Published on: December 23, 2016
Overcoming the headwinds created by rising interest rates, higher home prices, and anemic inventories, existing home sales surged unexpectedly in November. The third consecutive monthly increase pushed sales to an annual rate of 5.61 million units, their highest level in nearly 10 years, the National Association of Realtors (NAR) reported.
Industry analysts speculated that higher interest rates, and the expectation that they will move higher in response to the Federal Reserve’s less accommodative policies (see related item), persuaded many hesitant buyers to enter the market.
Since the Fed increased its benchmark rate in mid-December, the 30-year fixed mortgage rate has increased 14 basis points to 4.3 percent as of the week before Christmas – the highest rate in two years.
Housing affordability, meanwhile, has sunk to its lowest point since 2008, according to ATTOM Data Solutions, as tight inventories keep upward pressure on prices. Inventories posted their 18th consecutive monthly decline in November, reducing the supply of available homes for sale to 1.85 million – more than 9 percent lower than a year ago.
“Existing housing supply at the beginning of the year was inadequate and is now even worse heading into 2017,” Lawrence Yun, the NAR’s chief economist, said in a press statement. “Rental units are also seeing this shortage. As a result, both home prices and rents continue to far outstrip incomes in much of the country.”
Wondering where all those millennial potential home buyers are? They’re still living with their parents, according to the most recent Census data.
Nearly 40 percent of young Americans between the ages of 18 and 34 are living with parents or other family members or are doubling (and tripling) up with roommates, rather than establishing households of their own. That’s up from less than one-third before the start of the last recession, and the highest level since the Depression.
Delayed household formation is a common result of economic strains, but an improving economy usually reverses the trend. That hasn’t been the case in this cycle, and the result has been a less than robust housing recovery. Although the number of adults under the age of 30 has increased by 5 million over the past decade, only 200,000 of them have formed new households — traditionally a first step toward home ownership. Rising rents, stalled income growth, and strict lending standards have made it difficult for Millennials to follow that traditional path, according to Trulia analysts, who crunched the Census numbers.
“I don’t think those are challenges that are going to keep young households permanently out of the housing market,” Ralph McLaughlin, Trulia’s chief economist, told the Wall Street Journal. “But it may keep their homeownership rate near historic lows for the indefinite future,” he said.
DRONES DELIVER – IN ENGLAND
Amazon has announced its first Drone delivery – using the automated, pilot-less vehicle to deliver a streaming device and popcorn to a customer in Cambridgeshire, England. The delivery marked the beginning of an extensive trial test for a service Amazon is calling Prime Air. If the testing goes well, the company plans to begin using Drones regularly to handle at least some of its deliveries.
Amazon is debuting the service in England because American regulators have moved more slowly than British regulators to approve regulations governing the use of drones for commercial purposes. The Federal Aviation Administration (FAA) has been granting exemptions permitting the use of drones weighing less than 55 pounds for “routine, non-hobbyist” activities, provided that the devices are operated by licensed pilots.
Businesses that want to use drones have criticized the FAA for moving too slowly; but critics have complained that the agency has moved too quickly and without sufficient attention to safety concerns. A recent watchdog report agreed. The agency has approved more than 5,500 exemptions permitting commercial uses of drones, but hasn’t verified that applicants had the required pilot licenses, hasn’t provided adequate training to its inspectors, and hasn’t initiated enforcement actions against individuals operating drones improperly, a report by the Transportation Department’s Inspector General found.
“FAA also lacks a robust data reporting and tracking system for” drone activity and “the information available is difficult to analyze and collected in a fragmented manner throughout the agency,” according to the report.
In their written response, FAA officials did not take exception to any of those conclusions, but said the agency has made “significant progress” toward improving the safety of drone flight and improving enforcement of drone regulations.
NO EXPERIENCE REQUIRED
President-elect Trump’s plan to nominate Ben Carson, a retired neurosurgeon, has met considerable blow-back from critics, who have complained about his lack of housing experience. But a recent article in National Mortgage Professional points out that while the first HUD Secretary, Robert Weaver, was, in fact, a housing expert, having headed HUD’s predecessor agency, he is something of an anomaly. In the past three decades, the article notes, only two HUD secretaries could claim any housing expertise: Alphonso Jackson, George W. Bush’s choice, had headed the Dallas Housing Authority; and Shaun Donovan, HUD Secretary in President Obama’s first term, was commissioner of the New York City Department of Housing Preservation and Development. Others, like Carson, have not had housing in their professional backgrounds. Some have been attorneys (James Lynn and Carla Hills) and one (Patricia Roberts Harris from the Carter Administration) was a law school dean and U.S. ambassador. Most have been political or business figures, a list that includes, among others: Henry Cisneros, Mel Martinez, Andrew Cuomo, Julian Castro, Samuel Pierce and Jack Kemp.
A TIME FOR FORECASTS
‘Tis the season for economic forecasts, and we’ve compiled a few to replace the 2016 forecasts we’ve forgotten, with new projections we will have forgotten by this time next year.
Wall Street Journal Survey of Economists: “The presidency of Donald Trump is poised to usher in a new era for the U.S. economy that forecasters say could boost economic growth, bring higher interest rates and inflation, and a new set of potential risks including international trade wars.”
Dankse Bank: “In the medium to long term, uncertainty is set to rise and we think the negative effects of more protectionism and tougher immigration policy will dominate the possible positive effects of less regulation, lower taxes and infrastructure spending.”
Kiplinger: “Expect interest rates to rise gradually after December 14. They will be more volatile now, as fears about the deficit wax and wane. But unless those concerns deepen considerably, rates should show only a modest uptrend.”
National Association of Home Builders: “While single-family construction will continue to expand in 2017, the rate at which the industry can grow is limited by the amount of workers and access to building lots for builders to meet rising housing demand. As long as single-family production remains below historical norms, as it will for the next few years, home prices will continue to rise.”
Kroll Bond Rating Agency: “No amount of prospective regulatory relief or changes in the rules for loan guarantees in Washington can fully offset the dampening effect of rising interest rates on the home finance sector… With interest rates rising, the economic and financial environment for the U.S. housing market is going to become progressively less hospitable.”
Zillow: “More millennials will become homeowners, driving up the homeownership rate. Millennials are also more racially diverse, so more homeowners will be people of color, reflecting the changing demographics of the United States.”
IN CASE YOU MISSED THIS
The tax reform proposal House Republicans are promoting would make the mortgage interest deduction “irrelevant” for most homeowners, according to one recent analysis.
Neighbors may not welcome the music blasting from the club next door, but the proximity of a music venue could increase home values in the neighborhood, a recent study has found. Move, Inc., a subsidiary of realtor.com, and Vivid Seats (a purveyor of event tickets) collaborated on the analysis.
Thanks to an increase in deaths, a declining birthrate and a small dip in immigration, the U.S. population grew at its lowest rate in a decade last year.
The credit scores of mortgage borrowers are rising. That means lender credit risks are declining, but so is the population of borrowers able to qualify for loans.
Economists have reduced the odds that we’ll sink into another recession next year. They’re counting on the tax cuts and infrastructure spending President-elect Trump has promised to boost the economy, at least in the near term.
WHERE’S THE CONTRACT?
When the board of Cobblestone Homeowners Association discovered that Tatita Sanchez’s home wasn’t included in the HOA declaration, they informed her that she wasn’t required to pay association fees, but she also wasn’t entitled to use the association amenities. They offered to amend the declaration to correct the problem. Instead of the thanks the board expected, Sanchez sued the association, demanding a refund of the fees she had paid “illegally” over the past 12 years. A trial court decided she was right and a divided North Carolina Court of Appeals agreed. (Sanchez v. Cobblestone Homeowners Association of Clayton, Inc.)
Sanchez had argued that there was no valid contract requiring her to pay association fees and her payments over the years amounted to unjust enrichment of the association.
he association argued that an implied contract, if not an actual one, required Sanchez to pay her dues and that her use of association amenities and her payment of the dues established her acceptance of that obligation.
The Appeals Court framed its analysis simply: Was there a contract, or wasn’t there? “If such a contract existed, Plaintiff was thereby obligated to pay the dues, and the trial court’s order should be reversed. If no such contract existed, the trial court should be affirmed.”
The association cited several decisions in which this court had found that a contract “implied in fact” had been established. But the court concluded that the facts in those cases did not apply here. The key distinction: In the other cases, the parties “had clear knowledge” of the benefits or services provided and of their obligation to pay for them. In this case, the trial court noted, and the Appeals Court agreed, Sanchez paid her fees because she assumed she was required to do so, and had no reason to question that assumption. “Plaintiff was not aware of nor had any reasonable way of knowing that there was no legal obligation to pay periodic dues or association fees,” until the board notified her of the issue, the court said.
The association’s own actions argued against the existence of a contract, in the court’s view. Had a contract existed, the court noted, the association would have been bound by it too. But the letter from the board notifying Sanchez that her property was “not subject to the declaration” specified that she would have to execute a “supplemental declaration” to become a member of the association and have access to its amenities. “Had there been an enforceable implied in fact contract between Plaintiff and Defendant Association,” the court noted, “Defendant Association would not have been able to deny Plaintiff [access to the amenities] regardless of whether Plaintiff executed any ‘supplemental declaration. Defendant Association’s argument seems to be that there was no contract enforceable by Plaintiff, but that there was a contract enforceable by Defendant Association,” the court noted.
While Sanchez’s use of association amenities might have implied a contract, the court acknowledged, the trial court found that Sanchez had used the amenities “rarely, if ever,” certainly not enough to establish that she had benefited from them. “The trial court did not find as fact that Plaintiff benefited in any other manner from services rendered by Defendant Association,” the Appeals Court noted. “On these facts, we hold that the trial court did not err in concluding that no contract implied in fact had been created between Plaintiff and Defendant Association.”
The dissenter in this 3-2 decision held that access to benefits was enough to establish a contract, but the Appeals court disagreed. “We believe the law requires something more.”
“If things go well, traders keep the money and if things go badly, it becomes the taxpayers’ problem. This kind of weird socialism for elite Wall Street guys is what got us into the politics that we have today.” ─ Michael Lewis, author of “The Big Short,” warning against rolling back essential financial industry regulations.