JULY 2021
INFLATION FEARS. Judging by news reports and opinion pieces in trade publications and mainstream media, the risk of a housing bubble probably ranks as the top concern of many economists and real estate industry executives today. But fear of resurgent inflation is a close second.
Recent economic reports seem to justify that concern. Consumer prices in the U.S. rose at the fastest pace in more than 12 years in April; worldwide, for the ‘group of 20’ leading economies, the annual inflation rate increased to 3.8 percent, up from 3.1 percent in March and the highest level for this indicator in more than a year.
When “something screwy” happens in the base year, a Wall Street Journal article explained, the year-to-year comparison will be “distorted.” The upward trend in consumer prices evident in recent reports reflects the sudden surge in demand that has followed the easing of pandemic restrictions, and the supply chain bottlenecks and materials shortages resulting from that rebound. While those problems have been significant, analysts agree, they are likely to be temporary.
That has been the Fed’s consistent message – inflationary pressures are temporary and will soon subside – until now. Comments following the June meeting of the Federal Open Market Committee, the Fed’s policy-making arm – reflected a noticeable change in tone. A few months ago, only 5 of the 18 FOMC members saw inflation as a near-term concern; now, 13 members share that concern. The Fed’s official forecast anticipates that rates will begin to rise by the end of 2023; in March, the consensus was that the Fed’s zero-rate policy would continue through the end of that year.
FAIR HOUSING REVAMP. The Department of Housing and Urban Development (HUD) has restored regulations the Trump Administration had eliminated, requiring communities to take clear and affirmative steps to combat housing discrimination. The “Affirmatively Further Fair Housing” (AFFF) rule required local communities to assess fair housing issues, set fair housing goals, and undertake ‘meaningful actions” to achieve those goals. Several major housing industry trade groups had supported the rule, which the Trump Administration rejected as unduly restrictive and “no longer consistent with the actual requirements of the Fair Housing Act." Restoring this rule underscores the Biden Administration’s commitment to fair housing and its determination to combat housing discrimination, HUD Secretary Marcia Fudge said in a press statement.
“More than 50 years since the Fair Housing Act’s passage, inequities in our communities remain that block families from moving into neighborhoods with greater opportunities,” she noted. “As a former mayor and member of Congress, I know firsthand the importance of giving localities the tools they need to ensure their communities have access to safe, affordable housing near quality schools, transportation, and jobs. Today, HUD is taking a critical HUD’s interim final rule takes effect July 31, with public comments on it accepted for 30 days after that date.
EVICTIONS LOOMING. The federal eviction moratorium helped millions of tenants unable to pay their rent during the pandemic avoid eviction. But the moratorium allowed tenants to defer their rent payments; it did not eliminate their obligation to make those payments. With bills now coming due for thousands of dollars in back rent they can’t cover, millions of tenants will face the evictions they had ducked until now. (Responding to those concerns, the CDC has extended the moratorium for another month, until July 30.) Housing advocacy groups estimate that more than 11 million tenants are currently behind on their rent, with low-income and minority households and the elderly facing the greatest eviction risks. “We’re going to see what we’ve been managing to stave off: this wave of evictions that is just going to crush some of these areas,” John Pollock, coordinator of the National Coalition for a Civil Right to Counsel, told CNBC.
Although advocates agree that the moratorium should be lifted at some point, as the pandemic eases, they point out that much of the $45 billions of dollars in rental assistance funds approved by lawmakers hasn’t been distributed, leaving both tenants and landlords in financial binds. to tenants eligible to receive them.
“We need to let this moratorium stay in place until we spend all this money,” Mark Melton, an attorney who represents tenants, told CNBC. “If you bail out the renter,” he noted, “that means you bailed out the landlord [too],” he said.
HOUSING GAP. “We’re not there yet,” the increasingly exasperated response to the repetitive inquiries of children on a long car trip, applies equally to efforts by home builders to meet the demand for new housing. We’re not there yet─-we’re not even close. A new report commissioned by the National Association of Realtors notes that builders produced loan average of 1.225 million new homes annually between 2000 and 2020 – down from an average of 1.5 million units during the previous two decades. The shortfall exists in all price ranges across the housing market, the report, produced for the NAR by the Rosen Consulting Group, LLC, points out. During the past decade, new hoe construction also failed to keep up with household formation, falling nearly 7 million units short of meeting that demand. “The scale of the problem is so large,” David Bank, senior vice president of Rosen Consulting Group and one of the report’s authors, told the Wall Street Journal. “We need affordable [housing], we need market-rate, we need single-family, we need multifamily.”
Industry analysts differ on the size of the housing gap. Freddie Mac puts the single-family shortfall at 3.8 million units, but John Burns, a real estate industry consultant, cites the slowing growth of the adult population in his estimate of a one-million-unit deficit. “We don’t need to build as much,” he told the Journal.
The NAR says the gap is large and troubling, requiring a “once-in-a-generation” policy response, that includes ramping up housing construction expanding tax incentives for low-income rental housing, encouraging the renovation of distressed properties and encouraging cities and towns to ease regulatory restrictions that impede the construction of new homes.
CYBER INSECURITY. Ransom-ware attacks on public and private entities have been increasing dramatically, and so has the demand for cyber-insurance policies covering those claims. AIG says ransom demands now account for 20 percent of the cyber-insurance claims the company receives. FBI Director Christopher Wray, meanwhile, told Congress recently that cyber-attacks represent the biggest security threat the United States has faced since the September 11 terrorist attacks. “There are a lot of parallels, there’s a lot of importance, and a lot of focus by us on disruption and prevention,” he told the Wall Street Journal recently. “There’s a shared responsibility, not just across government agencies but across the private sector and even the average American.” Ransomware incidents that grab national headlines – like the hackings that crippled a giant meat processing company and a major gas pipeline ── represent a small portion of the cyber-attacks aimed at public and private companies, only some of which are reported, Wray noted. Ransomware complaints filed with the FBI have tripled in the past year, he told the Journal “The scale of this problem is one that I think the country has to come to terms with,” he said.
IN CASE YOU MISSED THIS
Rising home prices may finally be cooling the overheated housing market. Asking prices and pending sales both eased in May and homebuyer sentiment dipped.
The Securities and Exchange Commission is considering a new rule that would require public companies to disclose their exposure to climate change-related threats.
The single-family home rental market continues to rock. Core-Logic reports that rents in this sector increased by more than 5 percent in April, the largest year-over-year grain in almost 15 years.
With an obvious eye on those rising single family home rents, investor purchases of residential properties increased by 3 percent year-over-year in the first quarter of 2021, Redfin reports.
Frustrated employers are having trouble finding workers for open positions while workers, confident that they will be able to find new jobs, are leaving the ones they have in larger numbers than at any tine in the past two decades.
LEGAL BRIEF
WHOSE NAME IS IT? “He who steals my good name steals trash,” Shakespeare observed. But the legal claim to a name isn’t always straightforward or easy to establish. it took three court decisions and more than a decade to resolve this three-way tug-of-war involving two management companies (controlled respectively by the Ritters and the Farrows) and a condominium association (Bibs Resort Condominium. (Ritter v. Farrow, 2021 WI 14, No. 2018AP1518 (Wis. Feb. 23, 2021).
A short and much-simplified summary of the complicated background of this dispute:
1. The Ritters purchased a lakefront resort in 1986, which they began operating as Bibs Resort.
2. They continued to operate the resort and provide management services for it for the next 12 years, using the Bibs Resort name and logo during that period.
3. In 1998, the Ritters converted the resort into a condominium (the Bibs Resort Condominium) consisting of 13 units: 11 cottages, the Ritters’ residence and a tavern building. They continued renting the cottages (their own and those they sold) under the Bibs Resort name and formed a management company (Bibs Resort Inc.) to manage the rentals.
4. In 2006, the Ritters sold their management company and two of the condo units to the Farrows. The sales contract specified that the Ritters were selling the management company and ‘all tangible and intangible personal property and rights in personal property’ the Ritters’ owned.
5. The Ritters and Farrows subsequently agreed to change the name of the management company to Ritters Enterprises. They also agreed that the Farrows could use the trade name ‘Bibs Resort’ in their handling of marketing, advertising and other management tasks for the resort.
6. In 2008, not long after the sale, the Ritters canceled their management agreement with the Farrows and began managing and handling the rental of the seven units they still owned. Owners of the other condominium units also severed their ties to the Farrows’ management company.
7. The Farrows sought to register the name (Bibs Resort) and logo –a pair of red bibs with a kerchief in the pocket.
That’s the background. When the Ritters continued to market condo rentals under the Bibs Resort name and using its logo, the Farrows sued them for trademark infringement. The association subsequently intervened, contending that it retained the exclusive right to use the Bibs Resort name because the original conversion had conferred that right.
A Circuit Court rejected the Farrows’ motion for summary judgment, holding that the trademarks (name and logo) became part of the association when the condominium was formed. Because the Ritters’ no longer owned the trademark, the court ruled, they could not convey it when they sold the management company to the Farrows. When the Appeals Court agreed, although for different reasons, the Farrows appealed that decision to the Wisconsin Supreme Court.
A Clear Connection
The high court’s review focused first on the nature of trademarks and trade names, which, the court noted, exist to distinguish a name, goods or services so consumers can connect them with the source connected with the designation. The court agreed that the Bibs Resort name and logo were linked to the management services the Ritters had provided consistently before selling their company to the Farrows.
“During the 20 years that the Ritters provided the resort management services, the Bibs Resort marks were transformed into symbols of the resort management services,” the court noted. “In other words, the Ritters' resort management business built up the goodwill of the resort….[and] returning customers were able to identify their services, and the associated goodwill, with the Bibs Resort marks.”
But the creation of the condominium did not automatically transfer the trademark and its associated goodwill to the association, as Ritter and the association contended, the court said, citing two flaws in that argument. The most important: “[It] violates the longstanding principle that marks cannot exist separate and apart from the goodwill of the product or service they symbolize.”
Good Will vs. Real Property
In this case, the court said, the source of the goodwill was the management services the Ritters had provided, not the real property the association controlled by virtue of the conversion. “By incorrectly linking the Bibs Resort marks to the real property rather than the resort management services, the Association misidentifies the source of the goodwill underlying the Bibs Resort marks,” the court reasoned.
The second flaw in the association’s argument, the court said, was the assertion, (cited approvingly by the Appeals Court) that the state condominium statute “mandated” transfer of the trademark to the association. The statute does nothing of the sort, the court said. Its listing of an association’s powers includes the authority “to acquire, hold, encumber and convey any right, title or interest in or to real property.” Trademarks are, by definition, intangible property, the court noted, “the ownership of which is not enumerated among the powers granted by [the condominium act]…. The legislature, in drafting the Condominium Ownership Act, was fully capable of granting condominium associations the power to own intangible property such as trademarks and trade names, the court noted. “[But it did not do so.”
While the statute grants associations broad authority to exercise powers specified in the condominium’s governing documents, the court agreed, nothing in this condominium’s documents explicitly grants the association the right to acquire intangible property. On the contrary, the court noted, the declaration “specifically and unambiguously excludes that business (the management business linked to the trademark) from the Association's authority, reserving it for the Ritters. And the Ritters continued to provide those resort management services to guests and patrons under the Bibs Resorts marks for years following the resort-to-condominium conversion.”
On the other hand, the court found, the Farrows had a strong argument for their claim to ownership of the trademark, starting with the "old and clear rule, universally followed," that when a business is sold, ”trademarks and the good will of the business that the trademarks symbolize are presumed to pass with the sale of the business.”
Contract Language
Although that legal principle alone would support the Farrows’ claim, the court said, the purchase contract also stated unambiguously that the sale included "’goodwill’ and “business personal property,” which the contract defined as “all tangible and intangible personal property and rights in personal property owned by Seller and used in the business as of the date of [the] Offer, including . . . trade names. . . . "
The language in the purchase documents clearly indicates that the sale of the Ritters’ management business, included “the associated goodwill and exclusive ownership of and rights to the Bibs Resort marks.” the court said. The offer to purchase also “made explicit the Farrows' intention to purchase the goodwill that was inextricably associated with the resort management services…and the bill of sale signed by the Ritters further indicates that the resort management business and related goodwill were transferred together in accordance with longstanding practice.”
Given the Farrows’ convincing claim, the court remanded the case to the Circuit Court, directing it to reconsider its rejection of the request for summary judgment in favor of the Farrows.
https://law.justia.com/cases/wisconsin/supreme-court/2021/2018ap001518.html
WORTH QUOTING
We’ve never had anything like it—a collapse and then a boom-like pickup. It is without historical parallel.” ─ Allen Sinai, chief global economist and strategist at Decision Economics, Inc., describing the pandemic recovery.