Fannie Mae was sued back in 2016 under allegations of fair housing violations, and the organization decided to settle in February of this year. The settlement amount was $53 million. Fannie Mae had acquired a large number of properties in the wake of the subprime mortgage crisis, and thus became responsible for their maintenance until they were sold. But fair housing organizations started to notice a trend: only the ones in predominantly white neighborhoods were being adequately maintained.
The settlement agreement was the first to determine that foreclosed properties, like the ones Fannie Mae holds, are also subject to fair housing laws. This was not officially determined prior. Also, it’s possible that they were in worse conditions to begin with, but that doesn’t absolve Fannie Mae of their responsibilities. Their argument was that their intentions were not discriminatory. Perhaps they simply were not able to maintain the homes as well since they were in worse shape. But they were unable to reject the claim that regardless of their intentions, the impact was obvious. This is what led to Fannie Mae needing to settle.
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Under California’s Regional Housing Needs Allocation (RHNA) laws, each local government is required to work with the state government to establish what is called a housing element. The housing element identifies sites that can be redeveloped to meet regional housing needs, within an eight year timeframe. If the city can’t find a usable site under their current zoning laws, the zoning laws need to be modified. In Southern California, the housing element deadline was October 15, 2021. The deadline for Northern California is later this year.
Five cities — Bradbury, La Habra Heights, Laguna Hills, South Pasadena, and Vernon — failed to submit a housing element altogether prior to the deadline, and a sixth, Manhattan Beach, submitted a plan that indicated a site that could not be redeveloped in a reasonable timeframe. The site indicated was the Manhattan Country Club, which was purchased in 2017 and the City of Manhattan Beach cannot guarantee its availability by 2029. Without the 149 units provided by this redevelopment, Manhattan Beach fails to meet its regional housing needs. In response, the nonprofit organization Californians for Homeownership has sued all six of these cities.
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A California law allowing duplexes to be built on lots zoned for single-family residences, SB 9, passed in 2021. However, the law doesn’t have much in the way of enforcement. Cities are finding it relatively easy to avoid this with local ordinances that make it effectively impossible, since they can’t legally ban it. The same sort of thing happened with the struggles with building ADUs, which actually became legal nationwide in 1982, but weren’t feasible in most states prior to 2016.
One example is the town of Woodside claiming that the entire town is a mountain lion habitat, and is therefore excluded from the requirement because it’s a habitat for a protected species. Once this reached the news, Attorney General Rob Bonta got on their case and forced them to reverse the decision. All the AG’s office needs is proof that municipalities are attempting to skirt the requirement, and then they can take action. Without an enforcement agency, though, they’re reliant on the spread of information through media, including social media.
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Many people are still delinquent on rent payments as a result of the recent recession. Some relief came in the form of emergency rental assistance (ERA), which also required landlords take additional steps before being able to evict for nonpayment. The additional protections were set to expire on March 31st, but there was a last minute change to the law.
Under the new regulations, while the protection will still only apply to delinquencies on rent payments owed before March 31st, it will now continue to apply to those delinquencies through July 30th if the ERA application is still being processed. Tenants will still owe rent for April and subsequent months, even if their ERA application for earlier payments is still being processed.
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Prices are still going up, as are interest rates. Despite this, the market is currently going strong. It’s unclear whether this is temporary or seasonal, or part of a larger trend, but the near future of real estate is looking fairly good.
The reason for the rate increase is a recent increase to the federal funds rate of 25 basis points. The initial announcement didn’t have an immediate effect, but later caused an increase in interest rates. This, in addition to rising prices, has contributed to a decrease in home sales. However, it’s still above pre-pandemic levels, and supply is improving, which should help keep prices in line.
Part of the reason for supply increases is increased construction. Though construction actually decreased in the Western US, it has increased elsewhere and is at its strongest since 2006. Builders remain confident despite a slight drop in confidence, from 81 to 79, due to increased costs.
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In response to the pandemic, California launched a program to help a segment of the homeless population acquire temporary housing via hotel conversions. This initial project, called Project Roomkey, applied only to those 65 or older or who had underlying conditions, and would only be active during the pandemic. Seeing its success, California has launched a new, more expansive project, which they’ve called Project Homekey.
Project Homekey seeks to expand conversions to include several different types of properties, not just hotels. In addition, the project is designed to create both temporary and permanent homeless housing. This is made possible by the recent changes to zoning and land use laws, and currently has an $846 million acquisition budget. Unfortunately, managing such large projects requires specialized knowledge that isn’t in large supply. In addition, there has been pushback from local opposition that doesn’t want to see low-density housing converted into high-density homeless housing.
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California Governor Gavin Newsom has shifted his priorities for affordable housing development. Previously, Newsom was looking at open rural areas as the setting for new projects. The logic is obvious — rural areas boast a large quantity of land to build on, so you won’t run out of space. Unfortunately, there are other problems. Rural areas are more prone to wildfires and have weak infrastructure, and building there negatively affects the ecosystem.
In light of this, Newsom now plans to focus his efforts and budget on urban projects. The downtown areas already have infrastructure in place, and the land is already in use so the ecosystem won’t be affected as much. Of course, there are also cons to the shift. Urban areas are already high density, and increased affordable housing will only increase the density. Newsom hopes that getting more people into urban areas will reduce vehicle traffic, but in order for that to happen, California would need significant improvements to its public transportation system, which is relatively lacking. In addition, California’s urban areas already have a high vacancy rate. We’re not actually lacking housing; people just can’t afford it.
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With government support having ended, this may prompt people to think the economy has stabilized and recovery is imminent. But this is just the precursor to a stable market. The market needs time to adapt under normal conditions, and probably won’t become stable again until 2024. The main factor in overall recovery is the job market, which has yet to fully recover, and a stable real estate market requires construction to catch up to demand.
Some policies remain from government actions during the recession, though. Three laws — SB 10, AB 345, and AB 571 — will help out in construction efforts. SB 10 allows more areas to be zoned for up to 10 units, AB 345 allows ADUs to be sold separately from the primary residence, and AB 571 prohibits impact fees on affordable housing. Two more laws, SB 263 and AB 948, reformed bias training for real estate professionals. This legislation should have lasting impact in making the recovery more comfortable.
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Interest rates are by no means high right now, but they’ve been steadily rising and can no longer be considered low. Prices have also been high, but they’re predicted to drop dramatically, for a couple of reasons. First, inventory is opening up as foreclosure moratoriums and forbearance programs are ending. The other reason is that the Fed has been reducing their mortgage-backed bond (MBB) purchases. Tapering back MBB purchases will both lower prices and increase interest rates.
The Fed had previously announced plans to keep the Federal Funds Rate at its current value of zero through 2023. However, they’ve now decided that 2022 the year to begin returning to normalcy. With scaled back MBB purchases, the zero benchmark rate is the only remaining factor in economic stability that isn’t transitory. Increasing the benchmark rate will further increase interest rates, though, so 2022 is going to be a year of higher interest rates, but lower home prices.
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Zillow launched its Zillow Offers program back in 2018, in which Zillow would purchase homes directly to update and relist. This process is called flipping, and is a fairly common strategy. Within California, Zillow Offers was available in LA, Riverside, Sacramento, and San Diego. Unfortunately for Zillow, they weren’t actually very good at it. Their investment efforts turned out to be losses, and as a result, they are now eliminating the program.
That may not even be the end of the problems for Zillow. The reason they struggled to flip homes? Their home value estimates, called Zestimates, are not very accurate, something which real estate professionals — but not the general populace — already knew. Zestimates are a major offering of Zillow, and if they wanted anyone to trust them, they’d have to use their Zestimate as a baseline for home values. But that led to losses, as Zillow ended up purchasing homes for more than they sold them for. Their gamble didn’t pay off, and now their poor estimating algorithm has been exposed anyway.
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Cryptocurrency has been around for a bit now and is in widespread use, with its major appeal being how difficult it is to counterfeit or manipulate. It’s usually used to make smaller payments, such as purchasing software or electronics. But as with physical money, cryptocurrency can be used for payments of any magnitude. That includes thinks like home purchases or mortgage payments.
If you’re unfamiliar with cryptocurrency, you may think that because it’s generally used for smaller payments, it must take a lot to be able to afford a house. That’s not exactly true. One popular cryptocurrency, Bitcoin, is actually worth $43,000 per coin currently — most payments are made in mere fractions of coins. The value of cryptocurrency does fluctuate wildly, but the trend has been generally upwards in the past few years, albeit at a declining rate of increase.
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The California Association of REALTORS® (C.A.R.) has launched a new website, www.BringYourFamilyHome.com. This page will provide information to prospective homebuyers, especially aimed at first-time homebuyers, about financial literacy, credit scores, steps in the process, and how to contact agents. And C.A.R. hopes to address a long-standing issue by presenting the page in both English and Spanish.
California has a significant Latinx population, and many of them believe they aren’t able to afford a home. While certainly some of them don’t have enough income for the high prices in California, a significant number have misconceptions about what they can and can’t afford. 85% of Latinx prospective homebuyers still see owning a home as a big part of the American Dream, and the majority of those haven’t given up on it. But four out of five aren’t aware that they qualify for mortgage loans. 25% of Latinx people that are renting actually don’t need to because they can already afford to purchase, but don’t realize that and aren’t aware of the process. By providing educational materials in Spanish, C.A.R. hopes to help many more Latinx households achieve homeownership.
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Property insurance is not legally mandated; however, it is a requirement in order to qualify for the majority of mortgage loans. But with wildfires increasing in frequency in California, higher risk means higher insurance premiums for anyone living in a fire-prone area.
Some people can’t even qualify to renew their insurance because they can’t afford it. Since their lenders still require it, that just means they’ll pay even more for coverage under the Fair Access to Insurance Requirements (FAIR) plan. FAIR is a California state insurance program that anyone in a high-risk area qualifies for. Unfortunately, it’s usually even more expensive and generally provides weaker coverage.
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I’m sure some of you haven’t heard of the term bioprinting. It’s a relatively new concept, combining stem cell research with 3D printing to print biological matter. Earlier this year, ribeye steak was printed using this method in Israel. The latest development out of Japan is a more complex cut of meat — Wagyu beef, known for its intricate fat marbling. The team at Osaka University has managed to perfectly replicate the look of Wagyu beef using 3D printed muscle and fat tissues, and their new methods provide a more accurate texture.
There’s still more research to be done, though. Though it certainly looks and feels like Wagyu beef, no one actually knows whether or not it tastes like Wagyu beef, or is even edible at all. More studies will be needed before the regulatory agencies in Japan will greenlight testing the cooking and consumption of bioprinted meat. In addition, the goal of sustainability is a long ways off with the cost of production being so high.
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The Federal Housing Finance Agency (FHFA) established the First Look Program back in 2009, aimed at promoting neighborhood stability by facilitating occupation of real estate owned (REO) properties by owners. The program created a special time period during which prospective owner occupants, public entities, and nonprofits would have exclusive rights to purchase properties owned by Fannie Mae or Freddie Mac, before investors would have access. Until now, this time period was 20 days. On September 1st, the FHFA extended this period to 30 days. They deemed this move essential during a period of low supply, to reduce the level of competition prospective owner occupants have to contend with.
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The US Senate has now passed a bipartisan bill aimed at improving infrastructure. The bill details budget investments for repairs, updating, new construction, and weatherproofing. Much of the money is aimed at roads and bridges, and various different budget plans all focus on clean environmental efforts, such as clean water, clean energy, and electric vehicle chargers. The bill doesn’t have many provisions that explicitly focus on housing, but improving infrastructure will have an indirect impact.
The most significant impact on the housing industry will be in job creation. While some of the positions that are being funded already exist, others don’t and will need to be created. This means more people will need to be hired. The slow recovery of the job market is the primary reason our recovery from the recession has been so drawn out. The infrastructure bill will hopefully not only establish a better infrastructure for the future, but also create more jobs now to speed up recovery. With a recovery of the job market, housing market stability will soon follow.
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More: https://journal.firsttuesday.us/how-the-infrastructure-bill-supports-housing/79580/ [Note: The article states that the House has yet to vote on the bill. In fact, the House voted on and passed the bill before the Senate voted.]
Our recovery from the 2020 recession has been described as a K-shaped recovery. Generally speaking, this means that the recovery occurred at starkly different paces for different segments of the population. More specifically for 2020-2021, while wealth decreased for many groups, it actually increased for those who were largely unaffected by the circumstances of the recession — in this case, primarily job losses and lockdowns. Many of those who were able to keep their jobs and continue to work from home during lockdowns enjoyed their reduced daily spending and lower mortgage rates.
This led to a increase in demand across the board, but notably in one sector of the market: vacation homes. Those who were affluent enough to possibly purchase an additional home were encouraged to do so by low mortgage rates and increased savings, and higher-income jobs are actually more likely to be able to be done from home. In California, the trend was first made obvious in October 2020, which saw a 120% increase in second-home demand from the prior year. The trend continued, though, demand for second homes increased 178% between April 2020 and April 2021. Rising prices dampened the effect, but it only slowed when lenders tightened restrictions on mortgages for second homes and lockdowns ceased being much of a factor.
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Much of California, especially Central and Northern California, is experiencing a major drought much like the one from 2012-2016. Temperatures are going up and precipitation is going down. While water usage is still below 2013 levels due to lasting changes in water use habits from the last drought, conditions aren’t currently improving. It’s not precipitation levels that directly affect how much water a community receives, though. Some of the communities struggling the most actually have more rainfall than others but are lacking the infrastructure to account for drought conditions, and possibly the money to build said infrastructure.
Speaking of building, the drought is also affecting home construction. At a time when lumber prices are just starting to slip back down, a new threat emerges. And this one hits even the wealthiest of construction companies, who didn’t necessarily mind high lumber prices. Under drought conditions, some areas have placed restrictions on new construction to ensure that they meet water availability standards, and several areas simply never will meet the standards. The city of Marin is considering a move that would effectively ban all new construction for a time — temporarily banning all new water hookups. The legislation isn’t aimed directly at builders, but of course, all new constructions do require water hookups.
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Though certain areas have always been at higher risk for certain types of natural disasters, only since climate change have people heavily prioritized climate risk as a factor in their search. Wildfires, droughts, and floods are becoming much more common, so people are avoiding these areas more. People don’t necessarily know how to research which areas are high and low risk, though. Fortunately, one real estate service, Redfin, is noticing the need and has begun publishing climate ratings.
The ratings aren’t from Redfin — they’re from ClimateCheck, a company which assesses future risk and change in risk on a scale of 0-100. They start with several different global climate models to project risk on a global scale. Then, they localize the data to specific areas by filtering the global risk through local weather patterns. ClimateCheck is now also sending that data to Redfin so that it’s easily accessible for people searching for a home. Of course, you can also visit the ClimateCheck website directly at climatecheck.com.
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Inventory may be low, but housing isn’t the only thing in short supply. Once work from home became more popular, homeowners started looking to upgrade their homes since they would be spending more time there. Part of that was updating their appliances and buying new furniture, particularly stoves and grills because homeowners would be cooking at home more often. Combined with a decrease in manufacturing productivity due to labor shortages, appliances and furniture are selling out quickly.
While increased new construction is a potential solution to low housing inventory, it’s definitely not going to help the appliance shortage. Even with construction being low, the increased demand for already existing homes is stretching the appliance supply thin — and new constructions would require all new appliances. It’s even affecting the timing of real estate transactions. Closing time is being delayed because the new owners want the place to be move-in ready when it closes, and they aren’t able to get their hands on appliances and furniture.
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