Fed may be wedded to a June rate hike

WASHINGTON – May 19, 2016 – The Federal Reserve put complacent markets on notice Wednesday: It could well raise interest rates next month.

Most Fed policymakers said in April they would favor an interest rate hike at a June 14-15 meeting if the economy rebounds from a first-quarter slump, the labor market advances and inflation picks up, according to minutes of the Fed’s April 26-27 meeting.

The officials appeared to place a greater likelihood on a June rate increase than financial markets, which had put less than 20 percent odds on a move next month before Wednesday’s release. The Fed lifted its key rate in December for the first time in nine years but has held it steady since amid U.S. and global economic weakness and volatile markets.

“Most participants judged that if incoming data were consistent with economic growth picking up the second quarter, labor market conditions continue to strengthen and inflation makes progress toward the (Fed’s) 2 percent objective, then it likely would be appropriate” to raise the Fed’s benchmark rate in June, the minutes said.

It’s uncertain whether the economy will cooperate. Economic growth appears to have to have accelerated in the current quarter after growing just 0.5 percent at an annual rate early in the year, with retail sales gaining. And a recent climb in oil prices and fall in the dollar have given “many” Fed officials confidence inflation will rise. But job growth slowed in April.

Policymakers voiced concern last month that markets weren’t realistic about the odds of a June hike. After the minutes release, fed futures gave it a 34 percent chance, from 15 percent Tuesday.

With China’s economy stabilizing and stocks rebounding from a sell-off this year, “participants generally saw the risks stemming from global economic and financial developments as having diminished” but “as continuing to warrant close monitoring.”

Copyright © 2016, USATODAY.com, USA TODAY, Paul Davidson

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Ex-criminals and rentals: Expert offers tips

WASHINGTON – May 18, 2016 – The Department of Housing and Urban Development (HUD) published Fair Housing Act guidance on April 4 that raised concerns for housing providers who use criminal history screening processes to make decisions about sales, rentals, financing and other real estate activity. Since then, real estate professionals have been asking what it means.

Experts at the Realtors® Legislative Meetings & Trade Expo in Washington, D.C., last week offered a number of tips for staying in compliance, especially since nearly a third of Americans –100 million people in all – have a criminal record, with an additional 650,000 released from prison each year.

“The three things we need to do when developing a program are have consistent procedures, uniform standards and an explanation for criminal background check programs,” said Caroline Elmendorf, chief compliance officer for Bozzuto Group, at a forum titled, “Criminal Background Checks, Fair Housing Compliance and You.” She also added: “HUD has set a very high bar for what explanations we use.”

HUD’s guidance comes on the heels of a recent Supreme Court ruling that said a party may prove violations of the federal Fair Housing Act by either showing intentional discrimination or that a certain practice has an adverse or “disparate impact” on protected classes.

While persons with criminal records are not a protected class under the Fair Housing Act, HUD’s recent guidance maintains that criminal history-based barriers to housing have a statistically disproportionate impact on minority groups. And since minorities are a protected class under the Fair Housing Act, HUD’s guidance says that creating arbitrary or blanket criminal-based policies and restrictions could potentially violate the Fair Housing Act.

Although Elmendorf’s suggestions should not be considered legal advice, her general tips for real estate professionals, include:

Run a criminal background check last, and only after candidates have passed financial and other screening processes – until credit checks come back clean. However, she admitted that there are timing and logistical issues related to splitting that process.
Consider the nature and severity of the crime, as well as how recently it occurred, when designing criminal screening policies. For example, Elmendorf suggested that companies decide whether to exclude misdemeanors and non-violent felonies, like gambling or tax fraud.
Establish a look-back period that begins at the time of conviction. While the law isn’t crystal clear, HUD cited a study supporting a seven-year look-back period, and that state Fair Credit Reporting Act laws also apply a maximum seven years look back.
Allow individuals to present mitigating and extenuating reasons for why they should be considered in light of a conviction. Those may include facts and circumstances surrounding criminal conduct, age at the time of conviction, evidence of good tenant history, employment or rehabilitation.
Elmendorf pointed to criminal background checks that focus on whether or not a potential tenant or homeowner has been arrested, rather than criminally convicted, as an example of policies that might be “tightened” for compliance. She also noted that there might be a benefit to policies that single out violent crimes because a violent past could be tied to resident safety concerns.

NAR has summarized HUD’s guidance in a “Do’s and Don’ts” guide, with tips that urge real estate professionals to uniformly consider criminal history, regardless of an individual’s protected class status, while avoiding policies that exclude anyone based on arrest records alone.

“Part of being a Realtor is committing to the belief that everyone has a right to live wherever they can afford, and that means strong support for the Fair Housing Act and its mission,” says NAR President Tom Salomone.

© 2016 Florida Realtors®

Flipping is out – landlording is in

NEW YORK – May 18, 2016 – When it comes to real estate investing, many Americans think of their favorite house-flipping reality show – demolition and redecorating, with hopes of a juicy payday. But a less glamorous form of real estate investing is coming into favor: becoming a landlord.

One of the biggest reasons more investors are opting to become landlords right now is because they like the income potential, National Association of Realtors chief economist Lawrence Yun says.

“Rents have been rising, hovering near six- or seven-year-high levels, and are seeing close to 3.5 percent growth from 12 months ago,” Yun says. That means not just getting a steady flow of cash from a tenant but also the prospect of an even higher income stream with each passing year.

There’s no instant gratification in the form of knocking down walls or cashing six-figure sales checks. But a reliable and rising stream of income looks pretty darn good to many Americans right now, considering what savings accounts and Treasury bonds pay.

Rental supply is low, and demand is high

The laws of supply and demand are in landlords’ favor right now. On the supply side, there simply aren’t enough available rental units. Vacancy rates were at just 7 percent in the first quarter of 2016, according to the Census Bureau, down significantly from 11.1 percent during the Great Recession and tied for the second-lowest figure since 1993.

On the demand side, a host of factors are driving more Americans to rent. Young professionals are increasingly mobile, with a 2015 survey by Rent.com showing 43 percent of Millennials, ages 18 to 34, have moved from their hometowns in pursuit of work – and 44 percent say they plan to move again in the next 12 months.

And while Millennials typically are seen as representative of all renters, as they don’t have the means or the desire to purchase property, older Americans increasingly are choosing to rent as well. Recent research by the Urban Institute indicates the population of renters 65 and older will hit 12.2 million by 2030 – more than double the level in 2010.

It’s no wonder some areas have seen an explosion in rental rates. In its National Rent Report for May, apartment marketplace Zumper.com identified 10 metro areas, from San Francisco to Miami to New York, where the median rent for a one-bedroom tops $1,700 per month.

All real estate is local, and local markets can vary widely. However, it’s hard to argue that rents will go anywhere but up for in-demand urban areas given these factors.

Should you become a landlord, too?

Besides having the capital needed, there are some other important factors to consider before buying a property:

″ Think local. Yun says successful real estate investors prefer properties within a 30-minute drive of their primary residence – and that’s not just so they can be on-call as a handyman. “It’s about the unknown and a preference for knowing their local market,” Yun says. “Even if all the data and statistics may say the investment property 200 miles away may provide a better return, most people don’t feel comfortable not knowing the real estate market conditions.” This is good news if the rental market in your hometown is robust. But if not, you may be better off investing in other assets.

″ Look into regulations and taxes. As a landlord, you’ll have to report any rental income to the IRS, and you’ll be eligible for certain property-related deductions to offset any taxes. Therefore, understanding the tax requirements (or getting a good accountant) is key.

Also important is understanding local tenant and landlord regulations, says Walter Charnoff, CEO of Investability Real Estate, an online investment property marketplace.

“Tenant rights vary by state and municipality, so a new investor should be prepared to know what they legally can and can’t do as a landlord,” Charnoff says. In a perfect world, you’ll never have to evict a tenant or worry about property damage, but it is better to be safe than sorry.

″ Account for maintenance and vacancy costs. If your mortgage check is $1,200 monthly and the tenant pays you $1,500 monthly, renting may seem like a no-brainer. But it’s not that simple, Charnoff says. “It is common for newer investors to underestimate the operating costs, especially the maintenance and turn costs when a tenant vacates,” he says. And keep in mind that while doing the work yourself can save a few bucks, your time has a value, too – and that may mean nights and weekends playing handyman or screening prospective tenants.

″ Think ahead. Is your rental home in a university town where your children may wind up going to school? Is it in a location where you’d eventually like to retire, or simply a smaller house that will be easier to maintain as you age? If so, there may be an added benefit to owning a rental property beyond simply the short-term goal of making a few bucks.

Thinking long-term about your own financial goals could allow you to rent a property for now before you use it in another way down the road.

Copyright 2014, USATODAY.com, USA TODAY, Jeff Reeves. Jeff Reeves is the executive editor of InvestorPlace.com.