Interest rates are rising and home prices are seeing double-digit increases on a national basis, making it clear that real estate is entering a different phase from what we’ve seen in the past several years, when the market was all about recovery from the downturn.
Given these new dynamics, REALTOR® Magazine conducted a Q&A with J. Lennox Scott, chairman and CEO of brokerage giant John L. Scott Real Estate, based in Seattle, to get his views on where the market is now and what to expect in the months ahead. Scott’s company is among the largest in the industry, according to RIS Media’s 2013 Power Broker Report, with $3.8 billion in sales volume in 11,833 transactions by 1,078 sales associates in 31 offices. Those figures are for company-owned offices. When affiliate network offices are included, the volume is more than $7 billion in 27,000 transactions at 110 offices.
Scott’s view is that, against the rise in interest rates and the continuing strong appreciation nationally, the industry is settling in for a period of long-term stability.
REALTOR® Magazine: You say the market is transitioning to a healthy, sustainable phase, even though interest rates are rising, prices are seeing double-digit increases, and credit underwriting remains tight. Why do you say that?
J. Lennox Scott: It’s true markets are facing challenges. In addition to the three you mentioned, you can add as challenges continuing tight inventories and a drop in the activity of investors, who were so critical to the recovery right after the downturn. But we also have healthy fundamentals, particularly with job growth increasing. So, as long as we can count on continuing improvement in the fundamentals, we’ll see a smooth transition to a long-term, sustainable market.
RM: What could derail the fundamentals?
JLS: Well, action by the federal government, for one thing. What we need more than anything, in addition to improvements in the jobs picture, is the continued availability of safe, affordable mortgage financing. So, how the federal government reforms Fannie Mae and Freddie Mac, what it does with the qualified mortgage (QM) rules that are coming out next year, and what it does to FHA, VA, and federal rural housing down payment requirements, is critical.
On these issues, we need to keep low down payment requirements for FHA, VA, and the other federal loan programs and not overreact to the loose standards half a dozen years ago that led us to the financial crisis. Remember, it wasn’t low down payments that created the bad loans; it was lax underwriting standards. That problem is now fixed; the bad exotic mortgages for people who shouldn’t get them are gone, and the newest vintages of mortgages are performing well. So, we need to keep down payments low—3.5 percent on FHA loans, for example—to enable responsible households to overcome the down payment hurdle and become home owners. And we need to dial back credit standards to normal—where they were before lenders overly relaxed them during the boom. Lastly, the federal government has to get Fannie and Freddie reform right, because they’re the reason we have affordable, 30-year mortgage financing.
RM: You mentioned fundamentals. What besides job growth is healthy now?
JLS: Household formation is picking up again. That’s key for future first-time home purchases. FHA, VA, and other federally backed loans, including rural housing loans, still have low down payments. And, thanks to rising prices, more owners are no longer underwater, so they’re in a position to sell if they want. That helps create more inventory and more buyers.
RM: Given these improving fundamentals, is it a good time to buy?
JLS: If you’re selling but not planning to buy another property, then whether to sell now will depend on a few factors. You’ll want to watch your local market inventory. If it’s low, supply will be constrained and prices will head up. The tighter the inventory, the stronger the price growth. So, you might want to wait.
If you’re selling and also plan a move-up purchase, interest rates will be a key factor. If inventory is tight, prices will go up, both on the house you’re selling and on the one you want to buy. So, where interest rates are could be a deciding factor. You might want to buy soon, before rates go up much more. As a general rule, for every 50-basis point-increase in rates, you lose 5 percent of your purchasing power.
RM: So, bottom line, you’re saying the recovery phase of the real estate market is ending, market fundamentals are strengthening, and despite raising rates, the market is entering a long-term, sustainable phase and will stay there as long as the fundamentals, led by job growth and household formation, stay strong and the federal government doesn’t derail things by getting QM, Fannie and Freddie reform,, and FHA reform wrong.
JLS: That’s right.
For a bit more detail on Scott’s views about how the latest market dynamics affect long-term sales trends, click on the chart below.
REALTOR® University launched its Master of Real Estate (MRE) progarm last year and more than 60 students are enrolled now, making it one of the largest real estate graduate programs in the United States. It’s an online-only program, so real estate professionals can attend classes without having to travel or take time out of their work day. Since its launch, RU has been making video testimonials available from students so others can get a sense of what the coursework is like.
In the school’s two most recent testimonials, Mary Martinez-Garcia and Kate Stockert, both of whom are concentrating in real estate association management as NAR employees, share their thoughts on the program.
Mary is halfway through the program and she says the program is rigorous and has taken her out of her comfort zone in many ways, but she’s gotten a much deeper and broader understanding of real estate than she had before, and has learned some skills that she’s already been able to put to use in her work.
Kate is in her eighth class and is finding that the courses, although grounded in theory, have practical applications that she uses in her work. She talks about the skills she’s learned that have helped her implement an association program of a type that she hadn’t implemented before, illustrating the practical applications of what she’s learning.
Recent court cases are giving REALTORS® reason to be optimistic in their efforts to curb the unauthorized use of their MLS data.
Two weeks ago the Key West Association of REALTORS® scored a major victory when a U.S. district court judge in Florida levied a $2.7 million fine against a businessman named Robert Allen, whose KeyWestMLS.com and other websites were found to be using the association’s listing data in violation of copyright laws. The large fine is attention-getting, and that was the point, according to the judge, Justice Lawrence King, in his May 22 decision.
“Awarding a lesser amount of damages would not serve the purpose of the Copyright Act in deterrence of further wrongful conduct by Defendant,” the judge wrote. “Absent the maximum statutory award of damages, future potential infringers of Plaintiff’s MLS copyrights will only see the potential benefit of high commissions from ill-gotten leads. As such, the maximum statutory damage amount is necessitated to deter the future conduct of Defendant Allen and others.”
Similar cases are pending in U.S. District Court for the District of Maryland and in U.S. District Court for the District of Minnesota. It’s not clear when the judges will issue rulings on them but in a positive development last week, a judge has dealt a setback to the defendant that’s the subject of both cases.
The company is American Home Realty Network (AHRN) and it was sued last year by Metropolitan Regional Information Systems Inc. (MRIS) for using its MLS listing data without authorization on its website, NeighborCity.com, and then by the St. Paul, Minnesota-based Regional Multiple Listing Service of Minnesota Inc. (NorthstarMLS) on similar grounds.
After the cases were filed, AHRN tried to turn the tables on the two MLSs by filing a counterclaim in each case alleging that the MLSs violated antitrust and other laws in an effort to drive the company out of business. In the Maryland case AHRN also named NAR as a defendant in its counterclaim, asserting that NAR participated in the alleged conspiracy to discourage participation with AHRN.
There were seven counts in AHRN’s counterclaim, and last week in the Maryland case the Court dismissed all of them, although it left the door open for the company to amend three of its those counts and resubmit them for further consideration. The company has until the end of next week to do so, but even if it does it faces a steep hurdle based on some of the language the judge used in his June 10 order. “In light of the deficiencies identified herein,” Justice Alexander Williams, Jr., said, “ the Court has serious reservations about AHRN’s ability to set forth a cognizable [unfair competition] claim against” the MLSs.
It remains to be seen what will ultimately happen with the MLSs’ cases against the company for copyright infringement, but the positive outcomes of this ruling is an encouraging development for MLSs as they try to maintain control of where their listing data is displayed on the Internet.
For the last several years NAR has been making tens of thousands of dollars a year available to state and local associations for smart growth initiatives and so far more than $1 milion has been given away to 265 associations. That dollar amount is noteworthy but what’s interesting about the program is what the associations are using the money for.
The Michigan Association of REALTORS® has an extremely innovative program that has to do with “placemaking,” a term that refers to ways to make communities more fun to be out and about in. At the moment, the Michigan program is limited to a pilot effort in Lansing, but it’s bursting with ideas that can be applied anywhere. Among other things, the program uses $20,000 in NAR funds to help pay for a farmer’s market, live music performances in an underused urban park, and the refurbishing of a once-downtrodden neighborhood to attract private investment as part of an effort to turn the area into a mixed-use destination.
The Greater Nashville Association of REALTORS® is using $10,000 to help fund a citizens’ transit council, which is intended to make residents more knowledgeable about land-use issues and get them to think more broadly about how land use relates to quality of life.
And in Memphis, the association is using an NAR grant on a “Complete Streets” initiative, which is a strategy for retrofitting streets so they’re safe and attractive to all users, not just drivers.
All of these projects in some way relate to smart growth, a term that means different things to different people. What smart growth really boils down to is simply making communities nice places to live even as population densities increase. These and other grant projects are as varied as can be, and yet they’re aiming for the same thing: creating a pleasant place for people as they’re out and about in their community.
As we know, community quality of life is one of the underwriters of property markets and home values, so there’s a concrete return on investment as commercial and residential real estate markets respond to improved conditions. Of course, it’s hardly the only answer to improved markets. Nothing is that simple. But it’s one of the pieces to the economic puzzle, and it could be a starting point for maintaining the livability of your community as population densities increase.
To help you become more familiar with the smart growth grants, we produced a 4-minute video, which is posted above . It looks at some success stories and then invites you to learn more on the smart growth section of REALTOR.org.
A number of news articles during the thick of the housing bust and even some today suggest that younger households have been spooked out of buying a home because of market uncertainties.
“The younger you are, the more freaked out you are likely to be by the housing market crash,” says Micael Derby in an October 2011 Wall Street Journal blog post called “Next Generation Less Confident About Home Ownership.”
“You can . . . conclude that young peoples’ aversion to home owning is an overreaction to a unique recession,” says Derek Thompson in “The End of Ownership: Why Aren’t More Young People Buying More Houses?” in the February 2012 issue of The Atlantic.
This line of thinking has a compelling logic to it but a researcher at Washington State University says it doesn’t hold up to scrutiny. He conducted an analysis of U.S. Census population figures and also of data from the America Community Survey, which is an affiliated Census research project, and found young households actually have higher homeownership rates than baby boomers and Gen Xers when they were at a comparable stage in their lives.
He also conducted a survey of young people in real estate classes at his university, a group that’s predisposed to be interested in real estate, and says this group’s intention to buy property grew over the course of a semester even though the downturn was examined during the period.
Glenn Crellin is the author of the study and he’s no newcomer to real estate. He’s the associate director of the Runstad Center for Real Estate Studies at Washington State University and a former economist at NAR. He published his paper in the inaugural issue of the Journal of the Center for Real Estate Studies, published by REALTOR® University’s Center for Real Estate Studies.
Problems getting action on short sales aren’t in the news as much as they were a few years ago but they remain a stumbling block to business and efforts to speed up processing are still needed. Fannie Mae is hoping some changes it launched this week will help it continue a process it started earlier this year to make it easier for you to at least get action on your short sale offers.
Under these changes, Fannie is asking you to submit your short sale offer to it at the same time that you submit it to the company that’s servicing the mortgage. By submitting your offer to the two companies simultaneously, you enable Fannie, if it’s the investor on the mortgage, to start taking some of the steps needed to get the application processed. These steps include ordering an appraisal and broker price opinion and reaching out to the servicer to help keep the processing on track. Also, if the servicer needs Fannie to review the application as the investor, Fannie can start doing that without delay.
Beyond these process changes, the company has added pages of information on its website for the listing agent to help remove much of the guesswork from the process. What are acceptable closing costs? What sellers are eligible for a short sale? What steps are needed to get a recommended list price? And so on.
These steps come on top of changes the company rolled out a few months ago that were centered on the company’s online submission and escalation processes. That escalation process was intended to give you a direct line to the company if you weren’t getting answers from the mortgage servicer.
The changes apply to Fannie Mae loans, and that’s a pretty big part of the market, so if they result in quicker processing, they could have a material impact on the short sale market as whole.
To help you learn more about these and Fannie’s previous short-sale changes, Heather Elias, NAR’s director of social business practice, sat down with Jane Severn of Fannie Mae for a 4-minute video interview. You can access that above. Severn is with Fannie Mae’s credit loss management division.
By Katie Johnson
You’ve got options if a licensing agent demands a fee for scanning and e-mailing document.
[JULY 1, 2013, UPDATE:
The patent owner described in this article, MPHJ, is taking a break from its patent licensing campaign. At the end of June, the company sent letters saying it was ceasing its enforcement actions against businesses it had previously alleged were violating its patents on multifunction copier-faxing machines. The letters offer two reasons for it's change in policy. First, the digital imaging manufacturer, Canon, has reached an agreement with MPHJ that protects all Canon customers from MPHJ’s patent infringement allegations. Second, entities have filed petitions with the U.S. Patent and Trademark Office to invalidate MPHJ’s patents. The letter concludes: “While this review is underway, we do not anticipate taking any action, having our counsel take any action, or corresponding with you further, with respect to any potential license with you. Accordingly, unless and until you hear from us in writing, you may consider the matter closed.” It appears that particular instance of patent trolling may soon be water under the bridge.---Katie Johnson]
Back to original article:
If your brokerage has been contacted by a company to pay a license for the right to scan a document to e-mail, you’re not alone. Real estate offices around the country have received letters from companies called AllLed, AdzPro, GanPan, and HeaPle, among others, claiming to have the exclusive right to send documents via e-mail from a multifunction copier machine, and demanding that you pay a licensing fee of $900 to $1,200 per employee before you can send a document.
Behind these demands is a company called MPHJ Technology Investments Inc., which owns several patents on the process of scanning or copying a document and sending it via e-mail from the same machine.
MPHJ is known as a nonpracticing entity, or patent troll, because it doesn’t produce anything; it merely asserts its rights to exclude others from using its patents. MPHJ has created about forty shell companies, usually with six-letter LLC names, to assert its patent rights.
It’s been widely reported that this patent troll has been targeting small and mid-sized businesses in a variety of industries in its effort to generate license fees by sending three standard demand letters through its shell companies. The initial letter is on company letterhead and requests a license fee. If that goes unanswered, a second letter is sent from a Texas law firm called Farney Daniels P.C. seeking a response and threatening legal action. If the second letter is ignored, a third letter is sent from the same firm and it contains a draft complaint that the firm threatens to file if a license agreement is not reached.
There is no evidence that MPHJ knows of any infringement before sending these letters. If you receive a letter, you should discuss your options with your legal counsel. Among the options to consider is:
- Ignore the letter. We’re not aware of any case that has actually been filed against an alleged infringer.
- Respond with a request for specifics. Ask why your equipment or software infringes the patents.
- Deny in writing that there is any infringement.
- Pay the license fee.
- Challenge the patent’s validity. After all, the patented process of scanning a document and sending it via e-mail from the same machine is a common, widely accepted practice. To submit a challenge, you can file a declaratory judgment action against the patent troll in which you seek a ruling by a judge on the patents’ validity. One company in Louisiana is trying to do this right now with a lawsuit it filed in federal court in April.
However, a more effective approach might be to file what’s known as an inter partes review with the U.S. Patent and Trademark Office, asking it to invalidate the patents. The manufacturers of the machines that make this patented process possible have taken a great interest in MPHJ’s efforts because it is their customers who are being asked to pay the fee. So, Xerox, Ricoh, and Hewlett Packard have recently filed inter partes reviews.
In addition to these attempts to invalidate the patents, Vermont’s attorney general has recently filed a consumer fraud lawsuit against MPHJ, alleging the patent owner’s aggressive licensing campaign amounts to unfair and deceptive acts. Unfortunately, it could be a long time before there is an outcome to any of these legal proceedings. In the meantime, you’re encouraged to consult with your legal counsel and consider your options if this patent troll finds you.
Learn more in a 6-minute audio podcast presented by NAR Legal Affairs.
Katie Johnson is NAR associate counsel. She can be reached at firstname.lastname@example.org.
For years the availability of federally backed flood insurance was an on-off affair. The program was $18 billion in debt to the U.S. Treasury, largely because of Hurricanes Katrina and Rita in 2005, and Congress would only renew the program for short periods of time because it wanted to delay long-term reauthorization until top-to-bottom program reforms were included. The result was uncertainty in the marketplace to an extreme level, with no fewer than 17 last-minute program reauthorizations in just a few years and two actual shut-downs. Not a good situation in areas where flood insurance is required to get a loan and the National Flood insurance Program (NFIP) is the only insurer in town.
Congress finally enacted long-term reauthorization last year and as part of that included long-sought reforms to help improve the actuarial soundness of the program.
What these long-sought changes mean, though, is a gradual phase-out of insurance subsidies that go to a small percentage of property owners.
The phase-out of subsidies is part of the package of reforms that are intended to make the flood insurance program more financially sound. For years, a small portion of property owners have been paying far below the actuarial cost of their policies because of previous legislation. In some cases, the premium subsidies were for properties that were in areas in which outdated flood maps had been grandfathered in. In other cases, the subsidies were for properties that pre-date the drawing of their area flood maps. These are referred to as pre-FIRM properties ( with “FIRM” standing for “flood insurance rate map”).
In all, there are several classes of property that have had their flood insurance premiums subsidized over the years, and now, starting this year, their subsidies will start to phase out gradually. That means that some owners will face rising insurance premiums over the next few years.
No one can be expected to like seeing their subsidies phased out, but for supporters of reform, it was either that or not having any flood insurance available at all.
You can learn more about the phase-out in the 4-miniute video above.