Colorado Springs-area home sales fell again last month and prices remained flat as the local housing market continued to feel the effects of spiking mortgage rates.
According to a new Pikes Peak Association of Realtors market trends report that examined home sales last month that took place mostly in the Springs and surrounding El Paso County:
• Single-family home sales totaled 1,067 in August, a nearly 22% decline from the same month last year and the 15th consecutive month that local sales have fallen on a year-over-year basis.
• Homes spent an average of 29 days on the market in August before they sold, an increase from 17 days during the same month last year.
• The median price, or midpoint, of homes that sold in August was $480,000, a 0.1% drop from $480,592 in August 2022. Home prices had increased each month from December 2014 to November 2022, but began to slide late last year and now have declined on a year-over-year basis in eight out of the last nine months.
• The supply of homes listed for sale totaled 2,420 in August, down 8.3% from the same month last year. On the one hand, August’s listings were the most for any month since November, yet they remained far below pre-Great Recession years, when August inventories often topped 3,000 and 4,000.
The Springs-area housing market, like that of many other cities, has done an about-face since the second half of last year because of higher long-term mortgage rates.
For years, historically low rates in the neighborhood of 3% for a 30-year, fixed-rate loan helped spur a furious demand for single-family homes. That demand, coupled with a shortage of properties for sale, sent Springs-area median home prices soaring over several years; in June 2022, they hit a record high of $495,000.
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After the Federal Reserve began to hike interest rates last year to tamp down surging inflation, mortgage rates rose, too, and roughly doubled to more than 6% for 30-year loans by the end of last year.
That trend of high rates continued through the first several months of this year. In mid-August, long-term mortgages topped 7%; last week, the national average for a 30-year, fixed rate mortgage was 7.18%, according to mortgage buyer Freddie Mac.
Higher rates have priced many homebuyers out of the market and sent sales plunging.
Local real estate agents, however, have said that the demand for homes remains relatively strong. As a result, and combined with tight inventories, prices haven’t plunged, though they are down from their record highs.
The new home side of the Springs-area housing market also has felt the effects of higher mortgage rates.
In August, 127 permits were issued for the construction of single-family, detached homes, according to a new Pikes Peak Regional Building Department report. August’s tally was up 15.5% compared with the same month last year.
But the pace of home construction through the first eight months of this year remains well behind the same period in 2022, Regional Building Department figures show. Through August of this year, single-family detached permits totaled 1,655, down 36.4% from 2,604 on a year-over-year basis.
Intercontinental Exchange (ICE) completed its acquisition of Black Knight Tuesday, making the combined company the biggest player in the mortgage tech space. I sat down with Tim Bowler, president of ICE Mortgage Technology, a business unit of ICE, to talk about the company’s mortgage automation strategy — and what keeps him up at night.
Sarah Wheeler: ICE’s acquisition of Black Knight just closed today. What is top of mind for you moving forward?
Tim Bowler: We’re incredibly excited about what we will be able to bring to our customers, to borrowers, as well as to other stakeholders across the mortgage ecosystem. We’ll accelerate our focus on delivering value and efficiencies with the combined ICE and Black Knight entities so we can continue the journey of helping more people into homeownership.
SW:ICE Mortgage Technology is known for its focus on automation. What parts of the mortgage loan process have been the most resistant to digitization up to this point?
TB: It’s hard to say because there are so many different kinds of transactions between borrowers and lenders. What we’re trying to do at ICE is break down the various transactions where a borrower and a lender might interface and figure out how we can deliver a set of technology tools and solutions so that the borrower can get their loan — for purchase or refinance — as fast as possible with the least amount of cost.
That mindset of knowing that mortgage transactions vary depending on the borrower’s circumstances is an important lens for us because it helps us actually get to the solutions that make the most sense for each one of those discrete transactions.
SW:How does ICE determine the right balance between automation and the human element?
TB: The reality is that the mortgage process, particularly in today’s purchase market, is still a deeply human process. We realize that we are providing the appropriate set of tools and solutions to those humans who are helping those borrowers through the most important financial transaction of their life, so that the processcan be as efficient, seamless and pleasant as possible. The right technology can help you achieve faster approvals and faster closing, while also giving greater comfort and certainty to that borrower.
It’s also helping those borrowers find the right products. Those will inevitably flow through a lender, so we make sure that the lenders have as much information as possible around what might be the best, most appropriate alternatives to present to borrowers.
SW:The FHFA recently held a tech sprint for the mortgage industry and part of the goal was to find out why adoption was low on some of the tech solutions that have been available for years that could really benefit lenders, servicers and borrowers if they were adopted. What do you see as the key obstacles to tech adoption now as, as opposed to in the past?
TB: It seems like each mortgage process should be relatively standardized because we’re manufacturing loans — the vast majority of which will be purchased by the two GSEs or insured by FHA, VA or USDA.
But in the midst of that process is an individual or family and it ends up being a very human-to-human experience. Maybe in the past, the industry looked and asked how we could just industrialize everything associated with the mortgage underwriting approval and funding process too myopically. We think taking a step back to look at that origination process through a human lens will be helpful to increase the uptake of some of the tools that are out there to make the process work.
SW:The cost of origination has been front and center for mortgage banking executives. How are the most successful mortgage executives prioritizing their resources right now?
TB: In this purchase market, it’s the ones who are identifying borrowers they can work with on purchasing that first home. Or, if they are selling and then buying another home, the lenders getting them approved as fast as possible. It’s so important in this market that when a buyer puts an offer on a home, it’s 100% clear that financing is available and ready to support the purchase. And then closing as fast as possible because we’re still in a tight housing market with tight inventory.
SW:We know that homeowners who locked in low mortgage rates might stay in their current home for years. And that’s just building on a trend that’s just been going on even before we got to these really low mortgage rates. What’s the role of tech as lenders play the long game in this market?
TB: Many families and households locked in extremely favorable rates. But I think there’s a dynamism in the U.S. economy and in the housing markets that means people will still move, they’ll still buy a bigger home when the time is right.
In today’s environment, I think there are going to be more households looking to use their equity to invest in their home within the context of retaining the existing primary mortgage that they have at attractive rates. So, for us as a technology provider, it is finding solutions that make it efficient for borrowers to make important investments in their house through mortgage products that meets their needs from a pricing perspective, while also delivering a smooth experience throughout the process.
SW:Affordable housing initiatives are on the radar of more lenders this year, but your typical loan officer may not have a lot of experience there. How are lenders helping borrowers take advantage of loan product innovation and affordable housing initiatives?
TB: There’s no doubt that debt-to-income levels are going to be stressed for that first-time borrower because home prices have remained high despite higher interest rates. And I think it’s incumbent on all of us in the industry to provide tools so lending officers have the knowledge they need to help borrowers access affordable programs, so they know what’s available and how pricing works for those programs.
SW:AI has really stepped into the spotlight this year. Is this going to be a time we will look back on as being a turning point?
TB: The way I think about a lot of these new tools that are being created, whether they be generative AI or more efficient search or more efficient document recognition, is that they should be used to help buyers have a better experience. Correctly harnessed and used, AI could ultimately lead to a more efficient process where decision-making for the borrower is faster.
Our team is focused on thinking about technology in this way: How do we help our customers and partners help borrowers have a better experience through the advanced technologies and tools that are being developed?
SW:Looking out 10 years, what part of the mortgage ecosystem will have changed most in that time frame? What challenges do you think we’ll still be talking about solving with technology?
TB: There are four key aspects to the mortgage process that could be evolved. First is determining whether the homebuyer has the capacity to cover that housing cost on a regular basis. And my hunch tells me that over the course of the next decade, we’re going to develop better tools than those that exist today to be able to highlight the fact that borrowers have the ability to repay on their loan. And a lot of that will come from better mechanisms to evaluate past rental history and the borrowers’ ability to manage housing payments consistently.
As a technology provider, we want to find a better way to show the ability to repay so that the ultimate investor in that mortgage or the insurer feels comfortable with it without having to retain massive amounts of personal information on a multi-decade basis, which is inefficient for the system and puts that information at risk.
Secondly, I think the tools around how we assess the value of the property and the risk associated with that property will evolve to drive a more efficient process, particularly for that first-time borrower or that lower wealth transaction.
The third area is trying to find a way to have a better outcome with refinancing for lower loan balance borrowers than what we saw in the last period of refinancing where the frequency of higher loan balances refinances was just so much greater relative to moderate-balance borrowers, who could benefit the most.
Lastly, this is just a deeply personal point for me because I’m always shocked at how inefficient it is: We’ve got to be able to use technology so when a borrower makes that last payment on the mortgage and owns that house free and clear, the release of liens or security interests is improved.
SW:You are the head of a very large mortgage tech company. What keeps you up at night?
TB: The lack of housing supply in the country and the lack of affordable housing supply, specifically. That lack is driving the cost of housing to artificially high levels that is really squeezing so many lower- and middle-income households.
And I’m hoping and praying that policymakers can be more creative and collaborative in that regard because we have to solve it for this generation of kids and the next generation of kids to come. So that they’ve got adequate housing at fair prices that does not chew up half of their paycheck — that is absolutely critical if you want to keep this economy going.
SW:Lastly, what makes you hopeful or optimistic about our industry right now?
TB: I’m deeply optimistic about our industry. Despite the fact that we face a myriad of challenges, I wouldn’t trade our mortgage market for any other mortgage market on the planet. We’re innovative, we’re dynamic, we have the ability to fund mortgages through thick or thin. We have all the tools at our disposition to retain the best mortgage market on the planet.
It is just incumbent on everybody in the ecosystem to work hard every day and in every way to make a difference to have a better, fairer, more dynamic market.
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Although best known for being one of the largest airlines in the world, American Airlines also boasts one of the oldest airline mileage programs ever created.
The AAdvantage program has changed significantly since being launched in 1981. However, it remains one of the most rewarding mileage programs around.
Curious about the best way to use your AA miles? Let’s first recap how the American Airlines mileage program works and then highlight some of the best uses of AA miles.
Basics of American Airlines AAdvantage miles
American Airlines stands out from its competition in still publishing some sort of award mileage chart.
For award flights on American Airlines, the airline now only lists a starting price with no upper bound on just how high the award price could go.
However, American Airlines publishes a fixed award chart for award flights on partners. Award rates vary based on the region you’re departing from, the region you’re flying to, the class of service you’re booking and sometimes even the partner you’re flying on.
Flight distance doesn’t play a factor in award pricing.
Unlike Delta SkyMiles and — to a lesser extent — United MileagePlus, American Airlines awards aren’t as closely tied to the cash price of a flight. That means you can still find outsized value on American Airlines flights.
However, due to its predictable pricing, partner award flights are generally the best use of American Airlines miles. Let’s take a look at some of the best uses of your AA miles.
Best American Airlines Sweet Spots
1. Domestic American Airlines awards from 6,000 miles
The American Airlines award chart now shows one-way domestic awards starting at 7,500 miles in economy or 15,000 miles in business class. However, in practice, American Airlines still prices domestic economy awards as cheap as 6,000 miles each way.
And these bargain-basement rates aren’t just limited to short flights. For example, you can fly from Fort Lauderdale, Florida, across the country to Burbank, California for just 6,000 miles.
If you booked the same flight using cash, you’d need to pay $295 for a standard economy flight — the most comparable cash fare to award tickets. That means you’re getting almost 5 cents per mile from this mileage redemption. That’s more than three times NerdWallet’s valuation of 1.5 cents per AAdvantage mile.
2. American Airlines awards to Mexico, the Caribbean and Central America
American Airlines awards to Mexico, the Caribbean and Central America now start at just 10,000 AAdvantage miles each way in economy or 20,000 miles in business class. That’s an excellent price for flights that can cost hundreds of dollars.
These award rates aren’t available during peak travel times. However, travelers with a flexible travel schedule may find pretty widespread pricing at this rate.
3. Off-peak and low-season awards to Europe
American Airlines no longer publishes an off-peak award chart for its own flights. However, you can still book off-peak awards to Europe on partners for 22,500 miles each way.
Even better, you can currently book awards on American Airlines between the U.S. and Europe for 42,000 miles round-trip. Note that you’ll need to book a round-trip to get this rate. American Airlines charges 25,000 miles each way if you book two one-way flights.
4. Award flights to Morocco — or beyond into Europe
If you used American Airlines’ award chart as a reference, you might fail a geography test. That’s because American Airlines treats Morocco as a part of Europe. That’s a good thing for travelers as it means you can fly to Morocco for as few as 22,500 miles in economy or 57,500 miles in business class.
Comparatively, awards to Africa cost 40,000 miles in economy or 75,000 miles in business class. Unfortunately, that’s the price you’ll get stuck paying if you connect onward from Casablanca into other parts of Africa — even on a short onward flight to Tunis, Tunisia.
Treating Morocco as part of Europe means that you can also connect through Casablanca on the way to “other” European destinations for no additional mileage cost. This gives American Airlines travelers another way to fly across the Atlantic without paying high taxes and fees on British Airways.
5. Qatar Qsuite to the Maldives or other parts of the Indian Subcontinent
Qatar Qsuite is widely regarded as one of the best business class products in the world. And one of the least-expensive ways to experience it for yourself is by booking with American Airlines miles.
Nonstop flights from the U.S. to Doha, Qatar cost 40,000 miles in economy or 70,000 miles in Qatar Qsuite business class. Even better, you can connect onward to destinations throughout the Middle East or Indian Subcontinent for no additional miles.
You can stretch this award price to its limits by flying to India, Nepal, Sri Lanka or even the Maldives.
6. Flying Japan Airlines to Japan or Korea
Lastly, we would be remiss not to discuss American Airlines’ partnership with Japan Airlines. AAdvantage members can book travel on Japan Airlines between the U.S. and Japan at the following rates:
35,000 miles each way in economy.
50,000 miles each way in premium economy.
60,000 miles each way in business class.
80,000 miles each way in first class.
Japan Airlines provides a top-notch experience in all cabins, making any of these four options potentially a good deal. Business and first class especially stand out as amazing opportunities for using AA miles.
With that said, premium cabin award availability can be especially hard to find between the U.S. and Japan. On dates where there is any award availability, you’ll often find just one seat available.
Earning AAdvantage Miles
American Airlines offers dozens of ways to earn AAdvantage miles. At last count, we found 32 ways — including:
Flying on American Airlines or its partners.
Booking hotels through AAdvantage partners.
Spending on an AAdvantage credit card.
Shopping through the eShopping portal.
Earning through saving with Bask Bank, and so many more.
One of the biggest limitations of the American Airlines AAdvantage program is its lack of transfer partners.
Of the five major transfer point programs, American Airlines only partners with Marriott Bonvoy. You’ll get one AAdvantage mile for every three Marriott Bonvoy points transferred.
If you’re looking for the best use of AA miles
American Airlines offers a diverse range of ways to use AAdvantage miles for good value — from 6,000-mile domestic awards to flying some of the best business- and first-class products in the world for a reasonable mileage rate.
The best use of AA miles just depends on where you want to go.
(Top photo courtesy of American Airlines)
How to maximize your rewards
You want a travel credit card that prioritizes what’s important to you. Here are our picks for the best travel credit cards of 2023, including those best for:
Well, it took 79 years, but the FHA’s squeaky-clean track record is over.
FHA Commissioner Carol Galante wrote a letter to Congress formally requesting a bailout from the Treasury, the first time the agency has ever had to go down that road.
And it’s no small number either – the government housing agency needs a staggering $1.7 billion to meet the capital requirements of its depleted Mutual Mortgage Insurance Fund.
However, Galante stressed that the money wasn’t necessary to handle claims activity, and that the agency has “more than sufficient resources.”
In other words, the money is only necessary to keep the capital reserve ratio above two percent, with the money being transferred before the fiscal year ends on Monday September 30th.
Of course, just like any other company that insures mortgages, the last five or so years have been rough.
High-Risk Loans Crushed the FHA
The agency originally lost its shirt on seller-paid down payment assistance loans, which allowed borrowers to purchase homes with absolutely nothing down.
As we all know, those who had nothing to lose eventually walked away from their homes when values went south.
And more recently the FHA registered $5 billion in losses through its troubled reverse mortgage program, in which seniors took huge draws and eventually defaulted on the mortgages tied to homes worth considerably less.
Still, the worst seems to be over, as indicated in testimony before the Senate Committee on Banking in late July of this year.
At that time, Galante said serious delinquencies on FHA loans fell from 9.59% in December 2012 to 8.27% in May 2013, and noted that cures (where bad loans get back on track) began surpassing new serious delinquencies in April of this year.
So it’s more about playing catch-up to meet a Congressionally-mandated rule related to old data, not so much a sign of the times.
FHA Loans Are More Expensive Because of the Mess
The FHA has already made a ton of changes to bolster reserves, namely charging new borrowers a lot more than they used to.
This includes more expensive upfront and annual mortgage insurance premiums, and insurance that stays in force a lot longer.
The UFMIP was increased from 1% to 1.75% in 2012, and annual premiums have increased several times over the past few years.
And the latest change requires many FHA borrowers to pay mortgage insurance premiums for the full term of the loan, even if the LTV ratio drops to 78%.
A couple of years ago the agency also introduced a minimum credit score of 500, and upped the credit score requirement for its signature 3.5% down loan program to 580.
In short, today’s FHA borrower is paying the price for the mistakes made leading up to the housing crisis, which while seemingly unfair, is the only move the agency can make at this point.
Unfortunately, FHA lending has gotten a lot less popular due to these changes, which is a bit of a catch-22 for the agency.
Galante blamed higher mortgage rates for the recent reduction in loan volume, which apparently led to the request for the bailout. But let’s be honest, conventional loans make a lot more sense for borrowers these days in light of all those premium hikes.
Wait, the FHA Still Doesn’t Get It?
In spite of all this, the FHA is still engaging in highly questionable lending practices today.
Their latest grand idea revolves around those who recently sold short, got foreclosed on, or filed for bankruptcy.
Many of these borrowers will be able to apply for FHA loans just one year after such a massive event, so long as they can jump through a few underwriting hoops.
This has bad idea written all over it, but the FHA is moving forward with the initiative. The question remains whether lenders will play ball, or simply throw overlays on top of it.
It’s clearly irresponsible, but I suppose we don’t know if the FHA is getting pressured to keep the spigot open for less creditworthy borrowers, which after all, is their original mission.
Large metro core counties posted the lowest annual single-family home building growth rate at -24.8%. All large and small metro areas reported double-digit negative growth rates, while rural markets (defined as micro counties and non-metro counties) recorded single-digit negative growth rates.
The share of single-family building has declined most notably in large metro areas (defined as core, suburban outlying), with these areas representing just 49.8% of all single-family building in the quarter. This share is a data series low, and it comes after seven consecutive quarters of decline. Single-family building in small metro core and outlying counties represented 38.4% of all building during the quarter, while 11.7% of single-family building occurred in micro and non-metro/micro counties during Q2.
Despite the declines, over the past four years, rural markets have shown resilience, as the single-family home building market share has risen from 9.4% at the end of 2019 to 12% earlier in 2023.
Alicia Huey, the NAHB chairman, also believes that single-family construction has bottomed out.
“Single-family production should register growth in the months ahead as the Federal Reserve nears the end of its tightening cycle and mortgage rates begin to stabilize,” Huey said.
In the second quarter of 2023, the multifamily sector reported positive annual growth rates in just three markets, rising 26.6% in non-metro/micro counties, 15.9% in large metro outlying counties and 3.1% in micro counties. Large metro core counties reported the lowest multifamily production growth rate, with a yearly drop of 10.6%. This is the third quarter in a row where this geographic area posted the lowest year-over-year growth rate. Since the start of the pandemic in Q1 2020, the market share of multifamily building in large metro counties has fallen from 42.2% to 37.4% in Q2 2023.
After rising for the first seventh months of the year, homebuilder confidence declined in August, dropping six points from July to a reading of 50, as builders cited rising mortgage rates and a shortage of construction workers for reasons for the decline.
Running an Airbnb in L.A. has never been more profitable.
As the city tries to crack down on illegal listings, and advocacy groups complain about the company’s effect on L.A.’s housing crisis, hosts are charging higher rates than ever while raking in bigger and bigger payouts.
But don’t expect them to talk about it.
Data show that a vast number of homes are operating without an active registration, which is required by the city to operate a short-term rental. Several such hosts spoke to The Times anonymously for fear of being fined by the city or, worse, getting their listing shut down by Airbnb.
“This is my primary source of income,” said one host who operates three different listings. “I’m finally making a decent living off of this. One listing alone wouldn’t cut it.”
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Since 2020, revenues for hosts have steadily risen far beyond pre-pandemic levels. The average revenue climbed to $17,654 in 2022, up more than $4,000 year-over-year, and the numbers are at a similar pace for 2023, according to data from short-term rental analytics company AllTheRooms.
In total, L.A. hosts earned a combined $375 million last year, a spokesperson for Airbnb said.
A few factors contribute to the rise. For one, daily rates for Airbnb rentals have spiked over the last four years, swelling from $152 in 2019 to $244 in 2023. It’s a trend that’s happening across the short-term rental industry, as hotel and VRBO rates have steadily risen since the COVID-19 pandemic as well.
Basic supply and demand is another factor. Save for a drop during the first few months of the pandemic, Airbnb occupancy rates have largely stayed consistent, with the average rental occupied more than 40% of the time. But the amount of listings has dropped dramatically.
In August 2019, there were 16,973 Airbnb listings in L.A. Currently, there are 7,360.
Supply is down for now, but advocates worry that if revenues continue to rise, more homeowners will convert properties into Airbnbs.
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Much of the drop was due to the pandemic, but the supply hasn’t risen since 2020 partly due to the city’s enforcement of its Home-Sharing Ordinance, a law that went into effect in 2019 that limits Angelenos to hosting only short-term rentals in their primary residence — homes where they can prove they live at least six months per year.
L.A. and Airbnb have worked in tandem over the years to enforce the law, launching a system in 2020 that streamlines the process of identifying and taking down illegal short-term rental listings.
It has been effective; the number of listings for short-term rental units across all home-sharing sites has dropped more than 70% over the last four years, going from roughly 36,600 in November 2019 to just under 10,000 in June 2023, according to the city planning department.
But plenty remain.
The Times previously reported that thousands of listings violate the law, and last year, a report claimed that 22% of L.A. listings host guests for more than 180 days a year.
“I can’t afford to rent out my place for only six months a year. I’d lose half my revenue,” said one host who rents a two-bedroom apartment in Hollywood on Airbnb.
Two other Airbnb hosts hung up the phone mid-interview when asked about whether their listing was their primary residence, or whether their registration number was valid.
“It’s a don’t ask, don’t tell system. I can’t afford to have my business threatened over a registration number,” one said.
As of August, there are 4,293 active home-sharing registrations, according to the city’s planning department. But on Airbnb alone, there are currently 7,360 listings up for rent.
“L.A. has a big enough rent problem on its own, and then you have a rogue industry that swoops into the city and starts taking rental properties off the market,” said Peter Dreier, a professor at Occidental College.
Dreier worked with the team that drafted Measure ULA, a new tax that funnels money toward affordable housing initiatives, and said that the short-term rental industry is contributing to both the housing crisis and homelessness crisis.
“When you take units off the market and rent them to tourists, one consequence is that it leads to more people fighting over fewer units. And that leads to higher rents,” he said.
The planning department is preparing a report with other departments analyzing enforcement of the Home-Sharing Ordinance. It will provide recommendations to the City Council on how to improve the program.
In the meantime, more listings bring more tax dollars. L.A. charges a 14% transient occupancy tax, often called a “bed tax,” paid by guests in a hotel or a short-term rental such as an Airbnb.
In the 2021-22 fiscal year, the city collected $33.88 million in transient occupancy taxes, according to the planning department.
It’s a hefty amount, but a report from McGill University urban planning professor David Wachsmuth suggests that the city could be raking in even more by fining illegal short-term rental listings.
The study claimed that 45% of all short-term rental listings are illegal in one way or another, and that the city could have levied between $56.8 million and $302.2 million in fines in 2022.
“I’ve never paid a fine, but my guests pay the tax. As long as the city’s getting money from somewhere, they’ll be fine,” said the Hollywood Airbnb host.
Randy Renick, an attorney with Hadsell Stormer Renick & Dai LLP, serves as executive director of Better Neighbors LA, a coalition that includes hotel employees, renters’ rights groups and housing advocates. He co-founded the group in 2019 as a public education campaign to emphasize the impact that short-term rentals have on communities.
He said rental hosts bend the rules in a few ways. One strategy is the bait-and-switch, where a host will advertise that a property is somewhere near the border of Los Angeles, such as West Hollywood, and thus not subject to L.A.’s stringent rules. But when renters show up, the property is actually in L.A.
Others give false registration numbers — some more cleverly than others.
“1234567 was popular for a while,” Renick said.
Some simply use expired registration numbers, and others used an active registration number but for several properties.
The organization’s website keeps a hotline for Angelenos to call and report illegal listings in their neighborhood, and Renick said they receive multiple calls per week.
From there, they urge the city to take action for matters both small and large. Sometimes it’s a call asking to enforce a fine on a certain property, and sometimes it’s a campaign on how short-term rentals can drive up long-term rent in an area by taking homes off the market and renting them to tourists.
“We try to show the impact of short-term renting and how it’s contributing to the housing and homelessness crisis,” Renick said. “Robust enforcement will result in returning thousands of units back to long-term rental.”
He pointed to Santa Monica and New York City as two cities that L.A. could model itself after. Santa Monica has a robust enforcement system, including multiple full-time staff focused on interviewing owners and issuing fines to illegal listings.
The coastal city allows only short-term rentals (less than 30 days) if the host lives on the property throughout the visitor’s stay. New York City adopted a similar rule last year, and the enforcement begins on Tuesday.
Though it has a long way to go, Renick said L.A. has raised the bar on proof required to show that a listing is the host’s primary residence.
Frank Tai, the owner of a luxury beachfront rental in Playa del Rey, has seen that process firsthand. He has only one listing and makes sure to renew his license every year, but the process has gotten more laborious over the years as both the city and Airbnb look to catch illegal listings.
“I’m in compliance, but it’s a lot of work. I fill out a 40-page application every year and send in property tax statements, utility bills and other documents,” he said. “Every year, something gets kicked back. They’re trying to stay on top of things.”
Tai said the process is well worth it. His rental is very profitable; it’s booked throughout the entire summer, and nightly rates double during vacation season. He didn’t even experience a slowdown during the pandemic, simply a switch from out-of-town customers to L.A. locals looking for a staycation.
“I don’t sneak around the system, but I’m guessing people do because it’s so profitable,” he said.
Insurance companies collected more than $150 billion in premiums from California homeowners over the last 25 years and enjoyed profits at four times the national average. Now they’re demanding an unprecedented bailout from the California Legislature as the price of continuing to do business here in the wake of wildfire losses.
Industry lobbyists are reportedly negotiating with lawmakers, Insurance Commissioner Ricardo Lara and Gov. Gavin Newsom’s office toward a deal that would be unveiled in the last weeks before the Legislature adjourns on Sept. 14. The industry’s plan would advance its decades-long drive to undermine the protections of Proposition 103, the insurance reform measure passed by voters 35 years ago. The proposal would allow insurance companies to hike rates without full transparency or justification; force policyholders to assume the staggering costs of insurers’ backup coverage for unexpected losses; and use secret algorithms to set premiums.
These currently illegal practices are likely to raise property insurance premiums by 40% or more. Many more customers could be forced into the California FAIR (Fair Access to Insurance Requirements) Plan, a state-created, industry-controlled association that offers less generous, last-resort coverage at higher prices.
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Worse, the proposed bailout relieves insurance companies of their responsibility to cover all losses under the FAIR Plan, forcing the state’s policyholders to shoulder the burden through mandatory surcharges on their insurance bills. The proposal would incentivize insurance companies to push their riskiest customers into the FAIR Plan and make other policyholders subsidize their claims. Insurers would retain only their most profitable customers.
Some lawmakers have suggested that capitulating to the industry’s demands for deregulation, vastly higher premiums and zero risk is necessary to lure insurance companies back to California. Companies such as State Farm, Allstate and Farmers have orchestrated an insurance shortage in the state by refusing to sell new policies and improperly dumping existing customers. But the companies’ proposal does not guarantee that anyone who wants to buy insurance coverage will be able to do so.
Nor has surrendering to industry demands worked in Florida. Under Gov. Ron DeSantis, rate regulation is weak, insurers are opaque and companies are allowed to pass on the cost of reinsurance and impose surcharges on policyholders if the state’s FAIR Plan equivalent falls short. And yet homeowner premiums are two to three times higher than in California, the proportion of policyholders with last-resort insurance is five times greater, and companies are rapidly abandoning the state anyhow.
Under the California Constitution, the Legislature is barred from amending the terms of Proposition 103 except to further the initiative’s purposes. Courts have repeatedly invalidated legislation that weakens those reforms, as the industry’s latest proposal does. Whatever their personal views, lawmakers must respect the voters’ will and insist that insurance companies do the same.
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By waiting until the last days of legislative business to negotiate such a bailout, lawmakers are cynically attempting to bypass public scrutiny and debate while undermining the credibility of their institution. As the Legislature’s 1996 deregulation of utility rates showed, poorly vetted, industry-backed proposals can become costly debacles for California consumers and taxpayers.
There are many legitimate ways to address the impact of wildfires and other extreme weather events without bailing out the industry or allowing it to avoid transparency and accountability. Our leaders should take the time to look into them.
For example, money from a proposed climate bond and the state’s cap-and-trade program could be deployed to help homeowners take precautions that reduce the risk of loss from extreme events such as wildfires. Rather than allowing insurance companies to make land use policy through rates, state and local authorities ought to develop rational rules to guide construction in high-risk areas. And insurance companies should be given a deadline to stop insuring and investing in the oil and gas companies that are fueling climate change.
Finally, as a condition for the privilege of selling any kind of insurance in California, companies must be required to cover all homeowners who have taken appropriate measures to protect their property. And insurers that choose to leave the state should not be allowed to return for five years. Companies that collect our premiums for decades and then suddenly decide they don’t want to obey our laws should not be allowed to do business in the largest and most lucrative insurance market in the nation.
Harvey Rosenfield is the founder of Consumer Watchdog and the author of Proposition 103.
A key indicator of excess liquidity in the financial system has been falling since May, a development that holds promise for banks but raises questions for financial stability.
The Federal Reserve’s overnight reverse repurchase agreement, or ON RRP, facility has seen usage decline from nearly $2.3 trillion this spring to less than $1.7 trillion through the end of August, its lowest level since the central bank began raising interest rates in March 2022.
For banks, this was a desired outcome of the Fed’s effort to shrink its balance sheet. As the central bank allows assets — namely Treasuries and mortgage-backed securities — to roll off its books, its liabilities must decline commensurately. The more of that liability reduction that comes from ON RRP borrowing, the less has to come out of reserves, which banks use to settle transactions and meet regulatory obligations.
“What we’ve seen is the decline in the Fed holding has mostly come through on the liability side in terms of a decline in reverse repos, rather than reserves,” Derek Tang, co-founder of Monetary Policy Analytics, said. “This is, of course, welcome news to the Fed, because the Fed wants to make sure that there are enough reserve balances in the banking system to operate smoothly. So that’s good news.”
Yet, as participation in the ON RRP — through which nonbank financial firms buy assets from the Fed with an agreement to sell them back to the central bank at a higher price the next day — shrinks, some in and around the financial sector worry that funds are being redirected to riskier activities.
Darin Tuttle, a California-based investment manager and former Goldman Sachs analyst, said the decline in ON RRP usage has coincided with an uptick in stock market activity. His concern is that as firms seek higher returns, they are inflating asset prices through leveraged investments.
“I tracked the drawdown of the reverse repo from April when it started until about the beginning of August. The same time that $600 billion was pumped back into the markets is when markets really took off and exploded,” Tuttle said. “There’s some similarities there in drawing down the reverse repo and liquidity increasing in the markets to take on excessive risk.”
The Fed established the ON RRP facility in September 2014 ahead of its push to normalize monetary policy after the financial crisis of 2007 and 2008. The Fed intended the program to be a temporary tool for conveying monetary policy changes to the nonbank sector by allowing approved counterparties to get a return on unused funds by keeping them at the central bank overnight. The facility sets a floor for interest rates, with the rate it pays representing the first part of the Fed’s target range for its funds rate, which now sits at 5.25% to 5.5%.
For the first few years of its existence, the facility’s use typically ranged from $100 billion to $200 billion on a given night, according to data maintained by the Federal Reserve Bank of New York, which handle’s the Fed’s open market operations. From 2018 to early 2021, the usage was negligible, often totaling a few billion dollars or less.
In March 2021, ON RRP use began to climb steadily. It eclipsed $2 trillion in June 2022 and remained above that level for the next 12 months. Uptake peaked at $2.55 trillion on December 30 of last year, though that was partially the result of firms seeking to balance their year-end books.
While it is difficult to pinpoint why exactly ON RRP use has skyrocketed, most observers attribute it to a combination of factors arising from the government’s response to the COVID-19 pandemic, including the Fed’s asset purchases as well as government stimulus, which depleted another liability item on the Fed’s balance sheet: the Treasury General Account, or TGA.
Regardless of how it grew so large, few expected the ON RRP to ever reach such heights when it was first rolled out. Michael Redmond, an economist with Medley Advisors who previously worked at Federal Reserve Bank of Kansas City and the Treasury Department, said the situation raises questions about whether the Fed’s engagement with the nonbank sector through the facility ultimately does more harm than good.
“The ON RRP, when it was initially envisioned as a facility, was not expected to be this actively used. The Fed definitely has increased its footprint in the financial system, outside of the usual set of counterparties with it,” Redmond said. “The debate is whether that increases financial instability, because obviously it is nice to have the stabilizing force of the Fed’s balance sheet there, but it also potentially leads to counterproductive pressures on private entities that need to essentially compete with the Fed for reserves.”
Fed officials have maintained that the soaring use of the facility should not be a cause for concern. In a June 2021 press conference, as ON RRP borrowing was nearing $1 trillion, Fed Chair Jerome Powell said the facility was “doing what it’s supposed to do, which is to provide a floor under money market rates and keep the federal funds rate well within its — well, within its range.”
Fed Gov. Christopher Waller, in public remarks, has described the swollen ON RRP as a representation of excess liquidity in the financial system, arguing that counterparties place funds in it because they cannot put them to a higher and better use.
“Everyday firms are handing us over $2 trillion in liquidity they don’t need. They give us reserves, we give them securities. They don’t need the cash,” Waller said during an event hosted by the Council on Foreign Relations in January. “It sounds like you should be able to take $2 trillion out and nobody will miss it, because they’re already trying to give it back and get rid of it.”
But not all were quite so confident that the ON RRP would absorb the Fed’s balance sheet reductions. Tang said there have been concerns about bank reserves becoming scarce ever since the Fed began shrinking its balance sheet last fall, but those fears peaked this past spring, after the debt ceiling was lifted and Treasury was able to replenish its depleted general account.
“If the Treasury is increasing its cash holdings, then other parts of the Fed’s balance sheet, other liabilities have to decline and there was a big worry that reserves could start declining very quickly,” Tang said. “The Treasury was going from $100 billion to $700 billion, so if that $600 billion came out of reserves, we could have been in trouble.”
Instead, the bulk of the liabilities have come out of the ON RRP, a result Tang attributes to money market funds moving their resources away from the facility to instead purchase newly issued Treasury bills.
The question now is whether that trend will continue and for how long. While Fed officials say the ON RRP facility can fall all the way to zero without adverse impacts on the financial sector, it is unclear whether it will actually reach that level without intervention from the Fed, such as a lowering of the program’s offering rate or lowering the counterparty cap below $160 billion.
A New York Fed survey of primary dealers in July found that most expected use of the ON RRP to continue falling over the next year. The median estimate was that the facility would close the year at less than $1.6 trillion and continue falling to $1.1 trillion by the end of next year.
Those same respondents also expect reserves to continue dwindling as well, with the median expectation being less than $2.9 trillion by year end and roughly $2.6 trillion by the end of this year. As of Aug. 31, there were just shy of $3.2 trillion reserves at the Fed.
“The Fed’s view is that there are two types of entities with reserves, the banks that have more than enough and they don’t know what to do with, and the ones that are having some problems and need to pay up to attract deposits, which ultimately are reserves,” Redmond said. “When there are fluctuations in reserves, it’s hard to tell how much of that is shedding of excess reserves by banks that are flush with them, and how much is a sign that this is going to be a tougher funding environment for banks.”
Tuttle said a balance-sheet reduction strategy that relies on a shrinking ON RRP is not inherently risky, but he would like to hear more from the Fed about how it sees this playing out in the months ahead.
“We have gotten zero guidance on the drawdown of reverse repo,” he said. “Everything is just happening in the shadows.”
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Will US mortgage rates remain above 7 per cent?
If the average cost of a new US home loan holds above 7 per cent for a fifth week, it will be equal to the most painful run for homeowners since January 2002.
Mortgage rates have doubled since the Federal Reserve began tightening monetary policy 18 months ago, but rising borrowing costs have not had the expected effect of cooling house prices — a factor that would have made house moves more affordable.
Because most US homeowners hold 30-year fixed-rate loans, they have in effect been trapped in their properties because they cannot afford to switch from their existing low rates. Roughly three-quarters are paying less than 4 per cent, JPMorgan estimated recently.
Mortgage costs are being watched closely by investors who have enjoyed gains of more than a third by backing leading homebuilders this year. That market has benefited from higher demand for new houses because of the limited supply of existing ones.
The latest data from the Mortgage Bankers Association, covering the week to September 1, is due on Wednesday. Rates stood at 7.31 per cent in the week to August 25, and should have eased slightly as Treasuries rallied, pushing yields on benchmark 10-year notes to a three-week low. Jennifer Hughes
Have Canada and Australia finished raising rates?
The Bank of Canada and Reserve Bank of Australia kick off September’s slew of central bank meetings, with markets betting that they will set the tone by pausing rates as monetary policymakers in the western world reach the twilight months of an aggressive rate raising campaign.
The Bank of Canada, which delivered a 0.25 percentage point increase at its last meeting, is expected to hold rates at 5 per cent on Thursday despite recording stronger-than-expected inflation of 3.3 per cent in July.
Swaps markets are pricing an 80 per cent probability that Canada’s central bank will hold rates, with a slowdown in economic growth and a rise in jobless rates giving scope for a rate pause overpowering concerns of a resurgence in inflation.
Similarly the Reserve Bank of Australia is expected to keep its key interest rate at 4.1 per cent for the third month running. Australia’s inflation rate fell more than expected in the year to July, bringing the headline rate to 4.9 per cent. On top of cooling price growth, unemployment also increased 0.2 percentage points to 3.7 per cent in July.
Markets are pricing in a near certainty that the RBA will hold rates next week. But analysts at ING expect a further rate rise this year, noting insufficient signs that inflation will cool to 2 per cent in the coming months.
The central bank decisions come in a week where traders have pared back expectations of rate rises elsewhere. Markets are now betting that the Federal Reserve and European Central Bank are both likely to have finished raising rates. Mary McDougall
Will Turkey’s lira strengthen?
Turkey’s lira has already lost more than half of the gains it made after a sharp boost in interest rates — a break with years of unorthodox policy as the country’s new economic team attempts to tackle its outsized inflation problem.
The lira rose close to 6 per cent against the dollar last week after Turkey’s central bank raised its one-week repo rate by 7.5 percentage points to 25 per cent, bringing the country’s interest rate to nearly triple the level of when President Recep Tayyip Erdoğan was re-elected in May and appointed a new central bank governor.
But the currency has since slid more than 3 per cent, bringing it back close to historically low levels. Turkey’s inflation rate jumped to almost 50 per cent in the year to July, boosted by the lira’s weakness pushing up the cost of imports.
Under the direction of new finance minister Mehmet Şimşek, Turkey has abandoned its costly defence of the lira and allowed the currency to plummet more than a fifth against the dollar since the end of May.
Analysts say that the lira will continue to depreciate until investors have confirmation that Turkey’s central bank is committed to further monetary tightening.
“The recent hike is very positive but not positive enough,” said Cagri Kutman at KNG Securities. “The next central bank meeting will be key. With inflation at 50 per cent, the central bank raising rates to 25 per cent has no meaning at all in real terms — they are still deeply negative.” Mary McDougall
July saw inflation rise once again, and interest rates are still rising. In fact, the average rate on credit cards is now nearly 21%, up from just 15% a little over a year ago. With these economic headwinds, you might find yourself in need of extra funds — to repair your home, to cover unexpected costs, or maybe just as a financial safety net.
Either way, if you’re a homeowner, you may think about tapping your home equity. Home equity loans and HELOCs both allow you to turn your equity into cash, which you can then use however you wish.
Is now a good time to do that, though? And what should you consider before tapping your home equity in today’s market? We asked experts for their opinion to help you decide.
Start by exploring your home equity loan options here to learn more.
Is home equity worth using now? Here’s what experts think
Thinking of using your home equity today? Here’s how the experts we spoke to recommend homeowners proceed.
Know what you’ll use it for
Tapping your home equity means putting your home at risk, so having a clear idea of what you need the money for is key before making a decision.
“Why do you need the money? Is it really necessary? Are you investing in your future or in something that strays away from your financial goals?” asks Jim Black, executive director of lender strategy at mortgage lender Calque. “Some things, like vacations, might not be the best reason.”
In short: Make sure the risk is worth it. Fixing the roof on your house or putting money into your business likely fall within that category. But pulling out equity to pay for new clothes or buy a new couch may not.
Using your home equity might also be smart if you’re eyeing a new home but currently have an ultra-low mortgage rate. In this scenario, selling your house and buying a new one would mean trading up for today’s 7%-plus rates. You might consider leveraging your equity and improving your existing house instead.
“Homeowners have the unique opportunity right now to tap into an incredible amount of home equity that’s built up over the past few years,” says Bill Banfield, executive vice president of capital markets at Rocket Mortgage. “They can use this cash to do home renovations and make their space better fit their life — without having to pick up and move to a new house.”
Get started with a home equity loan here now.
Weigh it against other options
You’ll also want to weigh all your options before turning to home equity. Depending on what you’re looking to pay for, you may be able to use a credit card, personal loan, student loan or one of many other financial products.
Typically, home equity loans and HELOCs are going to have lower rates than credit cards and personal loans, but they’re higher than rates you’d see on first mortgages and refinances. Because of this, it’s important to get quotes for several different products (and from different lenders) to ensure a home equity product is the most affordable path forward.
“Do you have other options?” Black asks. “Look at different ways to get the financing you want and compare them.”
If you do opt to tap your home equity, you should also compare your options within that realm. Home equity loans and HELOCs are the most commonly used products, but depending on your age, you may also consider a reverse mortgage (these are only for seniors). Home equity investments — which give you an upfront payment in exchange for part of your home’s future value — are an option, too.
“These provide funds upfront with no monthly payments or debt accrual, but in exchange for the some future value of your home — or its appreciation over time — or both,” says Sarah Dekin, president of Hometap, a home equity investment platform. “The potential disadvantage here, of course, is that you may miss out on some part of the future value of your home down the line when you settle.”
Think long term
Finally, think about your long-term financial picture before you tap your equity. Calculate the total cost of tapping your equity — the interest, closing costs, or lost appreciation you could see — and make sure those costs are worth it.
As Black puts it, “Banks are in the business of making interest, and this means you need to see the worst-case amount of equity you will be losing by borrowing. You also need to evaluate the cost of attaining the additional debt.”
Consider your employment and income prospects, too. Is your job stable? Do you expect your income to be the same or higher 10 years down the road? You want to be sure you can afford your payments not just now, but throughout your entire loan term (and some home equity loans are as long as 30 years).
Keep in mind that if you use a HELOC or another product with a variable rate, your payments could rise over time, too, so make sure you’ll have the capability to make those higher payments should they come about. If not, you could lose your home to foreclosure.
“The most important consideration is affordability,” says Adam Boyd, executive vice president of home equity, credit cards, and unsecured lending at Citizens Bank. “Since the borrower is using the home as collateral, it is critical they ensure they can afford the loan. If there’s any concern that rising rates will impact your ability to afford the loan in the future, it may not be the best option.”
Learn more about your home equity options here now.
Other home equity benefits to know
Home equity products can be smart tools when used in the right scenarios. They may be able to save you on interest compared to other loans and financing options, and they allow you to spread your costs out over many years. You may even get a tax deduction, depending on how you use the funds.
Just remember: Using your equity means putting your home on the line as collateral. If you’re not sure this is the right move for your finances — or you want help evaluating your full range of options — consider talking to a financial professional first. They can point you in the right direction.