The U.S. House of Representatives voted on Thursday to pass the Republican-led Financial CHOICE Act, H.R. 10, which would abolish the Dodd-Frank Wall Street Reform and Consumer Protection Act.
From here, the Financial CHOICE Act moves to the Senate for a vote, where it will likely struggle to succeed without more bipartisan support. A bill of this magnitude would need a filibuster-proof vote in the Senate, which is 60 votes or more, meaning Senate Democrats will need to flip sides and vote to support the act.
Of the 100 seats in the Senate, Republicans make up 52 seats, Democrats make up 46 seats and Independents make up 2 seats (both caucus with the Democrats).
And so far, the act has mainly garnered partisan support, passing through the Financial Services Committee in May in a completely partisan vote (34-26).
House Financial Services Committee Chairman Jeb Hensarling, R-Texas, first introduced the act last year in an attempt to replace the Dodd-Frank Act. He released an updated version of the act this year on April 19. CHOICE stands for Creating Hope and Opportunity for Investors, Consumers and Entrepreneurs.
“The Financial CHOICE Act offers economic opportunity for all and bank bailouts for none. The era of ‘too big to fail’ will end and we will replace Dodd-Frank’s growth-strangling regulations on community banks and credit unions with reforms that expand access to capital so small businesses can create jobs and consumers have more choices and options when it comes to credit,” Hensarling said.
Some of the biggest changes in the bill affect the Consumer Financial Protection Bureau. The CFPB would be changed to the Consumer Financial Opportunity Agency, an executive agency with a sole director removable at will. The deputy director would also be appointed and removed by the president.
The only hearing on the bill was met with a lot of opposition from committee Democrats, who ended up using a political work-around to schedule a follow-up hearing in order to voice their disproval of what they’ve dubbed the “Wrong Choice Act.”
In light of the act passing through the House, House Financial Services Committee Ranking Member Maxine Waters, D-Calif., said, “It’s shameful that Republicans have voted to do the bidding of Wall Street at the expense of Main Street and our economy. They are setting the stage for Wall Street to run amok and cause another financial crisis. I urge my colleagues in the Senate not to move on this deeply harmful bill.”
Following a surprising, but small, increase in the percent of 1-4 family first-lien mortgages that were either 90 or more days delinquent or were in the process of foreclosure over the fourth quarter of 2016, the Mortgage Bankers Association reported that the measure continued its descent in the first quarter of 2017. This measure of delinquency, at least for conforming loans, is declining for both borrowers with a credit score below 660 and borrowers at or above it. Moreover, the gap in rate of delinquency for the two categories of borrowers is shrinking.
After rising by 10 basis points to 1.8 percent over the fourth quarter of 2016, the proportion of all mortgages either 90 or more days delinquent or in the foreclosure process fell by 10 basis points over the first quarter of 2017, currently sitting at 1.7 percent. The proportion of mortgages either 90 or more days past due or in the foreclosure process is highest for FHA-insured mortgages, 2.6 percent, and lower for both VA and Conventional loans.
However, at 2.6 percent, this measure of delinquency is below its 2005-2008 average of 4.1 percent. Similarly the current level of 90 or more day delinquency or entering the foreclosure process for VA loans is also below its average in the three years prior to the most recent recession. However, despite a rate below the overall percentage, conventional loans either 90 or more days delinquent or starting the foreclosure process remains 20 basis points above its 2005-2007 average level, 1.3 percent.
The Federal Housing Finance Agency, which oversees the government-sponsored entities (GSEs), Fannie Mae and Freddie Mac, provides estimations of loans purchased by the GSEs that become 90 or more days delinquent or start the foreclosure process*. This information is also provided by credit score, scores under 660 and those above or equal to 660. However, the series does not begin until 2009.
Overall, the proportion of mortgages 90 or more days past due or starting the foreclosure process has declined since its 2010 peak level. The declines have taken place for both mortgages loans obtained by borrowers with a credit score below 660 and borrowers with a credit score above 660. Currently, 4.6 percent of borrowers with a credit score below 660, the proportion of mortgage loans either 90 or more days delinquent or in the process of foreclosure, 8.3 percentage points less than its peak. The 0.8 percent of borrowers with a credit score at or above 660 with this kind of delinquency rate is 2.7 percentage points below its peak level, 3.5 percent.
Although the 90 or more day delinquency and foreclosure started rate for borrowers in both credit score categories is declining, the rate of decrease for borrowers with less than a 660 credit score is falling faster. As a result, the gap between these delinquency rates is shrinking. The figure above shows that at its peak in 2009 and 2010, the percent of borrowers with less than a 660 had a 90 or more day delinquency and foreclosure started rate that was 8 percentage points above the rate for borrowers with a credit score at or above 660. This gap has now shrunk to 3.4 percentage points.
Specifically, the data for 90 or more days delinquent is calculated as the residual between the percent of loans 60 or more days delinquent and the portion 60-89 days past due.
The definitions for the FHFA components are as follows:
60-plus-days Delinquent – Loans that are two or more payments delinquent, including loans in relief, in the process of foreclosure, or in the process of bankruptcy, i.e., total servicing minus current and performing, and 30 to 59 days delinquent loans. Our calculation may exclude loans in bankruptcy process that are less than 60 days delinquent.
60-89 Days Delinquent – Includes loans that are only two payments delinquent.
Serious Delinquency – All loans in the process of foreclosure plus loans that are three or more payments delinquent (including loans in the process of bankruptcy).
The definition of serious delinquency in the FHFA data likely differs from the MBA definition of “seriously delinquent” provided below.
The Armonk Lions Club is proud to invite you to our
2017 Fol-de-Rol and Country Fair
The Armonk Lions Club is pleased to announce the 43rd Annual Fol-de-Rol, taking place June 8, 9, 10 and 11 at Wampus Brook Park, Armonk NY. Please join us and support the charitable work we do in our community and worldwide. June 8 and 9 – Rides only, 6-10 PM; Saturday June 10 11 AM-10 PM and Sunday June 11 Noon-5 PM. See www.armonklions.org for more information.
Armonk Lions support our local fire, police and NC4 first responders; summer camp programs for children with vision impairments and diabetes; community medical and emergency services; and disaster relief around the world through Lions Clubs International Foundation. This year our fund-raising effort will support Puppies Behind Bars, a program which trains inmates at the Bedford Women’s prison to raise and train service dogs, which are then paired with our returning military veterans who need support and companionship.
to visit our Raffle River site and purchase raffle tickets. This site is safe and secure and allows you to pay by credit card. If you would prefer to mail us a check and receive paper raffle tickets, please mail your donation to:
Armonk Lions Club Inc. – Raffle
PO Box 211
Armonk NY 10504
and we will send your raffle tickets. The drawing is held on Sunday June 11 at 5 PM, and the prizes are listed on the website.
If you have any questions, or if you would like to volunteer to help us at the Fol-de-Rol, please reply to this email address and we will contact you directly. Thank you very much for your ongoing support of this Armonk tradition!
Armonk Lions Club
Doug Martino, President
Anthony Baratta, Fol-de-Rol Chairman
Michael Rosenman, Treasurer
Where: Wampus Brook Park, Armonk NY
Thursday June 8, Rides 6-10 PM
Friday June 9, Rides 6-10 PM
Saturday June 10, Vendors 10 AM-10 PM; Rides 11 AM-10 PM
Sunday June 11, Vendors 11 AM-5 PM; Rides Noon-5 PM
Earlier this month, Zillow Group Z, +0.39% , the popular online real estate data provider, reported blowout earnings. Revenue rose 32% compared to a year ago, and online visits were up 18%.
But there was a note of caution in its earnings release. In April, the company said, it had received a notice from the Consumer Financial Protection Bureau that questioned whether some of Zillow’s advertising revenues violated regulations against kickbacks.
At issue is the question of how a real estate service provider, like a real-estate agent or lender, gets business from a home buyer. Congress passed the Real Estate Settlement Procedures Act, also known as RESPA, in 1974 to make sure those providers weren’t funneling customers to each other in exchange for kickbacks or other inappropriate rewards.
Real estate market observers say that while Zillow’s broad footprint and accessible data have been a boon for customers, deciding whom to hire for the transaction is often a fraught process that could benefit from more transparency and less of the old handshake-deal approach that has often characterized real estate.
In Zillow’s case, what’s called “co-marketing” works by allowing a real estate agent to share the cost of an ad on the web site with a preferred lender.
This practice makes it seem as though those lenders or agents are receiving a seal of approval from each other or from Zillow itself. Many industry participants see the co-marketing process as little more than advertising that may appear like due diligence to a captive and uninformed customer.
There’s broad recognition among consumer advocates – and the CFPB itself – that would-be home buyers don’t shop for mortgages. It’s hard to spend the time required with more than one lender, and there are concerns about checking credit scores too frequently. And many lenders use confusing jargon that makes it hard for consumers to compare one offer to another.
“People do real estate transactions rarely, a couple times in their lifetime, so it’s not like people can gain experience, and it’s hard to shop around because you don’t know what you’re asking for,” said Andrew Pizor, a staff attorney at the National Consumer Law Center.
“It’s opaque and there’s very little competition,” Pizor continued. “It’s a horrible market. As a consumer advocate I have my doubts about the free market, but this is not a free market in terms of supply and demand and transparency. It just puts consumers even more at risk.”
As Pizor puts it, “you only want people to be making a referral for reasons based on the merits of the product or the service: they’re good and you trust them or they have a product you can’t get elsewhere, not because you’re getting referrals.”
The CFPB’s interest dates back to 2015. The agency has requested information several times since then, with the most recent request, a civil investigative demand, coming in April. “We are continuing to cooperate with the CFPB in connection with their most recent request for information,” Zillow’s earnings report noted. “We continue to believe that our acts and practices are lawful and that our co-marketing program allows lenders and agents to comply with RESPA.”
The next step, Zillow added, could be what’s known as an “enforcement action,” which could include “restitution, civil monetary penalties, injunctive relief or other corrective action. We cannot provide assurance that the CFPB will not ultimately commence a legal action against us in this matter, nor are we able to predict the likely outcome of the investigation into this matter.”
A Zillow spokeswoman declined to answer MarketWatch questions on the scale of the co-marketing program. Company management fielded four analyst questions on the CFPB review on its quarterly earnings call and said little except that “it’s a small portion of overall revenue.”
But the prepared remarks for the earnings release noted that customer leads rose 30% compared to a year ago in the first quarter, and “we continue to expect that growth in contacts sent to Premier Agent advertisers will outpace unique user growth.”
In an emailed statement, the spokeswoman wrote, “Zillow offers myriad ways for consumers to comparison shop for lenders and agents. Rather than offer a few service providers, consumers can browse more than a million reviews for agents and lenders, including published, up-to-the-minute mortgage rates being offered and skill sets of particular agents. Zillow Group’s mission is to give consumers lots of information so they can make good choices when choosing agents and lenders for one of the most important transactions of their lives.”
The CFPB also declined to discuss the matter with MarketWatch.
The agency usually only takes actions like the ones against Zillow when it believes its case is “pretty clear-cut,” Pizor told MarketWatch. “I think the CFPB is being generous. I think the law is pretty clear.”
Still, Pizor said, a ruling from the CFPB would help bring clarity to the market – a step many real estate professionals would welcome. The National Association of Realtors has released best practices materials recommendations and industry lawyers are watching carefully.
The CFPB earlier this year fined Prospect Mortgage, a lender, with failing to comply with RESPA. It also fined two real estate brokers and a mortgage servicer, all of whom it said took kickbacks from Prospect.
To many industry participants, it seems clear that the co-marketing arrangement must be very profitable for Zillow. Why else would a new-media company founded to, as it says in its mission statement, “empower” customers with new ways of shopping for and maintaining a home cling to an outdated way of doing business, rather than trying to disrupt it with a newer, better model?
“Nobody is doing referral fees any more. They were done away with. Marketing service agreements are the next wave of that,” said Brian Faux, CEO of Morty, an online mortgage brokerage.
Faux describes Zillow as a “great web site with a lot of data that’s good for consumers,” including data that helps them understand the cost of owning a home.
A tax-reform proposal by House Republicans that would make the mortgage-interest deduction moot for most Americans is starting to set off alarm bells across the housing, lending and real estate industries.
The right to take a deduction for interest paid on your mortgage has always been a political third rail, and the reforms introduced last June would not directly eliminate the write-off.
Instead, the Better Way tax-reform “Blueprint” of Speaker Paul Ryan and his cohorts would make the deduction irrelevant for about 95 percent of homeowners. By “doubling the standard deduction that taxpayers receive…most people would have no need to take the mortgage interest deduction,” according to National Mortgage News.
The specific language in the Better Way says: “This Blueprint will preserve a mortgage interest deduction for homeowners. …For those taxpayers who continue to itemize deductions, no existing mortgage will be affected by any changes in the tax code. Similarly, no changes will affect re-financings of existing mortgages. But just as importantly, because of the other provisions included in the new tax system, far fewer taxpayers will choose to itemize deductions, with the vast majority of taxpayers finding they are better off by taking advantage of the larger, simpler standard deduction instead.”
Before the election, when it did not look as though Republicans would control both houses of Congress and the White House, the future of the Blueprint seemed far from certain, and even given the GOP sweep in Washington, it is nowhere near a done deal.
But National Mortgage News says the National Association of Homebuilders, the Mortgage Bankers Association and the National Association of Realtors (NAR) have all woken up to what they see as an “indirect threat” to the mortgage-interest deduction.
National Mortgage News quoted Lawrence Yun, chief NAR economist, as a warning against any moves that might derail the housing recovery. “Even a discussion of mortgage interest deduction is counterproductive right now,” he said.
A spokesperson for the NAR said Yun was unavailable to expand on that view given that under the Blueprint, most homeowners would still get the same break on their taxes.
But homebuilders, lenders and realtors may have more to worry about than House Republican attempts to neuter the mortgage-interest deduction.
In a CNBC interview on Nov. 30, Steve Mnuchin, Trump’s nominee for Treasury Secretary said in the context of a discussion on tax reform: “…We’ll cap mortgage interest but allow some deductibility.”
CNBC real estate reporter Diana Olick explained later that “The mortgage interest deduction is already capped at loans up to $1 million if you’re married and filing jointly and at $500,000 if you file separately. That said, the median price of a home in the United States is just more than $200,000, so not a lot of people make it to that cap.”
But, she added, the mortgage-interest deduction is seen as a key selling point for the housing industry and therefore is “a hot potato that lawmakers really don’t want to touch.”
The S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index for September blew past the peak set in July 2006, with the national index posting a 5.5% annual gain in September, up from 5.1% last month, S&P reported Tuesday morning. The 10-City Composite posted a 4.3% annual increase, up from 4.2% the previous month. The 20-City Composite reported a year- over-year gain of 5.1%, unchanged from August.
Before seasonal adjustment, the National Index posted a month-over-month gain of 0.4% in September. Both the 10-City Composite and the 20-City Composite posted a 0.1% increase in September. After seasonal adjustment, the National Index recorded a 0.8% month-over-month increase, the 10-City Composite posted a 0.2% month-over-month increase, and the 20-City Composite reported a 0.4% month-over-month increase. 15 of 20 cities reported increases in September before seasonal adjustment; after seasonal adjustment, all 20 cities saw prices rise.
Seattle, Portland, and Denver reported the highest year-over-year gains among the 20 cities over each of the last eight months. In September, Seattle led the way with an 11.0% year-over-year price increase, followed by Portland with 10.9%, and Denver with an 8.7% increase. 12 cities reported greater price increases in the year ending September 2016 versus the year ending August 2016.
“The new peak set by the S&P Case-Shiller CoreLogic National Index will be seen as marking a shift from the housing recovery to the hoped-for start of a new advance,” said David M. Blitzer, managing director and chairman of the Index Committee at S&P Dow Jones Indices. “ While seven of the 20 cities previously reached new post-recession peaks, those that experienced the biggest booms — Miami, Tampa, Phoenix and Las Vegas — remain well below their all-time highs. Other housing indicators are also giving positive signals: sales of existing and new homes are rising and housing starts at an annual rate of 1.3 million units are at a post-recession peak.
Record levels of new multi-family construction are meeting demand in the nation’s hottest market, cutting in half the pace of rent increases nationwide and driving down median rents in more markets during the third quarter, according to rental analytics firm Axiometrics.
Nationally, rents rose only 3% for the third quarter of 2016, more than 2 percentage points below the robust 5.2% rent growth of one year ago. This marked the fourth straight quarter in which the annual rent growth rate decreased. The average effective rent nationwide was $1,289 per unit per month, compared to $1,251 in the third quarter of 2015.
“While the national apartment market is still performing above the long-term average, the moderation from the unsustainable levels of 2014 and 2015 has come, as Axiometrics predicted,” said Jay Denton, Axiometrics Senior Vice President of Analytics. “In particular, rent growth has declined precipitously in markets with the highest rents in the country, such as New York and the San Francisco Bay Area.”
Rent levels declined year over year in the three major markets with the highest rents — San Francisco, New York and San Jose — and increased by less than 2% in the fourth highest rent-growth metro, Oakland. Although Houston isn’t a high-rent market, its -2.8% rent growth in the third quarter also helped weigh down the national rate. Hartford, Birmingham and Oklahoma City also experienced negative annual rent growth.
Third-Quarter 2016 Rent, Rent Growth in Highest-Priced Markets
Average Effective Rent
Annual Effective Rent Growth
“Urban cores in general are showing slowing performance,” Denton said. “The market is feeling the effects of the concentrated new supply in these submarkets. Nationwide, however, supply is just keeping up with the demand.”
The slower performance of high-priced markets is somewhat counteracted by robust fundamentals in secondary markets. For example, annual effective rent growth in Sacramento; Riverside, CA; Salt Lake City; Las Vegas; Fort Worth; Tampa-St. Petersburg; and Nashville are among the 10 highest in major markets.
Other Third-Quarter Highlights
• Effective rents increased 1.2% in the third quarter over the second quarter. The rent-growth rates for the past four quarters have been lower than the previous corresponding quarters.
• Occupancy was 95.1% in the third quarter, compared to 95.2% in the second quarter and 95.4% in the third quarter of 2015.
95.4% in the third quarter of 2015.
Top 25 Markets for Rent Growth and Occupancy
The top 25 Metropolitan Statistical Areas or Metropolitan Divisions — among Axiometrics’ top 50 markets with the most apartments — in various third-quarter 2016 categories:
Top 25 Markets by Annual Effective Rent Growth for 3Q16
Annual Effective Rent Growth
Riverside-San Bernardino-Ontario, CA
Salt Lake City, UT
Las Vegas-Henderson-Paradise, NV
Fort Worth-Arlington, TX
Tampa-St. Petersburg-Clearwater, FL
Atlanta-Sandy Springs-Roswell, GA
San Diego-Carlsbad, CA
Anaheim-Santa Ana-Irvine, CA
Charleston-North Charleston, SC
Warren-Troy-Farmington Hills, MI
Los Angeles-Long Beach-Glendale, CA
Minneapolis-St. Paul-Bloomington, MN-WI
West Palm Beach-Boca Raton-Delray Beach, FL
Top 25 Markets by Quarterly Effective Rent Growth for 3Q16
Quarterly Effective Rent Growth
Salt Lake City, UT
San Francisco-Redwood City-South San Francisco, CA
According to a recent survey conducted by Better Homes and Gardens® Real Estate, as many as 89 percent of U.S. investors would strongly consider pursuing real estate as part of a broader investment strategy.
The same study, which was also cited by the National Mortgage Professional’s Magazine, goes on to reveal an even higher percentage of millennial investors — 96% — expressed interest in purchasing real estate for investment purposes. So I thought it would be nice to investigate these claims to find out why this does or does not represent sound strategy.
There are a myriad of reasons to invest in real estate. Likewise, there must be plenty of reasons not to invest. Let’s take a look.
Real Estate Investing: The Pros
The timing may be ripe. Given the uncertainty surrounding the upcoming elections, many investment managers are predicting a volatile stock market; this is regardless of who sits in the Oval Office, this January.
Hefty Earnings potential. When you reach the level of competence necessary to complete a deal on your own without making mistakes your earnings potential will soar.
You call the shots. As a real estate investor, you’re ultimately accountable to you and your checkbook. Of course, you will need to stay on top of your local coding regulations and ordinances. But once you get the hang of it, you really shouldn’t have any problems with ordinances.
Nurture your inner builder. Getting into the residential investment business entails lots of renovation work. As such, you can certainly expect to play with your fair share of power tools. Of course, if your favorite pastime is catching re-runs of ‘This Old House’, you probably already love using these tools. Perhaps this explains why so many contractors wind up investing in real estate.
A ‘hands on’ investment. Real estate investing is unique in that it’s almost as much a career or a way of life as it is a form of investing. Indeed, the fact that real estate is involves so much sweat equity makes it unique among other investments.
That notwithstanding, the hands-on aspect of buying and rehabbing homes is also why you’ll face less competition from investors than you might expect in stocks or bonds.
Real Estate Investing: The Cons
Substantial risk involved. The business side of real estate investing is fraught with risk. Unlike purchasing mutual funds or savings bonds, with real estate you can lose money; this is one of the reasons that seasoned real estate investors caution neophytes never to get too emotional about a property and always be willing to walk away.
You could pay dearly for your mistakes. Another thing that’s so different about real estate is that you pay dearly for your errors in this field. For example, if you sign a deal only to realize afterward that the numbers don’t add up – walking away is not always an option.
Requires a significant investment. Don’t let the late night infomercials fool you. It takes serious resources to pull off a successful real estate deal from start to finish. Hence, it’s important that you have a plan and stick to it, going into every investment.
Demands a well-defined skill set. For anyone used to going into the office every day and ‘punching the clock’, real estate can be a daunting field. Namely, because it requires the investor to become proficient in activities that you may not be accustomed to doing on a daily basis.
So these are the pluses and minuses. As prohibitive as the potential drawbacks might be, real estate still has the potential to offer substantial dividends – both in the form of financial rewards and in the satisfaction that comes from building something with your hands.
Hence, if you’re willing to learn the ropes and put in the effort, you should find your goals very attainable.
Should You Decide to Take the Plunge Know This
If you do choose to invest in real estate, don’t go in blind. Prepare a road map first. Determine what it will take to accomplish your goals for each property beforehand; this includes finances, materials, personnel planning, etc. Upon completing your plan be sure to meet with the concerned parties.
Always expect the unexpected. When meeting with sellers, buyers or investors be sure to expect the best but plan for the worse. There’s always the potential that the deal may fall through. Doing so will help put all other parties at ease while preventing you from getting too emotionally invested.
Find a good CPA and attorney. While you may already be familiar with accounting and various legalities, it helps to have a professional on speed dial in case a problem that you aren’t familiar with crops up.
It’s important to point out that I’m not here to advise you one way or another, as it relates to whether to invest in real estate or not. My job is to bring you the facts and let you decide what to do with them. That said, now that we’ve covered the advantages and disadvantages of real estate investing, what do you think?
Freddie Mac (OTCQB: FMCC) released today its monthly Outlook for October showing that housing remains a bright spot in the face of a marginally improving U.S. economy and tight inventories of for-sale homes. However, mortgage activity, which has benefited greatly from low mortgage rates post-Brexit, is starting to see a slowdown in refinance activity that will persist into next year as the mortgage market transitions to a purchase-dominated mix.
Continued strength in consumer spending and a reduction in the drag from inventory spending should boost second half growth, resulting in full-year 2016 GDP growth of 1.6 percent. The economy should do modestly better in 2017, posting 1.9 percent year-over-year growth.
A mature expansion operating near full employment only needs to generate enough jobs to keep the unemployment rate steady. Expect the unemployment rate to decline slightly over the next year-and-a-half, ending 2017 at 4.7 percent.
Even if worldwide bond yields recover to the pre-Brexit status quo, mortgage interest rates are likely to remain low for an extended period. Expect a gradual rise in rates throughout the remainder of 2016 and into 2017, with the 30-year fixed-rate mortgage averaging 3.9 percent in the fourth quarter of 2017.
Don’t expect much increase in total home sales going forward with a slight decline in seasonally-adjusted sales in the fourth quarter. Next year, rising new home sales driven by increases in new single-family housing construction will push total home sales slightly higher, to 6.16 million in 2017 compared to 6.04 million in 2016.
Forecasting house prices will grow at a 5.6 percent annual rate in 2016, moderating to 4.7 percent in 2017.
Quote: Attributed to Sean Becketti, Chief Economist, Freddie Mac.
“The economy and labor markets are looking better. We’re even seeing modest wage gains. And Fed watchers are increasingly predicting a December rate hike as things improve. However, worldwide economic growth is weak and its prospects have gotten worse. This may all sound familiar because we’ve been here before… last year.
“As the economy sputters along a little bit faster than stall speed, the U.S. housing market continues to be a bright spot, though there’s less room to run than in the prior few years. Unlike new home sales, existing home sales have nearly recovered back to pre-recession norms. Regardless, we see new home sales improving some next year driven by increases in new single-family housing construction which will push total home sales slightly higher.”
Crowds press together in the streets of New Orleans as people gather to see the city’s festivities, but this year, there’s something different about the tourists. This year, instead of staying in the city’s hotels, more tourists are pouring into residential areas after using an app to quickly book a home for the week.
Airbnb, founded in 2008 as an online marketplace for short-term rentals, has seen its business grow exponentially in the last few years. In 2014, rooms available through the site jumped from 300,000 in February to more than 1 million in December, outpacing many of the largest hotel groups in the world. In May of 2016 Airbnb had almost 1.4 listings on the site and raised its revenue projection for this year to more than $900 million.
But the site impacts more than just hotel chains. As more investors, not just homeowners, use the site to rent out spare rooms — and even spare couches — it strains the supply of rental houses.
This is especially true in a place like New Orleans, where rising home prices have caused serious affordability problems. Home prices have risen 46% since Hurricane Katrina hit, according to an article by Katherine Sayre for The Times-Picayune.
Besides the number of lives lost, the most tangible impact the hurricane had on the city was the demolition of its housing stock, where 26% to 34% of its housing was lost or damaged, according to an article by Allison Plyer for The Data Center. The Center’s “The New Orleans Index” was the most widely used means of tracking rebuilding efforts in the months and years following Hurricane Katrina.
As of February 2016, Airbnb had a total of 3,621 active listings in New Orleans, according to data from Inside Airbnb, a non-commercial set of tools and data that shows how Airbnb is being used in different cities around the world.
Of course, there would seem to be a correlation between the rise in home prices and the gains in the app’s popularity, however, correlation does not always equal causation.
In order to truly understand the app’s effects, or lack thereof, you have to look deeper.
One letter circulating on Facebook entitled “Dear Airbnb Renter!” talks about what it sees as the dangers of Airbnb.
“The spread of tourism into residential neighborhoods is pushing out the people who live there,” the letter stated. “When landlords can get so much more for a property on Airbnb they no longer want to rent to actual working New Orleanians. Even residents that own their home are finding it difficult to pay their taxes because of the rising property values.”
That kind of outcry has reached lawmakers. In a letter sent on July 13 to Federal Trade Commission Chairwoman Edith Ramirez, several prominent senators expressed their concern. Sens. Brian Schatz, D-Hawaii; Elizabeth Warren, D-Mass, and Diane Feinstein, D-Calif, stated that they are especially concerned that short-term rentals are not only making housing more expensive in certain communities, but also making it harder to buy a house in the first place.