NAR: January Pending Home Sales Drop 5.7%

 By Kerry Smith

Buyers have difficulty finding a home, says NAR’s chief economist. He won’t be surprised to see demand decline given current “mortgages, home costs, and inventory.”

WASHINGTON – Pending home sales slumped in January, continuing what is now a three-month decline in transactions, according to the National Association of Realtors®’ (NAR) monthly report.

Of the four major U.S. regions that make up NAR’s full report, only the West registered an increase in month-over-month contract activity, and all regions posted a year-over-year decline.

The Pending Home Sales Index (PHSI) – a forward-looking indicator of home sales based on contract signings – fell 5.7% to 109.5 in January. Year-over-year, transactions decreased 9.5%. An index of 100 is equal to the level of contract activity in 2001.

“With inventory at an all-time low, buyers are still having a difficult time finding a home,” says Lawrence Yun, NAR’s chief economist.

Alongside persistent supply constraints, Yun says house hunters are contending with a number of additional market issues, including escalating home prices and rising interest rates. Rates jumped by nearly a percentage point in January compared to December, further adding to monthly mortgage costs.

“Given the situation in the market – mortgages, home costs and inventory – it would not be surprising to see a retreat in housing demand,” Yun adds.

NAR expects economic conditions to be volatile in the coming months. The impending conclusion of the Federal Reserve’s asset purchase program in March paves the way for higher interest rates. Russia’s aggression in Ukraine is also likely to affect global oil supply, imposing further burdens on inflation and bringing about more aggressive rate hikes.

“There’s also the possibility that investors may flee toward safer U.S. Treasury bonds, which may result in temporary short-term relief to interest rates,” Yun says.

Realtor.com’s Hottest Housing Markets data in January showed that of the largest 40 metros, the most improved markets over the past year were Orlando-Kissimmee-Sanford, Fla.; Tampa-St. Petersburg, Fla.; Jacksonville, Fla.; Nashville-Davidson-Murfreesboro-Franklin, Tenn.; and Las Vegas-Henderson-Paradise, Nev.

January regional breakdown: Month-over-month, the Northeast PHSI dropped 12.1% to 84.3 in January, a 16.7% decrease from a year ago. In the Midwest, the index fell 5.9% to 104.4 last month, down 5.9% from January 2021.

Pending home sales transactions in the South slipped 6.3% to an index of 134.6 in January, down 8.7% from January 2021. The index in the West increased 1.5% in January to 95.2, down 9.7% from a year prior.

© 2022 Florida Realtors®

NAR: January Existing Home Sales Surge 6.7%

 By Kerry Smith

Pressured by a fear of rising interest rates, investors and families rushed to buy homes in Jan. as listings remained tight and prices rose 15.4% year-to-year.

WASHINGTON – Existing-home sales rose notably higher in January, following a decline the month before, according to the National Association of Realtors® (NAR).

Month-over-month, each of the four major U.S. regions included in NAR’s monthly report saw increased sales, though activity year-over-year was mixed: Two regions reported sagging sales, another watched sales increase and a fourth region remained flat.

Total existing-home sales – completed transactions that include single-family homes, townhomes, condominiums and co-ops – climbed 6.7% from December to a seasonally adjusted annual rate of 6.50 million in January. Year-over-year, sales fell 2.3% (6.65 million in January 2021).

“Buyers were likely anticipating further rate increases and locking-in at the low rates, and investors added to overall demand with all-cash offers,” says Lawrence Yun, NAR’s chief economist. “Consequently, housing prices continue to move solidly higher.”

Total housing inventory at the end of January was 860,000 units, down 2.3% from December and down 16.5% year-to-year. Unsold inventory sits at a 1.6-month supply at the current sales pace, down from 1.7 months in December and 1.9 months in January 2021.

“The inventory of homes on the market remains woefully depleted, and in fact, is currently at an all-time low,” Yun adds.

According to Yun, homes priced at $500,000 and below are disappearing, while supply has risen at higher price ranges. He says those increases will continue to shift the mix of buyers toward high-income consumers.

“There are more listings at the upper end – homes priced above $500,000 – compared to a year ago, which should lead to less hurried decisions by some buyers,” Yun says. “Clearly, more supply is needed at the lower-end of the market in order to achieve more equitable distribution of housing wealth.”

The median existing-home price for all housing types in January was $350,300, up 15.4% from January 2021 ($303,600), with prices higher in each of the four regions. January marks 119 consecutive months of year-over-year increases – the longest-running streak on record.

Properties typically remained on the market for 19 days in January, equal to days on market for December and down from 21 days in January 2021. Four out of five homes (79%) sold in January were on the market for less than a month.

First-time buyers were responsible for 27% of sales in January, down from 30% in December and down from 33% in January 2021.

Yun says that anticipated increases in mortgage rates will be problematic for at least two market segments.

“First, some moderate-income buyers who barely qualified for a mortgage when interest rates were lower will now be unable to afford a mortgage,” he says. “Second, consumers in expensive markets, such as California and the New York City metro area, will feel the sting of nearly an additional $500 to $1000 in monthly payments due to rising rates.”

Individual investors or second-home buyers, who make up many cash sales, purchased 22% of homes in January, up from 17% in December and 15% in January 2021. All-cash sales accounted for 27% of transactions in January, up from 23% in December and from 19% from January 2021.

Distressed sales – foreclosures and short sales – represented less than 1% of sales in January, equal to the percentage seen in both December and January 2021.

According to Freddie Mac, the average commitment rate for a 30-year, conventional, fixed-rate mortgage was 3.45% in January, up from 3.10% in December. The average commitment rate across all of 2021 was 2.96%.

Single-family and condo/co-op sales: Single-family home sales jumped to a seasonally adjusted annual rate of 5.76 million in January, up 6.5% from 5.41 million in December and down 2.4% from one year ago. The median existing single-family home price was $357,100 in January, up 15.9% year-to-year.

Existing condominium and co-op sales were recorded at a seasonally adjusted annual rate of 740,000 units in January, up 8.8% from 680,000 in December and down 1.3% from one year ago. The median existing condo price was $297,800 in January, an annual increase of 10.8%.

“The market is still thriving as an abundance of home sales took place in January,” says NAR President Leslie Rouda Smith. “We will continue to beat the drum for more inventory, which will give buyers additional options and also help alleviate increasing costs.”

January regional breakdown: Existing-home sales in the Northeast grew 6.8%, posting an annual rate of 780,000, an 8.2% decline from January 2021. The median price in the Northeast was $382,800, up 6.0% year-to-year.

Existing-home sales in the Midwest rose 4.1% from the prior month to an annual rate of 1,510,000, equal to the level seen a year ago. The median price in the Midwest was $245,900, a 7.8% rise from January 2021.

Existing-home sales in the South – the region that includes Florida – jumped 9.3% from the prior month, for an annual rate of 2,940,000 – a gain of 0.3% from one year ago. The median price in the South was $312,400, an 18.7% surge from one year prior.

For the fifth straight month, the South saw the highest pace of price appreciation.

“The migration to the Southern states is clearly getting reflected in higher home sales and fast rising home prices compared to other regions,” Yun says.

Existing-home sales in the West increased 4.1% from the previous month, registering an annual rate of 1,270,000 in January, down 6.6% year-to-year. The median price in the West was $505,800, up 8.8% from January 2021.

© 2022 Florida Realtors®

Researchers: Home Market ‘Close to Peak’

 By Steve Patterson

Home prices, inflation and rising interest rates will soon create a balance in the housing market, say FAU researchers, though prices will remain high.

JACKSONVILLE, Fla. – The Jacksonville area’s booming housing market has left home values a little inflated, say a pair of academics warning that flush times for home-sellers across the state could be ending.

“If you’re buying a home in these metros across Florida … it’s imperative that you know you’re buying close to the peak of the market,” said Ken H. Johnson, an economist at Florida Atlantic University who has been researching home prices nationwide with Florida International University professor Eli Beracha.

The researchers aren’t forecasting a market collapse, but they say the crush of buyers that drove up prices nationwide last year could soon taper considerably.

“Mortgage rates have been near historic lows for the last two years and have helped keep housing demand strong through the pandemic,” Beracha said in a release about their research, expected to be published in a scholarly journal on housing. “Now we’re seeing rates rise, and that’s going to take some buyers out of the market and curtail price gains.”

Jacksonville could be seeing hints of a slowdown already, said Northeast Florida Association of Realtors President Mark Rosener. But he said the area’s demographics and a stream of buy-and-lease investor purchases should help buoy the market modestly even after a year when median single-family home prices rose 22%.

“It’s not going to be dramatic,” Rosener said.

Last year’s price hikes added to Jacksonville home costs that the researchers said have become more overpriced than most, ranked at 36th in a list of 100 metro housing markets across the country, but only eighth out of the nine Florida markets the researchers measured.

The researchers used 25 years of data to track prices by market and estimate an “expected” price on a typical home in each market, then compared those against a Zillow index of real-world prices for each market.

Jacksonville’s index price ended December at $321,420, about 32% above what the researchers considered an expected price of $243,019.

Because the rankings were based on the percentage markup compared to the index price, Lakeland’s index price of $271,809 – about 43% above the expected price – was counted as the state’s most overvalued market and 12th nationally. On the other extreme, always-expensive Miami-Fort Lauderdale’s index price of $397,603 – with a roughly 21% premium – was scored as Florida’s least overpriced metro market, and 60th nationwide.

If the researchers’ expected pricing was correct, overpaying has apparently become standard nearly everywhere.

Of the 100 markets in the study, only one – Honolulu, Hawaii – had an index price below what was expected, and then only by 0.1%. Baltimore, New York, Virginia Beach, Va., and Washington, D.C. were the next least overvalued, the researchers concluded.

Rosener said other metrics, like the Case-Shiller home price index, had already made Realtors aware that Jacksonville’s prices were growing faster than many places. But he said local conditions still seem good for the housing market, absent the exuberant increases seen last year.

The area’s relatively young population includes a lot of millennials entering age brackets when people are more typically interested in buying homes, Rosener said. In addition, he said, the area has been attractive for investors wanting to buy houses they can hold as rental property for an area where the population is growing and apartment rents are climbing.

Luxury homes have also become more attractive to affluent buyers who considered real estate a more reliable place to hold their wealth than stocks or cryptocurrencies.

After two years when pandemic conditions changed routines of how homes were bought and sold, Rosener said Jacksonville could experience a more routine “seasonality of the real estate business,” with slower winters, busy springs and an inventory that could grow over the coming year as builders gradually resolve more supply-chain problems.

He said preliminary data on January transactions suggests fewer sales closed last month but the number of pending deals, where homes are under contract, rose.

Despite discussion of being over-valued, Rosener said Jacksonville’s housing market is fundamentally different from the overpriced flippers’ market that fueled the Great Recession in the mid-2000s.

“People are buying homes to live in them. They’re not buying homes speculatively,” he said. “If you’re buying a home to live in and raise your family … that’s your motivation. You’re not looking at it to be a quick buck.”

Copyright © 2022 The Florida Times-Union.

It’s Not Just Home Prices; U.S. Rents Rise Sharply

 By Chris Arnold

Cities in Florida, New York and New Jersey are seeing steep jumps in rent. Austin, Texas had biggest 1-year gain, 40%; rent in Orlando rose 30%.

MINNEAPOLIS – Last year, Laura Kraft landed a job in Orlando, Fla. She’d just gotten her Ph.D. in entomology, meaning she studies bugs, and she’d be working on a big nature exhibit at a theme park. All that sounded great until she started looking for an apartment.

“I started looking at rent and was like, not sure if I was going to take the job,” she says. “The rent was so high in Orlando. It really blew me away.”

At first she looked for a place of her own. But anything in her price range had a waiting list at least six months long. So she found a Facebook group for theme park employees looking for roommates in order to afford a place to live.

“My roommate and I together are paying $2,200,” Kraft says. “A lot of people that I know have like three, four, sometimes five roommates in a house.”

The cost of renting a place in Orlando rose nearly 30% just last year alone, according to a survey by the real estate firm Redfin. Cities in Florida, New York and New Jersey are seeing particularly steep jumps in rent, as is Austin, Texas, with the biggest one year gain of 40%.

The survey, it should be noted, tracks new listings for apartments.

“That doesn’t literally mean that every person in Austin is going to see their rent go up 40%,” says Redfin’s Chief Economist Daryl Fairweather. “But it means that if you are on the market right now looking for an apartment or home to rent, the prices will be 40% higher than they were the year before.”

Some of the forces driving rents higher differ from city to city. Fairweather says a lot of technology workers have been moving to Austin and the migration of more people there is pushing up both rents and home prices. In New York City, rents are rebounding after falling earlier in the pandemic.

But she says rents are rising more than usual just about everywhere.

“The root cause of the problem is a lack of supply,” Fairweather says. “We have not built enough homes to meet demand.”

There a bunch of reasons for that. One of the biggest, she says, is restrictive zoning. Especially in higher-cost parts of the country, zoning rules make it hard to build cheaper smaller houses or apartments that are tightly packed together.

Meanwhile, Fairweather says more millennials in their late 20s and early 30s feel like they’re done with roommates or their parents’ basement.

“Millennials are the biggest generation,” she says. “We’re forming households, and we want a place of our own and that is causing an increase in demand.”

Redfin’s survey looks at the 50 largest U.S. cities. On average, it found the rents landlords were seeking for available homes and apartments rose 3% in 2020, which is about normal for recent years. But then last year, they rose 14%.

Government data show that the rent Americans are actually paying – not just the change in price for new listings – rose 3.8% over the past year. But, while less dramatic, that consumer price index also shows rents have been rising more than usual the past few months.

Allison Best-VanLiew is feeling the bite of those rising rents up in Buffalo, N.Y. “It’s been a little wild, to be honest,” she says.

By no stretch is Buffalo a hot housing market historically. Best-VanLiew and her husband have been renting on a busy street for a few years, and they pay $900 a month.

“We do not have a dishwasher, which is normally fine.” But she says now they are thinking of having a baby. “The bottles alone, like you kind of need that.”

And as they’ve been looking around for a better place, she says everything seems more expensive than it was a few years ago. “Between $1,200 and $1,400 for a place relatively close to this size with just a dishwasher,” she says.

Like a lot of young couples, she and her husband would rather buy a house. But with home prices hitting new records she says they’re having trouble saving enough for a down payment. And with so many would-be first-time homebuyers priced out of the market, that boosts demand for rentals and helps push rents even higher.

Copyright © 2022, NPR, KNOW Minnesota Public Radio. All rights reserved.

Two Property Insurers Halt New Policies in Florida

 As St. Johns Insurance and Lighthouse Property Insurance Corp. announce the decisions, state lawmakers consider proposals to address the troubled industry.

TALLAHASSEE, Fla. – As another sign of problems in Florida’s property-insurance industry, two insurers said Tuesday they are halting writing new business in the state.

St. Johns Insurance and Lighthouse Property Insurance Corp. notified agents of the decisions, according to copies of the notices. St. Johns said in its notice that it has used “many strategies to manage our risks,” such as not renewing policies, using new rules for eligibility for business and making rate changes.

But it said, “At this time, St. Johns Insurance has made the difficult decision to suspend all new business writing statewide as of February 15, 2022 … This closure applies to all lines of business.”

The announcements came as state lawmakers consider proposals to address the troubled industry, which has shed policies and sought hefty rate increases to try to reduce financial risks.

The problems have led to a huge influx of customers at the state-backed Citizens Property Insurance Corp., which has been adding thousands of policies a week. As of Jan. 31, Citizens had 776,790 policies, about a 75% increase over the past two years.

© 2022 The News Service of Florida. All rights reserved.

Brand-new home buyers forced to pay a higher amount later

 By Shannon Behnken

TAMPA, Fla. (WFLA) – As home prices continue to rise and buyers rush to lock in prices, some new home buyers are losing homes they thought they had already secured through a contract.

Increasingly, builders – citing pandemic-related material cost hikes, worker shortages and permitting issues – are using clauses in their contracts to raise prices or even cancel, often selling the home to someone else for a lot more money.

That happened to Delia and Eddie Masone. In February 2021, they entered into a contract with Adams Homes for a house in Wyndsor Place in Spring Hill. The sales price was $297,400. There were delays and permitting issues. Then, in November, they say they were told the slab would be poured and they were excited.

In December, though, they say the builder called with bad news.

“We are canceling your contract unless you give us 60% of your equity,” Masone said they were told. “My husband was like, ‘What?’ We are like, ‘How much is 60% of our equity?’ About 40,000 … $40,000!?”

The Masones wanted the house to help care for Santino, one of their three children, who has severe disabilities. The family wanted room so Santino could have a night nurse and not disturb their other sleeping children. When the family couldn’t pay the increased price, their contract was canceled.

“Being blindsided like this, it is heartbreaking,” she said. “It’s heartbreaking because now it’s like, what do we do?”

What happened to the Masone family is playing out all over the Tampa Bay area.

Jennifer Motsinger, executive director with the Tampa Bay Builders Association, tells Better Call Behnken that homes are taking longer to build, and builders can no longer predict what the home will cost when it’s finally done. So builders are using two types of clauses: an escalation clause that says they can raise the home price if material costs go up significantly, or a duration clause that states the builder can cancel if they are unable to start construction within six months.

Shannon Behnken reached out to Adams Homes Vice President Bryan Adams and he said supply issues and permitting issues have led to the company losing money on some homes. He explained that he decided late last year to use the duration clause with 125 homeowners. Those buyers had the choice, like the Masones, to pay more or walk away.

“It’s not a decision I took lightly, and I and my entire team feel for the families,” he said.

Motsinger, of the builder’s association, said most builders are using similar clauses in their contracts in case they find they can’t build the home for what they stipulated in their contracts.

“I’ve never seen it like this,” Motsinger said.

Realtor Julie Larsen says she also hasn’t seen it like this before. She says she recently had two buyers with similar decisions to make after the builder wanted to raise the price. One buyer chose to walk away because they could not afford the increase, and the other is still trying to make a decision, she says.

“It’s very sad to go back to the drawing board when you already are financially and emotionally invested in a property,” Larsen said. As a real estate agent, though, she says she knows the prices are increasing every month right now, and that’s why buyers want to lock into a contract in the first place. She added that some clients are no longer looking into new homes for this reason.

“It’s just a fact of the game that any property is going to be worth more tomorrow than it is today,” she said.

Meanwhile, the Masones say homeownership is now out of reach because similar homes are now out of their budget.

“What’s the point in a contract if you are going to breach it and you’re gonna break it?” Masone said. “You are not only breaking the contract, you are breaking all of these families’ hearts.”

© 1998-2022 WFLA, Nexstar Broadcasting, Inc. All rights reserved.

Older Condo Building Owners May Get Buy-Out Offers

 By Oscar R. Rivera

Pressured by high repair costs, more owners of older condos may welcome developer buy-out offers if the land’s value outweighs that of all the individual properties.

MIAMI – A condominium development trend that was already unfolding prior to the horrific Champlain Towers tragedy in Surfside – the legal termination of older condominium communities and buyout of all the unit owners to make way for new construction – is now becoming a movement in South Florida real estate redevelopment.

More owners of units in aging condo communities near the water are receiving offers from industry-leading developers than ever before, and some of these offers are coming just as the 40- and 50-year recertifications for their aging condominium towers come due.

The costs for repairs, even at the 40-year mark, can be too much for many unit owners to afford. Some associations’ financial reserves are woefully inadequate, or even nonexistent, so they would need to impose significant special assessments to pay for major repairs.

In such cases, offers that are sometimes two to three times over market value for each unit can become a very appealing exit strategy for owners, and Florida has a legal mechanism for such condominium terminations that has proven to be effective. Terminations led to the development of the Armani/Casa tower in Sunny Isles Beach and the Una Residences now under construction in the Brickell area.

For developers, the math is even simpler than that of the unit owners. Once the value of the land for redevelopment becomes greater than that of the combined property values of all the existing units in a community, a condominium termination presents a fruitful opportunity.

In a market with little undeveloped waterfront properties, combined with the recent influx of well-heeled new residents, offering to purchase all a community’s units in order to demolish a building and raise a new one presents a potentially lucrative development option.

Developers in the state are already setting their sights on a fast-growing list of target communities.

Depending on the language of the governing documents for a community, condominium terminations in Florida require very high approvals ranging from 80 to 100% of all the unit owners. Needless to say, achieving that level of buy-in from property owners is a daunting task for developers, which also often face competing offers from other condominium builders.

However, decisions between moving forward with significant special assessments to restore and repair an aging condominium tower versus offers of three times the value of one’s unit are giving owners a lot to ponder.

Serious proposals from major developers in communities that may be right for termination and redevelopment require careful consideration. This usually begins with the unit owners meeting with those presenting offers to hear their proposals and initiate the vetting process. The engagement of experienced real estate and legal professionals for the ensuing negotiations is also highly advisable.

Ultimately, it will be up to each individual owner to decide what is in their best interests.

Terminations require many months to complete, and those that are contested could take as long as several years. Plus, there will always be matters for negotiation, such as how long owners will be allowed to continue residing in their units after the termination is completed, what costs will each owner bear, what to do with existing tenant leases, and others.

Condominium terminations can be contentious, and they often stir up controversy. Today, the developers that are successfully acquiring sites through terminations are generally paying way above market value to secure the buy-in of as many owners as possible to obtain the required termination approval.

For those communities that check all the boxes for termination, there may never be a better time than now for unit owners to unite behind one offer and strike the best possible deal.

© 2022 Miami Herald. Distributed by Tribune Content Agency, LLC. Oscar R. Rivera is the managing shareholder of the Coral Gables-based law firm of Siegfried Rivera and heads the firm’s Real Estate Law Practice Group.

The Housing Market Needs More Condos. Why Are So Few Being Built?

By Michael Neal and Laurie Goodman. Despite robust multifamily construction activity overall, the share of these units built for sale last year was less than 5.4 percent—almost the lowest level in half a century. The rest were rental units. This trend has persisted even though demographic patterns are boosting the need for condos, and the shortage is adding to concerns about the lack of affordability in the homebuying market.

Condos can present a key path to first-time homeownership, but a combination of federal financing issues and local defect laws have contributed to a lack of multifamily units for sale. Although the issues are complex, it is critical to break down these barriers to developing more affordable housing supply and expand homeownership opportunities to more families. 

Multifamily for-sale construction is near historic lows

Multifamily construction for sale is historically low, whether measured as a share of all new multifamily units (constructed for sale and for rent) or as a share of all new housing units for sale (single-family plus multifamily units). Multifamily construction built for sale accounted for only 5.4 percent of all multifamily starts and only 2.7 percent of all single-family and multifamily home construction for the first three quarters of 2021.

This is not a pandemic-related phenomenon; multifamily construction for sale has been declining since the Great Recession, and the approval time for new construction means it is unlikely the pandemic significantly affected volume.

Condos are more affordable than single-family homes

In every major city except New York and Philadelphia, condo and co-op prices are significantly lower than single-family home prices. During the pandemic, the gap between single-family and multifamily home prices has increased as families have traded location for space, leaving condos as the far more affordable choice.

Because condos and co-ops are generally more affordable, they tend to help first-time homebuyers step onto the first rung of the homeownership ladder. These buyers often use the equity on their condo to then purchase a larger single-family home. When we look at government-sponsored enterprise purchases with a mortgage, about 60 percent of condos and co-ops are purchased by first-time homebuyers; for single-family homes, the share is around 40 percent (link corrected February 1, 2022).

Demographic trends favor more robust condo development

Condos and co-ops also tend to better match long-term demographic changes. The share of one-person households has increased from 12 percent of all households in 1960 to 28 percent today. The share of two-person households has increased from 28 percent to 35 percent.

Owner-occupied multifamily units tend to have a disproportionate share of one-person households. Approximately 20 percent of all owner-occupied single-family housing is occupied by a one-person household; that share is 45 percent in owner-occupied multifamily housing. Approximately 35 percent of both owner-occupied single-family and multifamily housing consists of two-person households, while larger households disproportionately live in single-family housing.

The growth in one-person households over the past several decades should have provided the basis for more robust growth in multifamily housing than in single-family housing, but that has not been the case.

Why the disconnect?

Condo production has been low for two main reasons. First, financing constraints are an issue for both the sponsor and the builder.

Successful condo development requires that the sponsor be able to sell the units quickly, which requires that potential unit buyers either have cash on hand or can obtain financing. Few owner-occupants, especially in more affordable buildings, will be able to purchase with cash, and with credit tight for first-time homebuyers, this uncertainty is a concern for sponsors. 

But sponsors cannot solve that problem by selling to investors, who are more likely to be able to buy with cash. For example, a potential condo buyer cannot get a Federal Housing Administration (FHA) loan or a Fannie Mae or Freddie Mac loan unless (1) at least 50 percent of the condo units are owner-occupied and (2) no more than 15 percent of the units in the complex have association dues that are more than 30 days behind.

In addition, the FHA requires no more than 10 percent of the units in the complex secure existing FHA loans, further limiting access by the low-income borrowers the FHA typically serves. And Fannie Mae and Freddie Mac require that no single entity can own more than 2 units in projects consisting of 5 to 20 units and 20 percent of units in projects consisting of 21 or more units, and that the homeowners’ association is not named in any lawsuits.

In addition, defect litigation can substantially increase the cost of insurance and the riskiness of a condo project.

There is a statute of limitations on construction defect claims, which varies by state and by type of defect. For example, in New York State, construction defects are covered for one year after the warranty date. Plumbing, electrical, heating, cooling, and ventilation systems are covered for two years, and material defects are covered for six years. As a result, the condominium association has an interest in raising defect claims promptly. These claims are common on new buildings, and they have a chilling effect on a sponsor’s willingness to build for owner-occupants. And while this litigation is under way, it is virtually impossible to sell or finance new units in the building.

Because of the higher risk associated with condo development, the builder pays a higher rate to finance the condo construction than would be the case on a rental unit, and the lender demands a higher return for the higher risk.

These federal financing constraints and local defect laws make it far riskier for multifamily developers to build rental housing than for-sale construction and have limited the construction of condos and co-ops. But amid growth in single-person households and affordability concerns in the market, the need to address these challenges and build more of this type of housing has never been greater.

Overcoming these obstacles would require government and government-sponsored agencies at the federal level to ease financing restrictions and would require states and localities to reevaluate defect laws. Although these defect laws provide valuable protection to condo owners, it may be possible to provide this protection in a form that does not discourage new condo production. This challenge reflects another instance where a concerted partnership among all levels of government is needed to overcome barriers to affordable homeownership.

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Grandfathered Rental Rules for Condos and HOAs?

 By Rob Samouce

For years, new condo rental restrictions applied only to current owners who voted for them, but new HOA restrictions were effective for everyone. That changed last July when HOA owners who rent out units received somewhat similar protections.

NAPLES, Fla. – For many years now, Chapter 718, Florida Statutes has provided that any new rental restrictions approved by the membership of a condominium as an amendment to the governing documents only applied to those who voted for the amendment or those who obtained title to the unit after the amendment was approved and recorded in the County Public Records.

Section 718.110(14), Florida Statutes, applicable to Condominiums, provides that: “An amendment prohibiting unit owners from renting their units or altering the duration of the rental period applies only to unit owners who consent to the amendment and unit owners who acquire title to their units after the effective date of the amendment.”

There was nothing similar in the law governing Homeowners Associations (HOAs) when they amended their governing documents to change permissible lease-period durations and the number of leases per year. If the membership properly approved more restrictive amendments, they applied to all homeowners.

This changed effective July 1, 2021, after the Florida Legislature passed Senate Bill 630. Now, for all amendments to HOAs’ governing documents enacted after July 1, 2021, more restrictive rental regulations approved by the members will also, like condos, only apply to a parcel owner who acquires title to the parcel after the effective date of the amendment or a parcel owner who consented to, or voted to approve, the more restrictive rental regulation.

However, there are exceptions to this new regulation in HOAs.

If the amendment is to prohibit or regulate rental agreements for a term of less than six (6) months and/or the rental of a parcel for more than three (3) times in a calendar year, then the amendments will apply to all parcel owners.

So in HOAs, approved short-term rental restrictions of less than six (6) months and limiting of rentals to no more than three (3) times a year will apply to all owners; rental restrictions of six (6) months or more or limits of three (3) times, two (2) times or one (1) time a year are applicable to owners who voted to approve the amendments and those who acquire title to the parcel after the effective date of the amendment.

The intent of this new provision in HOAs appears to be to disfavor short-term leases less than six (6) months as well as multiple leases of four (4) or more times per year, while still allowing grandfathering of current owners who want to lease at least six (6) months or shorter periods up to three (3) times a year. At the same time, it’s acknowledging that some owners purchased their homes with collection of rental income in mind.

Sales taxes come into play with rentals at six (6) months, and if a parcel is advertised for sale for more than three (3) times a year for less than thirty (30) days, the State of Florida could consider the unit a “hotel/motel.” If so, it could then have to retrofit the parcel with the same fire, life safety and handicap equipment as a hotel/motel in Florida.

This column is not based on specific legal advice to anyone and is based on principles subject to change from time to time.

© 2022 Journal Media Group, Naples Daily News. Rob Samouce is a principal attorney in the Naples law firm of Samouce & Gal, P.A. He is a Florida Bar Board Certified Specialist in Condominium and Planned Development and concentrates his practice representing condominium, cooperative and homeowners’ associations.

Mortgage Rules Eased for Self-Employed Buyers

By Jeff Lazerson 

PASADENA, Calif. – Fannie Mae and Freddie Mac finally eased the two biggest COVID-19 era loan obstacles of the past two years, opening the floodgates for countless self-employed borrowers who were denied loans in the past.

On Wednesday, Feb. 2, the mortgage giants rescinded the rules imposed in June 2020 requiring self-employed borrowers to provide a year-to-date profit-and-loss statement reporting revenue, expenses, and net income as well as their most recent two or three months of bank statements.

Fan and Fred required lenders to make sure your current year-to-date income was on par with the previous full year of tax return income. For example, if your previous years’ net income was $240,000 (or $20,000 per month), then the current year’s net income for January through September should be roughly $180,000 (9 x $20,000). If you fell too far below that line, you were deemed to be circling the drain. No loan for you.

If you own 25% or more of your business, or your income is derived from schedule C income through 1099 commission-only income, this means you.

It’s all about risk assessment, according to the Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac. The powers that be decided the P&L and bank statements provided a good snapshot of your business’ financial health during the pandemic.

And their policies impact mortgage lenders that sell loans to Fan and Fred.

I side with those who believe the rule was based on flawed thinking. For example, customer payment seasonality crushed a lot of self-employed borrowers, even though their businesses were sound. Since revenue deposits didn’t square-up on Fan-Fred’s timeline, business income looked poor. But, by tax return time, they looked good – as always.

What about Payment Protection Plan money for hard-hit industries like hospitality? The rules did not allow lenders to recognize those deposits.

If that profit-and-loss bank statement rule was such a good idea in the first place, why wasn’t it there pre-COVID? And why remove the rule from the COVID-19 playbook now? Who thinks COVID is behind us?

At any rate, the rule cost a lot of self-employed borrowers the golden opportunity to take advantage of some of the lowest interest rates on record.

Freddie Mac’s loan survey showed the 30-year fixed rate at an all-time low of 2.65% in January 2021. This week, rates averaged 3.55%, almost one full percent higher from a year ago. And half a percentage point above the 2021 average of 2.98%.

Mortgage brokers like me had to turn down countless capable borrowers because they didn’t fit that interim financial box. And, mortgage lenders were too scared Fan or Fred would make them buy back mortgages should the P & L income not match up to a year ago.

But there’s still time to take advantage of this rule change before rates go higher.

Did you get denied a mortgage over your profit and loss statement after June 2020? Or did you end up taking out a more expensive financial instrument from the exotic mortgage menu? You might want to take another bite at the cheaper Fannie, Freddie mortgage application apple. You still have some rigor ahead of you, but it’s a lot less than what it was on Feb. 1.

Copyright © 2022 Pasadena Star-News. Jeff Lazerson is a mortgage broker.

Lack of Affordable Housing Hurts Economy as Well as People

 By Laura Tichy

Service workers can’t afford to live in more Florida metros as home and rental prices climb – and local service businesses are starting to feel the pinch.

FORT MYERS, Fla. – Imagine calling 9-1-1 but help doesn’t come promptly because few first responders are able to afford to live and work in the area. That scenario is closer than you think. Or imagine going to your favorite restaurant, only to find it closed because the management can’t hire enough workers living locally to staff it for evening. That scenario is already happening.

“My favorite restaurant, I wanted to go there on my birthday, and it was closed,” said Suzanne Cabrera, president and CEO of the nonprofit Housing Leadership Council of Palm Beach County Inc. “I know the manager, so I asked, and they couldn’t get enough staff to open. He said, ‘This is a really hard place to find staff because, even if we pay $12-$15 an hour and they make good tips, they can’t afford to live here.’ I get it – it’s insane driving 45 minutes each way from Port St. Lucie when they can just work at a restaurant there. So, people are going to see their quality of life affected because we’re just not going to have those folks who make life better in Palm Beach County.”

The already-high housing costs in parts of Florida have skyrocketed in recent years, making it difficult to live here for a surprising swath of occupations. And the trouble employers are having with securing talented workers impacts the quality of life even for the people who can afford the housing costs.

“We’ve heard from our major employers that they’ll find the perfect candidate for the job, and they’ll make the offer, but as soon as the candidate starts coming to look at housing, they’ll say, ‘We can’t afford to live here,’ and decline,” said Jenna Buzzacco-Foerster, director of government relations for the Greater Naples Chamber.

According to a report produced by the nonprofit Florida Housing Coalition, “In some communities, where housing is extremely expensive, such as the Florida Keys, Naples and any number of other waterfront communities, there is a very real threat of losing basic services, such as teachers and police protection, due to a lack of affordable housing.”

Local nonprofits that help lower-income people attain housing have seen this affordability problem for public workers play out firsthand. The Affordable Homeownership Foundation Inc., which serves Southwest Florida, helps people with lower incomes both with building and renting housing. The organization counts a Lee County Sheriff’s Office employee among its renters.

“She only makes $29,000 a year and couldn’t afford to rent anywhere,” said Lois Healy, the nonprofit’s CEO. “We’re renting a house that we rehabbed to her and her two kids, $650 a month with all utilities. Where could you find that anywhere else? She’d be homeless or having to work three jobs just to pay rent. And yet affordable housing complexes get voted down by local residents because they don’t want it in their backyards. That’s going to be a major problem if they can’t find people to do the jobs. You can be rich all you want, but if you can’t find somebody to wait on you at a restaurant or take you by ambulance to the hospital or be your nurse, then you’re going to be having a lot less ability to survive.”

It’s also impacting public-sector employees in Palm Beach County.

“I’ve talked to 50-year-old teachers who get a divorce or their life situation changes, and they’re having to get a roommate like right back in college,” Cabrera said. “They say, ‘I love teaching, but I never in a million years imagined I’d be approaching retirement and have to live with a roommate.’ Teachers don’t go into it to be wealthy, but they want to be able to live and not be low income, which teachers are low income in Palm Beach County.”

Defining affordable housing, and who qualifies for it

The United States Department of Housing and Urban Development (HUD) provides standard definitions for housing affordability, fair-market rent and household income levels that qualify for assistance. Governments and nonprofit agencies all use these standard definitions, which HUD calculates for each county or municipal area using the same formulas. The income definitions work using medians, which, to give a quick statistics refresher, are different than averages.

An average is calculated by adding together all the values, then dividing that sum by the number of values. A median, instead, arranges all incomes in order, then picks the one at the middle where half fall above and half fall below. Each method has its pros and cons. Then, low income is calculated to start when workers earn roughly 80% or less of area median income (AMI), with additional calculations to adjust for family size.

“When you think about how HUD does those formulas, our community is out of balance because we have a small workforce and a lot of retirees, but HUD can’t consider that for individual counties, so it’s never going to be quite right,” said Carrie Walsh, director of the Human Services Department of Charlotte County government.

Records show that for Charlotte, Lee, Collier and Palm Beach counties, median incomes range from $66,700 in Charlotte to $80,200 in Palm Beach. Low income for one person then ranges from $36,300 in Charlotte to $47,950 in Palm Beach. For a family of four, low income ranges from $51,850 in Charlotte to $68,500 in Palm Beach.

For housing costs to be affordable (or for a household to be “not cost burdened”), HUD and most housing advocates apply a rule of three. For renters, housing costs (including utilities) should run no more than 30% of annual gross household income. When buying, the house should cost no more than three times annual income. The 30% measure for affordability received recent corroboration from an article by Chris Glynn in The Annals of Applied Statistics that showed the “expected homeless rate in a community increases sharply once median rental costs exceed 32% of median income.” All four of those counties currently have median rental costs at 32% or higher of median incomes.

HUD also calculates the fair-market value of rents. This is the maximum amount of rent that may be paid when HUD helps lower-income renters, where the renter contributes 30% of their income and a voucher covers the rest of the rent, but only up to fair-market value. (If the rents are higher, vouchers cannot be used, so many vouchers go unused every year even if families qualify for assistance.) For one-bedroom rentals, fair-market value should run $866 in Charlotte to $1,180 in Palm Beach. Two bedrooms should run $1,067 in Charlotte to $1,468 in Palm Beach.

Good luck finding any properties currently renting for those prices on the open market.

“We have an affordable housing advisory committee, and I asked a real estate agent who sits on that to run a report in the MLS system to give me a sense of how many rentals are available right now in the community – condo, house, whatever’s available – plus the average rent,” Walsh said. “As of (Jan. 4), there are eight rentals available in Charlotte County. The average two-bedroom is $2,125 a month, and the average three-bedroom is $2,613. Only eight, in itself that’s incredibly alarming, but what we look at is, to not be cost burdened, what does the household income need to be for that to be an affordable rent? The two-bedroom needs to be bringing in $85,000 a year, or $40.86 per hour for housing costs, and the three bedroom needs $104,520, but the kicker is, that doesn’t include utilities. I think we will see the pain point sooner than other parts of the country because our workforce will be forced to leave because they simply cannot afford to live here.”

The household also doesn’t own anything in which to build equity after paying that much money each month for housing since it’s rent and not going toward a mortgage payment.

Why not just drive?

If you couldn’t afford housing in Southwest Florida, the adage was to simply drive a little east or north, and you’d find something you could afford. This didn’t factor the cost of owning and maintaining a vehicle since using public transit then isn’t possible.

The Center for Neighborhood Technology H+T® Index adds 15% as the measure for affordable transportation, meaning that housing costs, utilities and transportation would have to cost no more that 45% of household income to be considered affordable. But as housing costs have risen across all Southwest Florida, simply counting on a neighboring community to provide its affordable housing to another county’s workforce is increasingly not an option.

“Years ago, people could just live in south Lee County, in Bonita or Estero, but we’ve seen numbers in south Lee that are comparable in many ways to Collier County,” Buzzacco-Foerster said. “Now, maybe, people who work in Collier could still afford a rental in the Cape or Lehigh, but then where are people from the Cape or Lehigh going to go? The problem is up and down the coast. For a long time, we’ve approached this county by county, with each county trying to address it in its own way. I think now we’re seeing, as we talk to our colleagues at chambers in Lee County, that we need to take a regional approach to this. So, how can we address this regionally?”

What’s causing housing prices to increase?

Housing costs have surged. When people can work from home, this means they can work from anywhere, so why not move to paradise?

Naples has the second-highest rent in Florida, thanks in part to 45% of its apartments being luxury units compared to the national average, where typically only 27% of rentals in a market are upscale. Median price for a home in Collier County was $650,000 in October, up $90,000 from a year earlier.

Ryan Bleggi, president of the board of directors of the Naples Area Board of Realtors (NABOR), noted a 76% decrease in homes on the market as compared to a year earlier, with only 1,198 homes available by the end of November, with the prices reflecting high demand amid limited supply. Cabrera said Palm Beach County rents are around $2,500 with home prices in the $475,000 range. Rents in Lee County have increased by 45% since 2019, according to data from Habitat for Humanity of Lee and Hendry Counties.

“Many of our applicants were actually renting homes, and they’ve been displaced because the owners have decided to sell the property to capitalize on the current market, so they have just been displaced due to the sale of their property,” said Becky Lucas, CEO of Habitat for Humanity. “We’re also seeing rent increases because there is a lack of units. Landlords know they can raise the rent because there’s nowhere else for the families to go unless they want to live an hour away from work. We’re also seeing a big increase in the working homeless, where there are dual income earners in a family, yet they’re living out of a motel. That’s only due to the fact that there aren’t enough units in our area for them to go into.”

Despite many people struggling to find affordable housing in the region, few renters were willing to talk about it on the record. Reasons ranged from being amid lease renegotiation to not wishing to appear an unstable job candidate to current or potential employers, but some cited fear of retaliation by a landlord.

One renter who was willing to speak on the record was freelance writer and social photographer/media specialist Stephanie Davis, whom Florida Weekly readers may remember from her Downtown Diva columns. She and her spouse have lived in the same affordably priced condo for over a decade but now find themselves searching for a new place because their landlady decided to sell it amid the market upswing.

“Leasing is incredibly expensive,” Davis said. “An apartment near downtown Fort Myers is going for $200 less than a beautiful one bedroom, one bath in Chelsea in Manhattan.”

She said they have put offers in on homes, but their offers keep being beat by out-of-town cash buyers who are buying single-family homes, sight unseen.

“I’m finding that a lot of the places we put an offer on and lost three months ago are now on Airbnb,” Davis said. “They’re turning them into vacation rentals. I have confidence we’ll find something, but I worry about the single folks with kids. I don’t know how they do it.”

Ability to afford higher rent no guarantee of suitable housing

While workers earning less than median income continue to struggle, affluence is not necessarily a buffer against the region’s housing difficulties. Cabrera said that the tight housing market has resulted in potential employers skipping the county when contemplating relocation plans, and for a surprising reason.

“Typically, in the past, we’ve had plenty of mansions in Palm Beach for the head CEOs of companies, but it’s gotten so crazy I’ve heard even that’s an issue now,” Cabrera said. “Oh, man, we’ve got a problem if we can’t even house millionaires.”

Affordable solutions

Solving housing issues is not a swift process as new housing cannot be built quickly, and local zoning factors in. Healy’s nonprofit (Affordable Homeownership Foundation) is building units that house four extremely low-income people, such as people who are disabled or are veterans, in homes that feature a bed/bath/kitchenette for each individual plus a shared common living room, full kitchen and laundry area. Collier County recently approved a number of workforce rate housing units for essential workers at the new Blue Coral development. The Community Foundation of Collier County is spearheading another development that will provide affordable housing, which will break ground next summer.

An affordable housing study done in Palm Beach County in the 1990s projected, then, that the county needed to add 6,000 units yearly of housing for low- and moderate-income people. Cabrera said that the county only saw about two-thirds of those units built. NIMBYism (not in my back yard) plays into some resistance to affordable housing. She said the best solution is to listen to those neighbors’ concerns to learn what they’re really worried about. At that point, addressing the concerns and providing education typically can overcome the resistance.

She recalled when a developer wanted to build 20 affordable apartments, and neighbors turned out to the meeting to protest it. When she asked for their actual concerns, they were worried about increased traffic. So, she explained that the developer’s alternate plan for the property was to build a convenience store, and she showed the neighbors a traffic study comparing potential land uses. They then realized that the apartments would generate less traffic than a convenience store open 24 hours a day.

“You have to ask what the real issue is, what they’re concerned about, rather than treating them like they’re hysterical when they come to the meetings,” Cabrera said.

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