AUGUST 2021
CONDO REDUX. As the economy moves (more or less) toward post-pandemic stability, condos are again playing their traditional role in the housing market – providing an affordable alternative to detached single-family homes. But the increased buyer interest in condos is fueling the same patterns that have created affordability pressures in the broader market: increased competition, shrinking listings, and rising prices. Condo sales (seasonally adjusted) increased by almost 60 percent year-over-year in June, according to a Redfin report, while pending sales rose by 39.2 percent. More than 40 percent of condos sold above their listing price in June – a common pattern in the single-family market but only the second time it has occurred for condos since 2012.
"Many buyers who have been priced out of the market for single-family homes have turned to condos," Daryl Fairweather, Redfin’s chief economist, said in a press statement. Buyers seeing more space during pandemic lockdowns, generally rejected condos, he noted. “But now that many Americans are vaccinated and some are returning to the workplace, extra space isn't as necessary and the benefits of shared amenities like a gym or a pool are more attractive.” Buyers are also responding to the major benefit of condominiums, he added: “The more affordable price.”
LOSING ALTITUDE. The housing market, which had been floating consistently above the pandemic’s economic downdrafts, has been losing altitude this year. Existing home sales improved slightly in June after four consecutive monthly declines. Inventory levels and pending sales also improved, but only marginally, and not nearly enough to slow rising home prices or to close a yawning gap between supply and demand. The median price of existing single-family homes sold in May was $356,600 -- more than 24 percent above the year-ago figure; the median new home price increased by 18 percent year-over-year to $374,400.
To describe these price increases as significant is to understate them. The closely-watched S&P CoreLogic-Case Shiller price index increased by 14.6 percent year-over-year in April, the highest annual increase the index has recorded since it was launched more than 30 years ago.
“Truly extraordinary” is how S&P Managing Director Craig Lazzara described the statistics. Selma Hepp, CoreLogic’s deputy chief economist, predicts that “elevated buyer demand, coupled with lacking for-sale inventories, will continue putting pressure on prices, which are likely to remain at double-digit increases through the third quarter [of this year].”
"Lack of inventory continues to be the overwhelming factor holding back home sales,” Lawrence Yun, chief economist for the National Association of Realtors (NAR), agrees, “but falling affordability is simply squeezing some first-time buyers out of the market.”
DOJ VS. NAR. The Department of Justice (DOJ) has withdrawn its approval of a consent agreement with the National Association of Realtors (NAR) and moved to dismiss “without prejudice” an anti-trust complaint filed against the National Association of Realtors (NAR). That’s not necessarily good news for the industry trade group, however. “Without prejudice” means the DOJ retains the right to pursue additional actions against the trade group, which DOJ officials have indicated they are likely to do. The DOJ’s actions stem from a long-running investigation of NAR business practices – including rules governing ac es to the association’s multiple listing service, which critics have deemed anti-consumer and anti-competitive. The proposed settlement, accepted by the Trump Administration’s Justice Department, required several changes in NAR policies, but also prohibited the DOJ from pursuing other anti-trust claims against the organization. That was the provision the Biden DOJ didn’t like.
“The proposed settlement will not sufficiently protect the Antitrust Division’s ability to pursue future claims against NAR,” Acting Assistant Attorney General Richard Powers said in a press statement. “Real estate is central to the American economy and consumers pay billions of dollars in real estate commissions every year,” he added. “We cannot be bound by a settlement that prevents our ability to protect competition in a market that profoundly affects Americans’ financial well-being.”
INFLATION FEARS. You can’t be “a little” pregnant, and it’s becoming increasingly difficult to be “a little concerned” – or not concerned enough – about inflation. Soaring consumer demand spurred by the recovery from the pandemic has collided with pandemic-related supply constraints, pushing prices for a wide range of goods and services steadily higher. Consumer prices increased at an annual rate of 5.4 percent in June – the largest jump since August 2008. Some analysts insist that the increases are temporary, reflecting pressures that will ebb later this year. Others see more fundamental trends at play, and stronger arguments for the Fed to reverse its easy money policies to keep inflationary pressures in check.
Federal Reserve Chairman has argued consistently that the consumer price increases are temporary, and his position hasn’t hanged. But his concern about the inflationary threat has increased. In recent testimony before the Financial Services Committee he acknowledged that inflation has increased “notably” and more rapidly than the Fed had anticipated, and will likely “remain elevated in coming months before moderating.” The Fed remains confident that inflation will moderate later this year as temporary imbalances are corrected, Powell said. But he also emphasized that policy makers are prepared to act if inflationary pressures don’t ease.
“We are monitoring the situation very carefully, and we are committed to price stability,” Powell told lawmakers,“ adding, “if we were to see that inflation were remaining high and remaining materially higher above our target for a period of time — and that it was threatening to uproot inflation expectations and create a risk of a longer period of inflation — then we would absolutely change our policy as appropriate.”
FOCUS ON APPRAISALS. Redlining has traditionally been linked with banking industry practices that discriminate against low- and moderate-income borrows and communities. But Congress has begun to focus the redlining lens on the appraisal industry. Reps. Emmanuel Cleaver (D-MO) and Ritchie Tores (D-NY) are sponsoring legislation aimed, they said at eliminating practices that, they said, have consistently devalued properties in low-income communities. “The harmful consequences of this discrimination remain unresolved,” their “Real Estate Valuation Fairness and Improvement Act” notes.
A study by the Brookings Institute found that properties in neighborhoods where blacks represent 50 percent or more of the population are on average valued at roughly half the price of properties in neighborhoods with no black residents, reducing the value of minority neighborhoods nationwide by more than $156 billion.
The legislation would establish a task force charged with “harmonizing” underwriting standards to prevent these disparities and identifying barriers to entry that limit minority participation in the appraisal industry. Toward that end, the bill would appropriate $50 million a year for the next five years to fund grants to state regulators, nonprofits and educational institutions to help promote “diversity and inclusion in the industry.
The Appraisal Institute, a leading industry trade group, is supporting the measure, but Rodman Schley, the organization’s president, said appraisers should not be blamed alone for the discriminatory impacts the legislation targets.
“We must confront and combat potential bias in appraisal, and we support vigorous enforcement if discrimination is proven,” he said in a press statement. “However, we must not lose sight that structural biases within the broader marketplace and among all stakeholders within real estate and lending continue to play significant roles that impact the realities of the real property market.”
ICYMT
Rising home prices are making “affordable housing” an oxymoron. The National Low Income Housing Coalition reports that there is no city, state or county in which a full-time worker earing the minimum wage can afford a two-bedroom apartment.
Analysts have noted with concern the challenges for first-time buyers trying to get their feet on the lower rungs of the homeownership ladder, but older homeowners are also having trouble taking a step or two backward.
What the Trump Administration’s Consumer Financial Protection Bureau (CFPB) gave financial institutions by eliminating or easing consumer protection regulations, the Biden Administration is taking away by restoring or tightening those rules.
Concerned that the federal pandemic assistance workers received has led many of them to conclude that they are better off not working, lawmakers are considering incentives designed to change that calculation.
Cities are hiring “heat officers,” “mobilization directors,” “forestry advisors” and other specialists
LEGAL BRIEF
A MATTER OF RECORD. Condo owners are generally entitled to all information related to the governance and finances of their community associations, with exceptions for personal information that would violate the privacy rights of owners. Some condo boards think email and postal addresses fall outside the definition of records to which owners are entitled. A Minnesota Appeals Court disagreed. (Harkins v. Grant Park Association).
The plaintiff (Harkins) asked the board to provide contact information, including the names and e-mail addresses of owners in this 323-unit condominium, which he planned to use to solicit support for a special meeting to consider proposed bylaw changes. The board agreed to provide names and postal addresses but said email addresses weren’t records he was allowed to see. Harkins sued, alleging that the board’s refusal violated the state condominium law and constituted a breach of its obligations under the association’s governing documents.
The trial court agreed with the board that owners were entitled only to the “minimum adequate records” the state condominium statute requires associations to maintain. The appellate review of that decision parsed the statutory language, considering two key issues: What constitutes a “record,” and what records the board is required to share with owners. One sentence in the state condo statute says associations must maintain “adequate records”; Another sentence says associations must make “all records” (excluding specified exceptions) available to owners.
Ordinary Meaning
The association argued that “all records” should be defined narrowly to include only the “minimum adequate records” associations must maintain. A broader interpretation, the court agreed, would render the phrase “adequate records” meaningless.
The Appeals Court was “not so persuaded.” The two phrases appear in separate sentences addressing separate topics, the court noted. “Adequate records” refers to the specified records associations must maintain, while “all records” describes the records to which owners are entitled. The dictionary definition of adequate is “sufficient” the court noted, while the definition of “all” is “the entire number or amount. “It would contradict the ordinary meaning of these words to conclude that ‘all’ means ’adequate,’” the court reasoned.
Not only do these two words appear in different sentences in the statute, the court noted, the sentences “are not even contiguous,” further undercutting any implied connection between them. “Had the legislature intended to limit owners’ access to the “minimum adequate records” the association maintains, the court noted, it could have made that explicit, by saying, for example that “all records required to be maintained by this section” must be disclosed.
“A Stark Difference”
But the statute says “all records” must be made available to owners, the court noted. “The stark difference in meaning between the words ‘adequate’ and ‘all,’ along with the absence of any language….[demonstrating] an intent that the phrase ‘adequate records’ serves not just as a floor but as a ceiling for what is encompassed in the phrase ‘all records,’ leads us to conclude that the phrase ‘all records’ is not so narrow as to require disclosure of just the minimum statutorily required ‘adequate’ records.’”
The association argued that because the statute does not require associations to collect email addresses, that information is not included among the records boards must provide. But the Appeals Court agreed with the plaintiff that, required or not, the association regularly collects email addresses from owners and regularly conducts its business by communicating through that venue. As a result, the court concluded, email addresses “may therefore constitute a record” the association is required to make available to owners, and the board’s failure to do so violates the records disclosure provision of the statute.
Breach of Contract
Using essentially the same analysis of whether email addresses qualify as records to which owners are entitled, the court found that the board breached its contractual duty by rejecting the plaintiff’s request for them. The association argued that because the bylaws don’t specifically require the association to collect email addresses from owners, they don’t qualify as ‘association records’ the board must disclose. That argument didn’t fare any better here than it did with respect to the statutory disclosure requirements.
“The association is mistaken in claiming that the bylaws specifically define and narrow the meaning of the words ‘association records,’” the court said, noting: “The bylaws do not define ‘Association records’ as a specific term….[they] merely describe the types of documents that the association ‘shall cause to be kept,’” similar to the statutory list of the ‘minimum adequate’ records associations must maintain.
“Relying on the same reasoning as for the statutory violation,” the court concluded that the plaintiff’s allegation that the association conducts its business through email communications constitutes “a viable claim for breach of contract,” and for that reason, “we reverse the [trial court’s] dismissal of this claim.”
WORTH QUOTING
“It’s a historic amount of money, but we have a historic-size problem, and even this amount of money is not going to solve the problem.” ─David Dworkin, president of the National Housing Conference, talking about the $more than $21 billion allocated for housing in President Biden’s sweeping infrastructure plan.