Published on: March 29, 2019
Surprising just about everyone, the Federal Reserve left interest rates unchanged in March and, more surprising still, indicated that policy makers aren’t planning any rate hikes for the remainder of this year, with only one increase likely in 2020. Opting to extend the “patience” that kept rates unchanged in January, the Fed’s Federal Open Market Committee (FOMC) voted unanimously to alter a policy course that had been pointing firmly in the direction of multiple rate hikes this year. With inflationary pressures subdued and economic growth showing signs of slowing worldwide, policy makers also decided to slow the pace at which they have been slimming the Fed’s investment portfolio. In comments to reporters, Fed Chairman Jerome Powell emphasized that the Central Bank will take its direction from key financial and economic indicators. “But data we’re seeing are not currently sending a signal,” Powell said. “When they do clarify, we will act appropriately.” Although Fed officials continue to emphasize the underlying strength of the economy, the current rate policy “paints a distinctly less rosy picture,” Joseph Lawler, head of research at London Capital Group, told Business Insider. Other analysts noted that the Fed has been concerned that the sizzling employment market would ignite inflationary pressures, but is now more concerned that a stubbornly low inflation rate, which remains stuck below the Fed’s 2 percent target, is a more worrisome indicator of economic weakness.
HOME SALES SURGE
Existing home sales surged in February, boding well, for the spring homebuying seasons, industry executives believe. But new home sales (6.9 percent below the January pace) and new home construction moved in the opposite direction, blurring the housing forecast. Existing sales reached an annual pace of 5.5 million units in February, beating the January total by almost 12 percent and reversing consecutive month-over-month declines in November and December, though still falling nearly 2 percent below February of last year. Inventory levels continued to improve, however, providing some relief from pressure on home prices, reflected in the closely watched S&P CoreLogic Case-Shiller index, which posted a negligible 0.2 percent gain in January – the slowest annual increase since 2012.
Despite those positive indicators, “significant construction of moderately priced-homes is still needed,” Lawrence Yun, chief economist for the National Association of Realtors (NAR), cautions. “More construction will help boost local economies and more home sales will help lessen wealth inequality as more households can enjoy in housing wealth gains,” he told DS News. Builders did not deliver on that score. Single-family housing starts fell nearly 17 percent below the January level to an annual rate of 805,000 unites – the lowest in more than 18 months. Single family permits held steady at a higher annual level (821,000 units), indicating that construction will likely rebound this spring, analysts predict.
Boston is on the list of 10 coastal cites identified in a recent study as facing “permanent submersion or regular flooding” over the next three decades resulting from climate change. The study, by Zillow and the weather news site Climate Central, estimates that 22 percent of Boston’s housing stock, valued at more than $35 billion, will be at risk by 2100. That puts Boston at ninth on the top 10 list. San Mateo, California ranks first and New York City third, with $87 billion at risk. New York Mayor Bill de Blasio has proposed a multi-billion dollar plan to protect lower Manhattan from climate-change induced coastal flooding by extending the existing coastline by 500 feet. The storm surge created by Hurricane Sandy caused more than $19 million in damage to the area, which includes the Financial District and the South Street Seaport. DeBlasio’s plan has drawn support from advocates who are urging proactive measures to deal with climate change, but cautions from analysts who note the financing and engineering challenges involved.
“Once you talk about moving into the water, you’re talking about a level of coordination with the U.S. Army Corps of Engineers, and likely Congress and other environmental stakeholders, that could significantly lengthen and complicate it,” Jesse Keenan, a faculty member and researcher at the Harvard Graduate School of Design, told Insurance Journal. said. “But maybe that’s inevitable. Maybe we shouldn’t run away from that. “I can’t think of anywhere else in America where there would be a stronger impetus to make this kind of investment,” he added. “Given the elevation and total amount of economic output and productivity from this part of the country, we really have no other alternative.”
Facebook has announced major changes in its advertising platform, designed to resolve allegations that its policies allowed advertisers to discriminate illegally against renters and buyers by screening them based on sex , race, family status, disability and other “protected classes” under the Fair Housing Act. This is the second round of changes Facebook has implemented in an effort to address the discrimination charges. The first, removing hundreds of targeting “options,” came after the Department of Housing and Urban Development filed a formal complaint last year. A coalition of fair housing advocates, led by the American Civil Liberties Union, filed a class action suit earlier this year, claiming that these changes didn’t end discriminatory uses of the site. The new policies Facebook has announced came as part of a settlement of that class action suit. They include measures that prohibit advertisers from targeting housing, employment or credit ads based on age. The new policy will give these advertisers “a much smaller set of targeting categories to use in their campaigns overall,” Facebook said in a press statement.
In a separate statement, the ACLU said Facebook has also agreed to require employment, housing and credit advertisers “to certify compliance with anti-discrimination laws,” and to use both automated and human review of these ads “to ensure that [they] are properly identified.” The settlement also mandates a three-year monitoring period, during which, the ACLU said, “we’ll be watching Facebook’s progress closely to ensure that it implements these changes fully.”
More seniors are opting to rent rather than own their homes. A recent study by Rent Café found that the number of renters 60 and older has increased by more than 40 percent over the past decade, growing faster than younger renter households. The number of older owner households increased by only 31 percent during the same period. Although the median age of renter households (42) is still lower than that of owner households (56), “the median age of renters has been slowly closing the gap over the last decade,” the study notes. The reason for the shift toward renting: “As their children move out, [older homeowners] find themselves alone in a big house that costs a lot to maintain, causing them to rethink their housing choices,” the study’s authors suggest. Austin, Texas seems to be attracting an outsized share of these older rental households, reporting a 113 percent increase over the past 10 years. Phoenix and Fort Worth were second and third, with increases of 112 percent and 95 percent, respectively.
IN CASE YOU MISSED THIS
Municipal governments notched another victory in their battle to curb the use of single-family homes as short-term vacation rentals. The Ninth Circuit Court of Appeals upheld a Santa Monica regulation requiring on-line rental companies to ensure that owners using their platforms are duly licensed by the city. Airbnb and Home Away had challenged the measure.
Residential communities built around golf courses have fallen on rough times. A Wall Street Journal article describes the financial and legal problems of developments struggling with the impact of the sport’s diminishing appeal.
Housing experts and economists have a suggestion for lawmakers trying to stabilize the finances of the federal flood insurance program: Don’t let government provide flood insurance.
Critics have complained for years that “inferior” automated appraisals posed a threat to mortgage lenders relying on them. But recent studies indicate that the appraisals have actually helped reduce default risks.
Analysts who concluded that sweeping financial deregulation had a lot to do with the financial meltdown a decade ago are warning that history is in the process of repeating itself.
POINT OF VIEW
An owner argued that modifications to his home did not violate a view protection covenant, because the changes only minimally impaired the views from other homes. An Appeals Court disagreed. (Pritchett v. Picnic Point Homeowners Association.)
Although the addition Thaddeus Pritchett proposed for his home increased the roof’s height by about seven feet, he didn’t think the change would impair the views from other homes in the Picnic Point community, and the design committee for this Washington state HOA initially agreed. But after further study, the committee determined that the addition did, in fact, obstruct several views, violating the view protection provision in the association’s covenants. When the association’s board reached the same conclusion about a revised plan, Pritchett sued, arguing that the board’s interpretation of the covenant restriction was unreasonable.
The trial court sided with Pritchett, agreeing with his primary argument: That the wording of the view protection covenant did not clearly prohibit all impediments and would permit minimal obstructions. The covenant language at issue prohibited structures that would “exceed the height limitations of the View Control Plan, or obstruct the Puget Sound or Park view of any other parcel.” The trial court found that language ambiguous, because it “set no objective standard against which [alleged violations] can be measured.”
To adduce the intent of the covenant’s drafters, the court turned to “extraneous evidence” – primarily minutes of a board meeting held in 2000 ─ four years after owners had approved an amendment adding the view protection language to the covenants. The court found persuasive the comments of board members who said that the covenants were not intended to be enforced “to the letter,” and that the view protection was not intended to cover “100 percent” of Puget Sound.
Based on those comments, the trial court concluded that the covenant restrictions were not intended to be applied literally; that the association, rather, was “required to use a flexible approach on a case by case basis” in order to avoid “absurd results.” The board had used that flexibility in dealing with trees that obstructed some views by trimming them rather than cutting them down, the court noted, and should apply the same flexibility to Pritchett’s remodel, by allowing the minimal obstruction it would create.
Concluding that Pritchett’s remodel did not violate the covenants, the court ordered the board to approve his design and pay him nearly $300,000 in damages. The court ruled further that if the board wanted to enforce the view protection strictly, it would have to amend the association’s covenants to create the “objective measurable standards” the court said they lacked.
The Appeals Court found the trial court’s reasoning “flawed” in every respect and its ruling “erroneous.” The Appellate Court identified four specific errors, starting with the trial court’s determination that the covenant wording was “ambiguous.” On the contrary, the Appeals Court said, the wording (prohibiting structures that would obstruct “the Puget Sound or Park view of any other parcel”) was “clear and unambiguous,” creating “an unqualified prohibition [against] any obstruction of existing views, no matter how minimal.”
Rejecting the trial court’s contention that the site protection covenant lacked the “objective standard” required to enforce it, the Appeals Court said that standard was inherent in the language prohibiting view impediments: “A homeowner’s existing view is either obstructed or it is not obstructed,” the court said. “Silence as to the extent of an obstruction does not create an ambiguity. By suggesting that a minimal obstruction would not violate the covenant, the court added, “the trial court introduced subjectivity to a standard that was otherwise facially objective.”
The trial court also erred, the Appeals Court found, in relying on comments made four years after owners had approved the view protection language as the basis for discerning the intent of that amendment. “The intent of the homeowners who voted to adopt the covenants cannot be discerned through the post-hoc statements of individual Board members,” the court said. The appropriate time frame for that analysis, the court said, was “the period of time leading up to the adoption of the view protection clauses. It was during this time that the covenants were drafted, the drafters explained the proposal to the homeowners, and the homeowners who voted ‘yes’ formed their reasons for so doing.”
The trial court’s assertion that the covenant restrictions should be applied “flexibly” on a case by case basis – the third error – was both inconsistent with the covenant language and illogical, the Appeals Court found. If applied flexibly, allowing some impediments but rejecting others, the covenants “will cease to be generally applicable to all homeowners,” the court noted. The association had argued that this approach would allow homeowners to “nibble away [at views] two feet at a time” ─ a reasonable concern, in the Appellate Court’s view, but one the trial court had dismissed, the Appeals Court noted, because “it had not yet come to fruition.”
The trial court’s conclusion that the covenants could not reasonably be interpreted to prohibit Pritchett’s design was the fourth error on the Appellate Court’s list. The trial court compounded that error, the Appeals Court said, by directing the association to amend the covenants “and add language conforming to the court’s interpretation….Rather than interpreting the [language] to declare what was written,” the Appeals Court stated, “the trial court declared that which it believed the drafters intended to write and then required the Association to amend the CC&Rs to conform to the court’s vision.”
The “plain language” of the covenants, supported by their statement of purpose and “extrinsic evidence” surrounding the vote approving them, prohibits any structures that would obstruct the protected view from other parcels, “regardless of the severity of the obstruction,” the Appeals Court concluded. “By ruling otherwise, the trial court erred.”
“The U.S. household wealth boom since the Great Recession is a sham, a farce and a gigantic lie that is tricking everyone into believing that happy days are here again even though the engines that are driving it are bubbles that are going to burst and cause a crisis that will be even worse than the 2008 crash.” ─ Jesse Colombo, analyst at Clarity Financial, who predicted the 2008 meltdown.