Published on: July 3, 2017
This could be good news for the inventory-starved housing market. More than 70 percent of the homeowners responding to the National Association of Realtors’ (NAR’s) quarterly HOME survey said they think this is a good time to sell. If those sentiments turn into listings, they could bring a measure of relief to a housing market plagued by a persistent lack of homes available for buyers who want to purchase them.
While owners are feeling more optimistic about the housing market, prospective buyers have become less confident. Only a little more than half (52 percent) of renters said they think this is a good time to buy in the second quarter, down from 56 percent in the first quarter and 62 percent a year ago. By contrast, about the same percentage of existing owners who think this is a good time to sell a home (70 percent), also think this is a good time to buy one.
The NAR’s quarterly survey reflects a significant positive change in the views of homeowners, only 61 percent of whom thought market conditions were favorable for selling a year ago. But both homeowners and renters have become more concerned about the economy and less optimistic about their financial prospects.
After reaching a survey high of 62 percent in the first quarter of this year, the percentage of respondents who think the economy is improving dropped to 54 percent; the “personal financial outlook index” also dipped, as fewer homeowners said they expect their finances to improve in the next six months. Renters are feeling particularly glum, and that’s not surprising, Lawrence Yun, chief economist for the NAR, noted. “Paying more in rent each year and seeing home prices outpace their incomes is discouraging, and it is unfortunately pushing home ownership further away, especially for those living in expensive metro areas on the East and West Coast.”
HIGH COST OF CYBERCRIME
Cybercrime is becoming more prevalent, if not commonplace, and the financial losses related to it are increasing. Losses totaled more than $1.33 billion last year – 24 percent more than in 2015, according to the Federal Bureau of Investigation’s Internet Crime Complaint Center, which keeps track of these complaints. The center tallied 300,000 separate complaints last year from people who said criminals hacked their computers.
Ransomwire, much in the news of late, produced more than 2,600 complaints last year and losses exceeding $2.4 million. Industry executives predict that these attacks will at least double this year. But unauthorized wire transfers — resulting when criminals trick victims (attorneys and real estate agents have been major targets) into wiring funds intended for someone else to them ― were the biggest risk last year, costing businesses more than $360 million.
Despite all the publicity about and growing awareness of cyber-risks, businesses continue to underestimate their exposure and the losses they could face from a successful cyber-attack, a recent report by Lloyd’s, warns.
“Cyber risk has moved up in the business agenda and businesses are taking measures to prepare themselves,” the report acknowledges. “However, they are failing to factor in the long-term damage that a breach can cause and the cost implications of it. Dealing with things like reputational issues and litigation in the aftermath of a breach, can add substantial costs to the overall loss. Businesses really need to start thinking about the cyber risk holistically rather than one that is currently very short sighted.”
“The reputational fallout from a cyber breach is what kills modern businesses,” Inga Beale, CEO of Lloyd’s, told Insurance Journal. “And in a world where the threat from cyber-crime is when, not if, the idea of simply hoping it won’t happen to you, isn’t tenable.”
Recent developments in the marijuana arena look a bit like parallel lines on a grid – related, but not connected. One of the lines details a renewal of the war on drugs, spearheaded by Attorney General Jeff Sessions, who wants Congressional permission for the Justice Department to prosecute businesses and individuals using or selling marijuana in states where medical marijuana has been legalized. The other chronicles the economic benefits flowing from expanded access to the drug.
“I believe it would be unwise for Congress to restrict the discretion of the department to fund particular prosecutions, particularly in the midst of an historic drug epidemic and potentially long-term uptick in violent crime,” Sessions argued in a letter to Congressional leaders, urging them to reject restrictions that bar the Justice Department from using federal funds to enforce federal las classifying marijuana as an illegal drug in states that have legalized its use.
Analysts say those involved in the burgeoning marijuana industry should take the potential threat seriously. “I don’t know how much clearer the administration needs to be on this,” Rafael Lemaitre, who served in the Drug Policy Office in the Obama Administration, told MarketWatch.” No one knows what’s going to happen,” he added, “but this should scare anyone involved in the marijuana industry.”
That we are talking about a “marijuana industry” illustrates just how widely this parallel line diverges from the one above. Washington state and Colorado, the first two states to legalize recreational marijuana, report that sales of the drug generated a combined total of more than $1 billion last year. A recent study by the University of California’s Agricultural Issues Center estimates that the legal pot market will produce more than $5 billion in annual sales in California, which legalized recreational use of the drug last year. Taxes on those sales are expected to generate between $770 million and more than $1 billion in annual revenue for the state. (Other states that have legalized recreational marijuana (Massachusetts and Maine joined that list last year) are also anticipating significant revenue boosts.
As lawmakers appear increasingly likely to play another round of “chicken” with the nation’s debt ceiling, economists are factoring in the rising risk that Congress will not act quickly, and may not act at all, to increase the government’s borrowing authority. Economists, who began the year with optimistic assessments of the likely boon from tax cuts supported by The Trump Administration and the Republican-controlled Congress, are now predicting that economic growth will not match those expectations because of uncertainty created by the annual arm-wrestling over the debt ceiling.
The perennial partisan wrangling always ends with a vote to increase the spending limit and avoid a government default that most agree would be catastrophic. But in 2011, when the impasse wasn’t resolved until two days before Treasury would have run out of money, Standard & Poor’s lowered the government’s bond rating, sending the stock market into a serious swoon over the summer and temporarily and perversely increasing the government’s borrowing costs.
Most expect Congress will once again resolve this always rancorous dispute without pushing the country off of a fiscal cliff, “but sometimes the heated rhetoric can get away from the debt zealots, and that’s when accidents happen,” Rajeev Dhawan, director of the Economic Forecasting Center at Georgia State University, told the Wall Street Journal.
“This is a dumb way to toy with the credibility of the U.S. on the global stage,” noted Diane Swonk, founder of DS Economics, who was quoted in the same article. The debt ceiling, she added, “was never intended to be used as a tool of mass destruction.”
A HOUSING DISORDER
The National Association of Realtors (NAR) has identified a new real estate-related stress disorder ─ PFSD ― Post-foreclosure Stress Disorder. And the trade group thinks it is partly responsible for the persistent decline in the home ownership rate that began after the Great Recession and hasn’t improved during the economic recovery.
In a white paper analyzing the major barriers to home ownership, the NAR suggests that the people who lost their homes to foreclosure or lost their jobs and the young adults who witnessed the financial disasters that affected family members and friends, still bear psychological scars that make them reluctant to enter the housing market.
“Low mortgage rates and a healthy job market for college-educated adults should have translated to more home sales and upward movement in the homeownership rate in recent years,” NAR Chief Economist Lawrence Yun said. “Sadly, this has not been the case.”
A financial equivalent of shell shock isn’t the only barrier to ownership the NAR identifies: Student loan debt, restrictive credit standards, rising prices and a housing shortage are also on the list.
“Obtaining a mortgage has been tough for those with good credit, savings for a down payment are instead going towards steeper rents and student loans, and first-time buyers are finding that listings in their price range are severely inadequate,” Yun said.
The Rosen Consulting Group, which conducted the study for the NAR, predicts that affordability will continue to decline by an average of nine percent a year between now and 2019, adding 5 million prospective buyers to the pool of those who can’t afford a median-priced home in their market.
IN CASE YOU MISSED THIS
The nation will need 4.6 million new apartments over the next 15 years to meet projected demand, according to the National Multifamily Housing Council and the National Apartment Association. The groups rank Boston among the top five U.S. cities (the others are Honolulu, Baltimore, Miami and Memphis) in which it is most difficult to construct new rental housing
For older generations, “pay your mortgage first” was an article of faith and the strategy they followed when faced with a financial crisis. Consumers today have different priorities.
Unconvinced that the Trump Administration will be able to ramp up the U.S. economy with tax cuts and debt reduction, the International Monetary Fund (IMF) is predicting sluggish growth over the next five years.
Housing advocacy groups have long argued that reducing the 20 percent down payment requirement for conventional mortgages would lower a big barrier to homeownership, and Brian Moynihan, CEO of Bank of America, Corp., thinks that’s a good idea. “It wouldn’t introduce that much risk, but would help a lot of mortgages get done,” he told CNBC.
Although homeowner equity has increased dramatically over the past decade, homes in most markets are worth less now than they were before the real estate crash, according to Trulia, and only one in three are worth more.
A NEW TAKE ON TAKINGS
The U.S. Supreme Court has established a new framework for evaluating regulatory takings that analysts say will make it more difficult for property owners to win compensation claims.
This closely watched case (Murr v. Wisconsin) involved two plots of land purchased separately by William and Margaret Murr in the 1960s. Wisconsin regulators subsequently enacted rules restricting development in the area, which overlooks the scenic St. Croix River. Among other restrictions, the regulations established a minimum lot size of one acre for construction.
The Murr’s had built a cabin on one of the two lots, which, combined, totaled about one acre. In the 1990s, they transferred ownership of the lots to their four children, who sought to build a cabin on the second lot. State officials rejected that request, ruling that the lot should be considered a single parcel, which would accommodate only one building under the one-acre minimum lot size requirement. The Murr kids sued, contending that the regulation resulted in an illegal taking of their property, for which they should be compensated. The state courts rejected their claim and a narrow (5-3) Supreme Court majority decided the courts had ruled correctly.
The key question addressed by the High Court was how to define property rights for purposes of determining whether a taking has occurred. The question is important, because the larger the property, the less likely a regulation that affects a portion of it can be shown to reduce the property’s economic value.
The court answered the question by outlining a multi-part analysis to assess whether “reasonable expectations, about property ownership would lead a landowner to anticipate that his holdings would be treated as one parcel, or, instead, as separate tracts.” The court said that analysis should consider, among other factors: State and local regulations, the “physical characteristics” of the property and how the regulation would affect its prospective value. “Though a use restriction may decrease the market value of the property,” the court noted, “the effect may be tempered if the regulated land adds value to the remaining property.”
Under that framework, the Court concluded, the state courts properly viewed the separate parcels as one, because:
- Their “valid merger” under state law creates a “reasonable expectation” that the lots would be treated as a single property;
- The lots are contiguous.
- Their physical characteristics (terrain and shape) create a “reasonable expectation” that potential uses might be limited; and
- Because the property was subject to federal, state and local regulations “long before” the Murr children acquired it, they “could have anticipated” that it would be subject to use restrictions.
In addition to those factors, the court noted, the increase in privacy and recreational space resulting from combining the lots increased the property’s value, demonstrating that the plaintiffs have not suffered a taking, because they “have not been deprived of all economically beneficial use of their property.”
A dissenting opinion, authored by Chief Justice John Roberts and joined by Justices Thomas and Alito, found the majority’s reasoning flawed. The new standard for defining property subject to a takings claim needlessly complicates what should be a straightforward analysis, the dissent contends: “State laws define the boundaries of distinct units of land, and those boundaries should, in all but the most exceptional circumstances, determine the parcel at issue….State law defines all of the interests that come along with owning a particular parcel,” Justice Roberts wrote, ‘and both property owners and the government must take those rights as they find them.”
The big problem with the majority opinion, Justice Roberts argues, is that it takes a standard that should determine whether a taking has occurred – whether the owners had reason to anticipate that a regulation would affect the value of their property – and applies it to the definition of the property at issue.
“In departing from state property principles,” Justice Roberts argues, “the majority authorizes governments to do precisely what we rejected in Penn Central [a precedent-setting eminent domain decision: Create a litigation-specific definition of ‘property’ designed for a claim under the Takings Clause.”
The result, he says, will be to weigh the government’s regulatory interests in taking claims twice: “First when identifying the relevant parcel and again when determining whether the regulation has placed too great a public burden on that property….[By knocking] the definition of ‘private property’ loose from its foundation on stable state law rules,” the dissent concludes, “the majority’s new framework compromises the Takings Clause as a barrier between individuals land the press of the public interest.”
“The recovery is under way, but it’s fragile and downside risks still dominate.” ─ Ayhan Kose, World Bank economist and chief author of the bank’s Global Economic Prospects report.