OCTOBER 2021
HOT OR COLD? To read recent housing reports and the commentary on them is to understand President Harry Truman’s wish for a one-armed economist – who couldn’t say “on the other hand.” Take existing home sales, for example. They were 2 percent higher in July than in June, reversing several months of sales declines. Year-over-year sales were down 3.1 percent in July and down by 1.5 percent in August. On the other hand (here we go) the National Association of Realtors (NAR) reported that July sales were stronger than in any recent month other than June of this year and July of 2020. And despite the year-over-year declines, the NAR’s chief economist, Lawrence Yun, noted, sales “are still above pre-pandemic conditions.”
On the other (other) hand, most of the market’s strength was concentrated at the high end of the market; lack of inventory continues to hamstring sales at the lower end, Yun noted, “frustrating first-time buyers and pricing some shoppers out of the market.”
Another key NAR indicator – pending sales -- declined for the second consecutive month in July and for the fifth time in the past seven months, dipping nearly 2 percent below the June total and pushing the index 8.5 percent below its July 2020 reading – more evidence of a cooling market, some analysts contend.
Adopting that half-empty view, one analyst pointed out: “While existing home sales have increased in the last two months…those sales don’t look especially bright heading into the fall and winter doldrums.”
PRICES STILL RISING. Despite hints that home sales are slowing, prices continue to rise. Median prices reported by the NAR increased at an annual rate of more than 13 percent in the second quarter, outpacing the 11.7 percent gain in the second quarter of last year. NAR’s July median home price of $359,000 was only slightly below June’s record of $362,800.
Radian reports that month-over-month home prices increased by an average of 10.7 percent during the past seven months; the year-over year increase of 17.3 percent was “a record high,” according to this firm’s calculations.
But Redfin reports that more than 5 percent of listed homes reported price drops—the highest level since 2019. Equally significant, the company says, while the price-drop metric usually stabilizes this time of year, instead, “it is climbing.” Although asking prices of newly listed homes were 10 percent higher in July than the same month a year ago, Redfin notes, that is 2.2 percent below the figure reported for July of last year.
Other analysts also see signs of cooling in the home price trend. “While properties across the U.S. continue to sell at record high prices, our latest data reveals that the breakneck pace of housing price growth has likely seen its peak and we expect it to decline in the coming months," Jeremy Sicklick, co-founder and CEO of HouseCanary, wrote in a recent commentary. "Monthly single-family listing prices have plateaued since May, while closed prices continue to edge marginally higher on a month-over-month basis,” he notes in a recent report. “Additionally, the sale-to-list price ratio has fallen slightly from its peak in June, bolstering our view that home prices—while still remarkably high—are beginning to show signs of cooling.”
Even the characteristically ebullient NAR is now predicting that prices will increase “at a slower pace” next year – 4.4 percent compared to the projected 2021 average of 14.1 percent.
EVICTION FLOODGATES. Government-mandated moratoria have barred the eviction of tenants who fell behind on their rent and prohibited foreclosures on homeowners who missed their mortgage payments as a result of the pandemic. With those moratoria now ending, industry executives are warning that millions of tenants and homeowners are at risk of losing their homes as a result, with minorities disproportionately affected in both groups.
Harvard’s Joint Center for Housing Studies estimates that 23 percent of black and 20 percent of Hispanic renter households are in arrears, owing their landlords an average of four months’ rent. Of the 2 million homeowners estimated to be behind on their mortgages, 17 percent are black and 16 percent are Hispanic, compared with a 7 percent share for whites.
Tenants will have few options to avoid eviction, industry analysts point out. Rental assistance funding approved by Congress could help some, but many states have been slow to allocate that aid.
Congress recently approved homeowner assistance funding, but those programs are unlikely to provide much help before borrowers begin facing foreclosure actions, which could begin before year-end. Struggling homeowners may have more flexibility than tenants, however.
Under secondary market rules, borrowers may ask their lenders:
Allow them to repay the missed payments over time by increasing their monthly payments;
Defer the missed payments, which would come due when the loan is refinanced or the home is sold; or
Modify the loan, by adjusting the principal balance, the interest rate, the loan term, or all of those components.
If none of those options is viable, homeowners can avoid foreclosure by selling their homes, which may be an appealing alternative for some, industry analysts note. Strong buyer demand and a dearth of inventory have fueled a steady gain in prices, boosting equity ratios for most homeowners, including those behind on their mortgage payments.
CoreLogic estimates median home equity of all homeowners at around $100,000 and the median loan-to-value ratio at approximately 61 percent. That means “most people won’t have trouble turning a profit if they choose to sell their homes,” a recent Forbes article pointed out.
EMPLOYMENT DISCONNECT. Two employment trends that should match are instead moving in opposite directions. With job openings at record highs, employers say they are struggling to find workers – a mismatch reflected in the disappointing August employment report.
The Department of Labor reported nearly 11 million job openings at the end of July, an increase of nearly 750,000 and the fifth consecutive month this indicator has reached a record high. The hiring rate meanwhile fell to 4.5 percent from 4.7 percent in June. Employers, meanwhile, added a paltry 235,000 workers to their payrolls in August, the smallest gain since January and a stark contrast to July’s1.053 million gain.
The Federal Reserve’s Beige Book analysis of economic conditions reported “extensive labor shortages [in all districts] that were constraining employment and, in many cases, impeding business activity.
Analysts blame a combination of factors, including lack of affordable child care, concern about contracting the corona virus generous federal unemployment assistance for the disconnect. Supplemental unemployment assistance that has helped to offset pandemic-related job- and income-losses is ending this month, which should push many workers to seek employment, but a surge in virus infections may push in the opposite direction, analysts say.
Workers who decide to seek employment will find employers anxious to welcome them. "Even if demand slows down or even falters, job seekers remain in a relatively favorable bargaining position," Nick Bunker, director of research at Indeed Hiring Lab., told Reuters.
CLIMATE LENDING RISKS. You’ve heard of underwater and underwriting: Now we have ‘underwater writing’ – a new term describing how lenders are including climate factors in their assessment of home mortgage lending risks. Jesse Keenan, an associate professor of real estate at Tulane University, who coined the term, has developed another one – “bluelining” ─ to describe another climate-related lending practice. Unlike redlining – a discriminatory practice in which lenders refused to write loans in minority areas because they were minority areas -- bluelining defines as high-risk areas deemed vulnerable to flooding, wildfires and other climate-related disasters. Although bluelining doesn’t target minority neighborhoods per se, Keenan and other analysts say, the practice disproportionately affects the same neighborhoods that have been harmed by redlining.
“The direct comparison between redlining and blue-lining is that it’s targeting some of the same groups,” Jasmine Sanders, executive director of Our Climate, a climate activist group, told CNBC.com. “People are having a double whammy,” she said. “The redlined communities that are still being impacted are now going to be impacted by this blue-lining [as well].”
IN CASE YOU MISSED THIS
Nine of the eighteen members of the Federal Reserve’s policy-making Federal Open Market Committee (FOMC) are predicting that the Fed will boost rates next year.
Regulators, lawmakers and industry executives are targeting evidence of discrimination in home appraisals and grappling with possible solutions to this long-standing and deeply-embedded problem.
Real estate professionals are bracing for what industry executives predict will be the most serious threat ever to the structure of brokerage fees.
More than 200 million people worldwide could be forced to leave their homes over the next 30 years because of the effects of climate change, a report from the World Bank has warned.
Student loan debt is the biggest impediment to home ownership for the majority of millennials, according to the National Association of Realtors.
Maryland lawmakers have approved a measure requiring lenders to consider non-traditional measures of credit history for prospective home buyers.
LEGAL BRIEF
A FENCING ISSUE. Condo association boards sometimes wonder just how far they must go to grant accommodations to residents with disabilities that may affect their right to the “full enjoyment of their residence” that the Fair Housing Act requires. The answer in this Nebraska Supreme Court decision (Guenther v. Walnut Grove Hillside Condominium): Boards often have to do quite a lot, but not as much as the owner in this dispute demanded.
The plaintiff (Guenther) owned a unit in a two-unit duplex building in a condominium, located in Omaha. Her college-aged daughter (NG) lived with Guenther when not attending classes in Lincoln. NG, who had been diagnosed with major depressive disorder and anxiety, had two emotional support dogs who stayed with Guenther in the duplex when NG was away at school.
Guenther asked the association for permission to construct a fence at her expense, located partly on common area behind her unit, so the dogs could be outside while off-leash. fenced-in area, Guenther said, would ease NG’s anxiety about the safety of her dogs – a concern because her first emotional support dog had been killed, either by another dog or a car, while outside the unit. The association rejected the request, saying it lacked the authority to partition a common area The fence would have common elements. When Guenther repeated the request a few months later, the association rejected it again but suggested alternatives, among them: installing an underground invisible fence, constructing a privacy fence around her patio, or tethering the dogs when they were outside.
Necessary Accommodation
Guenther sued, claiming that the fence she requested was a necessary accommodation for NG under the Fair Housing Act, which the association had wrongly denied. The trial court sided with the association, finding that NG had failed to prove:
That she was disabled (because she was no longer receiving treatment for disorders that had been diagnosed several years before); and
That the fence was a necessary to ensure NG’s ability to fully enjoy her home. Among other points, the court noted that NG could interact with the dogs when she was in the residence and that neighbor had allowed the dogs to spend time in her fenced yard for more than two years.
On appeal (which the state Supreme Court moved to its docket), Guenther argued that because she had demonstrated that the requested accommodation was “reasonable on its face,” the trial court should have applied a ‘burden-shifting’ analysis, requiring the association to demonstrate that the accommodation created an undue hardship. But the court pointed out that the burden shifting analysis was required only if a defendant requested summary judgment on an accommodation request, which was not the case here, where the court was reviewing a judgment following a bench trial.
Plaintiff’s Burden
Quoting from an earlier decision dealing with an accommodation request, the court noted that “the ultimate burden to prove both the reasonableness and the necessity of a requested accommodation remains always with the plaintiffs asserting a reasonable accommodation claim under the [FHA].”
The key question before it, the court said, was not whether the accommodation was reasonable, but whether it was necessary. That legal test requires a plaintiff to demonstrate that, absent the accommodation, he or she would be denied an equal opportunity to enjoy their housing. “The necessity element is, in other words, a causation inquiry that examines whether the requested accommodation or modification would redress injuries that otherwise would prevent a disabled resident from receiving the same enjoyment from the property as a non-disabled person would receive,” the court explained. Guenther did not pass that legal test, the court found.
While Guenther had established that a fence might qualify as an accommodation, the court explained, she had not demonstrated that it was necessary to alleviate the effects of a disability. Guenther had argued that the fence would give NG “peace of mind,” alleviating her concern, based on the death of her former support animal, that her dogs might be attacked by other dogs. But there was no evidence that the first dog had been attacked by another dog, the court noted, , in any event, a neighbor allowed Guenter to keep the dogs in a fenced area behind her home, giving NG the “peace of mind” she sought.
Guenther also failed to explain why she rejected the alternative accommodations the association had proposed. “There is no evidence that any of these alternatives would not have been effective,” the court said. Guenther argued that she and her daughter were best able to decide what would represent an acceptable accommodation, but the court found that “the facts simply do not support” their request. Moreover, the court noted, “Guenther has no right to her preferred means of accommodation. ” In the court’s view, the trial court rightly concluded that Guenther had “offered no evidence that having the dogs outdoors in a fenced-in backyard” was required to comply with the Fair Housing Act’s accommodation requirement.
“The housing market is less hectic than it was in early spring, but it is still far from typical.” ─ Daryl Fairweather, chief economist for Redfin.