voting requirement was unreasonable and whether the lower court erred by refusing to revise it.
The plaintiffs’ primary argument was that the inability to obtain the vote required to amend the declaration would trigger “a cascade of catastrophic events,” making it impossible for the association to function. The court found that argument to be “fundamentally flawed.” The court explained: “The covenants were not drafted to protect the rights of the Association, but to protect the rights of property owners….[T]he interests of the [association] a separately incorporated entity, are not those to be considered when considering the reasonableness of the amendment provision.”
The court also found that the plaintiffs had failed to present evidence supporting their contention that the association would be “detrimentally affected” by failure to amend the declaration. “Any detrimental effect on the Diamondhead community was purely speculative,” the court said.
The lower court had reasoned that the amendment requirement was not simply a procedural matter, but constituted a “substantive” right for all owners, requiring the court to consider the impact on their rights and not just the concerns expressed by the plaintiffs. The Appeals Court agreed.
A property owner, the court noted, could rely on the 85 percent vote requirement to ensure that the covenants “would not be changed ‘willy-nilly’ or by a few owners. Allowing a small minority of owners (744, according to the lower court’s calculation) to affect the rights of 4,800 “would undermine that assurance,” the Appeals Court noted.
The plaintiffs’ argument that the association would cease to exist if the covenants weren’t amended also failed to resonate with the Appeals Court, which reasoned: “The [association’s] existence does not depend on the covenants. Since the inception of the development, the [association] has been separately incorporated and has actually been deeded the common areas. Because the covenants run with the land….the association’s operation should not be affected by the expiration of the covenant’s term.”
If the voting requirement represented such a serious threat, the court suggested, the association could have addressed it long ago, but it did not. “For forty-six years, this provision was unchallenged and thus was apparently deemed reasonable by the DPOA, its board, and its members until 2016,”the court noted. “That the [association] has never asked its members to consider the matter undermines its argument that low attendance at prior meetings requires court intervention. Perhaps attendance would be higher if a meeting were called for the purpose of changing the amendment provision,” the court continued, noting, “nothing prohibits the [association] from calling such a meeting.
Finding “no abuse of discretion, errors of law, or findings that were manifestly wrong,” the Appeals Court upheld the Chancery Court’s decision.
“It is critical to not only recognize the role of individual practices and policies in creating racial inequity but also confront the ways in which institutions and systems perpetuate and entrench racial inequalities in the economy and in our broader society. In our country, we too often assume institutions are benign. But people shape institutions, which can, unintentionally and otherwise, contribute to outcomes that are far from harmless.”– Raphael Bostic, president and CEO, Federal Reserve Bank of Atlanta.