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Wednesday, August 10, 2022

NAR’s Yun: Any Economic Downturn Likely Mild By Catherine Mesick

 The chief economist pointed to signs of a recession – and signs that suggest no recession. At the least, he says, the latter should block a major economic slowdown.

WASHINGTON – The country isn’t officially in a recession yet, despite two consecutive quarters of national contraction of the gross domestic product, a commonly cited indicator of an economic downturn, says Lawrence Yun, chief economist for the National Association of Realtors® (NAR). And even if the nation is facing an official recession, several healthy economic trends – including a robust job market, coupled with new efforts to boost affordable housing – could stave off a more serious slump.

New guidance from the Treasury enables state and local governments to use leftover emergency funding from the American Rescue Plan to create affordable housing. Yun says that should help ease the inventory crisis and counteract the effects of a tightening economy.

Still, there are questions about U.S. “stagflation,” a period of high inflation combined with an economic slowdown. But the National Bureau of Economic Research – the council that watches over U.S. business cycles – still hasn’t declared an official recession, Yun notes.

Major factors counteracting current slowdown conditions

  1. Job creation is robust. Total payroll jobs were over 150 million in early 2020 before the onset of the pandemic, Yun said at NAR’s Real Estate Forecast Summit last week. While COVID-19 shutdowns precipitated a steep decline in jobs, each month showed strong job creation after the restrictions were lifted. Though there is variation across the country, Yun says, the job market has largely recovered.

    “We are essentially at the same level of jobs and W-2 employment now compared to pre-COVID days,” he said. Data from the Bureau of Labor Statistics shows that right now, there are more job openings than unemployed people. As of June, there were 5.9 million workers searching for jobs and over 10 million job openings. So, while high unemployment typically characterizes a recession, “the ratio [today] is almost two to one,” Yun said.

    “It’s a very unusual recession – if we are in one.”
  1. Commercial real estate is growing. Though a recession typically means bad news for commercial properties, the commercial market as a whole is flourishing despite a stagnant office sector, Yun writes in a recent Realtor Magazine column. Rental demand is booming, and rents are up significantly. Demand for warehouse space has surged as retailers stock up to avoid supply chain disruptions. Hotel bookings, air travel and park attendance are now above pre-pandemic levels. All of this increased activity has led to high demand for new commercial construction.

    “The improving construction sector means that any recession will be mild,” Yun said.

Despite the positive economic signs, falling homes sales remain a concern.

“Home sales are down largely because mortgage rates have risen sharply,” Yun said at last week’s event. “If interest rates rise further, then home sales will decline even more – even if there is no recession.”

One long-term solution is to increase housing supply, which is why the Treasury’s announcement is meaningful. The change in American Rescue Plan guidance could mean significantly more funds going to housing supply and a reduction in costs for buyers over time.

Another factor that will help in the short term is employers finding a way to match workers to openings and fill jobs, Yun said. “We still need workers. In an environment with rising mortgage rates, what will drive homes sales is jobs.”

Source: National Association of Realtors® (NAR)

© 2022 Florida Realtors®

Fannie Mae: Buyers Wary of the Housing Market

 By Kerry Smith

Buyers’ feelings about the current market hit a low not seen since 2011. Only 17% think it’s a good time to buy a home, and the “good time to sell” index also dropped.

WASHINGTON – Consumers don’t have a good feeling about the current market.

The Fannie Mae Home Purchase Sentiment Index (HPSI) decreased 2.0 points in July to 62.8, its lowest level since 2011 and well below the all-time high set in 2019.

Only 17% of respondents say it’s a good time to buy a home, and the percentage of who believe it’s a good time to sell has also been ticking downward. In July it fell to 67% from a 76% reading in May.

Overall, four of the index’s six components decreased month over month, including the component associated with home price growth expectations, which has fallen meaningfully over the past few months though remains positive. Year over year, the full index is down 13.0 points.

“The HPSI has declined steadily for much of the year, as higher mortgage rates continue to take a toll on housing affordability,” says Doug Duncan, Fannie Mae senior vice president and chief economist. “Unfavorable mortgage rates have been increasingly cited by consumers as a top reason behind the growing perception that it’s a bad time to buy, as well as sell, a home.

“Some homeowners may opt to list their homes sooner to take advantage of perceived high prices, while some potential homebuyers may choose to postpone their purchase decision believing that home prices may drop. Overall, this month’s HPSI results appear to confirm our forecast for moderating home sales over the coming year.”

© 2022 Florida Realtors®

Friday, August 5, 2022

Mortgage Rates Drop Below 5%

 By Matt Ott

At 4.99% it’s not far below, but it’s the first time in four months the 30-year, fixed-rate mortgage averaged below the psychologically significant 5% mark.

WASHINGTON (AP) – The average long-term U.S. mortgage rate fell below 5% for the first time in four months, days after the Federal Reserve jacked up its main borrowing rate in an aggressive effort to get inflation under control.

The 30-year rate tumbled to 4.99% from 5.3% last week, mortgage buyer Freddie Mac reported Thursday. A year ago, the rate was 2.77%.

The average rate on 15-year, fixed-rate mortgages, popular among those refinancing their homes, fell to 4.26% to from 4.58% last week.

“Mortgage rates remained volatile due to the tug of war between inflationary pressures and a clear slowdown in economic growth,” said Sam Khater, Freddie Mac’s chief economist. “The high uncertainty surrounding inflation and other factors will likely cause rates to remain variable, especially as the Federal Reserve attempts to navigate the current economic environment.”

Last week, the Fed ratcheted up its main borrowing rate by three-quarters of a point, the second such increase in less than two months. The central bank also raised its benchmark rate by a half-point in May, beginning its aggressive pivot to try to stifle four-decade high inflation.

Consumer prices have soared 9.1% over the past year, the biggest yearly increase since 1981. The Labor Department’s producer price index – which measures inflation before it reaches consumers – rose by 11.3% in June compared with a year earlier.

Rapidly hiking rates risks pushing the U.S. economy into a recession, but it’s the Fed’s most powerful tool to get price increases back to its 2% annual target.

The government reported last week that the U.S. economy shrank from April through June for a second straight quarter, contracting at a 0.9% annual pace and raising fears that the nation may be approaching a recession.

The decline that the Commerce Department reported in the gross domestic product – the broadest gauge of the economy – followed a 1.6% annual drop from January through March. Consecutive quarters of falling GDP constitute one informal, though not definitive, indicator of a recession.

Higher borrowing rates have discouraged house hunters and cooled a housing market that’s been hot for years. The National Association of Realtors® (NAR) reported last month that sales of previously occupied U.S. homes slowed for the fifth consecutive month in June.

Home prices have kept climbing – albeit at a slower pace than earlier this year – even as sales slowed. The national median home price jumped 13.4% in June from a year earlier to $416,000. That’s an all-time high according to data going back to 1999, NAR said.

Layoffs in the housing and lending sectors have already begun. Among those reporting job cuts in recent months are the online mortgage company loanDepot, online real estate broker Redfin, and Compass.

The nation’s largest bank by assets, JPMorgan Chase, laid off hundreds from its mortgage unit and reassigned hundreds of others.

Copyright 2022 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed without permission.

Wednesday, August 3, 2022

Could Housing Solutions Help Close the Racial Gap?

 By Melissa Dittmann Tracey

U.S. housing discrimination has a long history, from redlining to VA loan policies. But if legal problems are solved, would an adequate housing supply do the rest?

WASHINGTON – The nation’s housing shortage has also fueled a housing inequity problem, Bryan Greene, vice president of policy advocacy for the National Association of Realtors® (NAR), writes in an essay included in a new report, “Housing Underproduction in the U.S.

To close the widening racial gap in ownership, housing’s underproduction must be widely addressed, he notes.

But that problem is only worsening: The Up for Growth report puts a new number on the nation’s housing shortage – 3.8 million homes, more than double where it stood in 2012. The deepening inventory crisis is widening in scope, affecting urban, suburban and rural areas alike, and hitting certain minority groups particularly hard, according to the report.

U.S. map showing the severity of housing underproduction

U.S. map shows the number of housing units needed in each state
Housing Underproduction in the U.S.

Source: “Housing Underproduction in the U.S.”

“Underproduction in this country has many causes,” Greene writes. “Local zoning and land-use restrictions have, for decades, proved to be one of the greatest barriers to housing construction, affordable housing and diverse communities.”

The report notes long historical racial inequities in access to housing, such as from past discriminatory government grants and programs, widespread exclusionary zoning policies originally designed with racial segregation in mind, racially restrictive covenants written into home deeds from the 1910s to the 1940s, redlining practices that limited access to capital investments to prospective homeowners of color, and urban renewal projects that caused displacement and gentrification. These have led to a widening racial wealth gap that has stretched over generations and has made it more difficult for families of color to qualify for loans and afford homeownership, according to the report.

The gap between Black and white homeownership rates has widened over recent years. These historic and systemic constraints combined with housing underproduction and high prices make homeownership even less attainable for buyers of color, the report notes.

‘Double trouble’

In a report released earlier this year, NAR called record-high home prices and record-low housing inventories “double trouble” for real estate, particularly for Black Americans. The report found that about half of the homes for sale would require a household income of $100,000 or more to purchase.

That has placed homeownership increasingly out of reach for a number of households: 50% of Asians, 65% of Whites, 75% of Hispanics and 80% of Blacks do not earn enough income to buy these homes, the report notes.

Where to go from here

Housing supply and housing equity can be addressed on multiple fronts, such as by expanding the types of housing available for greater income levels and a broadening focus on land use.

Greene points to zoning reforms, investments in new construction, expansion of financing, and tax incentives that prompt investment in housing and convert unused commercial space to residential spaces.

NAR continues to advocate for tax code incentives to promote zoning and land-use changes, such as tax credits or other support to communities that ease zoning rules that had been limiting the supply of homes, such as minimum lot sizes and bans on multifamily housing. Such policies can not only help ease housing shortages but ultimately help expand housing opportunities to more people, Greene writes.

“For more than a half-century we’ve witnessed how land-use decisions can limit housing development, affordability and equity,” Greene notes. “We cannot stand by and lament this lack of progress. Now, it is time to act.”

Source: National Association of Realtors® (NAR)

© 2022 Florida Realtors®

FTC Fines iBuyer Opendoor $62M for ‘Tricking’ Sellers

 By Kerry Smith

The FTC alleges the iBuyer used “misleading and deceptive information,” and its sellers “made thousands of dollars less” than they could have via a traditional listing.

WASHINGTON – The Federal Trade Commission (FTC) today took action against an online iBuyer. It claims Opendoor Labs Inc. cheated potential home sellers by tricking them into thinking that they could make more money selling their home to Opendoor than on the open market using a traditional sales process.

The FTC alleges that Opendoor used misleading and deceptive information when in reality, most people who sold to Opendoor made thousands of dollars less than they would have made selling their homes using the traditional process.

Under a proposed administrative order, Opendoor must pay $62 million and stop its deceptive tactics.

“Opendoor promised to revolutionize the real estate market but built its business using old-fashioned deception about how much consumers could earn from selling their homes on the platform,” says Samuel Levine, director of the FTC’s Bureau of Consumer Protection. “There is nothing innovative about cheating consumers.”

Opendoor, headquartered in Tempe, Arizona, operates an online real estate business that, among other things, buys homes directly from consumers as an alternative to consumers selling their homes on the open market. Advertised as an “iBuyer,” Opendoor claimed to use cutting-edge technology to save consumers money by providing “market-value” offers and reducing transaction costs compared with the traditional home sales process.

Opendoor’s marketing materials included charts comparing their consumers’ net proceeds from selling to Opendoor versus on the market. Those charts almost always showed that consumers would make thousands of dollars more by selling to Opendoor. In fact, the FTC complaint states that the vast majority of consumers who sold to Opendoor actually lost thousands of dollars compared with a traditional real estate sale. It says Opendoor’s offers have been below market value on average and its costs higher than what consumers typically pay when using a traditional Realtor.

FTC claims of misrepresentation include:

  • Opendoor said it used projected market value prices when making offers to buy homes, when in fact those prices included downward adjustments to the market values
  • Opendoor said it made money from disclosed fees, when it actually made money by buying low and selling high
  • Consumers likely would have paid the same amount in repair costs whether they sold their home through Opendoor or in traditional sales
  • Consumers likely would have paid less in costs by selling to Opendoor than they would pay in traditional sales

Enforcement action

Opendoor has agreed to a proposed order that requires the company to:

  • Pay $62 million: The order requires Opendoor to pay the Commission $62 million, which is expected to be used for consumer redress.
  • Stop deceiving potential home sellers: The order prohibits Opendoor from making the deceptive, false, and unsubstantiated claims it made to consumers about how much money they will receive or the costs they will have to pay to use its service.
  • Stop making baseless claims: The order requires Opendoor to have competent and reliable evidence to support any representations made about the costs, savings or financial benefits associated with using its service, and any claims about the costs associated with traditional home sales.

Opendoor ‘strongly disagrees’ with the allegations

“While we strongly disagree with the FTC’s allegations, our decision to settle with the Commission will allow us to resolve the matter and focus on helping consumers buy, sell and move with simplicity, certainty and speed,” Opendoor said in a statement. “Importantly, the allegations raised by the FTC are related to activity that occurred between 2017 and 2019, and target marketing messages the company modified years ago.”

The company says it’s “pleased to put this matter behind us and looks forward to continuing to provide consumers with a modern real estate experience.”

© 2022 Florida Realtors®

Monday, August 1, 2022

Blue-collar on the brink: Working-class families are getting priced out of their apartments into homelessness

 By Amber Randall - South Florida Sun-Sentinel - Aug 01, 2022 

Fifty-nine-year-old Danzell Madison spent 11 months living out of hotel rooms or sleeping on couches at friend’s homes as she tried to find a place to live in South Florida.

Madison, an outreach coordinator with the Lord’s Place, a nonprofit that actually addresses homelessness in West Palm Beach, never expected to find herself without a roof over her head and having to skip meals — she had a steady income and had always managed to pay for a place to live. But she had little choice as South Florida rents skyrocketed out of her budget in the spring of 2021.

“I didn’t plan for this,” said Madison. “I would have never thought, not even 20 years ago, that I would experience this situation.” Madison’s scenario is growing increasingly common for South Florida residents. More working-class people are finding themselves in what housing experts call “situational homelessness” as wages remain stagnant, rents boom and they are priced out of the rental market. Some are having to live out of their cars, saving up some money for a day or two per week at a motel, or staying in 24-hour parking lots.

Many renters in South Florida have reported rental hikes of anywhere between $200-$1,000 a month when they go to renew their leases, and asking rents have increased by more than 20% over the past year. Some cities are seeing even higher increases: The median rent for a two-bedroom apartment shot up 34% in Miami and 26% in Fort Lauderdale compared to the year before, according to data from Zumper.

“We are seeing a new class of people that are homeless. It’s families who haven’t really had an interruption in their income, but are being displaced because landlords have raised their rents significantly,” said Linda Taylor, CEO of H.O.M.E.S, a division of HANDY, a nonprofit in Broward County. “These are people who are working either in the school system, they’re working in nonprofits or even the hospital district,” said Taylor.

Madison’s bout with homelessness started when she had to leave the house she was sharing with her sister because another relative was moving in and needed the room. At the time she was paying $500 a month plus utilities.

She started looking for one-bedroom, one-bathroom rentals, but quickly realized that most places were well outside of her budget of around $1,050 a month. She found a few places for $1,500 a month, but with her salary, she couldn’t meet the income requirements.

She had to dip into a savings account to afford a hotel, and when that ran out in two months, she alternated between sleeping on friend’s couches and surfing booking websites to find the cheapest hotel for a night or two.

There were also some nights that she skipped dinner to make things work.

Nonprofits throughout South Florida say the housing crisis has only gotten worse over the past year.

“Without a doubt, the last six months we’ve seen an increased calls for service,” said Sandra Veszi Einhorn with the NonProfit Executive Alliance of Broward. “And it’s been unlike anything we have ever seen before.”

According to Einhorn, the 211 hotline for Broward County, a community and crisis helpline, has seen a sharp uptick in calls related to people needing housing assistance and shelter. In February, there were 1800 calls, an increase of 300 from February of 2021, a 20% increase. And in May of 2022, there were 2,700 calls, up from the 1,600 calls last May, a 68% increase.

Taylor says they have seen a 50% increase in calls for service at their nonprofit, and United Way of Palm Beach County, which helps provide funding to nonprofits, also reported a growing problem.

“This crisis is really affecting everyone,” said Shayene Weatherspoon, Director of Community Impact at United Way of Palm Beach County. “We didn’t really see this before, but now the working class population isn’t earning enough to afford the rent increases.”

Military veteran Bruno Cruz, a cruise ship contractor, moved down to South Florida to be closer to his work and because he was priced out of the one-bedroom apartment he was renting in Melbourne.

His apartment complex raised his rent by $200 a month to around $1,450, far outside what he could afford.

“I had rented there for three years and when I first moved in it had been $1,100,” said 41-year-old Cruz. “How are you supposed to pay for these one-bedroom apartments now unless you have two or three jobs?”

So he packed his things and moved down to South Florida six months ago to try and find something close to work.

But the search to find a decent, safe place to live in South Florida was even harder. Most one-bedroom apartments were around $1,700 a month and renting a room in someone’s house cost over $1,000 a month. When his search turned up empty, a friend who lives in Tamarac offered to let him stay with him and rent a room in his house just for the cost of utilities, but it’s still a struggle to make things work.

“Half my life is packed up in storage. I went from a one-bedroom apartment and I had to shrink my life to a room and boxes,” he said. He is still looking for a place to live, and driving Uber to supplement his income.

It’s also growing increasingly difficult for nonprofits to assist people with finding affordable places to live, said Cristina Lucier, vice president of community programs at the Lord’s Place.

“We have campuses where we pay rents for clients,” said Lucier. “Previously, after a year or two, they would be able to save and move into their own place. But even with section 8 and first, last and security [saved up], they still don’t make enough to qualify [for a lease]”

Sometimes the clients will have to stay with them longer, or they work to place them with a roommate.

For Madison, 11 months after being homeless, her boss found out and helped get her a place in housing owned by the Lord’s Place with a few other women.

“I’m just so grateful to have my own room, to be able to shower everyday and to live in peace,” said Madison.

Are landlords to blame?

It’s easy to blame landlords for the current housing market, said Einhorn, but many of these landlords are mom-and-pop operations, and facing their own increased costs due to rising property costs and inflation.

The influx of out-of-state people also doesn’t help, as they are putting increased pressure on the South Florida real estate market.

“These rents were already unaffordable to a Broward resident, but to a New Yorker or someone from California who have a skewed view of what rents should be, to them it’s not. And a Broward resident has to compete with them,” Einhorn said.

But for renters, they want some sort of protection and feel that they are at the mercy of rising rents.

“There’s going to come a time that the people who work here are going to leave because they don’t have a place to live,” Cruz said. “I’ve thought about leaving Florida multiple times.”

Florida launches plan to keep homeowners insured

Jim Saunders | News Service of Florida | 7/31/2022 

Amid fears that a financial-ratings agency will downgrade numerous property-insurance companies, Florida regulators Wednesday announced a stopgap plan to try to make sure homeowners can maintain coverage.

The plan involves the state’s Citizens Property Insurance Corp. acting as a financial backstop. Citizens would take on a reinsurance role to help make sure claims get paid if private insurers go insolvent.

The arrangement is designed to satisfy Fannie Mae and Freddie Mac, the mortgage-industry giants that require homes to be insured by financially sound companies.

Regulators have scrambled during the past week after the Demotech ratings agency indicated it could downgrade numerous Florida insurers to a level that would not meet Fannie Mae and Freddie Mac standards. Such a move could lead to what state Chief Financial Officer Jimmy Patronis described as “financial chaos,” as homeowners might have to find other coverage in the troubled market.

The plan announced Wednesday would use an exception in Fannie Mae and Freddie Mac standards that applies when reinsurers take responsibility for paying claims if insurers go insolvent. The state-backed Citizens, which already insures more than 900,000 homes, would temporarily provide such reinsurance for companies downgraded by Demotech.

“OIR’s (the state Office of Insurance Regulation’s) greatest priority is ensuring consumers have access to insurance, especially during hurricane season; and because of the uncertainty with the status of Demotech's ratings, we’ve been forced to take extraordinary steps to protect millions of consumers,” Insurance Commissioner David Altmaier said in a prepared statement.

The announcement came amid massive problems in the property-insurance market, as many carriers have dropped customers and sought major rate increases because of financial losses. Four property insurers have been declared insolvent since late February, and thousands of policies a week pour into Citizens, which was created as an insurer of last resort.

Gov. Ron DeSantis called a special legislative session in May to address the property-insurance system, but problems have persisted. A report issued July 1 by the Office of Insurance Regulation, for example, said 27 property insurers were subject to “enhanced monitoring” because of their financial conditions.

The Office of Insurance Regulation last week released an Altmaier letter that said “approximately” 17 insurers faced potential downgrades from Demotech. Altmaier and Patronis were critical of Demotech, questioning, for example, its ratings methods.

Demotech had been expected to release ratings changes Tuesday but postponed the decisions. Nevertheless, Demotech President Joseph Petrelli defended the company’s methods and said it has rated Florida insurers since 1996.

“Demotech has worked diligently to be a positive force in the resurrection and sustenance of the Florida residential property insurance marketplace that was devastated by Hurricane Andrew,” Petrelli wrote Tuesday in a six-page letter to Altmaier, referring to the massive 1992 hurricane. “Since 1996, Demotech has consistently applied its rating methodology and appeal process to all rated insurers. Our process does not guarantee every carrier’s financial success, nor does our process guarantee carriers an FSR (financial stability rating) at a level that they desire or require.”

The Office of Insurance Regulation did not provide a detailed explanation of Citizens’ reinsurance role, and an agency official did not immediately respond Wednesday to a request for additional information.

But the arrangement appears to potentially create additional financial exposure for Citizens.

Under state law, another agency, the Florida Insurance Guaranty Association, pays claims when insurers go insolvent. Under the new arrangement, if the association reaches its claims-paying limit, Citizens as a reinsurer would step in and cover claims, Citizens spokesman Michael Peltier said.

Citizens has cash and buys reinsurance on the private market to help pay claims. But if the cash and reinsurance are not enough, it can collect additional money from policyholders throughout the state — a process known as collecting assessments — to pay claims.

Tags: News Service of Florida