Published on: April 15, 2018
FED ON TRACK
Presiding over the first Federal Open Market Committee (FOMC) meeting of his tenure as Federal Reserve Chairman, Jerome Powell announced a widely anticipated one-quarter percent increase in the Fed’s benchmark Federal Funds rate – the sixth the Fed’s policy-making committee has approved during this ongoing economic recovery. Also in line with predictions, Powell indicated that the Fed remains on track for additional rate hikes this year.
But analysts did not know quite what to make of the apparent conflict between the FOMC statement that “the economic outlook has strengthened in recent months,” and Powell’s acknowledgement that the impact of tax cuts on which that forecast is based is “very uncertain.” Powell’s observation that wage increases have been “only modest” also seemed, if not at odds with the Fed’s upbeat forecast, then certainly less enthusiastic. Asked about concerns that the labor market may be overheating, Powell told reporters, “We will know the labor market is getting tight when we see a more meaningful upward move in wages.”
Wage growth, elusive throughout this recovery, surfaced at least mildly in the March labor market report, which charted a 2.7 percent annual increase in hourly earnings, providing a positive counterpoint to the mediocre addition of only 103,000 jobs for the month. The increase, well below the torrid pace of January and February (which analysts agreed was unsustainable), was also short of the consensus forecast of 185,000, but strong enough to keep the unemployment rate unchanged at 4.1 percent.
Emphasizing the positives in the March report, Ryan Sweet, an economist at Moody’s Analytics, told Bloomberg News, “There’s no reason to be depressed” about the anemic job gains. The overall picture, he said, is still “pretty much steady as she goes.”
But outplacement firm Challenger, Gray and Christmas identified employment clouds that may bear watching with its report that employers were planning to cut 60,357 jobs in March – double the total for February. “The growth and job creation we’ve seen over the last few months may be coming to an end,” Challenger analysts said, predicting that “as wages grow and the labor market tightens, companies are going to switch to a no-risk strategy and potentially begin contracting.”
HOUSING BUOYED AND BUFFETED
Mortgage rates and home prices continue to rise, delivering a one-two punch to the housing market that is landing most heavily on first-time buyer; they accounted for 29 percent of home sales in February, down from a below-historical trend 31 percent a year ago. Housing demand overall has remained relatively strong, buoyed by a strong economy and an improving labor market, but undercut by inventory levels, which increased slightly in February with January, but remained more than 8 percent below the year-ago total.
“The expanding economy and healthy job market are generating sizeable homebuyer demand” Lawrence Yun, chief economist for the National Association of Realtors (NAR), said. “But the miniscule number of listings on the market and its adverse effect on affordability are squeezing buyers and suppressing overall activity.”
Existing home sales managed a small, 3 percent increase in February, reversing two consecutive monthly dips, to land a scant 1 percent above the February 2017 total. Pending sales, measured by an NAR index, also rebounded in February, but the 3.1 percent increase still fell below the year-ago reading.
New home sales, which tanked in January, fell again in February, but only by 0.6 percent. The annualized 622,000 pace for the month was slightly above the year-ago rate. Although homebuilders’ confidence has been rising, their optimism was not reflected in home starts and permit levels, both of which declined in February.
“The fall in housing starts in February is a movement in the wrong direction,” the NAR’s Yun noted. “And even if new home construction starts picking up at a faster pace this year, as expected,” he told Housing Wire, “existing sales will fail to break out if these record low supply levels do not recover enough to meet demand.”
Attorneys are accustomed to being called names, but one they particularly dislike is “debt collector.” That label, imposed by the Fair Debt Collection Practices Act, may be erased, thanks to proposed legislation that would exclude lawyers from the statutory definition of the term. The House Financial Services Committee recently advanced the “Practice of Law Technical Clarification Act of 2018,” clearing the way for consideration by the House and (if approved there) by the Senate. The legislation would amend the definition of “debt collector” to specify that it would not apply to “any law firm or licensed attorney engaged in litigation activities in connection with a legal action in a court of law to collect a debt on behalf of a client to the extent that such legal action is served on the defendant debtor, or service is attempted, in accordance with the applicable statute or rules of civil procedure.” The proposed amendment defines “activities in connection with a legal action” to include:
- Serving, filing, or conveying formal legal pleadings, discovery requests, or other documents pursuant to the applicable rules of civil procedure; or
- Communicating in, or at the direction of, a court of law, or in the enforcement of a judgment; or
- any other activities engaged in as part of the practice of law, under the laws of a State in which the attorney is licensed, that relate to the legal action.
The measure also bars the Consumer Financial Protection Board from regulating “attorneys engaged in the practice of law and not offering or providing consumer financial products or services.”
ACA International, a trade group representing the debt collection industry, applauded the measure, which it said, will “ensure that federal regulators do not impermissibly use their authority to regulate the practice of law, an authority that is properly left to the judicial branch. This bill is particularly critical to put a stop to the CFPB’s unauthorized overreach into the practice of law, a strategy that has substantially harmed debt collection attorneys,” the organization said in a press statement.
The negative impacts of a bankruptcy are well-documented, but, apparently, not as damaging nor as long-lasting as widely assumed. A study by Lending Tree found that while bankruptcy will increase borrowing costs for consumers, it will not significantly limit their access to credit. And the financial impact recedes quickly. More than 40 percent of bankruptcy filers had credit scores of 640 or higher within a year after filing – high enough to qualify for many loans, though not high enough to avoid paying more for the credit. Interest on a $15,000 auto loan would be more than $2,000 higher for these borrowers. But the adage “time heals all wounds” applies to bankruptcies. After two years, the interest rate penalty on this loan would fall to an average of $799, according to the Lending Tree analysis
Although secondary market rules generally require a minimum seven-year wait before approving mortgages to borrowers who have declared bankruptcy, outside of the secondary market, lenders are less rigid. In fact, the Lending Tree study reports that after three years, borrowers who have restored their credit scores to the 720-740 range will be offered annual percentage rates close to those offered other borrowers.
“People may think that filing a bankruptcy would put you out of the loan market for seven to ten years, but this study shows that it is possible to rebuild your credit to a good credit quality,” Raj Patel, LendingTree’s director of credit restoration and debt-related services and products, said. The key for consumers, he said, is to follow a systematic plan to regain access to credit, and then to “use it responsibly, keeping balances low and making payments on time.”
Some people bemoan their inability to acquire things they want; others decide they don’t want those things after all. Many prospective homebuyers, apparently, fall into the latter category. Twenty percent of the renters responding to a recent Freddie Mac survey said they have no interest in owning a home. Most (two-thirds) cited financial constraints as the primary reason for that decision, but many also indicated a high level of satisfaction with the rental option.
Although respondents generally reported being better off financially in an improving job market, home prices have been outstripping their income gains. Rents have also been increasing, but not as steeply, although another recent report suggests that the growing preference for renting, and the resulting increase in demand for rental housing, may reverse that trend.
More than two-thirds of the respondents said they expect to continue renting because of financial concerns; for millennials, that number increased to 74 percent, up from 59 percent in the 2016 survey.
The financial considerations that favor renting over buying are not surprising; somewhat more surprising, and potentially concerning for the housing industry, is the increase in the number of renters who say they have no near- or long-term plans to purchase a home, and no interest in doing so.
For millennials the desire for homeownership remains strong. While nearly three-quarters of these respondents said costs were keeping them in the rental market, only 7 percent said they weren’t interested in becoming homeowners. On the other hand, of the 31 percent of Gen-X renters who say they will never own a home, only 12 percent cited the financial obstacle; nearly 20 percent cited a lack of interest in homeownership. A staggering 50 percent of baby boomers also put themselves in the ‘never buying a home’ category, a third of them expressing no interest in the ownership option.
“We are witnessing an historic shift in preference among older Americans, [who] increasingly are choosing the size, convenience and affordability that renting offers over ownership,” David Brinkman, executive vice president of Freddie Mac and head of the company’s multifamily division, observed. As housing “becomes less and less affordable,” he noted, older renters are concluding that “renting is the more affordable option.” And many younger renters, apparently, have concluded not only that renting is a more affordable option, but also that home ownership is not an achievable one.
IN CASE YOU MISSED THIS
Responding to the widespread damage caused by Hurricane Harvey last year, the Houston City Council has approved an ordinance imposing stricter construction standards on buildings constructed within designated flood hazard zones.
Although single family home sales improved marginally in February, sales of condominiums and cooperatives slipped, lagging year-ago totals by nearly 5 percent. Lawrence Yun, chief economist for the National Association of Realtors, said it would be “helpful” if multifamily builders, who have been concentrating on rentals, would pay a little more attention to condos.
Liability claims resulting from dog bites and related injuries increased again last year, costing insurers nearly $700 million – about one-third of homeowner liability claims paid last year.
The U.S. Census Bureau reported that 64 million Americans – 20 percent of the population – were living in multigenerational households in 2016 – an all-time high.
Federal bank regulators have finalized a rule exempting commercial real estate transactions valued at $500,000 or less from appraisal requirements. The regulators concluded that increasing the threshold will reduce the regulatory burden on financial institutions but won’t threaten their safety or soundness.
NECESSARY BUT NOT ESSENTIAL
A Florida Appeals Court drew a sharp line between “necessities” that require an easement and conveniences that do not. The issue in this case, (Goldman v. Lustig), was access to a dock in a four-unit townhouse condominium. The original project plans called for the construction of two access piers, but only one of them was constructed, behind the property of one of the owners (Lustig). Other owners fought with Lustig for years over their right to use the dock and to cross Lustig’s land and his pier in order to access it.
The bench trial held about seven years into the battle ended with no decision, as the judge concluded that neither side had proven its case. Both sides appealed that decision. The Appeals Court found sufficient evidence to address both the use and access questions.
On the first (use), Lustig had cited a variety of arguments to support his contention that he had sole ownership of the dock, but the court dismissed all of them, finding that Lustig had conceded at trial that he owned only a portion of the dock, and that the other owners had “the rest of it….they just can’t get to it.” Lustig’s concern, the court said, was not really ownership of the dock but access to it; the key legal question: Whether the other owners were entitled to an easement by necessity.
The legal standard puts the onus on the party seeking the easement to demonstrate that there is no “practicable” alternative for gaining access to the owner’s property, the court noted. And an implied grant exists, the court explained, when a party acquires land “which is inaccessible except over land” conveyed by another party. “Such an implied grant or easement in lands or estates exists where there is no other reasonable and practicable way of egress, or ingress and same is reasonably necessary for the beneficial use or enjoyment of the part granted or reserved,” the court noted.
There was no question, the court agreed, that the owners seeking an easement in this case could access the dock by land only by crossing Lustig’s property. “But that does not mean they have a need for an easement,” the court said, because land access was not the only available option. Owners could reach the dock by water “using a canoe or kayak” from their property, the court said, or they could build their own access pier, which would represent another “reasonable and practicable” means of egress or ingress. “Although we are sympathetic to the inconvenience and cost” of that option, the court said, “these factors [inconvenience and cost] do not outright determine whether an easement is absolutely necessary.” The owners have not met the legal standard for claiming an easement by necessity,’ the court concluded, because “they have failed to demonstrate an absolute need [for it].”
“People forget that the second part of the Fair Housing Act was to actively promote an integrated society,” Brian Gilmore, a law professor at Michigan State University, said. “And you need to not just promote it, you need to actually make it happen.” – Brian Gilmore, professor of law at Michigan State University, quoted in The Atlantic: “The Unfulfilled Promise of Fair Housing.”