Author Archives: Florida Realtors® News (Reprinted with permission Florida Realtors. All rights reserved.)

Sept. Single-Family Starts Flat – but Up So Far This Year

Starts dropped 1.6% overall, but single-family changed little with multifamily down 5%. Year-to-date, however, single-family starts are up 20.5% compared to last year.

WASHINGTON – Single-family housing starts held steady in September as strong demand helped to offset ongoing supply chain disruptions. However, multifamily production declined last month, pushing overall housing starts in September down 1.6% to a seasonally adjusted annual rate of 1.56 million, according to a report from the U.S. Department of Housing and Urban Development and the U.S. Census Bureau.

The monthly housing-starts number is based on yearly sales, and calculated by assuming that September’s number is extended for a full year.

Within September’s overall number, single-family starts were essentially unchanged from the previous month at a 1.08 million seasonally adjusted annual rate. However, that number is also up 20.5% year-to-date. The multifamily sector, which includes apartment buildings and condos, decreased 5.0% to 475,000.

“Single-family construction continued along recent, more sustainable trends in September,” says Chuck Fowke, chairman of the National Association of Home Builders (NAHB) and a custom homebuilder from Tampa. “Lumber prices have moved off recent lows, but the cost and availability of many building materials continues to be a challenge for a market that still lacks inventory.”

NAHB Chief Economist Robert Dietz says builder confidence improved in the association’s October survey, which “confirms stabilization of home construction at current levels. … The number of single-family units in the construction pipeline is 712,000, almost 31% higher than a year ago as more inventory is headed to market. Multifamily construction has expanded as well, with almost a 6% year-over-year gain for apartments currently under construction.”

On a regional and year-to-date basis (January through September of 2021 compared to that same timeframe a year ago), combined single-family and multifamily starts are 28.9% higher in the Northeast, 12.1% higher in the Midwest, 18.6% higher in the South and 22.6% higher in the West.

Overall permits decreased 7.7% to a 1.59 million-unit annualized rate in September. Single-family permits decreased 0.9% to a 1.04 million-unit rate, and multifamily permits decreased 18.3% to a 548,000 pace.

Looking at regional permit data on a year-to-date basis, permits are 19.6% higher in the Northeast, 19.9% higher in the Midwest, 22.9% higher in the South and 25.0% higher in the West.

© 2021 Florida Realtors®


First Street Outlines Flood Risk for Every U.S. Metro

The company that created realtor.com’s flood risk tab released a report by city and county. Fla. and Louisiana are top-risk states – but so are Kentucky and W. Virginia.

BROOKLYN, N.Y. – First Street Foundation – the science and technology nonprofit that developed the First Street Foundation Flood Model and Flood Factor, which realtor.com adds to listings advertised on its website – released the first nationwide community level flood resilience report. Called “The 3rd National Risk Assessment: Infrastructure on the Brink,” it highlights the 30-year flood risk for every city and county across the contiguous United States.

Florida has an extensive coastline and low-lying coastal areas, and – along with Louisiana – has some of the highest concentrations for community risk, but First Street also listed two inland states in its high-risk categories, specifically Kentucky and West Virginia. Together, those four states are home to 17 of the top 20 communities facing a higher risk from floods. Louisiana alone accounts for 6 of the top 20 most at-risk counties (30%) and is home to the No. 1 county, Cameron Parish.

The report calculates the risk of five key dimensions of community risk:

  • Residential properties
  • Roads
  • Commercial properties
  • Critical infrastructure
  • Social infrastructure

The findings are also incorporated into Flood Factor, giving Americans with an expanded scope through which to understand their personal flood risk as well as the vulnerability of their broader community.

“Our work aims to determine the amount of flooding that would render infrastructure either inoperable or inaccessible,” says Dr. Jeremy Porter of First Street Foundation. “By applying research on depth thresholds and comparing them to flood data and probability metrics, we can determine roughly the extent of flooding that would cause a road to be impassable to cars, or a hospital to be shut down.”

According to First Street’s analysis, roughly 1 in 4 (25%) of all critical infrastructure in the country are already at risk of becoming inoperable, or about 36,000 facilities. Another 1 in 4 (23%) road segments (nearly 2 million miles of road), are at risk of becoming impassable. Additionally, 1 in 5 (20%) commercial properties (919,000), 17% of social infrastructure facilities (72,000), and 14% of all residential properties (12.4 million) also face operational risk.

That number of properties will continue to grow as the climate changes, according to First Street. Over the next 30 years, it predicts an additional 1.2 million residential properties, 66,000 commercial properties, 63,000 miles of roads, 6,100 pieces of social infrastructure and 2,000 pieces of critical infrastructure will also face flood risk that could render them inoperable, inaccessible, or impassable.

“As we saw following the devastation of Hurricane Ida, our nation’s infrastructure is not built to a standard that protects against the level of flood risk we face today, let alone how those risks will grow over the next 30 years as the climate changes,” says Matthew Eby, founder and executive director of First Street Foundation. “This report highlights the cities and counties whose vital infrastructure are most at risk today, and will help inform where investment dollars should flow in order to best mitigate against that risk.”

© 2021 Florida Realtors®


Vacation-Owners: The IRS Needs to Know Where You Live

Under U.S. tax law, payers can have only one official residence, and lockdowns may have changed the state a vacation owner calls “home.” But it’s also not that simple.

NEW YORK – Homeowners are increasingly dividing their time between two or more homes equally, which is known as the “co-primary home” trend. It’s become feasible because remote work became a viable lifestyle choice for less wealthy second-home owners during the COVID lockdowns.

While owners could consider themselves to have a co-primary home, however, the Internal Revenue Service would disagree. Under tax law, one home must be primary. That key issue needs to be resolved.

Joan Crain, senior director and global wealth strategist at BNY Mellon Wealth Management, says taxpayers can have only one domicile, irrespective of how many homes they own – and the location of their primary residence can have significant implications for the homeowner’s tax bill.

Crain says most states consider a domicile to be a primary residence in the place where the taxpayer spends the majority of their time. When the domicile is not clear cut, “state tax auditors will look at other factors, like where is your business address? Where do your credit-card bills go? Where are your doctors?” Crain says.

Meanwhile, someone who crosses state lines for work will typically get a tax credit in their home state if they paid nonresident income taxes to another state. Some states tax the income of nonresidents who spend a certain number of days physically working in the state, says Taryn Goldstein, Florida state and local tax leader at accounting firm BDO USA.

Certain states, including Texas and Florida, also give taxpayers who own their primary home a homestead exemption on their local real estate taxes.

Source: Wall Street Journal (10/14/21) Solomont, E.B.

© Copyright 2021 INFORMATION INC., Bethesda, MD (301) 215-4688


Remember QR Codes? They’re Back and Better

Most new phones make it easy for users to snap and go. A QR code on a for-sale sign, for example, can help pedestrians quickly secure listing info and the agent’s bio.

SAN FRANCISCO – The COVID-19 pandemic spurred the use of data icons known as QR codes. The reemerging trend is facilitated by recent versions of cell phones made by Apple and Samsung because cameras can read QR codes instantly without having to download an app. Creating QR codes is also cost effective thanks to a handful of free online tools.

A July 2021 joint study of 1,100 U.S. consumers by The Drum and YouGov found that 54% of consumers ages 18 to 29 have clicked on a marketing-related QR code; those aged 30 to 44 did so 48% of the time.

Overall, the report found that “three-quarters of adults say that they would be willing to use more QR codes in the future. This number rose to 82% among adults 18-44, but dipped to 64% of adults over 45.”

Marketing with QR codes

For consumers, a QR code allows them to hold their phone up, scan the code and quickly go to a webpage that offers additional information. They can be used in a variety of locations, such as:

  • Postcard campaigns. They can direct recipients to landing pages, lead capture forms or 3D video tours of listings, such as those offered by Holofy Spaces and Peek.
  • Property flyers. These could link individuals to agent introduction videos, agent websites or testimonial pages.
  • Yard signs. These QR codes can offer information on the home for sale, but they can also link users to request forms for showings or webpages with “similar listings to this one.”
  • Advertising spreads in local lifestyle publications. These ads can be costly, but a subtle QR code can help get more bang for the buck by sending readers to a unique listing micro-site or a company video.
  • Indoor events. If attending a charity or entertainment venue, a simple QR code table can lead attendees to digital business cards, joint promotional incentives or donation webpages via Venmo, for example.

Inman (10/11/21) Rowe, Craig C.

© Copyright 2021 INFORMATION INC., Bethesda, MD (301) 215-4688


Zillow Puts Its iBuyer Program on Hiatus Until 2022

An iBuyer program can help homeowners willing to take a slightly lower price in exchange for a quick and easy sale. But sellers aren’t willing to come down too much, and Zillow may not have enough resources under current market conditions to essentially be a large-scale home flipper.

NEW YORK – Real estate platform Zillow has said it has too many houses and not enough “operational capacity” to work through all the transactions and renovations required to resell the homes. It’s going to stop buying any new houses for the rest of the year.

Zillow is what’s called an iBuyer and, like OpenDoor and Redfin, it uses algorithms to figure out what to pay for a house, then it buys it and resells it.

Those systems are good at coming up with a price for houses, but can only do so much, said Anthony Orlando, who teaches real estate at Cal Poly Pomona.

“I think what Zillow is finding is that even with the advances of technology, it’s still hard to operate at that kind of scale when you have to do that many individual transactions,” Orlando said.

Zillow said it has plenty of cash, it just doesn’t have enough on-the-ground workers and vendors – those who might install that farmhouse sink or repair a roof. The company said it has tried to ramp up hiring over the last few quarters, it just couldn’t keep up.

Rajeev Dhawan, professor of economic forecasting at Georgia State University, said he thinks Zillow is also probably re-calibrating as it considers the real estate market’s near-term future.

“There is a demand and supply problem, both,” Dhawan said. “The iBuyers are asking for too much, and on the buying side the company is saying: ‘Maybe I don’t want to pay you that much, I’m not gonna make any money on this deal.’”

It’s true that in a lot of the country, the real estate market has finally started to cool down. And there are a couple of things working against Zillow right now, said Susan Wachter at The Wharton School of the University of Pennsylvania.

“Interest rates are going up, which will hurt financing costs and prices going down. That’s a double whammy on the business model of iBuyers in a cyclical market,” Wachter said. She said that hitting pause, as Zillow has, could be a prudent approach for iBuyers right now.

© Marketplace; Copyright © 2021 APM. All rights reserved.


Cryptocurrency Uncertainty Leads Lender to Nix Pilot Program

United Wholesale Mortgage, the U.S.’s second-largest lender, decided it won’t be the first to accept bitcoin, citing its incremental costs and regulatory uncertainty.

NEW YORK – United Wholesale Mortgage announced it will not proceed with its planned rollout to accept cryptocurrency, such as bitcoin, for mortgage payments. This summer, the nation’s second-largest mortgage lender announced that it would offer the industry’s first pilot program to accept cryptocurrency for mortgage payments.

However, the company changed its mind. CEO Mat Ishbia told CNBC that they realized it wasn’t worth pursuing a national rollout after the initial test.

“Due to the current combination of incremental costs and regulatory uncertainty in the crypto space, we’ve concluded we aren’t going to extend beyond a pilot at this time,” Ishbia said.

In the pilot program, United Wholesale Mortgage tried three different cryptocurrency options – bitcoin, ethereum and dogecoin. It accepted its first cryptocurrency mortgage payment in September. But demand was lower than expected, Ishbia said. Borrowers “said it was cool,” but they were not more drawn to using bitcoin.

“There was not enough demand at the end of the day to really push the envelope too hard,” Ishbia said.

The six homeowners who took part in the pilot program could now face a tax bill for making a payment in crypto. The IRS classifies digital currencies as property and, unlike U.S. dollars, can trigger a capital gains tax.

According to CNBC analysts, United Wholesale Mortgage’s pilot program adds to the evidence that suggests many cryptocurrency users see it more as an investment and less as a replacement for government-issue money.

Source: “Second Largest U.S. Mortgage Lender Ditches its Plan to Accept Payments in Bitcoin,” CNBC (Oct. 15, 2021)

© Copyright 2021 INFORMATION INC., Bethesda, MD (301) 215-4688


NAR Research: Student Loan Debt Makes Home Buying Difficult

How much does student-loan debt impact buyers? A three-year NAR study calls for reform, noting that millennials are “drowning in student loan debt.”

WASHINGTON – Experts from the housing and higher-education fields joined policy thought leaders from the National Association of Realtors® (NAR) last Wednesday to discuss the current student loan debt crisis and how it affects the economy, housing market and debt holders. The event explored the findings of NAR’s September report, The Impact of Student Loan Debt.

For the past eight years, NAR has been collecting and examining research to measure the impact of student loan debt on future homebuyers. The report found that student loan debt is one of the most significant hurdles for potential buyers and their ability to purchase a home.

“Today’s millennials are drowning in student loan debt,” said NAR Vice President of Policy Advocacy Bryan Greene to open the event. “Many are concerned that to address student loan debt, we would have to take the load off students and put it on taxpayers. Others advocate help from private employers. We need to talk about all options and explore what reforms are possible.”

According to the report, half of the people with student loans (51%) said it delayed them from buying a home. Jessica Lautz, NAR vice president of demographics and behavioral insights, explored and explained the research recently done.

“We first started researching this topic because of NAR members’ children – they couldn’t afford a home because of the burden of student loan debt. We knew they weren’t alone because there are 40 million Americans holding student loan debt,” says Lautz. “Half of non-owners say student loan debt is delaying them from buying a home. We asked participants in our research to pretend they paid off their student loan debt – they said the first thing they would invest in is long-term savings and the second would be buying a home. So, we know they want to get into homeownership, but they are having a hard time getting there.”

The Mortgage Bankers Association (MBA) spoke about today’s competitive housing market. Already challenged student-loan holders must face other buyers making all-cash offers in a competitive bidding process. Due to this intense competition, MBA says it supports down payment assistance, which is clearly needed for first time homebuyers specially in low-income areas.

Senior Vice President of Public Policy for the National Fair Housing Alliance Nikitra Bailey outlined how student loan debt has a disproportionate effect on people of color. NAR’s research found that white student debt holders (30%) are less likely than Black (47%) or Hispanic (47%) ones to say they’re currently incurring student loan debt for themselves.

“Today Black homeownership is as low as it was when discrimination was legal,” says Bailey. “After 20 years of taking out student loans, Blacks still owe 95% of the balance of the debt and are more likely to default. Post-secondary education is now a necessity to succeed, yet a degree is not a shield from racial disparity. Our proposed Down Payment Targeted Assistance Program addresses student loan debt as a burden that leads to the lack of ability to save for a down payment, mostly among Blacks and Latinos. And our Keys Unlock Dreams Initiative will help close the racial wealth and homeownership gap.”

Rachel Fishman, deputy director for research, higher education at New America, was able to explain the burden on parents who take out Parent PLUS loans. These federal loans continue to be an in-between space where parents take on the student loan debt of their child.

“When we talk about student loan debt, we talk about the student, but we need to start correlating the family,” said Fishman. “My hope is to raise awareness about this issue … to start addressing the root cause of debt – food insecurity, housing affordability, childcare. Families are juggling these things on balance sheets along with student loan debt. Among other recommendations, we seriously need to address college affordability for a four-year degree.”

The last speaker for the event was Ben Kaufman, head of investigations & senior policy advisor at the Student Borrower Protection Center. He closed the forum with statistical intel that outlined the chronological timeline of the student debt crisis. Kaufman’s figures showed the increasing financial instability student loan debt is creating and how it stands in the way of people being able to purchase a home.

“Student loan debt has exploded in the U.S.,” Kaufman says. “There are more people borrowing, and they are borrowing more. People think of a student loan debt holder as a young person, but actually two-thirds of borrowers are over the age of 30. Even before COVID, the rate of delinquency on student loans was higher than the delinquency on mortgages at the peak of the financial crisis.

“Before COVID, a borrower was defaulting on a student loan every 26 seconds. So much of this is policy choices, for generations every single day in Washington, all levels of government, have been making decisions on this. It is imperative to claim your seat at the table so your voices can be heard. If your voices were heard from the onset, I don’t think we would see the consequences we see today.”

Source: National Association of Realtors® (NAR)

© 2021 Florida Realtors®


Fannie Mae Changes Homeowner Education Requirements

Starting in 2022, homeowners with an affordable loan backed by Fannie Mae can fulfill the education requirement using a qualified third-party vendor.

WASHINGTON – Starting in 2022, Fannie Mae will allow third-parties to fulfill the homeownership education requirement on some affordable mortgages.

Third-party homeownership education providers must be aligned with the National Industry Standards for Homeownership Education and Counseling – or with the U.S. Department of Housing and Urban Development (HUD) Housing Counseling Program.

Since 2015, Fannie Mae has required borrowers to complete the course through Framework Homeownership, which started in 2012 as a partnership between Housing Partnership Network and Minnesota Homeownership Center. In 2019, Fannie Mae started waiving the $75 fee for Framework’s course. A program spokesperson said getting a Framework certificate “saves lenders time and hassle at the last minute before closing because it’s more flexible and widely accepted.”

More than 1.2 million homebuyers have used the educational program to qualify for favored mortgage terms.

Fannie Mae currently requires first-time homebuyers that need more than 95% financing to complete a homeownership education course. It’s also a must for first-time homebuyers using Fannie Mae’s flagship affordable finance program, HomeReady, which allows ultra-low down payments, and for first-time home buyers using Fannie Mae’s HFA Preferred program. HFA is administered by housing finance agencies for low to moderate-income borrowers.

Fannie Mae also requires the course for borrowers with no credit score and those using non-traditional credit sources – like rental, utility or childcare payments – to establish a credit history.

The goal of homeownership education – in contrast with loan counseling and other programs to help borrowers keep their housing – prepares prospective borrowers for the complex process of buying a home.

Source: HousingWire (10/06/21) Kromrei, Georgia

© Copyright 2021 INFORMATION INC., Bethesda, MD (301) 215-4688


Another Reason to Move to Fla.? Home Heating Prices

The usual move-to-Fla. reasons – sun, beaches and no income tax – omit one item: home-heating costs. A harsh NE winter this year could push natural gas prices 50% higher.

NEW YORK – Nearly half of U.S. households who heat their homes with natural gas can expect higher bills this winter – an average of 30% higher compared to last year, the Energy Information Administration warns.

It could be even higher: If the winter is 10% colder than average, homeowners can expect heating bills that top 50% compared to last year. But even if the winter is 10% warmer than average, heating bills are still expected to be 22% higher year-to-year.

Natural gas home-heating bills are expected to average $746 from Oct. 1 to March 31 compared to $573 during the same period a year ago, The Wall Street Journal reports.

“We are very concerned about the affordability of heat this winter for all customers, but in particular those who struggle every day to afford their utility services,” says Karen Lusson, a staff attorney for the National Consumer Law Center.

Homeowners may want to take some steps before winter, with “Move to Florida” one of the options. If they choose to stay, however, they should make sure heating systems operate correctly and efficiently. Improper installation of heating, ventilation, and air conditioning systems can lead to 30% higher energy use, according to the National Institute of Standards and Technology. Also, homeowners may want to seek affordable options like “door pillows” to plug spaces under the doors and take steps to weatherize their homes to reduce expenses.

Source: “A Winter of Giant Gas Bills Is Coming. Are You Ready?” The Wall Street Journal (Oct. 14, 2021) [Log-in required.]

© Copyright 2021 INFORMATION INC., Bethesda, MD (301) 215-4688


FHA- and VA-Loan Buyers Struggle to Compete for Homes

FHA, VA and other government-backed loans are often favored by first-time and low-income buyers. But in bidding wars, cash offers or conventional financing seem less problematic to sellers. As a result, low-income buyers face yet another hurdle if they hope to become owners.

WASHINGTON – Government-backed loans can offer buyers lower down payment requirements and can help some of them purchase a home.

However, those loans often come with several extra requirements that may slow the process and put some at a disadvantage in a fast-paced offer situation. That unknown detail – whether or not the government will step in and require changes, notably ones the seller may be required to make – put these buyers at a disadvantage in a hot sellers’ market.

While 89% of sellers say they’re likely to accept an offer from a buyer with conventional financing, only 30% would be willing to accept one using a Federal Housing Administration (FHA) or Veterans Affairs (VA) loan, according to an April survey of real estate professionals conducted by the National Association of Realtors® (NAR). And 6% of agents say their sellers wouldn’t even consider an offer using a government-backed loan.

Government-backed loans have long been known to help low-income and first-time home buyers make a home purchase, in large part due to their low down payment requirements.

But today, conventional loans continue to edge out government-backed loans. In August 2019, 30% of mortgage loans were backed by the Federal Housing Administration, Department of Veterans Affairs or Department of Agriculture. In August 2021, the share of government-backed loans dropped to 23%, according to NAR.

“It’s just dismaying how difficult it is for first-time buyers to be able to snag that home,” Gay Cororaton, senior economist at NAR told realtor.com.

More than half of buyers (52%) who got a mortgage in May paid at least a 20% down. A decade ago, only 40% of buyers were making at least a 20% down payment, according to NAR.

A seller may look more favorably on a buyer who has at least a 20% down payment than those bringing less. Statistically, buyers who offer higher down payments are more likely to have their mortgages approved, allowing the deal to proceed.

Also, government-backed loans can be slower to close. The average time to close on an FHA or VA purchase loan in the first three months of this year was 57 and 58 days, respectively, compared to 51 days for conventional loans.

“What I am looking at is the strength of the buyer financially, and that is typically measured by how much money they’re putting down,” says Bryan Kyle, a real estate professional with First Serve Realty in Las Vegas.

Borrowers with VA loans have no down payment requirement, but their loan may come with other requirements for approval, such as appraisals and inspections. Those extra requirements could slow a transaction, and some sellers may find them more cumbersome than those of buyers bringing higher financing or an all-cash offer, or in a bidding war, buyers willing to waive inspections or appraisals.

“Right now, it’s a very tight market, so sellers also just want to close the deal,” Kyle says. “What we’re seeing is that buyers are forgoing inspections, they’re forgoing appraisals, and it’s harder to do that for an FHA or a VA loan.”

To stand out, some buyers with government-backed offers are putting more cash into an earnest money account to show a stronger commitment to close on a house. Kyle Reed, a real estate professional at Paul Presley Realty in Austin, Texas, says he encourages many of his military veteran clients who use VA loans to consider new-home construction.

“When it comes to VA buyers specifically, a lot of times new-construction homes are a way for them,” he says. “It’s less competitive, you’re not getting in those multiple-offer situations, you don’t have to worry about lender-required repairs or anything like that.”

Source: “Can Homebuyers With Government-Backed Loans Compete in Today’s Hot Housing Market?” realtor.com® (Oct. 14, 2021); “2021 Loan Type Survey” National Association of REALTORS® Research Group (April 2021).

© Copyright 2021 INFORMATION INC., Bethesda, MD (301) 215-4688


New-Home Builders Doing Great Despite Challenges

The Oct. builder sentiment index rose 4 points higher to 80. Any 50-plus score indicates optimism, so today’s hot market still overshadows supply-chain worries.

WASHINGTON – Strong consumer demand helped push builder confidence higher in October despite growing affordability challenges stemming from rising material prices and shortages. Builder sentiment in the market for newly built single-family homes moved four points higher to 80 in October, according to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI).

When everything is going wrong, the index can be as low as 0. If everything is going right, it can top out at 100. Any score over 50 is on the optimistic side, so at 80, builders’ worries about supply chains and higher prices is currently overshadowed by buyer demand.

“Although demand and home sales remain strong, builders continue to grapple with ongoing supply chain disruptions and labor shortages that are delaying completion times and putting upward pressure on building material and home prices,” says NAHB Chairman Chuck Fowke, a custom home builder from Tampa.

“Builders are getting increasingly concerned about affordability hurdles ahead for most buyers,” adds NAHB Chief Economist Robert Dietz. “Building material price increases and bottlenecks persist, and interest rates are expected to rise in coming months as the Fed begins to taper its purchase of U.S. Treasuries and mortgage-backed debt.”

Dietz wants policymakers to focus on fixing the broken supply chain. “This will spur more construction and help ease upward pressure on home prices,” he says.

All three major HMI indices posted gains in October. The index gauging current sales conditions rose five points to 87, the component measuring sales expectations in the next six months posted a three-point gain to 84, and the gauge charting traffic of prospective buyers moved four points higher to 65.

Looking at the three-month moving averages for regional HMI scores, the Midwest rose one point to 69, the Northeast held steady at 72, and the South and West each remained unchanged at 80 and 83, respectively.

The NAHB/Wells Fargo HMI gauges builder perceptions of current single-family home sales and sales expectations for the next six months as “good,” “fair” or “poor.” The survey also asks builders to rate traffic of prospective buyers as “high to very high,” “average” or “low to very low.”

© 2021 Florida Realtors®


Real Estate Analytics: Unlocking Value in Commercial Real Estate

Commercial brokers have always crunched data to make sure an investment makes financial sense. But high-tech analytics can take that analysis to a new level.

LONDON – On some level, institutional investors in the commercial real estate (CRE) space have always collected and assessed data to make informed decisions when buying, operating or disposing of properties. Data analytics, therefore, is not a new topic. But the granular level of data that is now being aggregated, along with the latest developments in artificial intelligence, is paving the way for a new era in CRE. That is the reason why data analytics is now a central topic in boardroom conversations, with the main question being: How can management convert this data into knowledge that can deployed to be more efficient in managing CRE investments?

Data analytics defined

The Institute for Operations Research and the Management Sciences (INFORMS) defines data analytics as the scientific process of transforming data into insight for making better decisions. In general, data analytics can be classified in three main categories of techniques: descriptive analytics, predictive analytics and prescriptive analytics.

  • Descriptive analytics is backward looking, in that it is focused on describing the past. It is perhaps the most commonly used technique by CRE investors and asset managers who rely heavily on property performance reports, data dashboards and what-if spreadsheet models.
  • Predictive analytics is the set of techniques used to extrapolate from past data forward looking projections. This category encompasses a number of tools (e.g. linear regression, time series analysis data-mining analysis, etc.) that decision makers rely on to get a better sense of what the future holds. In CRE, for example, real estate developers can examine past data in relation to their sales to construct a mathematical model that would predict future sales.
  • Prescriptive analytics differ from predictive models in that, through the use of rules, they are able to prescribe a course of action. This is why they are often referred to as rule-based models. Take the example of a real estate investment fund (REIT) that requires income generating assets and where deal sourcing is an important process for the purposes of identifying future acquisitions. The REIT may develop a model that can predict the probability of tenants defaulting on the payment of rent under their leases. The management of the REIT could enhance the model by adding a rule that says if the estimated probability of default is more than 0.6, then the REIT would not explore the deal origination offer. This way, the predictive model, coupled with a rule, becomes a prescriptive model. The net effect is that the REIT could save substantial time and costs by rejecting offers that are not aligned with its core investment strategy.

The benefits of real estate analytics

The benefits of real estate analytics are numerous. CRE investors can leverage analytics across key steps in the asset life cycle, from deal sourcing, acquisitions, operations to asset disposals. We set out below some examples on the application of real estate analytics in CRE.

Example 1: Real estate developer
A real estate developer wants to identify underused but high-value parcels zoned for development. The developer can look into the sales and other information contained in previous listings on Property Finder for example or similar websites. These sources are the traditional cornerstone of information for CRE investors. However, these databases have their limitations and may not be able to anticipate future potential.

The developer can rely on advanced analytics to quickly identify areas of interest, then assess the value of a given plot of land with a predictive lens. The developer can incorporate a number of variables in its model, some of which can be traditional (e.g. macroeconomic, demographic, median age of occupiers, etc.) with some other non-traditional (e.g. number of luxury restaurants with a 1 mile radius, building energy consumption, reviews of nearby businesses on commercial apps, etc.) in order to optimize the timing of the development, the mix of uses in the development, price segmentation and other factors to maximize value.

Example 2: Mall operator
A retail mall investor can use traditional property data around performance, combine it with alternative retail sales data that is retrieved from various sources (e.g. mobile sensors, social media, physical store sales, etc.) and use machine learning algorithms to analyze the behavior of consumers within a specific area or to profile retail tenants.

Example 3: Asset manager
An asset manager wants to expand and optimize a portfolio of office buildings. Machine learning algorithms can rapidly combine macro and hyperlocal data and forecasts (e.g. distance from the asset to metro, number of nearby coffee shops and gyms, etc.) with a view to prioritizing the areas with the highest demand for offices. This allows the asset manager to identify buildings in these areas that are undervalued but rising in popularity.

Challenges ahead

The benefits of real estate analytics are clear. This begs the question: what is preventing its scalability in the CRE space?

We believe that there are three barriers that CRE investors need to overcome.

  • First, CRE managers and investors continue to rely on traditional approaches to decision making. These approaches can be based on precedents (e.g. “It has always been done this way’). In some instances, it may be based on gut feeling or market sentiment (e.g. “The demand for residential properties is picking up”). In other instances, CRE managers and investors rely on rules of thumb (e.g. “As a mall operator, we schedule twice the number of footfall on holidays”).
  • Second, a large number of CRE managers and investors lack the awareness about new datasets and analytical techniques. Some may be unsure where to begin while others may not know which new skills and capabilities should be added to their workforce. An effective real estate analytics strategy requires upfront investment in the right mix of talent, tools, and technology.
  • Third and foremost, data risks and the uncertainty of the return on investment (ROI) could make CRE investors and managers hesitant about deploying substantial investments in this field. New technologies are not risk-free and so appropriate due diligence should be carried out in order to ensure that the processing of data does not raise privacy concerns such as when the data contains personally identifiable information or other type of confidential information. In addition, investor organizations should give particular attention to the ROI analysis to ensure that it incorporates a realistic assessment of the returns that they would generate from investing in this field.

Embracing analytics

Real estate analytics cannot serve as a crystal ball. Its primary function is to assist CRE investors and managers in validating the investment thesis. But when it comes to the typical real estate challenges, advanced analytics can provide powerful tools to assist in the decision-making process and to help in identifying what matters most. Organizations who realize the potential of advanced analytics and invest in a robust data architecture will, most certainly, gain a competitive advantage vis-à-vis their peers for years to come.

© 2021 Al Tamimi & Company. All rights reserved. Provided by SyndiGate Media Inc. (Syndigate.info).


Commercial Real Estate: Opportunities and Challenges Abound

Florida Realtors economist: Real estate’s residential side has been on fire since summer 2020. How has the commercial side fared? It’s hot – and it’s not. It depends on where you look. The delta variant of COVID-19 slowed the office market even as it relit a fire under other commercial sectors.

ORLANDO, Fla – How has the pandemic – and its delta variant resurgence – impacted the U.S. commercial real estate market?

The National Association of Realtors Research Group recently published their latest “Commercial Market Insights – September 2021” report. The insights come from NAR’s Quarterly Commercial Market Survey conducted among its commercial members to gather information about their local market conditions. In the latest survey, respondents were asked how members are adapting to the pandemic and general market observations.

Headline takeaways

The delta variant took a bite out of expected office occupancy gains, as companies halted their expected return-to-work push or slowed plans until the fall. The limited return of business travel also impacted tourism numbers, particularly since convention season was expected to bring business travelers back in droves.

Now that hybrid or entirely remote work options are taking hold, tenants increasingly opt for smaller office spaces and shorter lease terms: 65% of survey respondents reported more businesses leasing or moving into offices with smaller square footage; 54% reported more short-term leases of less than two years.

With a glut of sublease inventory coming to market, tenants are increasingly in the driver’s seat at the negotiating table. Companies underutilizing their space foresee this being the case for the mid-long term, and they’re cutting bait and putting some or all of their space back on the market. This space is competing with vacant space, and can be more attractive if the amount of square footage and remaining lease term resonates with other businesses looking for a small space and a shorter term.

Landlords are being hit with increased construction and labor costs, making tenant improvements more expensive. Tenant retention is key, as recruitment and onboarding is more expensive than in typical times. Suburban office is the darling this cycle, as people grow weary of being home but still desire an alternative to the “typical commute to the headquarters” workweek. Companies are expanding with satellite offices in suburban markets to offer employees that alternative.

Several Florida markets have stronger market conditions compared to the overall U.S. market, particularly Miami, Palm Beach and Daytona Beach. Strong in-migration, affordable residential property and commercial returns allow assets in these markets to offer higher returns.

Drivers of demand

Certain office markets continue to recover, particularly among sectors like finance and insurance, real estate, information services, and professional and business services. While overall employment hasn’t returned to pre-pandemic levels, these sectors continued to hold on to employment more steadily than leisure and hospitality, and retail trade. Increased home sales and e-commerce have helped pull a lot of these industries forward.


Vacancy compression has been most aggressive in the multifamily, retail and industrial sectors. This again is fueled by a healthy housing market – when people buy homes, they buy the stuff to go in them. The housing market in some areas is so hot that would-be buyers are opting out of the purchase process and electing to sit on the sidelines in a rental, helping occupancy in this sector. Unsurprisingly, the office sector continues to see overall net negative absorption quarter after quarter, though the decline is steadily improving.


Rent growth is highest in multifamily, again driven by strong demand from people moving out on their own or discouraged to purchase due to high prices. Some buyers are also choosing to “sell to rent” – selling their current home to cash in on the high prices, pocketing the equity, then moving into a rental until they perceive prices are more in line with their next purchase. Industrial is also seeing strong rent growth fueled by tight vacancy and increased demand. While retail is faring better from an occupancy perspective, a glut of existing space on the market makes it hard for landlords to aggressively push rental rates up. The office market, for example, is seeing negative rent growth due to lackluster demand and steady supply from the sublease side of the market.


It’s a tale as old as, well, this cycle. Construction never kept pace with demand coming out of the Great Recession for a myriad of reasons. As a result, oversupply is rarely a problem in most markets. Coming through the last 18-months, supply chain disruptions and increased prices on construction materials has made the construction process more expensive. Labor continues to be an issue, particularly in markets where a heavy emphasis on single-family construction competes for the same construction workers.

Jennifer Warner is a Florida Realtors economist and Director of Economic Development

© 2021 Florida Realtors®


Report: Fla. Closing Costs Are 2.32% of Home Price

In the U.S., closing costs, including taxes, were up 10.5% year-to-year, and almost $7K for an average price home. In Fla. it’s a bit higher: $8.5K for the average home.

SAN DIEGO – In the first half of 2021, average closing costs for buying a single-family U.S. property were $6,837 including taxes (up 12.3% year-to-year), and $3,836 excluding taxes (up 10.5% year-to-year). Refinancing costs increased marginally to $2,398 – a 4.87% change from the reported 2020 average of $2,287, according to ClosingCorp, a provider of residential real estate closing cost data and technology.

Since ClosingCorp based its calculations on a state or metro area’s average home price, the dollar amounts used for comparisons can vary.

In Florida, the average home price used for the study for the first half of the year was $368,560. Based on that, total closing costs, including taxes, were $8,551. If taxes are backed out, it’s $4,484. At 2.32% of the home’s purchase price, that puts the state at No. 8 in total closing costs.

For the closing-cost calculation, ClosingCorp included the lender’s title policy, owner’s title policy, appraisal, settlement, recording fees, land surveys and transfer tax, based on CoreLogic data.

“To get a better overall picture of what is actually going on in a market, we analyzed data on more than 1.9 million single-family purchase transactions that ran through our ClosingCorp Fees platform in the first half of this year,” says Dori Daganhardt, chief data officer of ClosingCorp. “We are reporting ‘market-specific’ rates and fees, not just network averages charged by the most active settlement services providers in each geographic area.”

In the first half of 2021, higher home prices led to higher closing costs.

“In June, for example, the average national price hit a new high of $373,664; and in July, leading home price indices registered their highest ever year-over-year gains,” says Bob Jennings, chief executive officer of ClosingCorp.

Even though total closing costs rose early this year, however, Jennings says that rate of that increase slowed.

“Although the average home price increased by nearly $45,000, the closing costs, excluding taxes, on that property only increased by $400,” he says. “In fact, closing costs as a percentage of purchase prices declined this year, going from 1.06% of the transaction in 2020 down to 1.03%.”

Taxes included: Closing costs

Highest average: Closing costs

  • District of Columbia ($30,352)
  • Delaware ($17,831)
  • New York ($17,582)
  • Washington ($13,909)
  • Maryland ($12,056)

Lowest average closing costs

  • Missouri ($2,102)
  • Indiana ($2,193)
  • North Dakota ($2,321)
  • Kentucky ($2,355)
  • Wyoming ($2,509)

Without taxes included: Closing costs

Highest average closing costs

  • District of Columbia ($6,523)
  • New York ($6,300)
  • Hawaii ($5,976)
  • California ($5,772)
  • Washington ($4,803)

Lowest average closing costs

  • Arkansas ($2,071)
  • Missouri ($2,102)
  • Indiana ($2,193)
  • Nebraska ($2,193)
  • Kentucky ($2,193)

© 2021 Florida Realtors®


Fla.-Owned Insurer’s CEO Cites ‘Sea of Red Ink’

The head of Citizens Property Insurance calls losses among all state insurers “absolutely staggering.” He blames the marketplace itself, saying it impacts every company.

TALLAHASSEE – Pointing to a “sea of red ink,” the head of the Florida-backed Citizens Property Insurance Corp. described a private insurance industry in the state that is losing gobs of money while homeowners face soaring rates and trouble finding coverage.

“The consistency of loss across the entire marketplace is absolutely staggering,” Citizens President and CEO Barry Gilway told the Florida Legislature’s House Insurance & Banking Subcommittee. “It’s not a decision that one or two companies are making. The reality is that what is occurring in the marketplace is impacting every single company in the market.”

Gilway went before the panel less than six months after lawmakers passed a measure (SB 76) to try to bolster the property-insurance system. But as evidence of continuing problems, the number of policies written by Citizens has soared to more than 700,000 and is expected to climb above 1 million next year, as more homeowners turn to it for coverage.

While Gilway’s presentation focused heavily on financial problems in the insurance industry, Rep. Matt Willhite, D-Wellington, asked about the impact on homeowners, citing a disabled veteran who got hit with a large rate increase.

“Where is the breaking point for the disabled military veteran, who is on a fixed income, that can’t insure their home when they are at a breaking point themselves?” Willhite asked.

With lawmakers preparing to start the 2022 legislative session in January, the meeting Wednesday did not include detailed discussions of proposals to address the problems. As an example of one idea, Rep. Tom Fabricio, R-Miramar, floated the possibility of more broadly opening the market to what are known as surplus-lines carriers, which don’t face the same regulatory oversight as more-traditional insurers.

But House Minority Co-leader Evan Jenne, D-Dania Beach, pointed to numerous changes in the property-insurance system over the past two decades and questioned whether the state needs a new approach.

“Should we be moving in a completely different direction?” Jenne asked. “What we have been trying to do, a lot of it has been built on one another. Yet we continuously find the same results and find ourselves in these sticky situations. Should we be looking at something new?”

Citizens was originally created as an insurer of last resort, but it has seen huge growth since mid-2020 as private insurers have raised rates and reduced policies to try to stem financial losses. Citizens added nearly 22,000 policies last month and had 708,919 policies as of Sept. 30, according to data posted on its website. It had gained almost 200,000 policies since Sept. 30, 2020, when it totaled 511,055 policies, and Gilway said recently that an initial forecast for 2022 includes 1 million to 1.3 million policies.

Many lawmakers and state leaders have long sought to move homeowners from Citizens into the private market, largely because of concerns about financial risks for taxpayers if Florida gets hit with a major hurricane.

But along with private insurers reducing the amount of coverage they will write because of financial problems, Gilway said Citizens often has cheaper rates than private companies. In addition, many homeowners in areas such as Southeast Florida rely on Citizens because they have few other options for coverage.

The legislation passed in April took a series of steps, including trying to help curb lawsuits against insurers and gradually raising a cap on rate increases for Citizens customers.

However, one key part of the bill – designed to prevent contractors from soliciting homeowners to file roof-damage claims – was blocked by a federal judge because of First Amendment concerns. Insurers contend they have faced soaring costs because of unnecessary, if not fraudulent, roof-damage claims.

Gilway’s comments Wednesday, in some ways, echoed state Insurance Commissioner David Altmaier, who last month told a Senate committee that the condition of the property-insurance market was “dire.”

Gilway, who said he has been in the insurance business for 51 years, used graphics to show lawmakers that dozens of private insurers have sustained net-income losses in recent years. Among the factors he cited were litigation costs and the costs of reinsurance, which is essentially insurance that insurers buy as a backup.

Gilway also said Florida’s Office of Insurance Regulation in 2020 received 105 rate filings from insurers that sought increases of 10% or more – and customers of some companies have seen rate increases of more than 25% in 2020 and 2021.

Gilway said the situation is not “sustainable.”

“It is not acceptable to have Floridians faced with increasing rates that are staggering,” he said.

Source: News Service of Florida


White House Targets Economic Risks from Climate Change

A new 40-page report takes a broad view on steps being taken to mitigate risks, including possible HUD and VA buyer disclosures on flood and climate-related threats.

WASHINGTON (AP) – The Biden administration is taking steps to address the economic risks from climate change, issuing a 40-page report Friday on government-wide plans to protect the financial, insurance and housing markets, and the savings of American families.

Under the report, the mortgage process, stock market disclosures, retirement plans, federal procurement and government budgeting are all being reconsidered so the country could price in the risks being created by climate change. The report is a follow-up to a May executive order by President Joe Biden that essentially calls on the government to analyze how extreme heat, flooding, storms, wildfires and broader adjustments to address climate change could affect the world’s largest economy.

“If this year has shown us anything, it’s that climate change poses an ongoing urgent and systemic risk to our economy and to the lives and livelihoods of everyday Americans, and we must act now,” Gina McCarthy, the White House national climate adviser, told reporters.

A February storm in Texas led to widespread power outages, 210 deaths and severe property damage. Wildfires raged in Western states. The heat dome in the Pacific Northwest caused record temperatures in Seattle and Portland, Oregon. Hurricane Ida struck Louisiana in August and caused deadly flooding in the Northeast.

The actions being recommended by the Biden administration reflect a significant shift in the broader discussion about climate change, suggesting that the nation must prepare for the costs that families, investors and governments will bear.

The report is also an effort to showcase to the world how serious the U.S. government is about tackling climate change ahead of the United Nations Climate Change Conference running from Oct. 31 to Nov. 12 in Glasgow, Scotland.

Among the steps outlined is the government’s Financial Stability Oversight Council developing the tools to identify and lessen climate-related risks to the economy. The Treasury Department plans to address the risks to the insurance sector and availability of coverage. The Securities and Exchange Commission is looking at mandatory disclosure rules about the opportunities and risks generated by climate change.

The Labor Department on Wednesday proposed a rule for investment managers to factor environmental decisions into the choices made for pensions and retirement savings. The Office of Management and Budget announced the government will begin the process of asking federal agencies to consider greenhouse gas emissions from the companies providing supplies. Biden’s budget proposal for fiscal 2023 will feature an assessment of climate risks.

Federal agencies involved in lending and mortgages for homes are looking for the impact on the housing market, with the Department of Housing and Urban Development and its partners developing disclosures for homebuyers on flood and climate-related risks. The Department of Veterans Affairs will also look at climate risks for its home lending program.

The Federal Emergency Management Agency is updating the standards for its National Flood Insurance Program, potentially revising guidelines that go back to 1976.

“We now do recognize that climate change is a systemic risk,” McCarthy said. “We have to look fundamentally at the way the federal government does its job and how we look at the finance system and its stability.”

Copyright 2021 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed without permission.


U.S. Funding More Multifamily in 2022 – 50% Must be Affordable

The U.S. will increase loan caps for multifamily housing by 11.4% next year, and 50% of the $156B total ($140B this year) must go to “mission-driven affordable housing.”

WASHINGTON – The Federal Housing Finance Agency (FHFA) announced 2022 multifamily loan purchase caps for Fannie Mae and Freddie Mac will rise to $78 billion, or an 11.4% increase over 2021 caps.

In 2022, the Enterprises will have a combined $156 billion cap, up from $140 billion this year ($70 billion each). FHFA says the amount is based on future projections for overall growth in the multifamily sector. If demand turns out to be stronger than projected, the amount could move even higher; however, FHFA won’t lower the caps if the market proves to be smaller.

The loans have rules attached. FHFA says the 2022 amounts must have a “strong focus on affordable housing and traditionally underserved markets.” Of the total funding, 50% must be “mission-driven affordable housing,” and 25% must be “affordable to residents at or below 60% of area median income (AMI),” an increase from 20% this year.

FHFA Acting Director Sandra L. Thompson says the increase assures that Fannie and Freddie “have a strong and growing commitment to affordable housing finance, particularly for residents and communities that are the most difficult to serve.”

Along with announcing the funding increase, FHFA says it changed some of the lending definitions, notably what entails “mission-driven affordable housing.” It published information in Appendix A: Multifamily Definitions.

© 2021 Florida Realtors®


How Many Offers Did the Typical 2021 Buyer Make? Two

While stories about multiple offers and foregone inspections are pervasive, a study found that most buyers won by their second bid and 88% had a home inspection.

JACKSONVILLE, Fla. – While more frustrated buyers tried to make their offers seller-friendly so far this year, a Zillow study suggests that it’s not as pervasive as many of the media reports may indicate.

According to the research, the typical U.S. homebuyer nationwide made just two offers so far in 2021 before one was accepted. And while some buyers have decided to forego a home inspection to make their offer more palatable to a seller, 88% of buyers had an inspection done, despite reports that homebuyers were waiving inspections due to the hot housing market.

Before 2021, though, homebuyers had to submit a median of one offer.

The share of first-time homebuyers also dropped in 2021 to 37%, down from 43% in 2020.

The research also found that fewer buyers opted to buy a home sight unseen. Researchers found that virtual home tours proliferated, but nearly all buyers still took a private tour of a home before putting in an offer, with typical homebuyers going on three private tours before making an offer. Only 5% of buyers skipped private tours entirely.

Even though most buyers wanted an in-person home tour before making an offer, however, they still liked the virtual tours – 68% agreed that virtual tours helped them get a better feel for homes than just photos. About 61% wished more listings had 3D tours, and 61% said they wanted to schedule in-person tools online.

On questions about homebuyers’ motives, about 60% said low mortgage interest rates influenced their decision, and about 50% said they had enough saved up for a down payment.

Source: Jacksonville Business Journal (10/11/21) Medici, Andy

© Copyright 2021 INFORMATION INC., Bethesda, MD (301) 215-4688


U.S. Foreclosures Soar – But They Also Fall

In 3Q, the number of U.S. foreclosures surged 67% year-to-year as homes exited forbearance and bans ended. But compared to “normal” 3Q 2019, they’re down 60%.

WASHINGTON – Foreclosures in the United States are up dramatically nationwide now that emergency measures to help people stay in their homes have begun to expire, an industry report said Thursday.

According to mortgage data firm ATTOM, new foreclosures, or starts, rose by 32% from July to October compared to the April-July period – and were up 67% compared to the same period in 2020.

While the increases are dramatic, the report says they are particularly pronounced mainly because new foreclosures have been exceptionally low since the start of the COVID-19 pandemic due to emergency aid programs that staved off foreclosures for millions of homeowners.

Those programs have begun to expire and the market is seeing an uptick in starts as a result, the report said.

Typically, new foreclosures in the United States average around 40,000 per month. When the aid programs were in effect, that figure was under 5,000.

Thursday’s report showed 19,600 foreclosures in September, which was an increase of 24% from August and 102% from September 2020.

RealtyTrac executive vice president Rick Sharga said starts are still “far below” historical levels.

“September foreclosure actions were almost 70% lower than they were prior to the COVID-19 pandemic in September of 2019, and [third quarter] foreclosure activity was 60% lower than the same quarter that year,” he said. “Even with similar increases in foreclosures over the next few months, we’ll end the year significantly below what we’d see in a normal housing market.”

The report said the most new foreclosures from July to October were seen in Florida (5,400), Illinois (3,600), Texas (3,000), Ohio (2,600), New Jersey (2,100) and New York (2,000).

Copyright 2021 United Press International, Inc. (UPI). Any reproduction, republication, redistribution and/or modification of any UPI content is expressly prohibited without UPI’s prior written consent.


Mortgage Rates Surpass 3% Again – Hit a 6-Month High

Average mortgage rates continue to hover around 3%, but they’ve slowly ticked higher. This week, the 30-year, fixed-rate mortgage averaged 3.05%.

MCLEAN, Va. – At 3.05%, this week’s average, 30-year mortgage rate rose to a level unseen in six months, according to Freddie Mac’s weekly survey.

“The 30-year fixed-rate mortgage rose to its highest point since April,” says Sam Khater, Freddie Mac’s chief economist. “As inflationary pressure builds due to the ongoing pandemic and tightening monetary policy, we expect rates to continue a modest upswing.”

Temporary inflation might have little effect on mortgage rates, but expectations for continued inflation might. In addition, some Federal Reserve policies bolster low rates, but the central bank has talked about pulling those back later in the year.

“Historically speaking, rates are still low, but many potential homebuyers are staying on the sidelines due to high home price growth,” says Khater. “Rising mortgage rates combined with growing home prices make affordability more challenging for potential homebuyers.”

Average mortgage rates for the week of Oct. 24, 2021

  • The 30-year fixed-rate mortgage averaged 3.05% with an average 0.7 point for the week, up from last week’s 2.99%. A year ago, it averaged 2.81%.
  • The 15-year fixed-rate mortgage averaged 2.30% with an average 0.7 point, up from last week’s 2.23%. A year ago, the 15-year FRM averaged 2.35%.
  • The 5-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 2.55% with an average 0.2 point, up from last week’s 2.52%. A year ago, the 5-year ARM averaged 2.90%.

© 2021 Florida Realtors®


Many Condo Appraisers Will Start Assessing Building Safety

In response to the Surfside condo collapse, Fannie Mae says its condominium loan decisions after Jan. 1 will include a stronger look at the overall condo building. Loan decisions will consider current or planned special assessments and any deferred maintenance issues.

WASHINGTON – It might become more difficult to get a condo mortgage loan after Jan. 1, 2022, if appraisers cite potential safety problems with the building, notably potential special assessments or safety issues.

According to Fannie Mae, the new requirements apply to mortgages it purchases, a standard most lenders follow.

According to Fannie Mae Director, Single-Family Collateral Risk Management, Jodi Horne, the collapse of Champlain Towers South in Surfside, Fla., in late June 2021 led the secondary mortgage lender to tighten its oversight of condo buildings.

While an official explanation for the collapse hasn’t been released, Horne cites “significant deferred maintenance that led to potentially life-threatening structural deficiencies.” As a result, she says Fannie Mae focused new attention on “significant deferred maintenance of aging condo and co-op infrastructure” that “reaffirm our commitment to supporting sustainable homeownership in condo and co-op projects.”

After Jan. 1, Fannie Mae will generally not support condo or co-op loans with deferred maintenance or “a repair directive from a local regulatory authority or inspection agency to make repairs due to unsafe conditions are ineligible for delivery to us until required repairs have been made.”

Updated requirements for Fannie-backed condo/co-op loans after Jan. 1

  • Stricter eligibility review requirements for any condo or co-op project that issued or is planning to issue a special assessment to address deferred maintenance items that impact the “safety, soundness, structural integrity or habitability of a condo or co-op”
  • Stronger lender requirements for reviewing condo and co-op project reserves
  • Stricter emphasis on appraisals, notably that they must document special assessments or deferred maintenance that could impact the “safety, soundness, structural integrity or habitability of a condo or co-op unit or the overall project and its amenities.”

“Adequate financial reserves are critical to funding the significant maintenance that supports ongoing viability of condo and co-op projects,” Horne writes. “Our latest guidelines reinforce our project reserve requirements and focus on their importance.”

Fannie Mae calls the new requirements “temporary” but “in place until further notice.” At the same time, Horne says Fannie Mae is not yet done studying the issues faced by older condo and co-op infrastructure.

Additional information about Fannie Mae’s updates

© 2021 Florida Realtors®


U.S. Land Border Plan: Vaccinated Canadians Can Return in Nov.

WASHINGTON – A motley coalition of elected officials, bilateral business leaders and travelers-turned-lobbyists briefly cheered the coming reprieve from restrictions at the Canada-U.S. border Wednesday before confronting their next challenge: the question of mixed-dose vaccinations.

The plan for early November, spelled out by senior Biden administration officials as well as Homeland Security Secretary Alejandro Mayorkas, was short on key details, most notably whether the U.S. will consider the many Canadians who received two different vaccines to be fully vaccinated.

“Cross-border travel creates significant economic activity in our border communities and benefits our broader economy. We are pleased to be taking steps to resume regular travel in a safe and sustainable manner,” Mayorkas said in a statement.

“This new travel system will create consistent, stringent protocols for all foreign nationals travelling to the United States – whether by air, land, or ferry – and accounts for the wide availability of COVID-19 vaccinations.”

U.S. officials say experts at the Centers for Disease Control and Prevention are actively exploring the issue of whether to allow travelers who received a mix of vaccines. Ottawa has also been actively lobbying the White House on the issue, including with the Public Health Agency of Canada’s own research on the effectiveness of mixed doses.

That question, along with the absence of a hard start date beyond early November and a lack of specificity on what kind of paperwork travelers will be required to show, dampened the enthusiasm for an announcement people on both sides of the border have been waiting to hear for months.

“The job is not finished,” said Perrin Beatty, president and chief executive officer of the Canadian Chamber of Commerce.

“The two governments need to work together to ensure that fully vaccinated Canadians with mixed-dose combinations are eligible for entry into the United States.”

New York congressman Brian Higgins, whose crusade against the travel restrictions has made him the movement’s de facto spiritual leader, acknowledged that the White House needs to clarify precisely how it intends to define a fully vaccinated traveler.

“That is one of the issues that we’re trying to get clarification on,” Higgins told a news conference. “That’s one of those outstanding issues and still needs to be addressed.” Why it took so long might remain a mystery for the ages, he added.

“I think it’s completely irrational. I think it’s totally unnecessary. These borders should have been opened at the same time, and should have been opened months, months earlier than they actually were opened.”

The U.S. will not be requiring travelers to show proof of a negative test for COVID-19, unlike Canada, which includes a recent negative PCR test among the requirements for everyone entering the country, including Canadian citizens and permanent residents.

Beatty also called on Canada to eliminate the need for a pre-departure test, as well as to work with the U.S. on an interoperable vaccine certification system in order to deal with anticipated higher travel volumes.

Drew Dilkens, the mayor of Windsor, Ontario, called Wednesday’s announcement “a long time coming,” but echoed calls for more details about the logistics and for Canada to revisit the testing requirement. “PCR tests, at least in Ontario, cost about $200 a person,” Dilkens said. “So you’re not going to go over for the day, you’re not going to go over to see a baseball game or a concert or just pop over to see Mom and Dad – it’s going to be a very planned trip and it’s going to be very expensive.”

Deputy Prime Minister Chrystia Freeland, who happened to be in Washington on Wednesday, warned Canadians not to let down their guard just yet.

“We have almost – almost – gotten past COVID,” Freeland said. “Just try to do the things you need to do, and maybe hold back on doing the things that you just want to do. I think if we can keep on doing that for a few more weeks, Canada can really fully put COVID behind us.”

Sarnia Mayor Mike Bradley said he believes Canadians will continue to be cautious, given that some parts of the U.S. have looser public health measures and higher COVID-19 case counts – a concern he said also emerged when Canada eased its border restrictions for Americans in early August.

“I do believe the Canadian government made a mistake by opening our border without getting a reciprocal arrangement with the Americans. It’s four months later, but it’s happening, and it’s a good thing,” he said. “I just need to make sure that all the things will be in place to protect people when they go there and come back.”

Evan Rachkovsky, spokesman for the Canadian Snowbird Association, said he anticipates vehicle traffic at the border will come close to pre-pandemic levels once the restrictions are eased – but said the White House is definitely “cutting it close” for snowbirds hoping to winter in the southern U.S.

“There is obviously a bit of scrambling – some snowbirds have already made plans to ship their vehicle down south and then fly to meet those vehicles in the United States,” Rachkovsky said.

The Biden administration’s strategy is to dovetail the land border policy with its new international travel rules, which will also take effect in November and replace existing travel bans with a new requirement that all foreign nationals show proof of vaccination.

As of early January, all foreign nationals entering the U.S., whether for essential or non-essential reasons, will be required to show proof of vaccination, officials said. In order to be considered fully vaccinated, travelers must have received a full course of a COVID-19 vaccine approved by either the U.S. Food and Drug Administration or the World Health Organization. That includes Oxford-AstraZeneca, a vaccine used in Canada that never received FDA approval.

Fully vaccinated U.S. citizens and permanent residents have been allowed back into Canada since August, provided they have waited at least 14 days since getting a full course of a Health Canada-approved vaccine and can show proof of a recent negative COVID-19 test.

Copyright 2021 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed. This report by The Canadian Press was first published Oct. 13, 2021, with files from Paola Loriggio in Toronto and Chris Reynolds in Ottawa.


Some Nonbanks Raised Conforming Loan Limits to $625K

Loan limits will likely go up to $625K in 2022, but FHFA hasn’t announced it yet. Still, higher home values have convinced some lenders to boost loan limits now.

WASHINGTON – Several nonbanks are raising their conforming single-family loan limits to $625,000 to help borrowers keep pace with rising home prices. The announcements jumpstart the Federal Housing Finance Agency (FHF), which typically announces conforming loan limit increases for the upcoming year in November or early December.

The loan limits define the upper range for conforming loans acceptable to Fannie Mae and Freddie Mac. Conforming loan limits are currently capped by the FHFA at $548,250 in most markets.

Rocket Co., Finance of America Mortgage, Homepoint, PennyMac and United Wholesale Mortgage are among the lenders that recently announced an increase to their conforming loan limits. The higher-balance loan programs represent an increase of more than $75,000 to the maximum loan limit for a conforming loan in many markets.

“We want to help ease some of the barriers to entry and the heavy burden that comes with rising home prices, and continue to push the dream of homeownership out of reach for many first-time buyers,” Bill Dallas, Finance of America Mortgage president, said in a statement. “Increasing the estimated maximum loan amount on our tailored loans expands access to mortgage credit at lower rates to purchase and refinance borrowers.”

The swift increase in home prices has prompted lenders to take steps earlier than the FHFA’s 2022 announcement, they say.

“We view this as a retrospective step forward of the FHFA’s upcoming increase in the loan limit for 2022, which we expect will be more than that experienced in the previous year,” PennyMac officials said in a statement. “The average nationwide home price will roughly reflect an appreciation of 15% to 20%. The idea is to gain some market share and drive earnings in the near term … and eventually distribute loans to (Fannie Mae and Freddie Mac after) the new limits take effect.”

Lenders expect rising interest rates to cut into their business over the coming months. Credit has been shrinking, and some housing analysts say that lenders may be jumping ahead on the conforming loan limit to try to capture more business.

“It is certainly a safe bet that the FHFA will raise the loan limit in November,” says Joel Kahn, associate vice president of economic and industry forecasting for the Mortgage Bankers Association. “It’s just how much goes up, and whether lenders have the liquidity to fund/hold those loans until they disburse them to the GSE.”

Source: “Rocket, Homepoint, FOA Raise Fannie, Freddie Conforming Loan Limits,” The Anand Market (Oct. 12, 2021); Finance of America Mortgage; and PennyMac

© Copyright 2021 INFORMATION INC., Bethesda, MD (301) 215-4688


What Would Boost the Real Estate Industry? More Babies

The U.S. birth rate is the lowest it’s been in more than 100 years, and pregnant homeowner couples are a top reason buyers decide to upgrade to a large house.

CHICAGO – The nation’s birth rate is at more than a 100-year low – the lowest level since the National Center for Health Statistics first started collecting such data. And that lower birth rate could have a future impact on housing demand, according to Jessica Lautz, vice president of demographics and behavioral insights at the National Association of Realtors® (NAR).

Birth rates have been declining since 2007 but have fallen at a faster clip since the pandemic.

“The baby bust has likely been fueled by economic and health concerns of women during the pandemic,” Lautz writes in NAR’s blog. “As some families saw women leave the workforce in the last year, it may not have been financially possible to add a new baby to the family. Some women may not have felt comfortable going into a doctor’s office during pregnancy or had limited family support systems due to safety concerns of COVID-19.”

The birth rate can have implications for real estate because pregnancy is often a leading housing decision, prompting new families to buy a home or desire a larger home, Lautz notes. The decline in childbirth coincides with fewer home buyers with children in the home.

In 1985, 58% of buyers had children under the age of 18. That percentage has since fallen to 33%, Lautz notes.

Source: “A Nearly Unbelievable Data Point: The Birth Rate,” National Association of REALTORS® Economists’ Outlook blog (Oct. 4, 2021)

© Copyright 2021 INFORMATION INC., Bethesda, MD (301) 215-4688


Jumbo Home Loans Near Pre-2008 Crisis Levels

Fewer buyers qualify for conventional mortgages due to higher prices and lower downpayments. As a result, the number of jumbo loans is at pre-Great-Recession levels.

NEW YORK – Bank of America (BofA) researchers reported that originations of “jumbo” U.S. residential mortgage loans surpassing “conforming limits” set for Freddie Mac and Fannie Mae could total $550 billion this year, a level not seen since the run-up to the 2008 financial crisis.

Jumbo originations reached about $283 billion in the first half of 2021, putting the annual volume close to a post-crisis record. However, several public mortgage lenders recently said they would offer borrowers confirming loans of up to $625,000, a level expected to match new federal guidelines for 2022.

Bank of America said jumbo mortgage-bond issuance in 2021 has already reached a post-2008 record of $38 billion, with $45 billion likely by year’s end. The firm cited an expanded investor base for private-label mortgage bonds, as well as low credit losses and “strong” origination guidelines.

Credit in the U.S. housing market is on the rise yet remains relatively tight in the years since millions of homes wound up in foreclosure. Qualified borrowers recently could obtain rates of less than 3% on 30-year fixed home loans, a boon for many first-time home buyers.

Wall Street generally expects the Federal Reserve to detail its plan in November for tapering its $120 billion in monthly emergency purchases of Treasury and agency mortgage-backed securities as the U.S. economy bounces back. Tapering could also push mortgage rates higher.

Source: MarketWatch (10/11/21) Wiltermuth, Joy

© Copyright 2021 INFORMATION INC., Bethesda, MD (301) 215-4688


Can’t Afford a Home? Co-buying Skyrockets

More roommates are committing to long-term relationships and co-buying a home. ATTOM says the number of co-buyers with different last names surged 771% in six years.

SAN FRANCISCO – Millennials are pooling finances with roommates, friends and significant others to buy a home together.

The number of home and condo sales by co-buyers is increasing, according to research from ATTOM Data Solutions. The number of co-buyers with different last names surged by a whopping 771% between 2014 and 2021.

The trend especially took off during the pandemic. From April to June 2020, 11% of buyers purchased as an unmarried couple and 3% as “other” (e.g., roommates), according to data from the National Association of Realtors® (NAR). That’s up from 9% and 2%, respectively, in 2019.

“During the pandemic, people have been renting and they may have wanted more space, and so they looked at, perhaps, their roommate and decided, ‘Let’s go buy a home together,” Jessica Lautz, vice president of demographics and behavioral insights for NAR, told The Wall Street Journal.

But affording a home isn’t easy for a first-time buyer. The median existing-home price for all housing types was $356,700 in August, up nearly 15% from a year earlier.

Besides the higher costs to buy, student loan debt increasingly burdens young adults, hampering their ability to afford a home. Half of the potential homebuyers surveyed this year say they haven’t bought yet because of student debt, according to a report by NAR and Morning Consult. Millennials are the most likely to point to student debt as a top reason for delaying homeownership.

Those with student loan debt are still finding ways to buy, though. In addition to co-buying, for example, they may apply for a mortgage with a co-signer such as a family member to help improve their credit status.

Source: “Millennials Team Up to Fulfill the Dream of Homeownership,” The Wall Street Journal (Oct. 11, 2021) [Log-in required.]

© Copyright 2021 INFORMATION INC., Bethesda, MD (301) 215-4688


Buyer, 84, Fatally Shoots Agent Over Home Dispute

A Va. homebuyer bought a home sight unseen and wanted to “return the house.” He killed his real estate agent who went over to talk about it and, later, himself.

PORTSMOUTH, Va. – Real estate professionals are on edge and in shock in Portsmouth, Va., where a real estate agent in the community was shot and killed by his homebuyer client.

Albert Baglione, 84, had just moved into his new home in Portsmouth, which he purchased sight unseen from Alabama. He moved in last Thursday. The next day, Baglione called his real estate agent asking to “return the house,” a neighbor told local WTKR-News 3.

Soren Arn-Oelschlegel, 41, a real estate professional with Long & Foster in Suffolk, Va., arrived at the house to talk with the man about his concerns. The conversation turned deadly.

Police were later called to the home, where police say that Baglione admitted to them that he killed Arn-Oelschlegel.

After Baglione spoke to police from his doorstep, he quickly shut the door to his home and then a gunshot rang out. Baglione took his own life, according to police reports. Police later found Arn-Oelschlegel inside the home with a fatal gunshot wound.

Colleagues and friends remembered Arn-Oelschlegel as a Realtor® immersed in his community, and a member of the LGBTQ nonprofit Hampton Roads Pride for more than a decade.

“He always had tons of energy,” Rudy Almanazor, president of Hampton Roads Pride, told WTKR-News 3. “I never saw him not smiling, laughing and wanting to have fun. He worked hard, played hard.”

The Outer Banks Association of Realtors® posted the following message on its site: “It really gives you pause when a tragedy happens so close to home. The shocking news of a 41-year-old Realtor being shot and killed by his buyer is unreal.”

Source: “New Details Released in Death of Hampton Roads REALTOR® Killed in Murder-Suicide,” WTKR.com (Oct. 11, 2021) and “REALTOR® Shot and Killed in Portsmouth,” The Outer Banks Voice (Oct. 11, 2021)

© Copyright 2021 INFORMATION INC., Bethesda, MD (301) 215-4688


Lawmakers Consider Changes to Fla. Law After Surfside Tragedy

How can the state mitigate condo disasters following the tragedy in Surfside? A Fla. Bar task force pulled together experts and submitted its recommendations on Tues. In Sept., Realtors outlined the problems condo buyers face getting important docs, suggesting better records and tighter oversight.

TALLAHASSEE, Fla. – In the aftermath of the collapse of Champlain Towers South in Surfside, Florida, state lawmakers and other stakeholders looked closely at existing laws and asked what could be done to avert a similar tragedy going forward. The building collapse killed 98 residents on June 24, 2021.

In response, the Florida Bar created the Condominium Law and Policy Life Safety Advisory Task Force, a task force that interviewed or heard from experts in various fields. The task force submitted its report to Gov. Ron DeSantis and the Florida Legislature on Tuesday.

While the governor and lawmakers say they need time to study the report, it’s expected to spark a discussion and possibly lead to changes in Florida condo law during the 2022 session of the Florida Legislature.

The Florida Bar Condominium Law and Policy Life Safety Advisory Task Force report includes a number of recommendations for condominium developments in Florida, including:

  • Require timely maintenance and repair
  • Empower condo boards to impose assessments on owners
  • Empower condo boards to borrow money to pay for repairs
  • Mandate engineer or architect reports on each building’s common elements
  • Require those common-element reports to be updated every five years
  • Boost requirements for cash reserves

According to task force chair and Florida attorney Bill Sklar, the recommendation to boost cash reserves is likely one of the most controversial proposals.

Realtors note problems faced by condo buyers

Speaking before a Sept. 8 meeting of the task force, Florida Realtors® members pointed out problems faced by many condominium buyers – problems that also reflect on difficulties current condo owners face. They called for greater transparency in condo sales.

“There were 20 new sales and eight rentals preceding Champlain,” said Keith Wood, director of ERA American Real Estate Sales and Rentals, according to Florida Bar News. “Would this have occurred if the whole picture had been presented? Maybe. Maybe not.”

Wood said Florida condo buyers can’t easily obtain inspection reports to help potential buyers understand a building’s condition. “Prospective owners don’t know the right questions to ask,” he said. “The transparency side is fundamentally unfair, and in no one’s best interest.”

According to Wesley Ulloa, broker and founder of South Florida’s Luxe Properties, it’s not just records that are difficult to obtain. She told the task force that she sometimes has difficulty even identifying board members – and once she does identify board members and obtain records, the minutes don’t clearly state whether a vote was taken to waive the requirement that an association maintain adequate reserves.

“We would like that information upfront, and in an easily accessible manner,” she said at the meeting. “We believe it’s a best practice that reserves should not be waived.”

Ulloa cited an example in Florida Bar News: She said a professional condo management company recently produced maintenance and other records for her buyer just two days before closing – records that she requested weeks earlier.

“That is too late for a potential purchaser to make a decision,” she said. “We are putting a buyer’s back up against the wall to decide whether they want to purchase it or not.”

Danielle Blake, chief of public policy for the Miami Association of Realtors, focused on mandatory 40-year inspection reports required by some South Florida metros. “When buyers are asking, when members are asking, where do I get that report, I don’t know where to tell them to go,” she said.

Florida has over 900,000 condominiums that are at least 30 years old, and proposed changes could impact about two million residents. Roberto Balbis, principal engineer for Ardaman & Associates Inc., told the task force that 40-year inspection requirements aren’t mandated statewide, noting that Gulf of Mexico salt spray is just as corrosive as Atlantic Ocean salt spray.

“I don’t see why that certification shouldn’t apply to Tampa or Clearwater,” Balbis told the task force in September. “Forty years seems like a long time.”

Source: Wall Street Journal, Oct. 12, 2021; Florida Bar News, Sept. 10, 2021

© 2021 Florida Realtors®


Commercial Investors Worry About Possible 1031 Exchange Rules

WASHINGTON – One proposal in President Joe Biden’s $1.8 trillion American Families Plan has been drawing close attention from concerned commercial real estate investors. It would place a $500,000 limit on 1031 exchanges, which allow investors to defer paying tax on real estate gains if they reinvest the proceeds to buy other property within six months of the sale.

The bill would limit gains to $500,000 for each taxpayer ($1 million for married taxpayers filing a joint return) each year for real property exchanges that are like-kind. Any gains from like-kind exchanges in excess of these limits would be recognized by the taxpayer in the year of the exchange. The tax break has been in the U.S. tax code since 1921.

Putting a limit on 1031 exchanges “would absolutely slow down the movement of capital in the industry,” said Keith Sturm, a principal with Minneapolis-based Upland Real Estate Group.

A proposed increase in the capital gains tax from 20% to 39.6% would also reduce returns for real estate investors.

“Most commercial real estate transactions are pretty high-dollar amounts, $1.5 million-plus. People don’t like paying 40 to 50% in taxes on the value of properties. So instead of selling and losing half of their value they just might decide to hold onto the property,” Sturm said.

According to a study supported by accounting firm Ernst & Young, eliminating 1031 exchanges would negatively impact the economy by up to $13.1 billion annually. One analysis (backed by research from Ernst & Young) found that a repeal of 1031 exchanges would likely result in less federal tax revenue.

In a statement, the National Association of Realtors pointed out that 1031 exchanges are used primarily by retirees, investors and landlords, not by the super-rich.

To qualify for tax-free deferral of a gain, the law also requires that before an investor closes on the sale of property to be used for a 1031 exchange, they enter into a contract with a qualified intermediary who will receive (temporarily) the sale proceeds similar to escrow. The intermediary holds the funds until the new property is purchased, said Brad Williams, a real estate attorney and partner with the Dorsey & Whitney law firm in Minneapolis.

Williams said so-called “reverse exchanges” in which a replacement property is identified and purchased first, have become more common than in the past. That’s driven by the intense competition among buyers for suitable properties, in a “hot” market.

In some cases, the tax deferral enables 1031 property buyers to pay higher prices for more desirable properties, or put money into necessary improvements, Williams pointed out.

1031 exchanges are not always relatively simple deals of exchanging one property for another, Williams said. With new developments funded by multiple sources of 1031 capital, “some of those deals can get pretty exotic.”

Bill Katter, president and chief investment officer of United Properties Development, pointed out that tax deferrals for like-kind exchanges are not unique to real estate, but are also available in every other asset class, including stocks. Historically the exchanges have been heavily favored by investors to defer gains. Exchanges “have fueled liquidity in our business, particularly for long-term, net-lease property; for example, a Starbucks location with a 10-year lease,” Katter said.

The 1031 exchange has often been used by farmers who sell their land for single-family home development. The 1031s are usually focused on predictable income, as opposed to high-risk acquisitions, such as an office building which relies on a few tenants to generate income. “Single-tenant retail and multifamily housing properties are good candidates for 1031 buyers,” Katter said.

United Properties has developed a number of 7-Eleven retail outlets in Colorado, “and most of our buyers have been selling raw property or farmland.”

Farmers are allowed a “green acre” tax deferment when they sell land if it will continue to be used for agriculture. Otherwise, 1031 exchanges are the only way to avoid a big tax bill on such transactions, Katter said.

How likely is the prospect that 1031 exchange gains will be capped?

“There are differing opinions on that in the industry,” Katter said. “The consensus is that it is not likely to go away.” But the odds are not zero. He said real estate investors considering a 1031 exchange should stay well-informed on the applicable tax law discussions taking place in Washington.

Mox Gunderson, senior director of capital markets with the Minneapolis office of Jones Lang Lasalle, said he has recently observed “an increase in velocity” in 1031 transactions, possibly attributable to the possible change in the law. About half of the transactions his office handles as an intermediary broker are 1031 exchanges, many in the currently robust market for industrial properties. He also believes it is unlikely the proposed cap will become law, considering the positive impact the availability of 1031’s has on the economy.

“Any potential changes in the 1031 rules are certainly a concern to sellers,” said Sturm. “If the 1031 went away it would totally change the dynamics of real estate investment.”

One transaction typically triggers multiple transactions, he noted. “It might start with someone selling an apartment building in California. That person might do an exchange and buy a Walgreens in Minneapolis. The guy who sold that Walgreens might buy a Chick-fil-A [restaurant] in Tennessee. Eventually, somebody pays the taxes,” including state and local transfer taxes generated from each of the transactions.

Service providers involved in these transactions might include title companies, 1031 exchange companies, environmental companies, real estate brokers, lenders and attorneys. All of these service providers are paying income tax for the revenue generated, Sturm pointed out.

The 1031 exchanges also have the effect of promoting the “highest and best use” of ag property, for example a vacant property that is transformed into multifamily housing.

The time constraints placed on 1031 exchanges have a positive impact by inducing sellers to make decisions and complete new acquisitions within the time limit. Without exchanges, “I would expect velocity to slow tremendously.”

Also, without an exchange, a certain property may not be salable, where taxes would be higher than proceeds would be from a sale, Sturm said. “That happens quite a bit with farmland.”

Sturm believes the proposed cap originated with people who don’t understand how the 1031 process works. “Once people understand the process and what it is doing [for the economy], very few people would want to have it eliminated.”

Copyright © 2021 BridgeTower Media. All rights reserved; © Copyright, 2021, Finance & Commerce (Minneapolis, MN)


Fortify Finances Against Natural Disaster

It’s not enough to pack survival tools and photos when evacuating before a disaster. Pack cash too – or at least have credit that can help you cover the first few days.

MIAMI – Emergency preparedness experts recommend that you have a “go bag” and a “stay bin” for disasters: kits with supplies to help you survive a few days if you have to evacuate your home or shelter in place.

Preparing your finances for natural disasters is also smart. Having cash on hand, access to credit and the right insurance coverage can help you get through perilous times. Fortifying your home against disasters also can be a good investment.

Not everyone can make these preparations, of course. People with the fewest resources often suffer the brunt of disasters. But anything you can do to bolster your situation now could help you limit the toll.

Stash some cash

Having cash on hand could help you pay for groceries, gas, shelter and other necessities if ATMs and payment systems aren’t functioning, which could happen if the power goes out or cyberattacks knock systems offline.

You may need more than you think, especially if you’re away from your home for more than a few days. Insurance consumer advocate Amy Bach recommends keeping at least $2,000 in a safe place somewhere in your home. After a widespread disaster, there is often “incredible competition” for rentals and other lodging, and a cash deposit could help you secure a place to stay, says Bach, executive director of the nonprofit United Policyholders.

The currency should be in addition to any emergency savings you have at the bank. Again, anything is better than nothing. While financial planners typically recommend an emergency fund equal to three to six months of expenses, even a couple hundred dollars can help you cope.

Get some credit

Your insurance may have high deductibles or other limitations on your coverage that require you to pay thousands or even tens of thousands of dollars out of pocket. Earthquake and hurricane policies, for example, often have deductibles of 10% or more of the insured value. Insurers also may limit how much they pay for upgrades needed to meet current building codes or for replacing older roofs, Bach says.

A home equity line of credit can give you access to a relatively inexpensive source of money in an emergency. You’ll need to set this up long before disaster strikes, since lenders won’t let you borrow against a damaged home. Resist the urge to tap this credit for other purposes, so that the money is available when you need it.

An alternative if you’re a renter or otherwise can’t qualify for a HELOC is to ask your bank for a personal line of credit. Credit cards can also help pay the bills if there’s enough available credit. Once you have $500 or so set aside for emergencies, consider paying down your credit cards and aim to use no more than 30% of your credit limits. Using even less of your credit limits would be even better, because it frees up more space on your cards and also helps to build or maintain your credit scores.

Try to cover the big risks

Check your home’s susceptibility to various disasters at freehomerisk.com, a database created by HazardHub, which supplies risk data to insurance companies. Each hazard your property might face is graded from A to F. The lower the grade, the more you should consider ways to mitigate the risk if you can, says HazardHub co-founder Bob Frady.

That could mean buying additional coverage. A typical homeowners or renters policy doesn’t cover damage from floods or earthquakes, for example, but such coverage can be purchased separately.

Review your policy to see what’s covered and what’s not. Make sure you have replacement coverage for your possessions rather than actual cash value coverage, which pays considerably less. You’ll also want at least 24 months of loss-of-use coverage, which pays for your living expenses while your home is rebuilt, Bach says. Widespread disasters can cause even longer rebuilding times.

“It usually takes at least two years to rebuild after a wildfire,” she says.

Protect your property if you can

There’s no way to make your home entirely disaster-proof, but there are ways to “harden it” to reduce potential losses, Frady says.

Frady helped start HazardHub after a friend’s home suffered significant uninsured damage when a nearby river overflowed its banks. The friend didn’t realize she lived next to a flood zone because she wasn’t required by her mortgage lender to buy flood insurance, Frady says. If she’d known, she could have purchased the insurance and taken steps to protect her property, such as regularly changing the batteries in her sump pump, which failed, and keeping valuable items out of the basement or other low points in the house.

Installing storm shutters may reduce losses to hurricanes and tornadoes, while bolting your house to its foundation can help it survive an earthquake.

“There’s power in knowing what the perils are, and that can lead you to create a safer location,” Frady says.

Liz Weston is a columnist at NerdWallet, a certified financial planner and author of “Your Credit Score.”

Copyright 2021 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed without permission. This column was provided to The Associated Press by the personal finance website NerdWallet.