When Should an HOA Be Able to Restrict an Owner’s Right to Rent Out His Unit

Is it fair for an HOA (Homeowner Association) to prohibit or restrict a unit owner from renting out his property?  Should there be a law about this?  In California, these issues are currently being argued in both the legislature and the courts.  In some other states the issues may already be settled; in others the debate is no doubt going on.

There is little argument that a homeowner association, at its formation, has the right to adopt rules restricting the ability of its members to rent out their units.  Indeed, buyers of units in a newly-built ocean front condominium might want assurances that units in the building cannot be rented on a short term “vacation rental” basis.  Moreover, it is common for association rules to stipulate that leases of units must contain a provision requiring that the tenants will abide by the association’s rules and regulations.

HOAs can be formed with pretty much whatever rules they (usually, the developer) choose.  Prospective buyers can then decide if they want to live in a community that is subject to such rules.  But what about an existing association that wants to change its rules – more frequently, to adopt rules concerning matters where no rules existed before?

The governing documents of HOAs contain procedures for changing or adding on to the rules and regulations.  No one would suppose that amendments could never be necessary or desirable.  Further, different associations may have different procedures for making changes. S ome might require a 2/3 vote of members for certain kinds of issues.  Others may delegate considerable power to the Board of Directors in the matter of modifying or adding to existing rules.

California law – as a result both of court cases and legislative action – provides that changes to association rules cannot be arbitrary. They must be reasonable.  They must not violate public policy.  They must bear a relationship to the association’s goals.  Importantly, there is a presumption of reasonableness to the rules, or changes to the rules, that are duly adopted by an HOA.  If someone objects, the burden of proof falls on them to show that a new rule is unreasonable.

So, suppose you had purchased a unit in a common interest development as your residence.  Suppose also that the HOA had no rules regarding the ability of an owner to rent out his property or properties.  Over the years you acquire a few more units for the purpose of renting them.  You might even purchase some in partnership with your children for the same purpose.

Then, members of the association become concerned that the number or rental units and the character of the renters are becoming a problem.  A study group is formed and additional rules are proposed.  An election is held and the proposed rules are adopted.  According to these new rules, no more than a certain number of units in the development may be rented at any one time. No owner is allowed to own more than two rental units.  Leases are subject to the approval of the HOA.  No leases may be longer than one year. Existing leases will be honored, but, at the termination of the lease, if the owner has more than the allowed number of rentals, the unit cannot be re-rented.

Is this fair? Is it reasonable?  Should the law allow it?

The scenario sketched above is, in abstract, similar to the case of Sierra Dawn Estates Homeowners’ Association v. Isabelle Harrison et al., recently heard by California’s Fourth Appellate District Court of Appeal. In an unpublished decision filed June 23, 2010, the court upheld the actions of the HOA.  The plaintiff has filed an appeal with the state Supreme Court.

Directors of the California Association of Realtors® (CAR) were concerned that the rules adopted by Sierra Dawn went too far.  CAR filed a friend of the court brief on behalf of the owner of the units.  Basically, the brief argued that the right to lease one’s property is a fundamental property right.  “This fundamental right should not lightly be taken away from those who acquired real estate with those rights intact…  Any attempt by a home owner association to take away the fundamental right to lease one’s property without adequately accommodating existing owners’ investment backed expectations should be considered unreasonable…”

The brief urged that, as is common with new ordinances adopted by local governments, it should at least be required that existing uses be “grandfathered in.”  If not, many owners of rental units would be forced to sell – a significantly negative option in a market such as this one.  However, as noted, CAR’s reasoning did not prevail at the appellate court.

On the legislative front, CAR introduced a bill, AB 2259 (Mullin) which would have provided that a no-rental rule adopted after Jan. 1, 2009 would not affect units that were purchased prior to the passage of such rule.  The bill passed both houses of the state legislature, but was vetoed by Gov. Schwarzenegger.  His message stated that such matters were best decided at the HOA level.

This year CAR is sponsoring AB 1927 (Knight).  In original form it required that it would take a 2/3 vote of an association membership to impose rental prohibition rules.  That has been amended to say that the vote must be according to an association’s existing governing rules.  The bill seems likely to pass.  No one knows what the Governor will do with this one.

Source:  Realtytimes.com, Bob Hunt

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July Existing-Home Sales Fall, But Prices Rise

Existing-home sales were sharply lower in July following expiration of the home buyer tax credit but home prices continued to gain, according to the National Association of REALTORS®.

Existing-home sales, which are completed transactions that include single-family, townhomes, condominiums, and co-ops, dropped 27.2 percent to a seasonally adjusted annual rate of 3.83 million units in July from a downwardly revised 5.26 million in June, and are 25.5 percent below the 5.14 million-unit level in July 2009.  Sales are at the lowest level since the total existing-home sales series launched in 1999, and single family sales – accounting for the bulk of transactions – are at the lowest level since May of 1995.

Lawrence Yun, NAR chief economist, said a soft sales pace likely will continue for a few additional months.  “Consumers rationally jumped into the market before the deadline for the home buyer tax credit expired.  Since May, after the deadline, contract signings have been notably lower and a pause period for home sales is likely to last through September,” he said.  “However, given the rock-bottom mortgage interest rates and historically high housing affordability conditions, the pace of a sales recovery could pick up quickly, provided the economy consistently adds jobs.

“Even with sales pausing for a few months, annual sales are expected to reach 5 million in 2010 because of healthy activity in the first half of the year.  To place in perspective, annual sales averaged 4.9 million in the past 20 years, and 4.4 million over the past 30 years,” Yun added.

Mortgage Rates Dip
According to Freddie Mac, the national average commitment rate for a 30-year, conventional, fixed-rate mortgage fell to a record low 4.56 percent in July from 4.74 percent in June; the rate was 5.22 percent in July 2009.  Last week, Freddie Mac reported the 30-year fixed was down to 4.42 percent.

The national median existing-home price for all housing types was $182,600 in July, up 0.7 percent from a year ago.  Distressed home sales are unchanged from June, accounting for 32 percent of transactions in July; they were 31 percent in July 2009.

“Thanks to the home buyer tax credit, home values have been stable for the past 18 months despite heavy job losses,” Yun said.  “Over the short term, high supply in relation to demand clearly favors buyers.  However, given that home values are back in line relative to income, and from very low new-home construction, there is not likely to be any measurable change in home prices going forward.”

Inventory Rises
Total housing inventory at the end of July increased 2.5 percent to 3.98 million existing homes available for sale, which represents a 12.5-month supply at the current sales pace, up from an 8.9-month supply in June.  Raw unsold inventory is still 12.9 percent below the record of 4.58 million in July 2008.

NAR President Vicki Cox Golder said there are great opportunities now for buyers who weren’t able to take advantage of the tax credit. “Mortgage interest rates are at record lows, home prices have firmed and there is good selection of property in most areas, so buyers with good jobs and favorable credit ratings find themselves in a fortunate position,” she said.

A parallel NAR practitioner survey shows first-time buyers purchased 38 percent of homes in July, down from 43 percent in June.  Investors accounted for 19 percent of sales in July, up from 13 percent in June; the balance were to repeat buyers. All-cash sales rose to 30 percent in July from 24 percent in June.

Breakdown of the Numbers
• Single-family home sales dropped 27.1 percent to a seasonally adjusted annual rate of 3.37 million in July from a pace of 4.62 million in June, and are 25.6 percent below the 4.53 million level in July 2009; they were the lowest since May 1995 when the sales rate was 3.34 million.
• The median existing single-family home price was $183,400 in July, which is 0.9 percent above a year ago.
• Single-family median existing-home prices were higher in 11 out of 19 metropolitan statistical areas reported in July in comparison with July 2009 (the price in one of 20 tracked markets was not available).  However, existing single-family home sales fell in all 20 areas from a year ago.
• Existing condominium and co-op sales fell 28.1 percent to a seasonally adjusted annual rate of 460,000 in July from 640,000 in June, and are 24.0 percent below the 605,000-unit level in July 2009. The median existing condo price was $176,800 in July, down 1.7 percent from a year ago.

By Region
• Existing-home sales in the Northeast dropped 29.5 percent to an annual pace of 620,000 in July and are 30.3 percent lower than a year ago. The median price in the Northeast was $263,800, up 4.8 percent from July 2009.
• Existing-home sales in the Midwest fell 35.0 percent in July to a level of 800,000 and are 33.3 percent below July 2009. The median price in the Midwest was $151,600, down 2.8 percent from a year ago.
• In the South, existing-home sales dropped 22.6 percent to an annual pace of 1.54 million in July and are 19.8 percent below a year ago. The median price in the South was $156,300, down 3.3 percent from July 2009.
• Existing-home sales in the West fell 25.0 percent to an annual level of 870,000 in July and are 23.0 percent below a year ago. The median price in the West was $224,800, up 3.3 percent from July 2009.

Source: NAR

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Search for ‘better way’ leads to Custom Home Solutions

Five years ago, Anne Leibow was confronted with a pressing problem: her mother found her house no longer was compatible with her limited physical capabilities, and she was left with no choice but to relocate to an elder care facility.  That left Leibow wondering if there was a better way.

So the search began for a business opportunity that would satisfy a growing need for people in their older years to maintain their independence and stay in their homes longer.  Finally, last May, Leibow and her husband Sherman were able to acquire the southern Idaho dealership for Best Bath Systems.

They are distributing the systems through a business called Custom Home Solutions and have a showroom at 480 E. Franklin Road in Meridian.

Founded in the Treasure Valley, and with its recently relocated production facility in Caldwell, Best Bath is a nationally distributed manufacturer of bath and shower units used in both residential and commercial new construction and remodels.  The manufacturer’s fastest-growing niche has been in producing accessible bathing systems for people with limited physical capabilities.

The showroom previously was owned by a local plumbing contractor and was under a different name.  Leibow says one of the challenges in taking the business over will be to eliminate the perception that there still is any direct connection to that specific contractor.

She is excited to shift the focus of the business.  “We’re marketers, not contractors,” Leibow explained, “and we want to work with the local contractor community. …  It’s a totally different approach than what was being taken before.”

The Leibows have owned and operated another distribution company for nearly five years.  While Anne runs the day-to-day operations of Custom Home Solutions, Sherman provides support in marketing and strategic direction.  They both have backgrounds in event planning and marketing communications, which has provided very beneficial experience in launching Custom Home Solutions.

“If you can do something yourself to save money, and you think you can do it well, then by all means do it; but on the other hand, be smart enough to know that you can’t do everything, and hire help when you need it.  That’s an important lesson,” Sherman said.

The couple has found support in each other, and they recognize that it wouldn’t be easy to go it alone.  They also say the support and experience of their friends and business associates has proven helpful.

One means by which the couple has decided to brand and market Custom Home Solutions is by utilizing social media.  Anne feels it is important for a business to find the trends of the times to be successful and thrust your business to the forefront.

The Leibows are in the process of building a presence for Custom Home Solutions on Twitter and Facebook.  “If used properly, social media can really expand your reach without the cost of traditional advertising,” Anne said.  “If you’re succeeding in social media, it’s because other people are talking favorably about you.”

She feels that even if they aren’t reaching their target market through this form of communication, they are at least reaching the children and grandchildren of the baby boomers, who care about the well-being and independence of the older members of their families.

“It’s essential to long-term business success that if you’re selling something, you have to believe 100 percent in what you’re selling, and you have to believe 100 percent in what you’re doing,” Sherman said.

One of the lessons Anne says she learned is to persevere “in your search for the right opportunity.”  Even though it took several years to identify this opportunity, now that it has come along, the Leibows have the experience, commitment and courage to do big things with Custom Home Solutions.

Source:  IBR

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After The Tax Credit – What’s Next For Our Housing Recovery? (Local Commentary)

By:  Marc Lebowitz, Ada County Association of Realtors

Last week I had a chance to hear Dr. Lawrence Yun, NAR’s Chief Economist, share his insights as to what’s next for our real estate recovery. He quoted some of our nation’s brightest financial “wizards”:

• Ben Bernake, Federal Reserve Chairman – “The outlook remains unusually uncertain”
• Alan Greenspan – “If home prices start falling again, we could be facing a double-dip recession”

Dr. Yun’s “baseline outlook:
• Moderate GDP expansion of 2.5% for the next 2 years (historical average is 3%)
• 1.5 million job additions in the next 2 years
• Unemployment rate down to 8% in 2012 and “normal” by 2015
• Mortgage rates rising to 5.7% in 2011 and 6.2% in 2012
• Home values – no meaningful change over the next 2 years
• Home sales will struggle in the near term (after tax credit hangover) and then rise with job growth

With that said…

July numbers are in and the beneficial impacts of the tax credit have, for the most part, been left behind.

July sales in Ada County were 400. That’s an decrease from June ’09 of 24%. Year-To-Date ’10 is now 3,532; an increase of 25.5% over the first seven months of 2009. Historically, sales volume decreases from June to July by an average of 23% over the last five years. True to form, July ’10 was 39% lower than June ’10.

Of our total sales in July…46% were distressed….essentially unchanged from a month ago.

Pending sales rose slightly in July to 700; from 650 in June as the tax credit expired. Pending sales in April were 1,162; May 806.

The percentage of pending sales in distress fell 4% from June to 46% overall. That’s down from nearly 20% our high in March. One bright note, default filings continue to slow.

Inventory held steady over the last three months; now at 3,738 houses. At the same time, the percentage of active inventory that is distressed, decreased by nearly 9% to 38% at month’s end. In Ada County we have 7 months of inventory on hand. The price category in shortest supply…$200k – $250k at 5.8 months. While this number went down…inventory in the first-time buyer price range actually increased by almost 2 months. Could we be seeing some actual “trade ups” beginning to occur?

Median home price held on to gains made starting in March of this year. In July our combined median was 162,500; down 7.1% from July ’09. This represents 3 consecutive months of modest improvement. our YTD comparison to ’09 is off 9%. Interestingly, average sales price crossed the $200k line for the first time this year.

NAR announced last week that Bank of America and others have pledged to reduce short sale processing time from an average of 148 days to a more reasonable 53. If they are successful in this regard, we’ll all owe them a big “Thank You”.

Stay tuned…

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NATIONAL NEWS (real estate is local): One in 10 with a mortgage face foreclosure

One in 10 American households with a mortgage was at risk of foreclosure this summer as the government’s efforts to help have had little impact stemming the housing crisis.

About 9.9 percent of homeowners had missed at least one mortgage payment as of June 30, the Mortgage Bankers Association said Thursday.

That number, which is adjusted for seasonal factors, was down slightly from a record-high of more than 10 percent as of April 30.

In a worrisome sign, the number of homeowners starting to have problems with their mortgages rose after trending downward last year. The number of homes in the foreclosure process fell slightly, the first drop in four years.

More than 2.3 million homes have been repossessed by lenders since the recession began in December 2007, according to foreclosure listing service RealtyTrac Inc. Economists expect the number of foreclosures to grow well into next year.

The number of Americans missing payments and falling into foreclosure has followed the upward trend in unemployment, which has been near double digits all year and has shown no sign of dropping soon.

“Ultimately the housing story, whether it is delinquencies, homes sales or housing starts, is an employment story,” Jay Brinkmann, the trade group’s top economist, said in a statement.  ”Only when we see a consistent increase in employment will we see an increase in sales and starts, and a sustained improvement in the delinquency numbers.”

There was some modestly encouraging news. The percentage of mortgage borrowers receiving foreclosure notices fell slightly to 4.57 percent in the April-to-June quarter.  That’s down from 4.63 percent in the January-to-March period and the first drop in four years.

And the percentage of loans receiving their first notice of foreclosure also dipped.  That fell to 1.1 percent in the second quarter from 1.2 percent in the first quarter.

Besides forcing people from their homes, foreclosures and distressed home sales have pushed down on home values and crippled the broader housing industry.  They have made it difficult for homebuilders to compete with the depressed prices and discouraged potential sellers from putting their homes on the market.

Government efforts haven’t made much of a difference.  Nearly half of the 1.3 million homeowners who have enrolled in the Obama administration’s main mortgage-relief program have been cut loose through July, the Treasury Department said last week.  The program is intended to help those at risk of foreclosure by lowering their monthly mortgage payments.

Roughly 32 percent of those who started the program have received permanent loan modifications and are making their payments on time.

Source:  Idaho Statesman

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Wells Fargo CEO: Don’t blame banks for not lending

Wells Fargo CEO John Stumpf says banks shouldn’t take the blame for not loaning money even though his bank’s total loan values have been tumbling.

He told a Boise audience Aug. 17 that the problem is a lack of demand.

“We can’t find qualified borrowers who want to borrow money,” he said during the Boise Metro Chamber of Commerce’s CEO Speaker Series luncheon.  “They don’t see the opportunity to invest in a profitable way.”

Wells Fargo’s profits jumped 20 percent to $3.1 billion during the second quarter compared to the prior period, even while total loans were down 7.5 percent compared to a year ago, $766 billion at the end of June compared to $822 billion at the same point last year.

Stumpf, CEO since 2007, said one strong indication that businesses are reluctant to borrow is that they’re leaving lines of credit unused at record low levels, currently 35 cents on the dollar.

He devoted his talk to a discussion about why record profits on Wall Street have yet to translate into a stronger economy that would lead to better prospects for Main Street.

“One seems to be doing very well,” he said. “One seems to be stuck in a ditch.”

The reasons he cited include:  devalued home prices that make everyone feel poorer; the lingering effects of too much debt taken on by consumers, businesses and governments; better technology that allows companies to get by with less; more outsourcing that prevents a bigger pickup in hiring; regulatory uncertainty that has businesses unwilling to invest; and further declines in American manufacturing that mean companies restocking on inventory are buying from abroad.

Wells Fargo is one of the area’s largest employers, with 2,278 full-time Idaho workers.

source:  IBR

Idaho ranks 5th in nation for foreclosure filings

Historically low interest rates, combined with a large inventory of homes on the market priced to sell are three reasons why now is the time to buy a home.

Incentives are lucrative for perspective buyers.  However, for some current homeowners facing the possibility of foreclosure, the reality is very different.

Idaho ranks number five in the nation when it comes to foreclosure filings. According to RealtyTrac’s U.S. Foreclosure Market Report for July 2010, filings increased nearly 7.5 percent from July 2009 and were up nearly 19 percent from June 2010. 975 notices of default were filed statewide during July.  One in every 240 homes was affected by a foreclosure filing statewide during the same time period.

Marc Lebowitz, executive director of the Ada County Association of Realtors said in July that 46 percent of all sales in Ada County were distressed properties.  Lebowitz said a distressed property could be a property in short sale, in the process of foreclosure, or bank-owned.

Of the active inventory of single family homes currently listed through the Intermountain Multiple Listing Service, 38 percent of them are in distress in Ada County.

“It was the highest in the spring.  It has been drifting downward ever since. It’s not a drastic recovery, but it hasn’t gotten worse,” Lebowitz said.

Intermountain MLS CEO Greg Manship said from January to July 2010, 19 to 22 percent of listed single-family homes were bank-owned. The Intermountain MLS encompasses the southern part of Idaho, extending from eastern Oregon to Twin Falls.

In the northern part of the state, Kim Cooper, spokesman for the Coeur d’Alene Association of Realtors said according to numbers from the Coeur d’Alene MLS, 23.7 percent of all single-family home sales sold from January to mid-August 2010 were foreclosed properties. Those figures reflect sales in five northern Idaho counties.

“Interestingly, during the same time frame in 2009, that percentage was 11.6 percent, so we are seeing it double,” Cooper said.  “We are watching the market very closely, both regionally and nationally.”

The top three states with the highest number of foreclosure filings in July were Nevada, Arizona and Florida.

Source:  IBR

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Housing starts rise in July

Is it welcome news to the many slowly recovering housing markets? Real estate is waiting on a marked recovery from the recession, and some of the latest regional housing start figures seem to show it could be happening.

According to the U.S. Commerce Department, “Housing starts increased 1.7 percent, consistent with private­sector expectations of a 2.0 percent increase.”

“Today’s data show that new housing activity appears to be stabilizing in the wake of the expiration of the home buyer tax credit,” Commerce Secretary Gary Locke said.  ”However, a healthy economy requires not only a robust housing sector but strong employment and incomes, and President Obama remains committed to developing policies that encourage job creation and broad economic growth.”

“Builders are very reluctant to build more homes in view of the current state of the economy and weak buyer demand,” noted Bob Jones, chairman of the National Association of Home Builders (NAHB) and a home builder from Bloomfield Hills, Mich.

What does a recovering housing start market, in general, mean for homeowners?  As your own local market begins to sprout up new homes, this in turn can increase jobs for the area.  It also could indicate builders are confident enough in the local market to even start building. And if builders are confident, then you, as a homeowner could start to see your home value increase, as well as renewed buyers interest.

“Right now the housing market is essentially in a holding pattern,” acknowledged NAHB Chief Economist David Crowe.  “As our latest member surveys have indicated, builders are seeing greater hesitancy among potential home buyers who are uncertain about what’s in store for the economy and jobs going forward.  That said, favorable home buying conditions including historically low mortgage rates and low house prices should help spur additional demand as the job market gradually improves later this year.”

The two regions with improving housing starts were the Northeast and Midwest, each posting dramatic gains.  The Northeast saw an incredible 30.5 percent increase in July, while the Midwest saw an equally impressive 10.7 percent rise.

The Western region of the U.S. saw no change in housing starts, while the South, noted by the NAHB as “the country’s largest housing market,” posted a 6.3 percent decline in July.

But these figures may be deceiving, as the NAHB reports that in reality, “single-family housing production declined 4.2 percent to a seasonally adjusted annual rate of 432,000 units, its lowest mark since May of 2009. ” Why are the figures indicating a rise then? This rise in housing production could easily be due to a rise on the multi-family side of housing.

Either way, a rise is a rise, and that is a welcome sign in an ailing economy.

Source:  Carla Hill, Realty Times

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Economic Commentary: Varying Signs

These last few months saw a “pause” in housing market activity following the rush of buyers to qualify for the tax credit. That pause was anticipated – and is still occurring.  Contract signings on existing homes fell 3 percent in June; that on top of the 30 percent tumble in May.  July data is still being collected; unfortunately the raw data coming are not encouraging and could be similarly low.  The pause, we hope, will not extend into the autumn months.  Others are certainly taking note. The former Fed chairman, Alan Greenspan, said on one recent Sunday morning “talking head” show that the broader economy will surely go into another recession if home values were to fall. Meanwhile, the current Fed chair, Ben Bernanke, spoke of an ‘unusually uncertain’ economic outlook.

Whatever current or former Fed chairmen say, most observers and analysts of the housing market say the same thing: it depends on jobs.  The housing market will surely regain traction sooner and be on firmer footing once the economy adds jobs at a good pace.  The importance of job creation is evident in local markets like the Washington D.C. region, the Boston market, and the Houston market.  In those areas, job markets are expanding and home sales are now, even without the tax credit having expired, matching up with last year’s levels.

But one’s outlook depends on how one interprets the signs.  Does the housing market depend on signs from the economy or does the economy, as stipulated by Mr. Greenspan, depend on signs from housing?  Former Chairman Greenspan has been a big proponent of the importance of asset value changes on the economy.  Rising home value will mean increased housing wealth accumulation, will greatly improve the financial conditions of home-owning families and financial institutions and mean a greater capacity for the economy to grow.  Vice versa when home prices fall. According to the Federal Reserve, the net worth of real estate assets held by households increased $453 billion in the past four quarters.  However, what is disconcerting at the moment is the near stalling of the broader economy even though home prices have held steady.

Gross Domestic Product (GDP), which measures total production in the economy, decelerated to 2.4 percent in the second quarter after growing 3.7 percent and 5.0 percent in the prior two quarters.  After a deep recession, the economy – based on historic patterns — should have bounced back at a growth rate of near 5 percent.  When one delves deeply into the sources of economic growth, one finds an unusual mismatch between what the level of business spending should be versus what it has been.  Let’s review what we know of each of the GDP components in real dollars above inflation:

• Consumer spending has been rising at a 2 percent rate rather than a 4 percent growth rates prior to the recession.  This is expected and will likely continue at such a subdued pace for the next two years given consumers have been tapped out and need to rebuild their savings.
• State and local government spending has been falling by 2 percent because of the need to balance their budgets, rather than rising 1 to 2 percent as would be expected in normal (non-recession) years.
• Federal government spending has been increasing by 6 to 7 percent in the past two years due to large stimulus measures.  But unlike in many states, there is not a legislative mandate to balance the federal budget. The historical growth rate had been 1 percent above inflation.
• Real estate construction spending has not experienced any meaningful growth lately; the good news is that is has not been decreasing as during the recession.  Given higher than normal vacancy rates of both residential and commercial properties, recovery in real estate construction could be subpar for a while.
• Net exports were improving a bit — with export growth outpacing import growth.  But going forward, the need to import more oil and probably at higher prices will not lead to any meaningful improvement in net exports.  Consequently, do not expect any help to GDP growth from foreign trade.
• After big cuts in business spending in 2009, private fixed investment (which encompasses purchases of equipment, plants, software and the like) has started to rise but remains well short in relation to the growth in corporate profits. Currently, profits have returned to their peak levels that were set in 2006.  But business spending still remains 23 percent below its peak. Businesses are not spending as they should.  This is a major obstacle to economic acceleration and better times. The uncertain and perhaps perceived unfriendly business environment resulting from many legislative/regulatory changes of the past year and additional expected changes to be imposed on them (from recently passed legislation) could be a key reason for business hesitancy.  Still, perhaps businesses are just being extra cautious given expected slow spending patterns by consumers.  Furthermore, trying to obtain small business loans is particularly difficult in the aftermath and fresh memory of a recent past financial market collapse.

One thing is clear, however: slow business spending will mean slow economic expansion and a slow pace of job creation.  The frustration of traveling at 40 mph on a wide open 70 mph freeway will be with us for the foreseeable future if businesses continue to hold back.  The unemployment rate could also remain stuck at a stubbornly high level — 9.5 to 10 percent.  It also means that home sales in the second half of this year will be markedly slower than in the first half of 2010.

For home sales, the only hope to restart any momentum in the absence of robust job growth is low mortgage rates.  Thankfully, we still have that.  The recent 4.5 percent rate on a 30-year fixed mortgage (for FHA and conforming loans only, not for jumbo or second-home purchases) is the lowest since April of 1971 at least (when Freddie Mac began tracking rates).  To be honest, I did not expect to see rates this low and am pleasantly surprised.  One reason for the low rates is due to some concerns about deflation in consumer prices.  The Federal Reserve will be in no hurry to raise the short-term Federal Funds rate. Banks will not have to worry about losing purchasing power of the returned money, and hence, can lend at very low rates.  Another reason for such low rates is that businesses have high profits and are not borrowing and spending.  So despite a very high federal budget deficit and government borrowing, long-term interest rates have fallen to their lowest point since at least 1971 – and perhaps even earlier.

Despite the positive of low interest rates (which should encourage and abet borrowing), consumer prices could stop decelerating and start to move up.  If that happens, watch out for what happens to interest rates.  The latest overall consumer price index for June fell for a third straight month, partly due to falling energy prices. But the core consumer price index (minus the energy and food components) has been inching up in the past three months, though not to any alarming levels.  The upcoming months’ consumer price indices will show a rise simply from the fact that oil prices have increased since June – perhaps in part due to seasonal factors; or concerns about the oil spill in the Gulf.  In fact, one maverick voting member of the Federal Open Market Committee (FOMC — the committee that decides on our nation’s monetary policy) has been warning of future eventual inflation in the U.S. Thomas Hoenig of the Kansas City Federal Reserve has been casting a dissenting vote on the direction of the nation’s monetary policy.  Note: dissension among FOMC members is very rare. (And for future planning, Mr. Hoenig will be joining me to speak in November at NAR’s annual conference).

The outlook, therefore, for the economy and housing does remain unusually uncertain.  But let’s keep in mind that even in the worst possible case, there will be some level of home sales.  Remember that back in 1982 mortgage rates averaged 18 percent; there were 40 million fewer jobs back then compared to now.  Even then, existing home sales still managed to reach over 2 million units and many REALTORS® survived through that unhappy experience.  On the bright alternative scenario, if business spending comes back to where it should be, then GDP could easily grow at 5 percent rate.  That would correspond to very healthy job gains of possibly 3 million in a single year. As we know, people with jobs, buy homes.  That would, indeed, be a good sign for housing.

 Source:  Lawrence Yun, NAR Chief Economist

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Firm aiming for Tamarack Resort may have exaggerated

A Salt Lake City company that has offered to buy Idaho’s Tamarack Resort changed its website Monday after being questioned about the accuracy of its information.

The Associated Press scrutinized a passage on the Pelorus Group’s website that told potential clients it has been providing services for a dozen years.  Utah secretary of state records indicate Pelorus was founded April 23, 2009 – just after its owner, James T. Bramlette, was discharged from bankruptcy.

The website originally included this statement:  “Since 1998, The Pelorus Group has provided clients with quality loan and consulting services across every aspect of their real estate transactions.”

After calls and e-mails from the AP, somebody at the company changed the website about noon Monday to read, “Since 1998, the management team of the Pelorus Group has provided clients with quality loan and consulting services across every aspect of their real estate transactions.”

The marketing materials on the website could have led clients to believe the company has been operating longer than it really has.

Bramlette, now 32, didn’t return phone calls or e-mails Monday.

Bramlette didn’t live in Utah a dozen years ago.  The son of a southwestern Montana real estate salesman had only recently graduated from Beaverhead County High School in Dillon, Mont.

There, he operated a small Montana business called Big Sky Mortgage & Loans before selling the business and moving to Salt Lake City around 2002, according to a 2008 deposition taken by lawyers for a company suing Bramlette over an unpaid $500,000 loan.

Once in Utah’s capital, Bramlette founded about 20 companies, gave real estate seminars and marketed resort properties for developers – including to plaintiffs now suing in federal court over a project in eastern Idaho where they claim they were misled.

A trial in U.S. District Court is scheduled for October.

Source:  IBR

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