Category Archives: Real Estate

The Canadian lumber tariffs add to the current housing shortage

The Canadian lumber tariffs add to the current housing shortage

The looming Canadian lumber tariffs do little to solve the actual lumber problem in America, mostly putting homebuilders and homebuyers at a greater loss, the National Associations of Home Builders explained after U.S. Secretary of Commerce Wilbur Ross announced another tariff this week.

To NAHB, the potential 30% jump in Canadian softwood lumber would jeopardize affordable housing in America. Softwood lumber is made from trees that have cones, such as spruce, pine and fir. It’s primarily used in home construction, and the U.S. is also Canada’s biggest export market.

In a follow-up interview with HousingWire, the association explained, “NAHB and its members depend on a steady, affordable supply of quality lumber to build homes.” The best way to accomplish this is a speedy and sustainable softwood lumber agreement, which to NAHB, the new tariffs don’t do.

“Absent that and as another means to address the aforementioned underlying economic problem of US demand regularly outstripping domestic supply, NAHB is advocating on Capitol Hill for policies that would increase our domestic harvest of timber thereby reducing our reliance on foreign sources of timber,” NAHB stated.

The association explained that the major problem with the Department of Commerce (DOC) solution is that it’s based on a faulty assumption that Canadian lumber is unfairly subsidized.

“The resultant protectionist action then artificially drives up the cost of lumber inputs to a range of consumer products (homes being chief among them). Again, the consumer loses,” stated NAHB.

NAHB drilled down to the main issue, stating that at the core of this dispute is the belief (on the part of the U.S. producers and sawmills) that Canada unfairly subsidizes its logging industry.

However, when broken apart, this isn’t necessarily the case. “This belief is rooted in the different systems each country uses to harvest timber. Very basically, the vast majority of timber in Canada comes from federally-owned lands. The government charges a stumpage fee to harvest these logs. In many cases this fee is set by the government and U.S. producers contend that this rate is artificially low and constitutes an unfair subsidy,” stated NAHB.

But this is a debatable point. Rather, the association stated that policies in the U.S. are in many cases as supportive, or more supportive, of lumber producers.

“For example, lumber mills using timber from public lands in Canada are responsible for building roads and replanting trees, while on public lands in the U.S. that work is paid for by the government, and ultimately, the taxpayers,” said NAHB. “Additionally, a number of U.S. states provide tax breaks or outright subsidies to lumber producers.”

The problem is that the U.S. is in an extreme deficiency of lumber and depends on lumber from Canada. NAHB crunched the numbers and found that in 2016, the U.S. consumed more than 47 billion board feet (bbf), while it produced slightly more than 32 bbf.

As a result, the U.S. heavily relies on foreign sources of lumber, and Canada makes up for 96% of this domestic shortfall.

“As such, each time we rehash this dispute, the lumber market is thrown into upheaval and the result is volatility in terms of price and supply of lumber. Sadly, the ultimate losers are the consumers of lumber products (predominately homebuilders and homebuyers),” NAHB stated.

And while Ross only proposed the tariff and plans to give a final determination on Sept. 7, according to NAHB, the tariffs are, to a large extent, already in effect.

Customs is already required to collect cash deposits as soon as the preliminary rates are announced.  So, if the final U.S. International Trade Commissions’ ruling happens to be in favor of Canada, these deposits would be refunded with interest to the affected producers and exporters.

Due to this, the preliminary ruling has the same price effect it would have had it been a final ruling, and it is likely that the preliminary countervailing duties announced on April 25 should already be priced into the lumber market.

And for the additional tariff announced this week, NAHB said producers started pricing in the inevitable weeks, if not months, ago.

New home demand reaches 10-year high

New home demand reaches 10-year high

The most recent data on housing starts and new home sales painted a decidedly gloomy picture about the state of the nation’s housing economy.

The latest report from the Department of Housing and Urban Development and the U.S. Census Bureau showed that housing starts sank to an eight-month low in May, and the most recent data from those same agencies showed that new home sales fell by 11.4% in April.

And while some observers are suggesting that the lack of housing supply is nearing “emergency” status, one prominent homebuilder is seeing just the opposite.

Lennar Corporation said Tuesday that it saw double-digit increases in revenue from home sales, deliveries of new homes, and orders for new homes in the second quarter.

In fact, Lennar said that the demand for new homes just hit a 10-year high, as the second quarter saw the homebuilder receive more new home orders in any quarter in the last 10 years.

Lennar shared the stats as part of the release of its second quarter financial results.

“The overall market improvement was supported by our highest quarterly new orders in the last ten years of 8,898 homes, a 12% increase year over year,” Lennar CEO Stuart Miller said on Tuesday. “Home deliveries and revenues from home sales increased 15% and 18%, respectively, year over year, while our backlog dollar value increased 20% to $4 billion.”

Overall, Lennar reported second quarter net earnings of $213.6 million, or $0.91 per diluted share, compared to net earnings of $218.5 million, or $0.95 per diluted share, in the same time period last year.

Lennar cited expenses related to its $643 million acquisition of WCI Communities, a “lifestyle community developer and luxury homebuilder” headquartered in Florida, as a drag on its earnings results.

Lennar reported that its revenue from home sales increased 18% in the second quarter of 2017 to $2.9 billion from $2.4 billion in the second quarter of 2016.

The homebuilder said that the revenue rose primarily because of a 15% increase in the number of home deliveries, excluding unconsolidated entities, and a 3% increase in the average sales price of homes delivered.

Lennar’s new home deliveries, excluding unconsolidated entities, increased to 7,687 homes in the second quarter of 2017 from 6,711 homes in the second quarter of 2016, while the average sales price of homes delivered was $374,000 in the second quarter of 2017, compared to $362,000 in the second quarter of 2016.

Those results have Miller feeling bullish on the state of the housing economy overall, suggesting that the recent market-wide housing data is not as dire as it appears.

“These strong results were supported by an improved macroeconomic environment, renewed optimism, wage and job growth, and increased consumer confidence,” Miller said. “We are now seeing, contrary to recent reports on housing starts and building permits, more of a reversion to normal in the housing market than the slow and steady recovery pace of the last several years.”

Homeownership rates dropped in past decade

Homeownership rates dropped in past decade

Homeownership rates are resting near their 50-year lows, and homeownership among young adults experienced large declines over the past decade.

The homeownership rate of young adults aged 25 to 44, the prime ages for first-time home buying, plummeted by 10 percentage points in the past decade, according to a new studyfrom Fannie Mae and the University of Southern California.

The study pointed out some of the causes for the low homeownership rate among Millennials. Those factors include the foreclosure crisis, a slow labor market recovery from the Great Recession, tighter mortgage credit, limited supply of entry-level homes and long-term social changes such as delayed marriage and childbearing.

Due to the many contributing factors, policy makers and housing professionals struggle to define the role of housing policy in shaping future homeownership rates, according to Fannie Mae.

The University of Southern California simulated how future changes in the characteristics of young adults might affect changes in their homeownership rate. The simulations place special emphasis on how increases in racial and ethnic diversity and alternative scenarios for future college education might alter the trajectory of young-adult homeownership.

The study found that, contrary to the popular narrative, an increase in racial and ethnic diversity will not lead to a decline in homeownership rate. In fact, the recent trends of rising education levels and its associated gains in incomes and wealth could cause an increase of about 1.5 percentage points in the Millennial homeownership rate over the next two decades.

The study also found that completely closing interracial gaps in education could generate an even larger increase in the Millennial homeownership rate of about 2.5 percentage points.

Were interracial gaps in income and wealth to close along with the gap in education attainment, the study shows Millennial homeownership rates would increase by six to seven percentage points over the next 20 years.

Increases potential for home sales in May

Increases potential for home sales in May

The market’s potential for existing home sales increased in May, even as the number of sales continued to underperform, according to the Potential Home Sales model for First American Financial Corp., a provider of title insurance, settlement services and risk solutions for real estate transactions.

Potential existing home sales increased to a seasonally adjusted annualized rate of 5.72 million, an increase of 1.8% from the previous month. This represents a 90.3% increase from the market potential low point in December 2008.

“As more and more Millennials marry and have children, among the strongest determinants for the desire to be a homeowner, demand for housing will remain robust,” First American Chief Economist Mark Fleming said. “However, the housing market faces a dilemma that is restricting the inventory of homes for sale.”

“As rates rise and the cost to finance a mortgage increases, existing homeowners are prisoners in their own homes,” Fleming said. “In addition, the fear of being unable to find a home to purchase hinders homeowners’ decision to sell.”

The market potential for existing-home sales fell by 1.1% from last year, a drop of 62,000 sales. The current potential for existing-home sales sits at 644,000 sales, 11.5% below the pre-recession peak of market potential July 2005.

Despite the drop in potential sales, they are still underperforming the market potential by 3.8% or an estimated 218,000 sales.

“The low inventory of homes for sale is preventing the housing market from reaching its potential and pressuring prices higher,” Fleming said. “Increasing shortages of homes for sale is a growing problem for potential homebuyers, especially potential first-time homebuyers today, as it causes affordability to decline.”

Avocado toast with every new mortgage

Avocado toast with every new mortgage

In case you missed it, SoFi announced recently that it is now offering a one-month supply of avocado toast with each new mortgage in the month of July.

I must admit; it’s a pretty funny gimmick and really smart marketing.

Here’s why.

About a month or so ago, “the internet” (and I use the sarcastic air quotes here) was all hot and bothered after an Australian millionaire suggested that Millennials would be able to afford a home if they could just give up their daily dose of avocado toast.

“When I was trying to buy my first home, I wasn’t buying smashed avocado for $19 and four coffees at $4 each,” 35-year-old real estate developer Timothy Gurner told Australia’s 60 Minutes.

“We’re at a point now where the expectations of younger people are very, very high. They want to eat out every day; they want travel to Europe every year,” Gurner continued. “The people that own homes today worked very, very hard for it,” he said, adding that they “saved every dollar, did everything they could to get up the property investment ladder.”

And as these types of things are wont to do, Gurner’s proclamation went viral.

Twitter lit up with joke after joke about how many avocado toasts would it take to buy a house in (insert large city here) and people sharing pictures of their avocado toast breakfast (otherwise known as their down payment).

For a while there, one couldn’t go more than a few minutes on Twitter without seeing some form of joke or comment about avocado toast’s apparent relationship to housing.

Then, as so often happens, the “avocado toast=a new house” furor eventually died down.

Until Thursday that is, when SoFi announced that it would be offering a month’s supply of avocado toast with each new mortgage.

And what happened next? Avocado toast was right back in the mainstream housing discussion again, which is exactly what SoFi wanted.

Personally, I think that SoFi’s offer is very savvy marketing.

Here’s the thing: I don’t think for one second that anyone is going to be convinced to get a mortgage with SoFi specifically because of this avocado toast offer.

No one who wants a mortgage is going to choose SoFi because they’re offering avocado toast. No one likes avocado toast that much.

And another thing, SoFi isn’t really even offering avocado toast.

They’re offering bread and avocados. You’ve still gotta toast the bread yourself.

Here’s SoFi’s offer in the company’s own words (emphasis added by me):

Once someone completes their home purchase with a SoFi mortgage in July, they’ll receive an email with the option of choosing regular or gluten-free bread to go along with their avocados. The ingredients will be divided over three shipments to ensure freshness upon delivery. Recipients will still need to toast the bread.

Reduce senior injuries at home

Reduce senior injuries at home

About one-third of adults ages 65 and older fall in their home which results in injury, long-term disability and premature institutionalization, according to the U.S. Department of Housing and Urban Development.

By 2020, the Centers for Disease Control and Prevention estimates that the cost for these kinds of injures will total nearly $60 billion. In order to reduce these costs, HUD released a report recommending a more holistic approach to seniors aging in place and their health needs.

HUD released its report, Overcoming Obstacles to Policies for Preventing Falls by the Elderly, during National Healthy Homes month, which recommends government and philanthropic organizations work together at every level to integrate fall prevention strategies and support efforts to aging-in-place.

“Active programs that coordinate senior care and implement fall prevention strategies can benefit seniors enormously,” said Jon Gant, director of the Office of Lead Hazard Control and Healthy Homes. “This report helps policymakers and program managers to identify the causes of problems they may encounter, as well as the resources and methods they can use to overcome them.”

HUD’s report also highlights these four key areas to improve services and care to seniors:

  • Why senior falls prevention and coordinated care is an important issue for the nation and what some communities are doing to meet the needs of seniors
  • What partners and stakeholders should be engaged, what each can offer to this effort, and why a holistic approach may provide the best potential
  • What financial resources, from all levels of government to health insurers and philanthropies, may be available to help create and sustain effective policies and programs
  • How to sustain policies and programs over the long-term

“Most people want to stay in our homes and communities as we age,” said Noreen Beatley of Healthy Housing Solutions, the report’s author. “Strong fall prevention programs help achieve that goal while lowering healthcare costs and helping improving seniors’ quality of life.”

House Canary as executive vice president of analytics

House Canary as executive vice president of analytics

Modern data analytics company and 2017 HW Tech100 winner HouseCanary has brought on Alex Villacorta as executive vice president of analytics.

Villacorta, who holds a Ph.D in statistics and applied probability, comes to HouseCanary from Clear Capital, where he created and led the research and housing analytics team. At HouseCanary, he will be joining its predictive analytics team.

“Having gotten to know the HouseCanary team over the last three years, it’s been exciting to watch their growth and vision for redefining real estate data and analytics and transforming the industry,” said Villacorta.

During the last 15 years, Villacorta, who is a 2014 HW Rising Star, has developed and led teams in advanced statistics applied to housing, media, and educational data streams.

“Alex’s energy, vision, and knowledge are a perfect complement to HouseCanary’s dynamic group,” explained Jeremy Sicklick, CEO and co-founder of HouseCanary. “His addition rounds out a team ready to turn residential real estate on its head.”

“The residential market is critically important to everyday homeowners and to the national economy, and HouseCanary’s genuine passion to make valuation and risk assessment consistent and reliable for all market players has been inspiring — I’m beyond excited to be joining a group of true innovators,” Villacorta added.

 

Real Estate Appraisal Board fights back against FTC price

Real Estate Appraisal Board fights back against FTC price

Last month, the Federal Trade Commission filed a complaint against the Louisiana Real Estate Appraisal Board, accusing the regulatory body that oversees property appraisals in the state of stifling price competition by requiring appraisal management companies to follow the state’s established polices for the fees that AMCs pay to appraisers.

At the time, the Louisiana Real Estate Appraisers Board denied the FTC’s allegations, stating that any accusations that it operates beyond its rights are “ludicrous” and without merit.

“To now suggest that LREAB’s good faith efforts to comply with federal law is some sort of shadowy price-fixing conspiracy is ludicrous. Congress and six financial regulatory agencies in Washington have directed Louisiana to do exactly what the FTC is now alleging is an antitrust violation,” Bruce Unangst, executive director of the Louisiana Real Estate Appraisers Board, said in a statement at the time.

Unangst also said that the board planned to fight the FTC, and that’s exactly what the board is doing.

Earlier this week, the Louisiana Real Estate Appraisers Board filed a response to the FTC’s allegations, in which the group repeatedly denies the FTC’s numerous allegations.

“The LREAB categorically and vociferously denies these allegations as factually false and politically wrong-headed,” the board said in its response. “The State of Louisiana and the LREAB diligently implemented and followed the Dodd-Frank federal mandates so as to protect the greater public interest in a financially sound home real estate market.”

The board also states that the FTC has “no cause, legal or factual, to punish the LREAB for acting in good faith” to implement the appraisal laws laid out by the Dodd-Frank Wall Street Reform and Consumer Protection Act.

“LREAB’s actions throughout the rule-making process — tracking the express language of Dodd-Frank and allowing extensive public comment on its proposed rules — demonstrate LREAB’s painstaking efforts both to be consistent with federal law and responsive to public and industry concerns,” the board’s response states. “The FTC has no cause, legal or factual, to punish the LREAB for acting in good faith to implement federal laws and policies designed to serve the public interest by ensuring the integrity of the residential mortgage appraisal process.”

Those rules stipulate that appraisal management companies should pay “a rate that is customary and reasonable for appraisal services performed in the market area of the property being appraised.”

In its complaint, the FTC alleges that the board required that appraisal fees are equal to or greater than the median fees established in survey reports commissioned and published by the board.

Additionally, the FTC claimed that the board exceeded its authority by investigating and sanctioning companies that paid fees below the levels specified in those reports.

The FTC’s complaint alleges that Dodd-Frank “neither requires nor authorizes the restrictions that the board placed on appraisal fees.” And according to the FTC, the state’s rules and the board’s insistence on enforcing them limits the freedom of appraisers and their customers to engage in “bona fide negotiations” to set appraisal fees for real estate appraisals in the state.

“The Board adopted a regulation, effective as of Nov. 20, 2013, purportedly implementing a requirement under federal and Louisiana law that AMCs pay appraisers a ‘customary and reasonable’ fee for real estate appraisal services,” the FTC said in its complaint. “In both promulgating and subsequently enforcing that regulation, the Board has unlawfully restrained price competition.”

In its 15-page response, the board denies all of those allegations. In fact, the board’s response goes through each paragraph of the FTC’s allegations individually and denies each one in turn.

The board’s response also lays out a series of defenses to the FTC’s charges, stating the following:

  • The FTC’s complaint fails adequately to allege that the Board has a controlling number of active participants in the relevant residential appraisal market (emphasis included in board’s response)
  • LREAB has acted in good faith to comply with a federal regulatory mandates
  • The Complaint fails to allege any plausible harm to competition
  • The Complaint fails to allege any plausible harm to consumers or consumer welfare
  • The alleged potential harm to competition is not actionable

Rental occupancy rates flatten

Rental occupancy rates flatten

Americans are shifting their preferences from renting to home buying, an analysis by TransUnion for the first quarter of 2017 showed.

The study showed 55% of those who shopped for a mortgage in the first quarter of 2017 were non-homeowners, most of whom were renters. This is a significant increase from the first quarter of 2016 when that number was 50% and from the first quarter of 2016 when it sat at 45%.

“The rental market has seen sustained growth for the last several years, but occupancy rates have flattened from their peak in the second quarter of 2016,” said Mike Doherty, senior vice president of TransUnion’s rental screening solutions group.

“This new uptick in mortgage shopping could be a precursor to further declines in occupancy, which would impact rent growth, and ultimately, revenue, for multifamily property owners,” Doherty said. “In anticipation of this potential shift, owners and property managers should be offering the right amenities and programs designed to attract renters.”

Millennial interest in homeownership has been steadily growing, the TransUnion study showed. In 2017, 29% of non-homeowners who shopped for mortgages were Millennials. This is up slightly from 28% in 2016 and 27% in 2015.

“Property management companies should consider new services such as rental payment reporting to credit bureaus to entice renters into their multifamily properties,” Doherty said.

“In many cases, renters are more likely to choose a unit if their property manager reports their rental payments,” he said. “Our survey data show that most renters prioritize their rental payments and want their payment reported.”

Previously, TransUnion found 51% of renters were more likely to choose a property if they knew their landlord would report their payments to credit bureaus, and 79% of respondents said they prioritize rental payments above all other monthly bills.

Median home price hits new high

Median home price hits new high

Existing home sales rebounded in May as low inventory levels pushed median home prices to a new high, according to the latest report from the National Association of Realtors.

And as competition increased, the median days a home is on a market sank to a new low, the report showed.

Total existing home sales, completed transactions that include single-family homes, townhomes, condominiums and co-ops, increased 1.1% to a seasonally adjusted annual rate of 5.62 million in May. This is down from a downwardly revised 5.56 million in April.

This sales pace is an increase of 2.7% from last year, and the third highest pace over the past year, the report showed.

“The job market in most of the country is healthy and the recent downward trend in mortgage rates continues to keep buyer interest at a robust level,” NAR Chief Economist Lawrence Yun said. “Those able to close on a home last month are probably feeling both happy and relieved.”

“Listings in the affordable price range are scarce, homes are coming off the market at an extremely fast pace and the prevalence of multiple offers in some markets are pushing prices higher,” Yun said.

The median existing home price for all housing types increased to $252,800 in May, passing up last June’s $247,600 as the new peak median sales price, and increasing 5.8% from May last year. This marks the 63rd straight month of year-over-year gains.

Total housing inventory rose 2.1% at the end of May to 1.96 million existing homes available for sale, but is still 8.4% lower than last year’s 2.14 million. Unsold inventory rests at a 4.2-month supply at the current sales pace, down from 4.7 months last year.

“Home prices keep chugging along at a pace that is not sustainable in the long run,” Yun said. “Current demand levels indicate sales should be stronger, but it’s clear some would-be buyers are having to delay or postpone their home search because low supply is leading to worsening affordability conditions.”

Properties stayed on the market an average of 27 days in May, down from 29 days the month before and 32 days last year to the shortest timeframe since NAR began tracking in May 2011. Short sales were on the market the longest at a median 94 days in May, while foreclosures sold in 48 days and non-distressed homes took 27 days.

“With new and existing supply failing to catch up with demand, several markets this summer will continue to see homes going under contract at this remarkably fast pace of under a month,” Yun said.