Talking about the negative effect of excessive zoning regulations, pending home sales, the effect of inventory on home prices, rents increase again, HUD is increasing rents on the elderly and disabled and more
The Negatives of Excessive Zoning Regulations
Excerpt from The Captured Economy on Promarket.org:
If you want to understand the connection between rent-seeking and America’s economic ills of slow growth and high inequality, nowhere is that connection more consequential—and less obvious—than in the case of land-use regulation. Since rules governing the development of real property are generally administered at the local level, it’s natural to suppose that their effects are local as well. But in recent years, it’s become increasingly clear that these rules add up to a massive drag on national economic growth—and they do so by locking in economic inequality between different parts of the country.
Zoning ordinances and the like have been endemic in the United States for the better part of a century. These laws have always influenced the location of housing within a given metropolitan area—that was their whole point. But until relatively recently, they didn’t have much of an impact on the total amount of housing built. Since the 1970s, though, increasing restrictiveness in America’s big coastal cities has caused new housing supply to lag behind rising demand, resulting in a big, artificial boost to housing prices. According to Harvard economist Edward Glaeser’s calculations, this “regulatory tax” equals roughly 20 percent in Baltimore, Boston, and Washington, DC. In Los Angeles and Oakland, it surpasses 30 percent. And in Manhattan, San Francisco, and San Jose, the regulatory tax has reached roughly 50 percent.
There is a fine line between too may regulations and enough regulations to protect consumers and the environment. Remember that laws and regulations are like hot sauce: too much will burn you and the right amount makes things tasty!
Many home builders are faced with extremely high costs from local zoning regulations. We do not want to hurt the environment or the values of surrounding properties but we also do not want to hurt the construction of new homes.
Quite the conundrum isn’t it?
Pending Home Sales Decrease for 3rd Consecutive Month
The Pending Home Sales Index inched up 0.4 percent to 107.6 in March from a downwardly revised 107.2 in February. Even with last month’s increase in activity, the index declined on an annualized basis (3.0 percent) for the third straight month.
Lawrence Yun, NAR chief economist, said:
Healthy economic conditions are creating considerable demand for purchasing a home, but not all buyers are able to sign contracts because of the lack of choices in inventory. Steady price growth and the swift pace listings are coming off the market are proof that more supply is needed to fully satisfy demand. What continues to hold back sales is the fact that prospective buyers are increasingly having difficulty finding an affordable home to buy.
Much of the country is enjoying a thriving job market, but buying a home is becoming more expensive. That is why it is an absolute necessity for there to be a large increase in new and existing homes available for sale in coming months to moderate home price growth. Otherwise, sales will remain stuck in this holding pattern and a growing share of would-be buyers — especially first-time buyers — will be left on the sidelines.
Once again we hear about the shortage of homes for sale. While this is a national statistic, you will find limited inventory in some areas/price ranges in the Anderson area.
Do not let this news freak you out if you are looking to buy a home in Anderson County. Buyers can still be successful IF they are properly prepared and working with a local experienced Realtor!
There may be bumps in the road and the journey can be filled with frustrations and stress. But the payoff of buying a new home will be worth all the headaches!
The Effect of Inventory on Home Prices
As you just saw in the latest Pending Home Sales Report, low inventory is hurting the housing market. The limited number of homes for sale combined with strong demand is causing home prices to increase.
This is just simple supply and demand. If there is a limited supply of something and strong demand, prices will normally increase.
A balanced housing market has 6 months of inventory. Anything less than 6 months causes home prices to increase and more than 7 months causes home prices to decrease.
Check out this chart showing the effect of inventory on home prices:
According to NAR’s Existing Home Sales Report, the months supply of homes for sale has been below six months for the last five years. Check out the chart:
Please remember that these statistics are for the entire US. That being said, it does drive home the point that home prices will continue to increase unless demand decreases or supply increases.
In case you missed this week’s Anderson County Market Report, there was only 102 days of supply. This is roughly 3.35 months of inventory.
CFPB Finally Fixes Know Before You Owe Rule
Today the Bureau of Consumer Financial Protection (Bureau) finalized an amendment to its “Know Before You Owe” mortgage disclosure rule that addresses when mortgage lenders with a valid justification may pass on increased closing costs to consumers and disclose them on a Closing Disclosure. The update is intended to provide greater clarity and certainty to the mortgage industry.
The Know Before You Owe mortgage disclosure rule took effect Oct. 3, 2015. The Bureau’s rule created new Loan Estimate and Closing Disclosure forms that consumers receive when applying for and closing on a mortgage loan. The Bureau heard feedback from the industry that they needed clarification on when creditors may pass on increased costs to consumers and disclose them on a Closing Disclosure. Specifically, a timing restriction on when the creditor may use a Closing Disclosure to communicate closing cost increases to the consumer could prevent a creditor from charging the consumer for those cost increases despite a valid reason for doing so, such as a changed circumstance or borrower request. In response, in July 2017 the Bureau proposed an amendment removing that particular timing restriction. Today, after considering public comment on the proposal, the Bureau is finalizing that amendment.
While the intention of the original Know Before You Owe rule was good and meant to protect home buyers, it had some issues. Mainly, if mortgage costs increased after the lender had already issued a Closing Disclosure it caused delays with the closing.
Median Rents Increase
Overall, the national median one bedroom rent increased a slight 0.1% last month to $1,185, while two bedrooms grew 0.6% to $1,422. This fairly stagnant trend was true to the year over year growth rates as well, with one and two bedroom prices up 1.4% and 2.1%, respectively.
While this is a national report, renters should expect an increase in their monthly rent every time they renew their lease. Home buyers that use a fixed-rate mortgage will have the same monthly mortgage payment until they have paid off the mortgage.
Home owners build wealth via the home’s equity as they pay off the mortgage. Renters on the other hand, help their landlord get rich every time they pay the rent.
Will HUD’s Housing Overhaul Hurt Low-Income Americans
From Urban Institute:
On Wednesday, secretary of the US Department of Housing and Urban Development (HUD) Ben Carson announced a proposal to amend the US Housing Act to raise the rents that low-income Americans who receive housing assistance pay and to remove up-front income exemptions, while allowing public housing agencies to establish new work requirements.
These changes, if Congress approves them, would increase rents for nonelderly residents who are able to work and for people who are elderly or disabled.
I have no problem with the work requirement for nonelderly people that can work. But raising the rent on the elderly or disabled is wrong.
If It’s Broke, Fix It
Regulators have done a lot to reform the financial system since the 2008 crisis, but they still haven’t fixed the market where the trouble started: U.S. mortgages. It’s an omission they need to put right before the next crisis hits.
After the crisis, Congress and regulators took action to prevent a repeat. New rules eliminated the worst of the pre-crisis loan products. Higher capital requirements made banks somewhat more resilient. Yet it’s becoming apparent how much the reformers missed.
In recent years, highly regulated institutions such as Bank of America — burned by billions of dollars in fines — have shied away from the mortgage business. Instead, they provide short-term credit to nonbanks such as Quicken Loans and PennyMac, which do the actual lending. Nonbanks now originate some 60 percent of new mortgages.
The picture is similar in servicing. Nonbanks such as Nationstar and Ocwen have grown, and now handle more than a third of mortgages outstanding. But it’s uncertain they could cope in a crisis.
So why is this problem not being fixed? Do our elected officials not understand how we could see a repeat of the past if the housing market/economy hits a downturn?