Published on: April 1, 2017


Concerns about rising interest rates and shrinking inventories, bubbling beneath the surface of real estate discussions for much of last year, have boiled over, dominating recent news reports and raising questions about the outlook for this year.

Existing home sales declined more than expected in February, undercut by a persistent inventory shortage that is limiting choices (especially for entry-level buyers) and increasing prices. The 3.7 percent dip reported by the National Association of Realtors followed a surprisingly strong January sales pace ─the strongest in nearly a decade ─ that industry executives warned would not be sustainable.

A strong labor market is keeping demand high, but a crushing shortage of homes is constraining sales and increasing affordability pressures, analysts said.

Inventory levels fell for the eighth consecutive quarter, reaching the lowest level on record in the first three months of this year, according to statistics compiled by Trulia. The decline was steepest in the entry level market, where available homes for sale declined by nearly 9 percent year-over-year, compared with a 6 percent dip in the trade-up inventory.

Although some industry executives are confident that strong demand will underpin sales this year, others are less sanguine about the outlook.

“Homebuyers are still plagued by low levels of resale homes on the market, and rising mortgage rates compound concerns for first-time and trade-up homebuyers gearing up for spring home buying season,” Ralph McLaughlin, Trulia’s chief economist, warned. Strong consumer confidence in the housing market should keep existing home sales from sliding in the coming months,” he agreed, especially if homebuilder continue to ramp up new construction, as they appear to be doing. But even with some measure of relief provided by increased supply, McLaughlin predicts, “gridlock at the lower end of the housing market will keep existing home sales well below pre-recession levels.”


As more states join the march to legalize recreational use of marijuana (which Massachusetts and Maine did last year), it appears that the anticipated benefits may come as much from investing in the drug as from inhaling or ingesting it. The non-profit Tax Foundation estimates that a “mature legalized” marijuana industry would generate up to $28 billion in tax revenue for federal, state and local governments. Marijuana-related sales, which increased by nearly one-third last year, are expected to triple by 2020. Separately, Forbes reported recently that a fully legalized marijuana industry could generate 250,000 jobs over the next three years, exceeding the projected job gains from manufacturing.

Those projections have caught the eye of investors. The Toronto Stock Exchange recently approved the first exchange-traded fund focusing on marijuana. Developers of the “Horizons Medical Marijuana Life Sciences ETF” describe it as the first to target “North American-listed stocks that are involved with medical marijuana bioengineering and production.”

As the deregulation trend continues, this fund and others are expected to encompass recreational as well as medical uses of the drug.

“The medical marijuana industry is rapidly growing in North America as legislators allow or consider allowing more legal uses of marijuana and marijuana-related products, particularly medical marijuana usage,” Steve Hawkins, president and co-chief executive officer of Horizons ETFs, said in a press statement. “Given the recent high returns generated by medical marijuana companies, he added, “investors are clearly attracted to the industry.”


The tax credits that have spurred the development of affordable housing will be significantly less valuable to developers if the Trump Administration implements its plan to slash corporate taxes. Anticipating the impact if the corporate rate falls from 35 percent to as low as 15 percent, tax credit values “have collapsed,” Stuart Boesky, chief executive of Pembrook Capital Management LLC, told the Wall Street Journal. Some deals “are just dying,” he noted, while others “are scrambling around looking for gap grants from state and local housing agencies.”

Those reports bode ill for affordable housing production. The National Multifamily Housing Council estimates that nearly 25 percent of the 400,000 affordable housing units produced last year relied in part on the tax credits, according to the National Multifamily Housing Council, a trade association representing housing developers.

The National Low Income Housing Coalition, an advocacy group, reports that the already acute shortage of affordable rental housing is worsening. Its annual survey of housing found a need for an additional 7.4 million affordable and available rental units to meet the needs of “extremely low income” households, defined as those with incomes at or below 30 percent of the median income in their area.

The organization is also eyeing the tax code as a tool for closing this gap – specifically, by reducing the mortgage interest deduction available to homeowners. “Tax reform provides Congress the perfect opportunity to enact modest changes to housing tax expenditures, particularly to the highly regressive mortgage interest deduction, to generate billions in savings that could support housing affordability for our nation’s lowest income households,” Diane Yentel, president and CEO of the NLIHC, said in a statement.


Americans, known traditionally for their mobility, are becoming less mobile. According to the U.S. Census Bureau’s 2916 Current Population Survey, 11.2 percent of the population moved between 2015 and 2016 – the lowest move rate reported since this survey began tracking migration in 1948. In that first survey, 20.2 percent of the population relocated. A major reason for the change: Millennials (young adults between the ages of 25 and 35), who are highly mobile (at least in theory), are moving far less than prior generations did when they were young.

Only 20 percent of millennials relocated between 2015 and 2016, compared with a one-year move rate of 26 percent for both Generation Xers and Baby Boomers when they were the same age as Millennials.
The shift is puzzling, analysts say, because Millennials are less likely to be married, less likely to have children and less likely to own hoes than prior generations, which should make it easier for them to move. For example, 56 percent of “early” boomers owned their homes when they were between 25 and 35, compared with only 37 percent of Millennials today. Not surprisingly, given that statistic, 74 percent of millennials were renters in 2016 compared with 62 percent of Gen Xers in 2000 and 29 percent of ‘late’ boomers in 1990.


The shift to on-line shopping that is crushing many brick and mortar retailers is also taking a toll on shopping malls and strip centers, leaving landlords with increasing amounts of vacant retail pace. Some are turning to the health care sector to fill it. From a landlord’s perspective, clinics, doctors’ offices, and companies providing back-office services to medical professionals, represent a more stable client base than struggling retailers. Medical offices may also boost business in the mall, where consumers might shop or dine after visiting a doctor, a dentist or a clinic. “If someone comes to see a doctor, it’s likely an upscale consumer who can afford insurance and that’s going to attract a landlord,” Greg Ferrante, an executive with a Chicago real estate company, told the Wall Street Journal. “These consumers would have more money to spend at the retail property,” he added. This trend is also operating in reverse, the Journal noted, as owners of some health-centric properties, such as assisted living communities, are looking to attract retail tenants to appeal to enhance their appeal to residents.


Consumers are growing more optimistic about the economy, but some analysts say their optimism is based more on wishful thinking than on “hard data.”

As night follows day, it appears, higher mortgage rates are bringing an increase in mortgage fraud.

The National Association of Realtors (NAR) is supporting the use of alternative credit scoring models that would enable more “thin file” borrowers, with limited credit histories, to qualify for mortgages.

As skyscrapers get taller, developers are focusing more intently on the elevators to be installed in them.

Congressional Democrats and housing advocacy groups are pushing back hard against a Trump Administration budget plan that would slash more than $40 billion from the HUD budget.



When resolving differing interpretations of laws or contracts, courts typically rely on their “plain meaning.” Sometimes that meaning is difficult to discern, but that wasn’t a problem for the courts in this dispute over the wording of a covenant protecting the views in a condo community.

The declaration at issue in Ressmeyer v. Marshall required owners to maintain landscaping at a height equal to or lower than the nearest roof peak, permitting an exception to that rule only if they obtained written permission from all of their uphill neighbors. The stated purpose of the covenant was to protect the “outlook” from the lots, all of which had views of the lake.

When the Marshalls purchased a home downhill from that of the Ressmeyers, they planted a hedge near the property line. The Marshalls trimmed the hedge as required for a while, keeping it below the six-to-seven-foot peak of their roof. They eventually allowed the hedge to grow above that limit, however, and when the Ressmeyers complained, the Marshalls threatened to build another home on their lot with a higher roof peak that would set a higher height limit for the hedge, blocking the Ressmeyers’ view.

The Ressmeyers sued, seeking an injunction barring the threatened construction and a court order requiring the Marshalls to trim their hedge below the roof peak of the Marshalls’ home. The Marshalls argued that the “nearest roof peak” referred not to their roof but to the one closest to the vegetation, and the hedge was closer to the Ressmeyers’ home than to their own. They also contended that the “outlook” the covenant protected could refer as easily to the view of the landscape as to the view of the lake. The trial court found those readings of the covenant illogical, and the Appeals Court agreed.

On the meaning of the term “outlook,” the appeals court noted, “It is common sense that a lakefront property is more desirable when it has a view of the lake. The value of the outlook is in the view,” the court said. If the covenant protected the landscaping, as the Marshalls contended, “there would be no need to require landscaping to be maintained at a particular height, because the landscaping itself would be the protected view,” the court reasoned.

The Marshalls had also pointed to language requiring “neat and slightly” landscaping to support their argument that the purpose was not to protect Ressmeyers’ view, but simply to ensure that the landscaping was aesthetically pleasing and protected their privacy. The court wasn’t persuaded. While owners did have an affirmative obligation to maintain their landscaping, the court agreed, that requirement didn’t eliminate other obligations, including the obligation to protect the “outlooks” of their neighbors.

Turning to the height limitations, the court found that the Marshalls’ reading of the covenant belied both logic and intent. If the “nearest roof peak” referred, as they contended, to the peak nearest the vegetation, the court noted, the closest uphill at neighbor would have no basis for objecting if the vegetation blocked his view, and the covenant requirement that “all uphill neighbors” must approve any deviation from the height limits would make no sense.

“The Marshalls’ interpretation would give downhill neighbors the right to completely obstruct the view of their uphill neighbors,” the court pointed out. “Conversely, if the downhill neighbor’s roof peak was closer to the planting area than the owner’s roof peak, it could prevent uphill neighbors from having plants at all.” That reading, too, “would all but eliminate the need for the provision allowing a deviation from the height restriction.”

Refusing to apply “a strained” interpretation that would produce “absurd results,” the court concluded that the only “reasonable” interpretation was that the nearest roof ridge referred to the structure on the same property as the vegetation, undercutting the primary basis for the Marshalls’ claim, and requiring them to cut their hedge.


“We still have this slow, sluggish productivity growth and persistent inequality. Put those together and it’s hard to see the robust consumption and investment profile you need to really get things going.” ─Catherine Mann, chief economist, OECD

Marcus, Errico, Emmer & Brooks specializes in condo law, representing clients in Massachusetts, Rhode Island and New Hampshire.