NOVEMBER 2021
INFLATION FEARS. The Fed, which has been maintaining a dovish policy stance (keeping interest rates low and its bond-purchasing activity high), has become increasingly concerned about inflationary pressures. In recent public statements, members of the Federal Open Market Committee (FOMC), the Fed’s policy-setting arm, have acknowledged that inflationary pressures they had viewed as transitory are proving to be more persistent than they would like.
Consumer prices rose at an annual rate of 5.4 percent in September – easing somewhat from the June rate, but still suggesting continued heat in the economy. The employment picture dimmed again in September, with employers adding only 194,000 jobs – a “deflating” report, according to some analysts –but not, analysts agree, sufficiently deflating to offset the Fed’s inflation concerns or to delay plans to begin tapering bond purchases in September.
That doesn’t mean interest rates will necessarily begin to rise in tandem with the decline in bond purchases. The two policy levers are related but separate, analysts explain. In fact, Fed officials have indicated that they plan to exercise more restraint on the interest rate front, giving them flexibility to increase rates if necessary to curb inflation, while allowing them to avoid the risk of acting too quickly and quashing economic growth. Oct 22 (Reuters) - Federal Reserve Chair Jerome Powell on Friday said the U.S. central bank should start the process of reducing its support of the economy by cutting back on its asset purchases, but should not yet touch the interest rate dial.
"I do think it's time to taper; I don't think it's time to raise rates," Powell said in a virtual appearance before a conference, noting that there are still five million fewer U.S. jobs now than there were before the coronavirus pandemic. He also reiterated his view that high inflation will likely abate next year as pressures from the pandemic fade. "We think we can be patient and allow the labor market to heal," he said.
Against that policy backdrop, Freddie Mac economists are predicting that mortgage rates will remain below 3 percent this year and won’t go much above that in 2022
HOUSING GAP. Muscling through sparse inventories, determined home buyers pulled existing home sales out of the cellar in September, driving a 6.9 percent increase in sales – the strongest performance since January. August increases in both housing starts and new permits seemed to provide another dose of good news for the new home market as well – but the increases were attributable almost entirely to the multi-family sector. Single-family starts were 2.8 percent below the July level and permits were only marginally (0.6 percent) higher than the revised July rate. Although the National Association of Home Builders is predicting a continuing increase in new home construction this year, housing industry economists note that it will take a lot more new homes than even the most optimistic forecasts predict to close the yawning gap between the supply of housing and the demand for it.
The U.S. Census calculated that 12.3 million new households were created between January 2012 and June 2021, while new construction – running at its slowest pace in more than 20 years – produced only seven million new single-family homes.
“The pandemic has certainly exacerbated the U.S. housing shortage, but data shows household formations outpaced new construction long before Covid, Danielle Hale, chief economist for Realtor.com, told CNBC.com. “Put simply, new construction supply hasn’t been meeting demand over the last five years,” she added. “No matter how you frame the scenario, it will take a more meaningful shift in the pipeline to meet demand in the foreseeable future.”
ASSESSING CLIMATE RISKS FOR BANKS. The Fed is adding climate risks to the stress tests assessing the financial health and resilience of financial institutions. Speaking at a recent Fed research conference, Fed Governor Lael Brainard said the agency is taking a broad view of climate risks, including the impact of such issues as melting ice caps and wildfires on the financial system.
“We are developing scenario analysis to model the possible financial risks associated with climate change and assess the resilience of individual financial institutions and the financial system to these risks,” she said. Fed Chair Jerome Powell has also begun discussing potential climate risks for banks, although with less emphasis and in less detail than Brainard in her recent remarks.
Although this public acknowledgment of climate change as a concern for banks is notable, the Fed is sitting down a little late at the climate risk table. Its counterparts in other countries, including the European Central Bank and the Bank of England, have already begun working on detailed climate risk policies for the financial institutions they regulate.
Separately, the Financial Stability Oversight Council (FSOC), including heads of all the major financial regulators, issued a 133-page report, identifying climate change as an “emerging threat” to U.S. financial stability. Among its other recommendations, the report suggests that the FSOC create several new internal committees to develop responses to climate change risk The report also suggests that regulators:
Improve data collection to guide climate change policies;
Establish standard climate-risk disclosure requirements for public companies; and
Develop policies targeting populations most vulnerable to the financial impacts of climate change.
Advocacy groups welcomed the FSOC report. “This is the first time that all of the banking and financial regulators will come out in one document and talk about what they can do on climate change,” Todd Phillips, director of financial regulation at the Center for American Progress, said in a press statement.
VACCINATION CHALLENGES. As more employers impose COVID vaccination mandates on their employees, law suits challenging those mandates are spreading. At least thus far, it seems, the vaccination requirements are prevailing. Workers and advocacy groups representing them have filed approximately 40 suits so far this year, according to a Bloomberg Law, report. Of those filings, only two courts – both in New York - have sided with the workers, and in both cases, the issue was the lack of religious or medical exceptions in the challenged policies. One court barred New York state from enforcing its vaccination mandate on workers with religious objections to getting vaccinated; the other blocked enforcement of a United Airlines policy putting workers who interact with the public on unpaid leave if they refuse the vaccination for medical or religious reasons.
Analysts say the decisions so far affirm was legal experts have been saying – that employers have a duty to protect the health of their employees, and vaccination requirements are a legitimate means of fulfilling that obligation. But the law also requires employers to offer “reasonable accommodations” to workers with health or religious objections to being inoculated.
“What we’ve seen so far in the courts really demonstrates how durable and well judicially supported vaccine mandates are,” said Lawrence Gostin, director of Georgetown University’s O’Neill Institute for National and Global Health Law, told Insurance Journal.
One of the legal issues courts will address is whether there is a distinction between religious and health objections. One court determined that there is. In a decision rejecting a challenge to a Maine vaccination requirement that lacks a religious accommodation, U.S. District Judge Jon Levy concluded: “In the unique context of a vaccine mandate intended to protect public health, there is a fundamental difference between a medical exemption—which is integral to achieving the public health aims of the mandate—and exemptions based on religious or philosophical objections—which are unrelated to the mandate’s public health goals,”
REVISED FORECASTS. Mortgage rates and home prices will continue to rise next year, and inventories will remain slim, Fannie Mae economists predict, but they think the combined impact of those trends will be slight on a housing market that continues to rise above its challenges. Interest rates are a particular concern as the Fed prepares to reduce its support for financial markets. Fannie’s October forecast calls for the 30-year rate to average 3.3 percent next year, up from 3.1 percent in the previous forecast. “Even a modest tightening of monetary policy would, of course, impact housing,” Doug Duncan, Fannie’s chief economist said in a statement. “But we expect the effects to be largely muted given current market conditions,”
The home price surge is likely to continue, according to the Fannie forecast, which predicts a 16.6 percent gain for this year – almost 2 percent higher than the previous forecast, with prices increasing by 7.4 percent in 2022, adjusted upward from 5.1 percent in the last forecast.
Higher prices will slow home sales, to 6.54 million next year, down from 6.77 million predicted for this year.
“Mortgage rates may rise in response to the tighter environment, but we expect the severe shortage of homes for sale to remain the primary driver of strong house price appreciation through at least 2022, limiting interest rate effects on home sales and home prices,” Duncan said.
IN CASE YOU MISSED THIS
American households re losing economic ground; household income in the U.S. declined for the first time in nearly a decade, the Census Bureau reports in its annual survey of household finances.
Failure to reverse – or at least significantly mitigate – the effects of climate change could result in the dislocation of more than 200 million people worldwide over the next three decades and create “migration hotspots,” with sweeping global social economic, and political repercussions, a World Bank report warns.
The end of the federal moratorium barring evictions for nonpayment of rent hasn’t produced the eviction surge many feared, largely because of local and state tenant protection policies still in place in many areas of the country.
Black business owners had more trouble than whites obtaining federally-subsidized Paycheck Protection Program loans from banks; most who obtained loans got them from financial technology companies rather than banks, researchers at New York University’s Stern School of Business found, and racial bias was to blame, they say.
A shortage of labor is hamstringing the pandemic recovery in many sectors, with restaurants especially hard-hit
LEGAL BRIEF
DRONES VS. PRIVACY. Many condo associations are dealing with privacy concerns surrounding the use of “RING” doorbell-video recording devices (the topic of an upcoming MEEB legal alert). Drones aren’t nearly as ubiquitous as these popular doorbell devices have become, but they soon will be. And the privacy concerns drones trigger will be even more fraught and considerably more complicated. This decision by a Michigan Appeals Court provides a preview of the legal knots other courts will have to untangle. (Long Lake Township v. Todd Maxon and Heather Maxon.)
Long Lake (the plaintiff) sued the Maxons for violating the terms of a settlement agreement, resolving a complaint that the accumulation of old automobiles and other junk on the Maxons’ property constituted an illegal junk yard, violating a local zoning ordinance. As evidence of the violation, the town submitted aerial photos of the property taken from a drone. The Maxons argued that the evidence should be suppressed, because the drone surveillance violated both their reasonable expectations of privacy and the Fourth Amendment prohibition on “unreasonable search” of private property without a legal warrant.
The trial court found that the Maxons had no reasonable expectation of privacy and that the constitutional ban on unreasonable search did not apply. The Appeals Court disagreed.
The court’s extensive analysis first addressed the town’s contention that the Fourth Amendment ban on illegal searches applied only to criminal proceedings and should not be applied here. On the contrary, the Appeals Court said: “Considering the great historical importance placed on the freedom to use one's own property, and the fact that the consequences of this action may entail far more than merely the imposition of money damages, we conclude that this is the kind of proceeding to which the Fourth Amendment may apply.” The court found additional support for that conclusion in a Michigan state law prohibiting the use of drones “to capture photographs, video, or audio recordings of an individual in a manner that would invade the individual's reasonable expectation of privacy."
Impact of Technology
The key question here, the court said, is whether the drone surveillance constituted an illegal search. Technology has made what has traditionally been a straightforward question more complicated, the court noted. Courts have generally agreed that law enforcement officials are not required to “shield their eyes” from items in plain view, the Appeals Court noted. But courts have also held that a visual inspection does not necessarily constitute a “search” as defined by the Fourth Amendment –“perhaps,” the Appeals Court suggested, “in order to preserve somewhat more intact our doctrine that warrantless searches are presumptively unconstitutional.”
Supreme Court decisions have defined an illegal search as one that violates an individual’s “reasonable expectation” of privacy – an expectation, that “society is willing to recognize.” Applying that theory, the Appeals Court noted, Michigan courts have concluded that “aerial surveillance of private homes and surrounding areas does not constitute a search,” because there is no reasonable expectation of privacy for areas plainly visible from the air.
The U.S. Supreme Court held similarly, in a 1986 decision (California v. Ciraolo that aerial surveillance from an airplane identifying marijuana plants did not constitute an illegal search because “[a]ny member of the public flying in [the] airspace who glanced down could have seen everything that these officers observed…..I]n an age where private and commercial flight in the public airways is routine,” the high court concluded, “it is unreasonable for respondent to expect that his marijuana plants were constitutionally protected from being observed with the naked eye from an altitude of 1,000 feet."
Prior decisions have acknowledged that technology has “exposed to public view (and hence, we have said, to official observation) uncovered portions of the house and its curtilage that once were private,” the Appeals Court pointed out. But while the expectation of privacy is greater within a home than outside of it, the court acknowledged, that expectation “is not nonexistent….”
Reasonable Expectations
One of the Michigan decisions upholding aerial searches also noted that “the mere existence and availability of technological advancements should not be per se determinative of what privacy expectations society should continue to recognize as reasonable….The development of historically-novel ways to conduct unprecedented levels of surveillance at trivial expense does not per se reduce what society and the law will recognize as a reasonable expectation of privacy.” Another court dealing with the same aerial surveillance privacy issue, emphasized that “the development of historically-novel ways to conduct unprecedented levels of surveillance at trivial expense does not per se reduce what society and the law will recognize as a reasonable expectation of privacy.”
The Appeals Court found a “qualitative” difference between surveillance from a “human-operated” airplane, which courts have deemed acceptable, and surveillance from a “specifically-targeted” drone. The court explained: “[Drones] are vastly smaller and operate within little more than a football field's distance from the ground. A drone is therefore necessarily more intrusive into a person's private space than would be an airplane overflight. Furthermore, unlike airplanes, which routinely fly overhead for purposes unrelated to intentionally-targeted surveillance, drone overflights are not as commonplace, as inadvertent, or as costly. In other words, drones are intrinsically more targeted in nature than airplanes and intrinsically much easier to deploy. Furthermore, given their maneuverability, speed, and stealth, drones are…capable of drastically exceeding the kind of human limitations that would have been expected by the framers not just in degree, but in kind.”
Focusing again on how, or if, technology alters expectations of privacy, the court noted that notwithstanding decisions affirming aerial searches, the U.S. Supreme Court has recognized that “just because technology develops new and innovative ways in which a person’s privacy ca be violated must not dictate whether that person retains a legitimate expectation of privacy and whether society should continue to recognize that expectation as reasonable.”
Embracing that principle in this decision, the Appeals Court concluded that “persons have a reasonable expectation of privacy in their property against drone surveillance, and therefore a governmental entity seeking to conduct drone surveillance must obtain a warrant or satisfy a traditional exception to the warrant requirement.”
WORTH QUOTING: “There is a downward trajectory of population growth, household formation as well, that’s really going to undermine the need for what’s built.” Dennis McGill, director of research at Zelman & Associates of Zelman & Associates, challenging assertions that home construction rates are falling chronically below current and projected buyer demand.