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Real Estate Investors Hooked On Interest Rate Cuts. It seems that the modern real estate industry doesn't know how to transact unless interest rates are falling or historically low. As inflation stayed persistently high and the investment market remained on ice, real estate investment volumes were subdued in the first quarter, the low figures of 2023 bleeding into the start of 2024. But it hasn't always been this way. And in an industry with assets totaling $34 trillion, some are questioning why its players feel they can’t function unless central bankers are making favorable policy. The seeds of the market slowdown were decades in the making, taking in obscure financial regulators, a crisis about the future of the eurozone and laissez-faire economic philosophy. Those watching events play out say understanding how the investment market got to its point of stagnation offers insight into what making money in real estate will look like in years to come. The period when interest rates were at historic lows and real estate values were at historic highs was an anomaly, and investors are going to need to learn new ways to turn a profit. From about 2011 on, making money in real estate was a given. The next person in line could always finance a deal at a lower interest rate and, therefore, pay a higher price. Not anymore.
Supreme Court Gives Homeowners Another Chance In Escrow Dispute. As you may know, some lenders collect money from homeowners monthly (along with mortgage payments), to be used to pay taxes and insurance. But the issue is whether these lenders are required to pay interest to the borrowers on this impounded money? I mention this use because last week the Supreme Court gave homeowners another chance to force Bank of America and other large banks to pay interest on mortgage escrow accounts. The court unanimously threw out an appeals court ruling in favor of Bank of America, which had refused to pay interest on money it collects to pay borrowers' insurance and property tax bills. New York requires banks to pay at 2% interest on escrowed funds. Thirteen other states have similar laws: California, Connecticut, Iowa, Maine, Maryland, Massachusetts, Minnesota, New Hampshire, Oregon, Rhode Island, Utah, Vermont and Wisconsin. A federal judge initially ruled in favor of the borrowers, but the federal appeals court in New York granted Bank of America's request to dismiss the suits, arguing that the federal law governing national banks does not permit such state-by-state regulation. But Justice Brett Kavanaugh to the rescue, wrote for the Supreme Court that the appeals court did not perform the kind of nuanced analysis required by federal law and prior Supreme Court decisions to determine if a state law must give way to a federal statute. In particular, Kavanaugh noted that the Dodd-Frank Act (enacted after the 2008 financial crisis) made clear that not all state banking laws are pre-empted. Jonathan Taylor, who argued the case for the homeowners, said in an email that the decision is a victory for consumers because it “vindicates Congress’ determination in Dodd-Frank to rein in the kind of aggressive preemption of state consumer-financial laws that helped lead to the financial crisis.” As you would expect, Bank of America did not immediately comment on the decision.
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