E-Renter News

Back in December, we reported on a Manhattan landlord who has had enough of New York City’s rent stabilization laws, which prevented him from raising the rent on a property his family has owned for 40 years – with three tenants who have lived there for 30 years each.

The laws keep half the rents in the city artificially low. Many say they have also kept the supply and quality of rental housing low. James Harmon petitioned the U.S. Supreme Court to hear his case that the practice should be prohibited under the Constitution. Two lower courts refused.

Harmon’s case is based on a clause in the 5th Amendment to the U.S. Constitution, which prohibits the government from taking private property for public use without just compensation.

The Supreme Court has expressed an interest in the case, by asking New York State and the city of New York to respond to his argument. However, the Court has not yet announced whether it will hear the case.

December existing home sales were up last month, but less than expected. The 5% increase from November, while 3.6% above December 2010, was still below the 5.2% increase economists expected.

The “glass-half-full” outlook:

+10.7% in the Northeast

+2.9% in the South

+8.3% in the Midwest

+2.6% in the West

• Milder-than-normal December weather may have helped home sales.

If low prices and mortgage rates and rising employment continue, the good news may just continue to roll.

We’ve been reporting that the housing market is expected to improve in 2012, and it’s already showing some positive signs. Several reports this week indicate a market turnaround, as the one thing holding homebuyers back—continued high unemployment—appears to be easing. Combined with rock-bottom interest rates and low prices, better job numbers could be launching a recovery as we speak.

• CoreLogic released its MarketPulse report yesterday, saying that there is “a lot to be positive about” for 2012.
• The National Association of Home Builders reported that builder confidence rose to 25 in January. This is up from 21 in December—and it’s the highest level since June 2007. The confidence measure is up four months in a row.
• First-time claims for unemployment dropped by 50,000 in the week ending January 14 to 352,000—the lowest level since April 2008. The figure was below the 384,000 average forecast of 41 economists in a Bloomberg News survey. December jobless claims were at their lowest level since 2008.
• Freddie Mac’s U.S. Economic and Housing Market Outlook survey reported year-over-year home sales this year are expected to rise from 2 – 5%.
• The Mortgage Banker’s Association issued a new report in which 80% of households said now is a good time to buy a home. Only 7.6% of respondents said that now is a good time to sell.

The bottom line is that we may be right at the bottom of the housing dip, and now could indeed be a great time to add to your real estate investment holdings.

The contents of this article are intended for general information purposes only, and should not be relied upon as a substitute for obtaining financial investment advice applicable to your situation.

Two rental property owners have sued the city of Allentown, Penn., claiming the city has no right to charge rental license fees that exceed the cost of running the rental inspection program.

Fees have increased by nearly 600% in one year, the landlords say, from about $11 per unit to $75 per unit. And the city won’t give clear answers about why the hike was necessary. So they filed a lawsuit to challenge the rate increase.

Records show 2010 revenue from the fees increased to $1.9 million, from $557,000 under the old structure. The cost of running the program, however, was budgeted at $1 million, and includes administrative expenses and fuel, parking and other vehicle expenses for 11 rental housing inspectors.

The Mayor of Allentown, Ed Pawowski, said the rental inspection program was making a big difference in the quality of housing. Landlords say they have no problem with inspections—just the huge fee increase. While the fee is due annually, landlords say the inspections don’t occur on a yearly basis. In some cases, units are inspected only every five to eight years.

The suit asks the court to declare the fee unconstitutional and to refund the past three years of fees to the plaintiffs.

The third-largest U.S. homebuilder, Lennar Corp., announced today their third straight quarter of increased orders, and said the housing market is “bottoming out.” For the September to December period, Lennar saw a 20% increase to 3,027 new home orders.The news sent the Miami-based company’s shares up, along with other homebuilders, such as KB Homes PulteGroup and DR Horton.

Interestingly, a spokesperson said that high rental rates are to blame—or to thank, as the case may be—for the jump. Low prices and historically low mortgage rates were also helping consumers choose buying over renting, he indicated.

Lennar also reported:

• Net income of $30.3 million for the quarter, the company’s seventh straight quarterly profit.
• The average home’s sales rice rose to $243,000, up from $238,000 in the same period of 2010.
• The company’s backlog increased 35% to 2,171 homes.

Meanwhile, KB Homes, the country’s fifth-largest homebuilder, said their orders in December increased by 38%. Securities analysts were impressed with both companies’ performances, as they expected Lennar’s growth to top out at about 6%.

Other signs that the housing market is stabilizing:

• Pending home sales are at their highest level since April 2010.
• Homebuilder optimism has risen for three straight months.
• Housing prices could now be at or near the bottom, according to JPMorgan Chase CEO Jamie Dimon.
• Employment numbers are starting to increase, with an additional 200,000 jobs in December.

Homebuilders are an economic bellwether. While new homes represent only one-fifth of the market, each new home generates about $90,000 in taxes and creates an average of three jobs, according to the National Association of Home Builders.

And if homebuyers are starting to become active again, landlords should plan accordingly. Later in 2012, it may be time to maintain rents and offer good tenants incentives to renew leases.

A recent landlord-tenant case in Florida caught our attention. New landlords leased their furnished home to a tenant—or rather, the tenant’s company—who apparently had no intention of paying rent. After three months with no rent payments, the landlords started getting suspicious. They discovered a number of landlord-tenant disputes and court documents filed against the tenant and his company.

By checking with some of the other victims of the tenant’s scams, under the name Global Academy Online, Inc. the landlords discovered he was very “savvy” and knew just what to do to “dodge the bullet.” In this particular case, the tenant filed court documents or neglected to appear in court in an attempt to prolong the eviction process.

In court, the tenant claimed that the landlords did not live up to their end of the lease, because all utilities—including Internet access—were to be provided, and on three occasions the Internet service was interrupted.

The judge ruled for the landlords, and signed an eviction order. The landlords say they are not “after the money,” and they just want the tenant out of their house.

There are a few lessons to learn from this case:

• If a tenant wants to rent your property under their corporate or business name, consider it a red flag. Not in every case, but do check it out.
• If you run proper tenant background checks and credit checks, it’s more likely you will find out about landlord-tenant disputes and court filings before you sign the lease. It’s not a stretch to assume there were no credit checks or inadequate checks run in this case.
• A quick Google search can reveal a great deal about a prospective tenant, as well. This particular company raises a few red flags.
• Finally, don’t roll over and let a scammer get away without paying what is owed. Fight for the money you have coming to you.

After several years of booming construction, sales and increases in home prices, the housing market did a 180° turn from 2009 to 2011, and falling values, historically low interest rates and increasing foreclosure activity became the norm. But has the end of the toughest housing market in decades finally reached its end?

Of course, the answer depends on whom you ask. Economic experts are always making predictions. Based on indicators such as unemployment rates, factory productivity, retail merchant sales, construction spending, and of course, new residential sales and construction, they can predict what 2012 will bring in the housing market.

According to several economists, the market should begin to pick up in 2012, especially if jobs start growing again. Europe’s debt problems are an unknown, and could even tip the economy back into a recession, according to an economist with IHS Global Insight. Otherwise, the economy should grow at a rate of about 1.6%.

Prices should continue to decrease through 2012, as foreclosures begin to ramp up and distressed properties flood the market. Lower prices hurt sellers, but homebuyers could likely benefit from low-priced properties through the end of 2012.

Another economist, from the National Association of Home Builders, predicts that home construction will not return to “normal” levels until 2015, due to widespread job uncertainty. In 2012, builders are expected to to construct only about 40% of the units needed to keep up with population growth. By 2013, that rate should increase to about 60% of normal. The U.S. population grows by about 3 million a year, so the housing market needs about 1.5 million new homes per year. But builders won’t ramp up to that level until mid-2013, o4 2014, according to the IHS Global Insight economist.

Multifamily construction, however, is on the rise, in response to a high demand for rental housing. Millions of Americans abandoned homeownership and turned to renting, as the homeownership rate dropped from 2004’s 69.2% to 66.3% in the third quarter of 2011.

Did we hit bottom? Probably. Economists are saying that while the housing market should begin to see some activity in 2012, a significant rebound is not likely this year.

As of January 1 2012, landlords in California have the right to ban smoking in multifamily housing and condos. While many rental property owners have already established smoking bans, the new law will reinforce their positions.

In California, smoking anywhere—indoors or out—is becoming harder to accomplish. Restaurants, bars, bowling alleys, stores and most other public buildings are smoke free. Some municipalities extend smoking bans to city streets, parks, bus stops, commercially zoned sidewalks, common areas in shopping centers and outdoor dining areas; other cities include private homes that are licensed as family day care facilities.

Now, the entire state is covered by the new law, which was signed by Governor Jerry Brown on September 6, 2011 and hailed by landlords who choose to restrict smoking. The law leaves no question about whether or not they can legally do so, and includes inside units, parking lots, balconies and other common areas. Landlords are required to list in leases and rental agreements where smoking is prohibited.

Multifamily residences account for more than 30% of California housing. 88% of the state’s residents do not smoke, according to data announced by the State Department of Public Health last July. Alex Padilla, who wrote the bill, said “Living in multifamily housing should not compromise the health of renters or their children.”

So, just what is going on in the housing market? The National Association of Realtors (NAR) realized this week it’s been overstating existing home sales. Instead of 20.6 million existing home sales from 2007 to 2010, there were actually 17.7 million homes sold. More surprising is that, in explaining the revisions, an economist for the NAR said, “from a consumer’s perspective, only the local marketing information matters.”

Oh, really? This widely reported and closely watched data affects any number of economic indicators, along with interest rates, investments and plans made by businesses and individuals. Consumers are greatly affected by this data.

Apparently, the data reported by the NAR started differing from independent researchers about a year ago. The way the NAR collects and analyzes data was reassessed and the group met with government and private housing experts and mortgage companies, along with CoreLogic, a data firm that first raised questions about the NAR’s sales figures.

The result of this revelation is that all of the experts are realizing that the housing market has been worse off than previously thought. But, the number of houses available for sale was also revised downward, so while sales numbers dropped, inventory did as well—meaning supply and demand didn’t change.

The NAR blamed the discrepancy on a number of factors, from more builders using the MLS service, which inflated sales figures, to regional overlap where more than one MLS system lists the same property.

Revisions by year:

• 2007    down 11% to 5.04 million
• 2208    down 16% to 4.11 million
• 2009    down 16% to 4.34 million
• 2010    down 15% to 4.42 million

After revising November’s housing market index from 20 to 19, the National Association of Home Builders reported it reached 21 in December—the highest point since May 2010. Despite the November revision, the index still increased for three straight months. It hasn’t done that since the middle of 2009.

What does this mean? Considering economists were expecting a 20, the surprise increase is a good sign that the housing market is seeing some areas of recovery. Still, the index has been in negative territory (below 50), where more builders see conditions as poor, rather than good, since April of 2006—and it will likely take an extended recovery to see a positive confidence reading again.

All three components of the builders’ index increased. Traffic from potential buyers jumped three points, while sales expectations for the next six months and builders’ assessment of current sales conditions also grew.

Foreclosed properties continue to bring down many markets. Meanwhile, consumer worries about the job market and selling existing homes are keeping many potential homebuyers from starting the building process. However, the 477 builders surveyed indicate they’ve seen more interest and inquiries in December than in previous months.

The South saw a four-point gain, from 21 to 25, while the West increased by one point. The Midwest index was unchanged, while the Northeast fell one point.