Published on: May 17, 2018
EMPLOYMENT TRAIN STILL ROLLING
The unemployment rate fell to 3.9 percent in April, reaching its lowest level in nearly two decades, as the labor market notched its 91st consecutive month of gains. Employers added 164,000 workers to their payrolls, keeping the hiring train moving, though more slowly than expected; analysts had predicted a gain of 193,000 positions.
Earnings remained sluggish, increasing by only 4 cents per hour and averaging a 2.6 percent annual rate, barely keeping pace with inflation. Employers continue to resist the wage bump analysts are expecting a declining unemployment rate will bring.
The Federal Reserve, which keeps a close eye on employment trends, stood pat on interest rates in May after increasing them by 25 basis points in March. But members of the policy-setting Federal Open Market Committee (FOMC) indicated that they intend to follow the current course, which calls for at least two and possibly three more rate hikes this year.
Whether that next rate move will come in June, as many analysts expect, “will take into account a wide range of information,” the committee said in its post-meeting statement, “including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments.”
A FAMILIAR STORY
Housing statistics continue to tell a familiar story: Rising inventories and scarce inventories of homes for sale are creating a headwind that is slowing home sales, despite increasing demand created by a growing economy and a strong labor market.
The scarcity of homes for sale will make this year’s prime home-buying season “one of the most competitive ever recorded,” analysts at Zillow predict.
Housing inventories actually improved a bit in March compared with February, but they fell 7.2 percent year-over year – the 34th consecutive month for this negative annual trend. The shortage is most acute at the lower end of the price range, where demand from first-time buyers is strongest.
Although sales of existing single-family homes recorded their second consecutive monthly gain, they fell below the year-ago pace by about 1 percent. Pending sales, a measure of future demand, fell below the year-ago level for the third consecutive month, as the inventory shortage continues to suck air from the market.
Sales of condominiums and cooperatives, which had been lagging this year, were a bright spot; they increased by more than 5 percent for the month, reflecting increasing strength, although still trailing the year-ago level.
New home sales posted a strong 4 percent gain for the month, but analysts caution against putting too much weight on this volatile statistic, which, they note, has a margin of error of more than 18 percentage points.
“Builders are selling homes virtually as fast as they can build them,” Mark Vitner, senior economist at Wells Fargo, told WSJ.
The problem, analysts say, is that they aren’t building them fast enough.
FAIR HOUSING DELAY
New York state is joining the National Fair Housing Alliance (NHFA) in challenging a decision by the Department of Housing and Urban Development (HUD) to delay enforcement of an Obama Administration rule aimed at tightening enforcement of fair housing requirements. The Obama era rule at issue ─ “Affirmatively Furthering Fair Housing”─ directed cities and towns receiving federal funding to examine local housing patterns for evidence of racial bias, and to correct any problems they identified.
In announcing the one-year enforcement delay, HUD officials said they were responding to feedback from local officials indicating that “the Assessment of Fair Housing tool for local governments wasn’t working well.” According to HUD, “More than a third of our early submitters failed to produce an acceptable assessment—not for lack of trying but because the tool designed to help them to succeed wasn’t helpful.”
Plaintiffs challenging the delay say HUD violated the Administrative Procedures Act by failing to provide notice of the decision and failing to solicit public comment on it. Refuting HUD’s assertion that the rule isn’t working, their complaint contends that it “created a greatly improved system for HUD grantees, including local governments, states, territories, and public housing authorities, to fulfill their obligation to affirmatively further fair housing.”
Far from creating the administrative burden HUD cites, the complaint contends, the rule has produced “a robust process [that]] has led to a newfound commitment to take meaningful steps towards affirmatively furthering fair housing.”
Explaining New York’s decision to join the litigation, Governor Andrew Cuomo, who served as HUD Secretary during the administration of Bill Clinton, said the agency is “abdicating its responsibility” to combat housing discrimination. New York, he added “will not stand by and allow the federal government to undo decades of progress in housing rights.”
Home buyers and homeowners are a resilient species. Although current market conditions – rising interest rates, scant inventories and rising prices – are ringing alarm bills for industry executives, housing confidence, measured by Fannie Mae’s Home Purchase Sentiment Index, has hit an al-time high. Respondents to Fannie’s April survey gave enthusiastic thumbs up to five of the six components in the index. The only exception was the assessment of the current home buying environment: The percentage who think now is a good time to buy declined by 3 percentage points compared with the June survey. That’s not surprising given all the headwinds buyers face, but it’s also not as steep a decline as you might expect, given all of those obstacles.
On the other hand, the proportion of those who think this is a good time to sell a home jumped by 6 percentage points, and the share of those who expect prices to increase over the next 12 months increased by 7 percentage points. Although mortgage rates have been rising steadily this year, respondents to this survey are expecting them to decline. The measure of that component increased by 4 percent in April.
The survey results indicate that “consumer attitudes remain resilient going into the spring/summer home buying season,” Doug Duncan, Fannie’s senior vice president and chief economist, said in a statement, noting that rising prices are buoying the confidence of owners looking to sell their homes. “But this upward trend has done little to release more for-sale inventory,” he cautioned. “And the tightest supply in decades, combined with rising mortgage rates from historically low levels, will likely remain a hurdle for mobility and a persistent headwind for home sales.”
UP ON THE ROOF
California, which is known as the starting point for national trends, may be launching another one: The California Energy Commission is about to approve a regulation requiring solar panels on all newly constructed homes. The policy would take effect in 2020 and would apply to all residential buildings up to three-stories high, including single family homes and condominiums.
A state law already requires home builders to incorporate features that will accommodate the addition of solar panels, and several communities, including San Francisco and Santa Monica, have mandated solar requirements for new homes.
Advocates of alternative energy say the solar requirement will boost California’s efforts to reduce air pollution and combat climate change. But, it will also add between $8,000 and $10,000 to the cost of building a new home, according to industry estimates, making the California housing market, already one of the most expensive in the country, even more expensive.
Although builders were concerned about the cost-impact, they won some concessions that garnered their support for the regulation, including the option of creating a communal solar array where installations aren’t feasible on rooftops.
The state Energy Commission estimates that while the additional cost of the solar panels will increase the monthly payment on an average 30-year mortgage by about $40, solar capacity will reduce energy costs by about $80 a month. “[Home buyers] absolutely get their money back, Energy Commissioner Andrew McAllister, told the Wall Street Journal. “Out-of-pocket, they are actually better off.”
IN CASE YOU MISSED THIS
No more hedgehogs. American Airlines will ban them along with a number of animals, including sugar gliders and goats, from its flights, beginning July 1. American says it is tightening the rules governing “emotional support animals” because of the “safety and/or public health risks” some of them create.
Rising rents are making baby boomers and Gen Xers the most “rent-burdened” generations. Fifty percent of renters 65 and older and 40 percent of those between 50 and 64 were paying more than 30 percent of their income in rent in 2015, according to a study by Pew Charitable Trusts.
Credit card balances are declining. That sends a positive signal that consumers are doing a good job of managing their finances, but it also indicates that they are spending less, which isn’t a good indicator for an economy driven largely by consumer spending.
Get ready for a boom in cash-out refinances. ATTOM reports that the share of “equity-rich” properties has reached a ‘tipping point’, creating a critical mass of homeowners “who have regained both sufficient equity and sufficient confidence to tap into their home equity.”
Millennials (aged 24-37) have apparently gotten the message about the importance of saving money. Nearly half of the respondents to a Bank of America survey had savings of $15,000 or more and 16 percent said they have put away at least $100,000.
I AM THE ASSOCIATION!
What’s in a name? Eligibility for flood insurance, according to this New Jersey District Court decision. (Branchburg Commerce Park, LLC v. Hartford Insurance Company.) The back story is somewhat complicated, but here’s the gist:
Branchburg, the plaintiff, developed a 36-unit commercial condominium, identified as the Dobie Plantation Condominium Association. Throughout the relevant period, Branchburg controlled at least 75 percent of the units, giving it control of the association’s five-person governing board.
Branchburg decided to purchase flood insurance for Unit A – the only unit subject to flooding ─ which Branchburg occupied as its office. Hartford provided the insurance, underwritten by the National Flood Insurance Program (NFIP).
Branchburg subsequently sold the unit to Margin Holdings, but immediately leased it back, continuing to occupy the unit as a tenant. The lease specified that both the landlord and tenant would maintain “appropriate insurance for their respective interests” in the property; it further required Branchburg “to maintain and renew from time to time Tenant’s existing flood insurance policy” to provide a minimum of $100,000 in building coverage.
When the unit was flooded a year after the Margin transaction, Branchburg submitted an initial claim for contents and building losses totaling $13,339.16. Hartford paid the claim for contents damage. The insurer subsequently revised the policy to eliminate the $150,000 of building coverage and returned the portion of the premium Branchburg had paid for it, stating that Branchburg had “no insurable interest” in the building. When Branchburg submitted a supplemental proof of loss seeking more than $52,000 for flood-related building damage, Hartford denied the claim.
In the ensuing litigation, Hartford cited a number of arguments supporting its decision, including errors in Branchburg’s insurance application. But the court never reached he application errors, finding sufficient grounds for its decision in the core question: Whether the unit was eligible for federal flood insurance.
NFIP regulations permit coverage for non-residential condominium units “insured in the name of the association.” Branchburg was the only named insured on the policy. The key question, then, was whether Branchburg was authorized, as it claimed, to purchase insurance on behalf of the condominium association to protect the association’s interest in the building.
Hartford argued that this was not the case ─ that Branchburg was simply a tenant in the unit and had no ownership interest in it. But Branchburg proposed a different path to reach a contrary conclusion, arguing that: Both the association’s governing documents and Branchburg’s lease agreement with Margin required Branchburg to obtain insurance for Dobie (the association). As a result, Branchburg contended, Dobie was actually “doing business as Branchburg.”
The court found that logic both tortured and unsupportable. For one thing, the court noted, the condominium declaration states “clearly and unambiguously” that a condominium association is “the entity, formed by the unit owners, responsible for the maintenance and operation of . . .common elements.”
“The only entity formed by unit owners in this case is Dobie,” the court said, and Branchburg “failed to cite any legal authority in support of its ‘doing business as’ theory.” Branchburg’s ownership of several units in the community (in addition to the one it rented) makes the entity a member of the condominium association, the court noted. “[But] it is impossible for Branchburg to be both the condominium association [and a member of it],” the court said.
“All of the evidence in the record supports that that the entity [“formed by unit owners” and responsible for insuring common area property] was Dobie,” the court concluded. While Dobie may have delegated to Branchburg the authority to purchase insurance, the court said, that delegation did not give Branchburg an ownership interest in the unit and “does not affect Branchburg’s eligibility for insurance under the [National Flood Insurance Program].”
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MARCUS, ERRICO, EMMER & BROOKS SPECIALIZES IN CONDO LAW, REPRESENTING CLIENTS IN MASSACHUSETTS, RHODE ISLAND AND NEW HAMPSHIRE.