Published on: January 31, 2018
Housing industry executives have warned that the tax reforms Congress enacted will undercut incentives for home ownership. Researchers at the Urban Institute have drilled down on that theory to determine how the changes—primarily the increase in the standard deduction and caps on deductions for mortgage interest, state and local property taxes) will affect the buy-vs. rent equation (when it is more cost-effective to own than rent) for families in four different income brackets. Their conclusions: For the lowest income group (earning $50,000), there is virtually no impact. For families earning $75,000, the tipping point – the level at which rents make buying more attractive – increases only slightly, from $892 to $1,017. At $150,000, the impact is greater. Because the
The researchers conclude that the new tax structure will discourage homebuying at higher income levels, but not very much and only “at the margin.” That’s because taxes aren’t the only factor in the homebuying equation, they point out. “Because homeownership is generally more affordable than renting, and there are other benefits to homeownership (stability, an inflation hedge, more and different choices in size and location of houses), the impact on homeownership rates will likely be small.” But the impacts may increase over time, they acknowledge, “possibly resulting in a slightly lower homeownership rate as more households choose to rent.”
A separate study by ATTOM Data Solutions, challenges the assumption that owning a home is advantageous for most people in most areas of the country. Although buying is less costly than renting overall, this study notes, viewed locale by locale rather than nationally, “most Americans live in areas where renting is still cheaper than buying… “Although buying is still more affordable than renting in the majority of U.S. housing markets, that majority is shrinking as home price appreciation continues to outpace rental growth in most areas,” ATTOM Senior Vice
President Daren Blomquist told Housing Wire. “Renting has clearly become the lesser of two housing affordability evils in many major population centers, he added. “And when broken down by population rather than number of markets, this data shows that the majority of the U.S. population (64 percent) live in markets that are more affordable to rent than to buy.”
tax benefits of ownership would be cut by more than $375 month, rents would have to increase by 25 percent, from $1,507 to $1,885, before the balance shifts to owning over renting. For the highest income group ($300,000), rents would have to increase by 32 percent, from $2,757 to $3,631.
HOME SALES DOWN BUT UP
New and existing home sales both declined in December, as shrinking inventories limited choices and increased prices, preventing existing owners from trading up and creating affordability barriers for many first-time buyers.
Existing homes fell by 3.6 percent in December, reversing gains in the three previous months, while new home sales fell by nearly 10 percent, recording their steepest one-month decline in the past 18 months. The declines in both sectors were larger than analysts had predicted, but they didn’t mar what was a positive year for the housing market. Existing sales increased by about 1.1 percent last year, with sales of 5.5 million homes representing the strongest performance in more than 10 years, according to the National Association of Realtors. And despite their December swoon, new home sales were 14.1 percent higher than in the same month a year ago, and up 8.3 percent for the year.
Analysts attributed the negative December numbers to a chronic shortage of homes for sale that intensified in December, as inventory levels posted their 31st consecutive e monthly decline, shrinking by 11.4 percent compared with the November level and putting inventories at their lowest level since the NAR began tracking this data in 1999.
Although the economic winds are expected to favor the housing market this year, analysts predict that tight inventories will remain a drag on sales.
“A shortage of affordable homes for sale will frustrate the ambitions of many first-time buyers, who will be forced to stay in the rental market for longer than planned,” Matthew Pointon, property economist at Capital Economics, told Reuters.
Gregory Daco, an economist at Oxford Economics, agreed. “We expect little growth in sales in 2018, given tight inventories,” he told Reuters. And with the Fed planning a series of interest rate hikes this year, he added, “affordability will be crimped by rising mortgage rates, posing an additional headwind to sales.”
Maybe it was the duck waddling down the aisle – or the Labrador mix in the middle seat that bit a passenger. But whatever represented the last straw, Delta Airlines has decided to change its policies for the emotional support and service animals traveling with their human owners. Owners will now have to present more detailed documentation, verifying that their service and emotional support animals have been examined and vaccinated by a vet; passengers with emotional support animals will also have to provide additional documentation certifying that “their animals can behave,” according to an airline statement.
Delta, which says it transports approximately 250,000 emotional support and service animals each year, reports that the number of passengers traveling with these animals has been increasing steadily. And the number of “animal incidents” – has increased as well. Delta reports an 84 percent increase in the past two years alone.
In a press release announcing the new policy, Delta officials explain that it results from “a lack of regulation that has led to serious safety risks involving untrained animals in flight. Customers have attempted to fly with comfort turkeys, gliding possums known as sugar gliders, snakes, spiders and more,” the company said, adding, “Ignoring the true intent of existing rules governing the transport of service and support animals can be a disservice to customers who have real and documented needs.”
Community association boards will recognize in Delta’s policy statement the challenge they face in responding to owners who assert a need for an emotional support animal, requiring an accommodation under the Fair Housing Act in communities in which pets are prohibited.
Addressing growing complaints about the ease with which pet owners can obtain the certifications they need to support these claims, New York state recently enacted a law making it illegal to present false documentation certifying that an animal is a trained service or emotional support animal.
SHAPE OF THE FUTURE
The Federal Housing Finance Agency (FHFA) is floating the outlines of a plan to reshape the nation’s housing finance system. The plan retains secondary market lynchpins Fannie Mae and Freddie Mac as major sources of mortgage financing, but structures them as shareholder-owned utilities operating under government regulations and with an explicit government guarantee. Not surprisingly the plan FHFA plan is drawing flak from many directions, with the harshest critics saying it doesn’t go far enough to reduce the influence of the secondary market giants. But somewhat more surprisingly, analysts say it may be carving out a common ground that could win the broad-based approval that has eluded Congress and various stakeholders in the nine years they have been wrestling with the issue. “We see this document as helpful to efforts in the Senate to enact housing finance Seiberg, an analyst at Cowen, wrote in a note to clients.
The influential Mortgage Bankers Association (MBA) also gave an initial thumbs up to the plan, noting its “many similarities [to] the MBA’s own plan.” Among the features the MBA cited approvingly: An explicit government guarantee for mortgage-backed securities, the requirement for two or more guarantors, and “the use of a single security in the single-family market and a level playing field for lenders of all sizes and business models.”
Analysts who have been fretting over the flat inflation rate found cause for relief in the 0.3 percent jump in the Consumer Price Index (CPI) recorded in December. Increases in rents and health care costs drove the trend, supporting predictions that inflationary pressures will surface this year as the economy continues to strengthen and the labor market tightens. Retail sales, automobile prices and auto insurance premiums all jumped last month, pushing the inflation rate closer to the Federal Reserve’s 2 percent target. The Fed, which increased its target rate three times last year is anticipating three additional increases this year. Sounding a somewhat dissonant note, the economy grew more slowly than anticipated in the fourth quarter, as the Gross Domestic Product (GDP) fell to an annualized rate of 2.6 percent compared with 3.2 percent in the third quarter. But the reason for the decline – a surge in consumer spending that widened the federal trade deficit – underscored the economy’s strength, analysts say. “Domestic demand is strong, really strong, and perhaps beginning to push against the capacity constraints of the economy,” Paul Mortimer-Lee, chief market economist at BNP Paribas, told Reuters. “And this precedes effects from tax cuts,” he noted.
IN CASE YOU MISSED THIS
With the unemployment rate now at 4.1 percent – its lowest level in 17 years -, an increasing number of economists think the economy is at or near full employment.
The Trump administration has delayed an Obama-era fair housing rule requiring municipalities to identify and address patterns of race-based housing discrimination.
Consumer confidence declined in January for the third consecutive month, continuing its retreat from the 10-year high recorded in October.
Cities and states that don’t prepare to mitigate the effects of climate change will face credit downgrades, according to Moody’s Investors Services, which issued that warning in a new report. “If you have a place that simply throws up its hands in the face of changes to climate trends, then we have to sort of evaluate it on an ongoing basis to see how that abdication of response actually translates to changes in its credit profile,” Moody’s Vice President Michael Wertz said in a press statement.
Encouraging older workers to delay retirement could reduce poverty levels for the elderly and boost economic growth, a new study has concluded.
INTENTIONS AREN’T BINDING
The marketing materials developers use to sell a condominium describe their vision for the community, but it is what is written or not written in the declaration that determines the restrictions, if any, on allowable uses of the property. A North Carolina Appeals Court asserted that principle in a decision affirming a developer’s right to convert a golf course residential lots. (Friends of Crooked Creek, L.L.C. v. C.C. Partners, Inc.).
The initial developers of Crooked Creek and their successors marketed the subdivision as a golf community. The streets had golf-related names, the promotional materials emphasized the pleasures of living near a golf course, the sales office was located in the golf clubhouse, and developers offered discounted golf memberships to homeowners.
But the financial downturn took a toll on the golf course from which it never fully recovered, so the owner at the time decided to close the course and build a series of homes on the property. Several homeowners, organized as Friends of Crooked Creek, filed suit to block the plan, arguing that the golf course could be used only for golf and related purposes. When the trial court sided with the developer, the owners appealed.
The plaintiffs cited a provision in the declaration informing owners that the lots in the subdivision are part of an “approved subdivision plan that contains a golf course and related facilities…Declarant herby informs all owners…that certain provisions [of the declaration] have been written for the purpose of enhancing the use and value of the golf course and to protect the rights of the owners of the golf course and …persons lawfully using the golf course.” This provision adds a warning about the “hazards or risks associated with the ownership and use of property located adjacent to or near a golf course,” along with a statement establishing a “non-exclusive easement” allowing the golf course owners to enter residential lots to retrieve golf balls.
Plaintiffs argued that this language created an enforceable covenant preserving the golf course as a golf course. The Appeals Court read the language differently ─ as a “risk disclosure” and an easement, but not a use restriction. While the hazard clause incorporates the definition of “golf course” used in the declaration, the court agreed, the Declaration itself “merely refers to a ‘contemplated’ golf course. [And] we decline to interpret this clause to impose a perpetual burden on the property, where a burden was not plainly contemplated.”
The court also cited language the plaintiffs omitted, in a section exempting the golf course property from assessments and liens, with this exception: “Provided, however, if at any time in the future any part or all of the golf course property shall be subdivided into lots intended for single-family residential use or used for multi-family residential purposes.” Far from restricting the golf course to that use, the court said, the declaration clearly anticipated that it might at some point be converted to residential lots or other uses.
“The trial court properly observed: ‘An intent to build a golf course is not necessarily the same [as] the intent to burden [the] land in perpetuity for golf use only.’ When interpreted as a whole, the Declaration clearly shows the intent of [the developers] was to reserve the right to develop a golf course… rather than to perpetually restrict the use of the property,” the Appeals Court concluded.
The court also found no merit in the plaintiffs’ argument that the plat maps and marketing materials imposed “an easement-by-plat” perpetually restricting the use of the golf course. To have that effect, the court said, the plat must reflect the developer’s clear intent to restrict the use of the property. But in the plat at issue, the golf course was represented as “dotted lines” indicating the location of the golf course, the greens and fairways. None of the deeds conveying properties to Crooked Creek buyers reference the plats “on which plaintiffs claim they relied,” the court said, adding, “The plats, which depict a dotted outline of a golf course, do not bind the land for golf use for the benefit of the plaintiffs, nor [do they] create any easement or common use right to the property.”
The court continued: “While Crooked Creek subdivision may have been contemplated and marketed as a golf course community to induce Plaintiffs to purchase lots in the subdivision, no case has recognized an implied easement or restrictive covenants being imposed on undeveloped land, based upon statements in marketing materials. Courts have recognized marketing materials as further demonstrating the expressed intent of the developer, but only where a recorded instrument exists to demonstrate the intent to encumber and restrict the land.”
“We’re starting to get further and further away from what we think is a sustainable unemployment rate, I don’t want to get to a situation where we have to tighten more quickly.” ─ Eric Rosengren, President, Federal Reserve Bank of Boston