Published on: August 4, 2018
CRACKS IN THE FOUNDATION?
In the face of rising prices and shrinking inventories, housing demand has remained steady, providing a cornerstone underpinning the housing recovery. But there are signs that cornerstone may be weakening. Bidding wars are becoming less common, days on market are increasing even in the hottest markets, the pace of new construction is slipping, sales of new and existing homes are declining, surveys find fewer prospective buyers think this is a good time to purchase a home, and fewer real estate professionals say they are dealing with a “sellers’ market.”
“The anything-goes list-price strategy is no longer working. Buyers want to buy, but we’re seeing fewer of them, and they are much more careful. Many properties are now not selling and/or coming down in price,” a California real estate agent told CNBC.com.
Increases in home prices and mortgage rates, which have challenged may buyers, are now creating affordability obstacles they can’t overcome. “There’s only so far they can stretch,” the CNBC article notes, and many have reached their limits.
“This could be the very beginning of a turning point,” economist Robert Shiller suggests. The key question will be whether the turn will be gentle or jolting. Most analysts are betting on the former – more a “correction” than a collapse.
Slower sales will boost inventories and ease upward pressure on prices, creating more purchase opportunities for buyers who have found themselves priced or pressured out of the market. Buyers who don’t think this is a good time to buy may change their view, Dustin Miller, a Portland, Oregon realty agent, told Bloomberg News.
“Buyers want to shop and take some time, as opposed to having to rush and throw offers in,” he said. “It’s the market correcting itself. At some point, you hit a peak of momentum, and then things level off.”
Ian Shepherdson, chief economist at Pantheon Macroeconomics, agreed. The home sales pace “has probably peaked” in this cycle, he told Bloomberg. “But it’s not going to roll over. It will gently decline.”
PROTECTION THAT ISN’T
Companies that purchase insurance to cover losses resulting from cyber-attacks may not be getting the protection they thought they were buying. Virginia-based National Bank of Blacksburg thought it was fully covered for the $2.4 million lost in two data breaches. But the bank’s insurer, Everest National Insurance Company, offered only $50,000 as compensation for those claims, arguing that the computer and electronic crime insurance rider the bank had purchased didn’t cover the incidents.
In both breaches, hackers used malware they had installed on bank servers to steal customers’ user names and passwords, allowing them to siphon funds from ATM accounts – precisely the kind of loss that cyber-insurance would presumably cover. The cyber-policy had a coverage limit of $8 million with a $125,000 deductible. But the insurer said the incidents were covered instead by the debit card rider, with a loss limit of $50,000. The problem: The cyber-policy contained an exclusion barring coverage for losses resulting from “the use, or purported use, of credit, debit, charge, access, convenience or other cards (1) in obtaining credit or funds, or (2) in gaining access to automated mechanical devices which, on behalf of the Insured, disburse Money, accept deposits, cash checks, drafts or similar Written instruments or make credit card loans, or (3) in gaining access to point of sale terminals, customer-bank communication terminals, or similar electronic terminals of electronic funds transfer systems.”
Reading that exclusion and others in the policy, an article in Slate Magazine suggests, “you will no longer wonder how [the] policy could fail to cover National Bank’s breaches—you will wonder how [the] policy could cover any computer crimes whatsoever.”
Not surprisingly, the bank is suing the insurer for breach of contract. Whatever the outcome, Slate suggests, “the suit highlights just how nebulous and unhelpful cyberinsurance policies can be, as well as how little the companies purchasing those policies typically understand about their coverage.”
Foreign investors are losing their appetite for U.S. homes. Purchases by non-U.S. buyers declined by more than 20 percent year-over year in 2017 – to $121 billion from $153 billion. That is the largest decline on record, according to the National Association of Realtors (NAR), which tracks the statistics. Rising interest rates, a strengthening U.S. dollar, and geopolitical trends (the looming trade war tips this list) are the primary drivers of the trend, industry analysts say.
“The [discussion of a] trade war or just the rhetoric against foreigners may have dampened some of the enthusiasm to buy property in the U.S.,” Lawrence Yun, the NAR’s chief economist, told the Wall Street Journal.
“Dampened” describes purchases by Chinese investors ─ the largest purchasers of U.S homes. They invested $30.4 billion in home purchases last year, 4 percent below the year-ago total. Purchases by Canadians, who rank second behind the Chinese, fell by a whopping 45 percent to $10.5 billion.
Yun says the pullback isn’t primarily responsible for the slow-down in home sales but is contributing to it.
Some realty agents say foreign investors who used to be interested in purchasing U.S. homes are now looking for help selling the properties they have acquired. That describes investors in commercial real estate as well. The Chinese sold $1.29 billion of commercial property in the second quarter, while booking purchases of only $126.2 million, the first time they have been net sellers of U.S. commercial real estate in nearly a decade, according to Real Capital Analytics.
LITIGATING CLIMATE CHANGE
The city of Baltimore is suing 26 oil and gas companies for contributing to the destructive results of climate change. The suit cites the property damage, economic losses and public health effects of rising sea levels, noting specifically the two 100-year storms that have hit the city in the past three years. The defendants include ConocoPhillips, Royal Dutch Shell Plc, Phillips 66, Marathon Oil Corp, CNX Resources Corp, Hess Corp and Consol Energy Inc.
“These oil and gas companies…could have warned us. They could have taken steps to minimize or avoid the damage. In fact, they had a responsibility to do both, but they didn’t, and that’s why we are taking them to court,” city officials assert in a press statement.
Separately a group of children and young adults cleared a key hurdle in their suit accusing the federal government and oil and gas companies of ignoring the dangers of climate change and failing to take steps to combat it. The U.S. Supreme Court upheld a federal appeals court decision allowing the case to proceed over the objections of the federal government.
The suit, filed initially against the Obama Administration, contends that the government’s failure to act violated the due process rights of the plaintiffs.
The Trump Administration said the case imposed an undue burden on the executive branch and raised an untested and unsubstantiated legal claim that there is a fundamental right to a particular climate system. Attorneys representing the young plaintiffs are arguing that “the harm to the climate system threatens the very foundation of life, including [their] personal security, liberties and property.” The trial is currently scheduled to begin in late October.
This suit and the one filed by the city of Baltimore are part of a groundswell of climate change litigation that has produced 900 suits in 25 countries, according to a United Nations study.
As rents nationwide approach historic highs, Senate Democrats have proposed using a refundable tax credit to ease the growing affordability burden on low-income Americans. The Rent Relief Act “will ensure that no family is priced out of the basic security of a place to live,” Sen. Kamala Harris, the bill’s sponsor said. Senators Dianne Feinstein (D-CA), Richard Blumenthal (D-CT) and Maggie Hassan (D-NH) have endorsed the measure, which would award tax credits to any family spending more than 30 percent of their gross income on housing costs, including utilities.
A tax credit program of this kind “could transform lives, providing millions of the lowest income people with the breadth of opportunities that start with affordable home opportunities to climb the economic ladder, improve their health, and allow children to do better in school,” Diane Yentel, president and CEO of the National Low-Income Housing Coalition Diane Yentel, said.
A similar bill, introduced in the House of Representatives last year, has not gained traction there.
Moving in the opposite direction, the Department of Housing and Urban Development (HUD) is proposing to reduce federal aid for low-income renters by increasing from 30 percent to 35 percent the percentage of gross income they must pay to qualify for rental assistance. The new policy also would no longer consider the cost of child care and medical expenses in the calculation of qualifying income.
HUD Secretary Ben Carson has said the policy is designed to reduce dependency and thereby cure poverty rather than entrench it. But Yentel disagrees. “This isn’t about dependence,” she told the New York Times. “Today’s housing crisis is squarely rooted in the widening gap between incomes and housing costs.”
IN CASE YOU MISSED THIS
Retailers in New Hampshire ─ one of five states without a broad-based sales tax ─ are grappling with a Supreme Court decision that would require states without a broad-based sales tax (New Hampshire is one of five in that category to collect sales taxes on goods sold to customers in states that do impose the tax. The New Hampshire Legislature has approved legislation that would make it more difficult for states to enforce the tax collection requirement on companies with no physical presence in the state. “We’re not saying states can’t do it,” New Hampshire Governor Chris Sununu told the Wall Street Journal. “We’re just putting up a lot of hurdles that states have to jump over. We’re not going down without a fight.”
More than a third of millennial homebuyers financed their down payments last year with loans from their retirement accounts and 20 percent of those planning future home purchases plan to tap the same funding source.
Plaintiffs are on a pace to file 2000 law suits this year targeting “inaccessible” web sites, 30 percent more than last year’s total. The suits contend sites that aren’t accessible to people with disabilities impairing their vision, hearing or mobility, violate the Americans with Disabilities Act.
Sports are depressing. That’s according to a recent study concluding that the euphoria fans feel when their team wins is more than outweighed by their sadness over a loss.
The 32 million homes owned and occupied by Baby Boomers (and their parents) represent a potential source of housing for Millennials, struggling with a shortage of homes for sale. The question is: When will these older homeowners decide to sell?
PUSHING BACK ON ACCOMMODATION REQUESTS
Condo boards usually approach Fair Housing Act (FHA) accommodation requests cautiously, pushing back gingerly, if at all, on owners’ claims of physical or emotional disabilities justifying the waiver of association rules or other special treatment they are seeking. But this decision by a federal appeals court in Illinois suggests that boards may not have to be quite as deferential or as acquiescent as they often assume. (Geraci v. Union Square Condominium Association.)
The plaintiff, Holly Geraci, suffered from claustrophobia, intensified by a fear of medium and large-sized dogs resulting from a childhood incident in which she was attacked by one. While in the elevator of her high-rise building, she was involved in an altercation with another resident and an unspecified number of dogs. A psychologist from whom she sought treatment concluded that she was suffering from Post-Traumatic Stress Disorder (PTSD).
Based on that diagnosis, Geraci asked the board to approve two accommodations: modify the elevator with a key that would allow her to ride non-stop to her floor; and install cameras in the elevator and hallways to enforce an association policy requiring pet owners to be considerate of residents who were uncomfortable around dogs. When the board rejected both accommodations, Geraci sued.
A trial court ruled in favor of the association, concluding that Geraci had not submitted adequate evidence to document her disability or to demonstrate a connection between her disability and the accommodations she sought. Geraci’s appeal advanced two primary legal arguments: The trial court erred by accepting testimony submitted by the association from an expert witness challenging the PTSD diagnosis of Geraci’s psychologist; and the association retaliated illegally against Geraci by distributing litigation updates to owners and by discussing the case in an open forum.
The Appeals Court rejected both arguments. On the retaliation issue, Geraci argued that discussing her case publicly, which the board did not do with other litigation, violated the FHA’s anti-retaliation provision, prohibiting actions that “coerce, intimidate, threaten, or interfere with any person in the exercise or enjoyment of… any right granted or protected [by the statute].” The emotional distress and embarrassment caused by the public discussion of her PTSD diagnosis, Geraci contended, constituted “coercive, intimidating, threatening, or interfering” conduct prohibited by the law.
But in the court’s view, keeping owners apprised of the litigation was “a far cry from the retaliatory conduct” the statute envisioned. “No federal law prevents co‐owners of a condominium association from knowing why their association is bearing legal costs,” the court said. Indeed, the court noted, “it should be expected that Union Square’s co‐owners would want to know the details of the lawsuit, if for nothing else, to consider whether the suit should be settled.” The litigation updates and open forum represented “reasonable measures” to provide owners with information to which they were entitled, the court continued, adding that Geraci had failed to identify any actions by the board that “a person of normal fortitude would view as coercive, intimidating, threatening, or interfering with the exercise of her protected right under the FHA.” In short, the court said, the retaliation claim did not constitute “a triable issue” for the court to consider.
Making equally short shrift of Geraci’s second argument, the court found nothing inappropriate about the submission of evidence challenging the conclusion of Geraci’s psychologist that she suffered from PTSD. Geraci argued that the association was allowed to question whether the condition diagnosed by her doctor met the statutory definition of a disability but could not submit a contrary diagnosis from its own expert witness. The court said it could find no decisions supporting that contention.
“One of the most common ways to defend oneself is through disproving any one or more of the elements the plaintiff carries the burden of proving,” the court said. “Here, Union Square had the right to disprove that Geraci is handicapped, [and] we find no abuse of discretion in the district court allowing the expert witness to testify as to Geraci’s condition.”
“The time for doing the bare minimum is long past.” ─ Jimi Grande, senior vice president of government affairs for the National Association of Mutual Insurance Companies, urging Congress to stop passing emergency extensions of the National Flood Insurance Program and fundamentally reform it.