October 11, 2021
The biggest risk to the housing market right now: It's not rising mortgage rates or a stock market correction
By Logan Mohtashami, Housing Wire – Now that we are heading toward the end of 2021, what can we say about the U.S. housing market this year? No question it has been another year of ups and downs with seemingly conflicting data, which could indicate a coming boom or a bust depending on how you decide to parse it. If we stick to the facts, however, we can glean a few important take-homes as to what risks the housing market faces for 2021 and beyond.
First and foremost, it is important to remember that more Americans are buying homes with mortgages in 2020 and 2021 than any single year from 2008-2019. If you are familiar with my work, this will not be a surprise. From 2008 to 2019 we had the weakest housing recovery ever, following a bust. Following these years of doldrums, in the years 2020 to 2024 we have the best housing demographic patch ever recorded in history.
These solid demographics for housing will provide stable, built-in replacement demand. Don’t expect a buying or construction boom during this period. Mature economies are like large ocean liners. They have limits on how fast they can maneuver and what they can and can’t do. This is why my line in the sand for total sales (new & existing homes) for the years 2020 to 2024 is 6.2 million. If new and existing home sales combined get above this number during these golden years then they will beat my expectations. We had no chance of reaching this number during the years 2008 to 2019.
Based on our demographics, our two sweet spot years will be 2022 and 2023. During this time we will have a lot of people of first-time home-buying age that will need shelter. But housing demand won’t just be from millennials and Gen Z coming into home-buying age: we will also have our move-up, move-down, cash and investor buyers adding to the demand.
August 23, 2021
Readers comment about real estate stories in Washington Post
By Ilyce Glink and Samuel J. Tamkin, Washington Post (Post Reader’s Comments) -- You recently had a column with reader’s comments. This prompts me with two stories for you.
First story: I am an attorney. A client recently sold a building, and, as we approached the closing, the sale had a bump because there was an old utility bill outstanding from before he bought the property 10 years ago. In this local municipality, utility bills are like real estate taxes; they are a lien on the property and even have priority over a mortgage.
He was furious; he said it should have been paid prior to the closing (he was right). When I asked him who his attorney was, he said he relied upon the bank’s attorney. I told him the bank’s attorney is not his attorney!
His attorney was probably from out of town and didn’t realize the municipality’s subtle utility expense status. There was a title insurance policy, but it was only a lender’s policy and only benefited the lender. He could have been paid for an owner’s policy for a small premium, which would have protected him, but “why pay for such an expense when it is just a gimmick?”
Title insurance is not a gimmick. You are not buying a newspaper. You’re making a sizable investment, so protect yourself. I do only the occasional closing, but when I personally buy real estate, I get an owner’s title insurance. It is a little expensive where I live (and states should review these companies), but they provide a necessary expense. Don’t be cheap!
Second story: About 40 year ago, a bankruptcy trustee conducted a trustee’s auction. There was a vigorous auction and one party was the winner. After taking care of a couple of procedural matters, the bankruptcy trustee went up to the successful bidder to discuss execution of documents for a closing within an acceptable period of time.
The bidder, to the trustee’s surprise, said he was willing to pay the cash price there and then, and took out a wad of Confederate dollars! The Trustee, with some fast footwork, was able to get the second highest bidder to step in.
That Trustee made sure that all future auctions were published with a required payment in “U.S. Dollars.”
Our response: Thanks for sharing some of the highlights of your career. (We couldn’t make this stuff up.) And you’re absolutely right about title insurance. Owner’s policies are worthwhile, but in some states, it is more expensive than it needs to be. We always recommend that home buyers obtain an owner’s title insurance policy when they buy a home.
On the cash at closing, thank you for that story. That adds to what we wrote about a couple of weeks ago with most closing and settlement agents only taking wire transfer funds for purchases of homes or, in other cases, bank checks. These days with currency regulations, we don’t know of any settlement or closing agents that take cash for the purchase of a home.
Reader comment: In a recent column, you wrote that the power of attorney for financial matters and health care carry through death. But, in fact, powers of attorney for financial matters and health care are only valid until the person dies. So, the executors and trustees are the only ones with access.
Our response: You’re correct. We should have been clearer in our column. A power of attorney is good so long as the person who signed the power of attorney is alive. Upon that person’s death, the power of attorney is no longer valid. If there is a will, the executor listed would take over. If not, the would-be heirs would need to petition the court to name an executor of the estate.
August 6, 2021
The way homebuilders erect and sell their products is changing.
By Lew Sichelman, The Housing Scene -- Not to any great degree. So-called "stick building," in which houses are put together piece by piece at the job site, is still the norm. And most builders are still using model homes to show off their wares in the best light possible.
But slowly and surely, they are changing the way they do business -- some say for the better.
In Washington's Northern Virginia suburbs, for example, upscale builder Van Metre Homes is toying with putting up townhouses comprised of various modules. And several firms are pushing forward with 3D-printed houses -- mostly one-offs, but in at least one case, an entire (albeit small) community.
Modular construction isn't new. It is a more efficient way to build because it limits waste under factorylike conditions, and it's often less expensive. Even so, it accounts for only 3% of all new houses, according to the National Association of Home Builders.
But Van Metre's experiment takes it to another level. In partnership with Joseph Wheeler, a professor of architecture at Virginia Tech, the builder's POWERHaus product will include such cutting-edge technology as ductless HVAC systems, energy control panels that track consumption, electric car-charging capabilities and induction cooking that limits the amount of heat that escapes into the house.
Once the sections are trucked to the site and assembled using Wheeler's "plug-and-play" concept, solar panels will be added to achieve "net zero" status, in which the units should produce at least as much energy than they consume.
Meanwhile, in Richmond, Virginia, a 3D-printed home construction company called Alquist is erecting a 1,550-square-foot house with three bedrooms and two baths. The expected selling price is about $210,000, but energy-saving features are expected to cut utility costs in half (from those of a traditional home).
The house was built with concrete, extruded row upon row until it reached the prescribed height. That alone is projected to cut costs by 15% per square foot. But it was also built in under 15 hours -- as opposed to the normal four weeks -- and with a crew of just two. In this house, Alquist printed only the exterior walls, but the company says it will also build interior walls in future houses.
Concrete construction isn't new, either. But only 8% of new houses are concrete-framed, whereas 91% are wood-framed, NAHB reports. (The other 1% are steel.) Builders shy away from these and other methods largely because they can't find experienced workers. They also cite cost as an issue. But with the cost of lumber so high, that could be changing.
Whereas most 3D-printing construction endeavors have focused on urban areas, Alquist is taking particular aim at rural locations -- many of which face even greater affordable housing challenges than big cities. The company, which also is working with Habitat for Humanity, intends "to build homes for people who live outside of the places where most funding for housing programs is spent," said CEO Zachary Mannheimer.
Elsewhere, ICON, an Austin, Texas-based company that uses a giant 3D printer and concrete as a substrate, has built six such houses in a 51-acre master-planned property. And in Rancho Mirage, California, Mighty Buildings, in conjunction with a local developer, will put up 15 houses that are built in panels. The panels will use a polymer material comparable to synthetic stone, and will be assembled at the site.
"In early 2018, there were no 3D-printed houses in North America," said ICON CEO Jason Ballard. "Now we're gearing up for hundreds."
Selling is changing, too, with at least two major builders going far beyond 360-degree video tours. Now, you can design and buy a house completely online without ever leaving the comfort of your living room.
With the new reservation system from Taylor Morrison, the nation's fifth-largest homebuilder, customers can choose a floor plan, select a home site using an interactive map and reserve the house -- all online. The tool complements technology that the company unveiled last year, including 3D virtual tours, self-guided tours and an online shopping cart.
The system "takes the friction out of homebuying," said CEO Sheryl Palmer. "Consumers crave ease and simplicity, whether they're purchasing a car, groceries or a new home."
Similarly, the Atlanta-based Pulte Group, which has operations in more than 40 markets, is now offering a fully integrated online process where buyers in some of its communities can complete the entire transaction, including securing financing.
"The events of 2020 dramatically accelerated the transition to online shopping, as more people are purchasing a broader array of products and services than ever before," said Pulte President Ryan Marshall. The online option lets buyers "purchase their new homes on their own terms and timeline," he said.
Added regional president Brandon Jones: "Now the last piece of the online homebuying process is in place: the ability to click and buy."
July 23, 2021
Labor Law: It is legal for businesses to mandate COVID-19 vaccinations
By Karen Michael, Richmond Times-Dispatch (reported May 21, 2021) – As vaccines are now broadly available to most U.S. workers, questions remain about whether employers can mandate vaccinations and require that employees show proof of vaccination.
Businesses, in most cases, can require employees receive a vaccination. Last month, for instance, a Texas hospital system with 26,000 employees was among the first major health care systems to mandate vaccinations of all of its employees, and reportedly has already terminated at least one management employee who failed to receive the vaccine by the hospital’s deadline.
About 44% of employers that responded in a recent survey by Arizona State University said they will require employees to get vaccinated, while 31% will just encourage it and 14% will require just some employees be vaccinated.
No Virginia laws currently prevent employers from requiring workers to receive the vaccine as a condition of employment.
The only official opinion on this topic came from Attorney General Mark Herring, who recently said the state’s public colleges and universities have the authority to require vaccines among their students. He said colleges “may condition in-person attendance on receipt of an approved COVID-19 vaccine during this time of pandemic.”
Under federal law, the Equal Employment Opportunity Commission has suggested employer-mandated vaccinations do not violate federal discrimination laws, including the Americans with Disabilities Act.
The EEOC cautioned employers that administer the vaccine from asking pre-screening questions that go beyond the scope of those that are job-related and consistent with business necessity.
Employers that require the vaccine as a condition of employment are safer to not administer the vaccinations themselves so as to not run afoul of the ADA.
Some states initially pushed back on vaccination mandates, introducing a flurry of legislation around the country.
Arkansas legislators passed a law on April 28 prohibiting the state and local governments from mandating the vaccine as a condition of employment, among other prohibitions. But this new state law doesn’t apply to private businesses.
New Jersey recently clarified that its New Jersey Law Against Discrimination would not prohibit an employer from requiring a worker to receive the COVID-19 vaccine in order to return to the workplace unless the person is unable to do so as a result of disability or pregnancy.
Employers that mandate the vaccine must make reasonable accommodations to workers who are unable to receive the vaccine due to a disability or sincerely held religious belief.
Employers cannot simply terminate an employee if this is the case. The company must engage in an interactive process to determine if the employee can nevertheless continue working.
July 20, 2021
Once-in-a-Generation' Housing Inventory Crisis in Focus at Realtor® Policy Forum
By Wesley Shaw, NAR Media Contacts - A top official from the U.S. Department of Housing and Urban Development joined policy experts from the National Association of Realtors® on Thursday [July 15th] to discuss solutions for the nation's historic housing supply shortage. The virtual policy forum went in depth on research commissioned by NAR and authored by the Rosen Consulting Group, which found that the U.S. is in the midst of an "underbuilding gap" of around 6 million housing units dating back to 2001. The report, Housing is Critical Infrastructure, has taken center stage in national conversations on housing policy, particularly after President Joe Biden last week reiterated his administration's focus on housing as part of its broader infrastructure push.
"The U.S. housing shortage is … the result of more than a decade of severe underbuilding and underinvestment," NAR President Charlie Oppler said to open Thursday's event. "Reaching the necessary volume will require a major, long-term national commitment … [and] building all types of new housing must be an integral part of any national infrastructure plan. Like roads and bridges … housing is an essential long-term asset that helps families climb the economic ladder to prosperity, brings folks closer to job opportunities, and generates tax revenue that supports community residents."
President Biden is aiming for what he called a "historic investment" in housing that would generate 2 million additional homes in the U.S. through construction and rehabilitation.
RCG Senior Vice President and former HUD economist David Bank focused on the connection between the NAR report he co-authored and the President's infrastructure ambitions in his remarks Thursday.
"Critical infrastructure … refers to the physical assets and the systems that we need to keep our country and our communities safe and vibrant," said Bank. "In that respect, it's hard to think of a physical asset that's more critical to our success and the vibrancy of our communities than access to decent, safe and affordable housing."
HUD's Senior Advisor Alanna McCargo joined Bryan Greene, NAR's vice president of policy advocacy, to discuss strategies the administration is considering to boost housing supply. As NAR has also continued to do, McCargo stressed that a broad number of approaches and policies will be needed to rectify a problem that has been decades in the making.
"There are not really any silver bullets," said McCargo, who joined HUD this year after serving as vice president of the Urban Institute's Housing Finance Policy Center. McCargo said the administration will take "a serious look at how we accelerate renovation and rehabilitation construction projects." She highlighted the importance of working on the local level to reform zoning and land use policies and also noted that the rising costs of construction must be addressed. "Getting on track on an … aggressive renovation and rehab process, and also building resiliency and energy efficiency into that for the future, are going to be really key approaches" that the administration is prioritizing.
The National Association of Realtors® is America's largest trade association, representing more than 1.4 million members involved in all aspects of the residential and commercial real estate industries.
July 7, 2021
Mortgage applications fall for third straight week
By Tim Glaze, Housing Wire -- Mortgage applications decreased again, this time falling 1.8% in the week ending July 2, 2021, according to the latest report from the Mortgage Bankers Association. This marks the third straight week of application declines, and represents the lowest level since the January 2020.
“Treasury yields have been volatile despite mostly positive economic news, including last week’s June jobs report, which showed ongoing improvements in the labor market,” said Joel Kan, MBA associate vice president of economic and industry forecasting. “However, rates continued to move lower, especially late in the week.”
Kan said the 30-year fixed rate was 11 basis points lower than the same week a year ago, and refinance applications have trended lower than 2020 levels for the past four months. Those who are filling out purchase mortgage applications are requesting bigger loan amounts, but there are fewer applicants. It has most acutely affected first-time homebuyers.
“Swift home-price growth across much of the country, driven by insufficient housing supply, is weighing on the purchase market and is pushing average loan amounts higher,” Kan said. The refinance share of activity decreased to 61.6% of total mortgage applications from 61.9% the previous week. On an unadjusted basis, the market composite index decreased 1% compared with the previous week. The seasonally adjusted purchase index also decreased only 1% from one week earlier. The FHA share of total mortgage applications remained increased to 9.8% from the week prior, and the VA share of total mortgage applications increased to 10.8% from 10.5%.
Here is a more detailed breakdown of this week’s mortgage applications data:
June 22, 2021
Refinance's reign continued to wane in May
Overall, the refinance share of the market mix accounted for just 44% of origination activity
By Alex Roha, Housing Wire -- Though the number of high-quality refi candidates grew from 12 to more than 14 million from March through May — a 15% increase — actual refinance rate locks dropped by 27% over the same period, according to recent data from Black Knight’s Originations Market Monitor.
Month over month, overall rate lock volume was down 4.7% in May, with declines seen across purchase locks (-3.4%) as well as cash-out (-3.4%) and rate/term (-8.2%) refinance locks.
“Though interest rate offerings trended downward across all mortgage products in May, overall rate locks were still down across the board,” said Black Knight secondary marketing technologies President Scott Happ. “The severity of shortages in for-sale inventory seems to be a key driver behind the 3.4% decline in purchase locks from April, but the dip in refinance locks seems to have more to do with borrower psychology.”
According to Happ, February’s rise in rates drained some of the excitement in the market. Rates kicked up nearly a quarter of a percentage point throughout February, eventually peaking at 3.18% at the start of April. Since then, rates have fluctuated above or below 3% by roughly seven basis points. Despite significant increases in refinance incentive since then, Happ noted refinance activity simply hasn’t rebounded as expected.
“As interest rates declined from March through May, refinance incentive rose by 15%,” Happ continued. “This brought the number of high-quality refi candidates in the market to over 14 million as of the end of May, but rate lock volume has failed to keep pace.”
Overall, the refinance share of the market mix dropped again last month, accounting for just 44% of origination activity. In March, the share of refinances in mortgage origination volume dipped below 50% for the first time in 15 months. Since then, refis have slowly slipped downwards.
Where refinance rate locks struggled, purchase rates locks are still hovering above numbers seen a year ago. Both cash-outs (+32%) and purchase loans (+42%) were up from last May, though it is important to note these data points are painted against 2020’s pandemic-driven backdrop.
According to Black Knight, the average loan amount in May was up $6,000 to $316,500. The data giant attributed this rise as a result of increased jumbo lending and consistent home price appreciation. A report from Redfin found in May, nearly 54% of homes sold above their asking price — another record high and up from 26% a year ago.
“May marked the likely peak of the blazing hot pandemic housing market, as many buyers and sellers are vaccinated and returning to pre-pandemic spending patterns,” said Taylor Marr, Redfin lead economist. “Sellers are still squarely in the drivers’ seat, but buyers have hit a limit on their willingness to pay. The affordability boost from low mortgage rates has been offset by high home price growth.”
The three metropolitan areas with the greatest percentage of lock volume — both refinance and purchase — were the Los Angeles-Long Beach-Anaheim metro, New York-Newark-New Jersey metro and the Washington-Arlington-Alexandria metro. But the top 20 metros were neck-and-neck for whether purchases or refis made up more of the lending pie.
June 8, 2021
Technology Helping Bring Closing Times Back Down
From American Land Title News -- The time to close on a mortgage decreased for the fourth consecutive month, according to the latest report from ICE Mortgage Technology.
ICE reported the average time to close all loan types declined to 51 days during April. This was down from 54 days compared to October 2020. Despite the decline, the time to close is still taking nine days longer compared to 42 days in April 2020.
According to the report, it took 49 days to close on a purchase. This was down from 51 days in March, but up from 46 days in April 2020. Meanwhile, it took 53 days to close a refinance in April. This was down one day compared to March, but still up two weeks compared to April 2020.
“The decrease in average time to close is not surprising, given the increase we have observed in the adoption of digital transformation tools,” said Joe Tyrrell, president of ICE Mortgage Technology. “This trend also aligns with findings from our 2020 Borrower and Lender Insights Survey, in which both borrowers and lenders noted that digital mortgage technologies are making it faster and easier to close a mortgage loan, thus improving the overall experience for participants.”
The report also showed that April was the second consecutive month of slowdown in share of refinances among total originations. The percentage of refinances dropped to 56% of all closed loans in April, down from 63% in March. However, the percentage of purchases increased to 43% of total closed loans for the month of April, up from 36% in March, reflecting the highest percentage since August 2020.
June 2, 2021
Mortgage Applications Decrease in Latest MBA Weekly Survey
By Adam DeSanctis, Mortgage Bankers Association Weekly -- Mortgage applications decreased 4.0 percent from one week earlier, according to data from the Mortgage Bankers Association's (MBA) Weekly Mortgage Applications Survey for the week ending May 28, 2021. This week's year-over-year results are being compared to the week of Memorial Day 2020.
The Market Composite Index, a measure of mortgage loan application volume, decreased 4.0 percent on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index decreased 5 percent compared with the previous week. The Refinance Index decreased 5 percent from the previous week and was 6 percent higher than the same week one year ago. The seasonally adjusted Purchase Index decreased 3 percent from one week earlier. The unadjusted Purchase Index decreased 5 percent compared with the previous week and was 2 percent lower than the same week one year ago. "Mortgage applications decreased for the second week in a row, with the overall index reaching its lowest level since February 2020," said Joel Kan, MBA's Associate Vice President of Economic and Industry Forecasting. "Tight housing inventory, obstacles to a faster rate of new construction, and rapidly rising home prices continue to hold back purchase activity. The government purchase index declined to its lowest level in over a year and has now decreased year-over-year for five straight weeks. Purchase applications were down almost 2 percent from a year ago, but that was compared to the week of Memorial Day 2020." Added Kan, "Refinance activity dropped for the second straight week, even as the 30-year fixed rate decreased slightly to 3.17 percent. Even though rates have been below 3.20 percent over the past month, they are still around 20-30 basis points higher than the record lows in late 2020." The refinance share of mortgage activity decreased to 61.3 percent of total applications from 61.4 percent the previous week. The adjustable-rate mortgage (ARM) share of activity decreased to 3.7 percent of total applications. The FHA share of total applications increased to 9.6 percent from 9.1 percent the week prior. The VA share of total applications decreased to 10.9 percent from 11.2 percent the week prior. The USDA share of total applications remained unchanged from 0.4 percent the week prior. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($548,250 or less) decreased to 3.17 percent from 3.18 percent, with points increasing to 0.39 from 0.35 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans. The effective rate increased from last week. The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $548,250) increased to 3.34 percent from 3.30 percent, with points increasing to 0.38 from 0.30 (including the origination fee) for 80 percent LTV loans. The effective rate increased from last week. The average contract interest rate for 30-year fixed-rate mortgages backed by the FHA decreased to 3.16 percent from 3.20 percent, with points increasing to 0.31 from 0.25 (including the origination fee) for 80 percent LTV loans. The effective rate decreased from last week. The average contract interest rate for 15-year fixed-rate mortgages increased to 2.56 percent from 2.53 percent, with points increasing to 0.31 from 0.27 (including the origination fee) for 80 percent LTV loans. The effective rate increased from last week.
The average contract interest rate for 5/1 ARMs decreased to 2.54 percent from 2.81 percent, with points remaining unchanged at 0.29 (including the origination fee) for 80 percent LTV loans. The effective rate decreased from last week.
May 24, 2021
NAR: Almost 50% of homes sold for more than list price
And 25% of home sales were all-cash transactions
By Tim Glaze, Housing Wire – The National Association of Realtors Confidence Index Survey for April reveals how hot the housing market is. Per the report, homes that sold had five offers on average, and nearly 50% of homes sold for more than their list price during the four weeks ending May 16. NAR expects home prices in the next three months to increase nearly 6% from one year ago and will increase almost 3% from last year’s sales level.
The April 2021 survey was sent to 50,000 Realtors selected from NAR’s over 1.4 million members, and to 6,686 respondents in the previous three surveys who provided email addresses. There were 3,541 respondents to the online survey which ran from May 3-10, 2021, of which 1,731 had a client.
“With little supply in the market, homes typically sold within 17 days — down from 27 days one year ago, as buyer competition heats up,” NAR said in a statement. “The share of first-time buyers decreased to 31% from 32% in the prior month, and 36% one year ago. The pandemic continues to impact how people live and work.”
Eighty-five percent of buyers purchased a property in a suburban, small town, rural, or resort area — the same percentage as a year ago. Sixty percent of Realtors reported they had potential buyers looking for work-from-home features such as an extra room, a finished basement, or a bigger home.
25% of all sales were cash sales, per the report. Buyer traffic index was noted as “very strong” in every state except Utah, South Dakota, Minnesota, Michigan, Indiana, Kentucky, Vermont, New Hampshire, Delaware, Maryland, and Washington D.C.
However, there are signs that housing market demand may be reaching its peak, according to a recent study from Redfin.
Pending sales for the seven-day period ending May 16 were down 10% from four weeks prior, compared to an 8% increase during the same period in 2019. Mortgage purchase applications also decreased 4% week over week.
“Make no mistake, the housing market is still very hot and will remain hot for the rest of the year,” said Daryl Fairweather, Redfin chief economist. “But there may be signs that some buyers would rather spend their money on restaurants, vacations, and other things they have held back on for the past year, instead of on housing now that the threat of the pandemic is dissipating in America.”
New listings of homes for sale were down 12% from the same period in 2019, and active listings — the number of homes listed for sale at any point during the period — fell 49% from the same period in 2019. (2019 is being used as a reference point since 2020 data is skewed by the pandemic.)
This is happening, of course, with prices remaining astronomically high. Home prices were recently reported at a record high of $352,975, and were up 24% year over year. Asking prices increased to $358,975, also a record high.
May 22, 2021
Existing home sales fall for third month in April-low inventory pushes home-prices up in every region
By Alex Roha, Housing Wire – April’s existing home sales painted a familiar picture of a market still grappling with low supply as sales dropped for the third month in a row, down 2.7% from March to 5.85 million, the National Association of Realtors reported on Friday.
Despite the decline, housing demand is still strong compared to one year ago, evidenced by existing home sales from this January to April, which are up 20% compared to 2020. Continued demand is stoking already red-hot price appreciation, with the median existing home price for all home types in April coming in at $341,600 — up 19.1% from April 2020 as every region recorded a price increase.
Steep competition stirred in part by low mortgage rates, demographic factors and an improving economy is pushing home prices up at the strongest pace in decades, with sales happening at lightning speed and often for well above list price, noted Zillow Economist Matthew Speakman. This elevated level of competition may be starting to wear on buyers’ confidence and could be holding back sales volumes.
“Last month, existing home sales recorded their best bottom line in any April since 2006,” Speakman said. “New listings volume got a decent bump in March and April, and more people believe it’s a good time to sell a home than at any time since the pandemic began.”
While borrowers battle it out in the bidding trenches, unsold inventory sits at a 2.4-month supply at the current sales pace, slightly up from March’s 2.1-month supply and down from the 4-month supply recorded in April 2020.
According to NAR, these numbers continue to represent near-record lows.
Properties typically remained on the market for 17 days in April, down from 18 days in March and from 27 days in April 2020. Roughly 88% of the homes sold in April 2021 were on the market for less than a month.
Because housing inventory is such a key element right now, Fannie Mae‘s economic and strategic group modified its 2021 predictions. The group said it had expected that a combination of waning COVID-19-induced movement into single-family housing and continued tight inventories would lead to a slowing pace of existing home sales as the year progresses. The group noted that despite year-over-year increases, they can’t push their existing home sales predictions any higher under current circumstances.
NAR also noted the role of inventory in existing home sales.
“We’ll see more inventory come to the market later this year as further COVID-19 vaccinations are administered and potential home sellers become more comfortable listing and showing their homes,” said Lawrence Yun, NAR’s chief economist. “The falling number of homeowners in mortgage forbearance will also bring about more inventory.”
NAR expects the additional projected to cool down the torrid pace of price appreciation later in the year.
However, as Joel Kan, the Mortgage Bankers Association’s associate vice president of economic and industry forecasting pointed out, in the short-term, inventory shortages will persist. U.S. Census Bureau data from earlier this week showed residential housing starts have started to slow due to challenges in the cost and availability of building materials.
First-time buyers, who made up a good share of the 2020 purchase market were responsible for 31% of existing home sales in April, down from 32% in March and 36% in April 2020.
“First-time buyers in particular are having trouble securing that first home for a multitude of reasons, including not enough affordable properties, competition with cash buyers and properties leaving the market at such a rapid pace,” Yun said.
Broken down regionally:
May 18, 2021
The Docket: An Exceptional Plat Attack
The Docket is a monthly TitleNews Online feature provided by ALTA’s Title Counsel Committee which reviews significant court rulings and other legal developments and explains the relevance to the title insurance industry.
Ron Damashek, a partner at Dickinson Wright PLLC, provided today’s review of a decision by an Arizona appeals court addressing policy exceptions on a plat. Damashek can be reached at firstname.lastname@example.org.
Facts: VACC purchased land in Mesa, Ariz., with the intent to develop single family residences for sale. Unfortunately, VACC’s property was platted as one large lot, rather than as individual lots.
Notwithstanding this limitation, VACC constructed and sold 19 lots improved with residences as fee simple properties. However, when VACC contracted to bulk sell 333 single family residential lots to D.R. Horton, Horton’s title agency discovered the plat limitation. Although VACC and Horton successfully amended the plat to permit the sale of individual lots, it took eight months to do so, and the contract was revised to sell the lots to Horton in installments, rather than as a one-time purchase.
VACC made a claim under its title insurance policy to recover the costs associated with amending the plat. Chicago Title Insurance Co. denied coverage based on a policy exception for “loss or damage, and … costs, attorneys’’ fees or expenses that arise” because of “easements, covenants, conditions and restriction as set forth on the plat,” and the litigation ensued.
Holding: The trial court granted summary judgment to CTIC because the policy insured title subject to the conditions in the plat and did not provide insurance for a specific use. The Arizona Court of Appeals affirmed, rejecting numerous attempts to avoid the effect of the policy exception.
First, the court rejected VACC’s claim that title was not marketable, finding that VACC could have sold the property in the same manner that VACC acquired it. The court also dispatched VACC’s argument that the plat violated Mesa’s municipal ordinances, finding that the city never made such a claim; rather, VACC’s proposed change in use created the need to amend the plat, which is distinct from a pre-existing code violation.
In addition, the court rejected VACC’s argument that its property could not be marketed as VACC intended, finding that an insured’s hope, or even expectation, is not what is insured under a title policy. The court also denied VACC’s related claim that, under the “reasonable expectations” doctrine, the parties’ alleged intent to allow VACC to sell the property in individual units was defeated. According to the court, this doctrine applies only when there is a standardized, non-negotiated contract that a party did not read and probably would not have understood if the party read it. However, VACC negotiated policy coverage, including requesting and being granted specific changes to, or the removal of, certain exceptions. As such, the court considered the policy to be a negotiated agreement to which the reasonable expectations doctrine did not apply.
Finally, an endorsement against portions of the property being improperly subdivided and not contiguous was found not to apply because the endorsement expressly stated that it did not modify any terms and provisions of the policy, including the policy provision excepting from coverage costs arising out of the scheduled plat. Not surprisingly, the court also rejected VACC’s bad faith claim. A win on all fronts.
Importance to the title industry: This Arizona decision is important to the title industry because it illustrates how and why a policy coverage exception should be enforced in the face of a myriad of challenges based on the insured’s purported intent rather than the parties’ contract.
May 14, 2021
Foreclosures down in April as moratorium continues
By Tim Glaze, Housing Wire -- The number of properties with foreclosure filings hit 11,810 in April, down 1% month over month and 17% year over year, according to a recent study from RealtyTrac and ATTOM Data Solutions.
May marks the 14th month of the federal government’s foreclosure and eviction moratorium. States with the highest April foreclosure rates were Delaware (one in every 5,700 housing units with a foreclosure filing), Nevada (one in every 5,738), Illinois (one in every 5,890), Florida (one in every 6,375), and New Jersey (one in every 6,390). Metro areas with a population larger than 1 million with the highest foreclosure rates were Cleveland, Ohio (one in every 3,550), Las Vegas (one in every 4,838), Riverside, California (one in every 5,020), Jacksonville, Florida (one in every 5,243), and Chicago (one in every 5,324).
States with at least 100 April foreclosure starts that saw the greatest monthly increase in starts included Washington (up 76%), New York (up 53%), Kentucky (up 47%), Alabama (up 28%), and Indiana (up 26%).
Rick Sharga, RealtyTrac executive vice president, said most of today’s foreclosure activity is made up of vacant and abandoned properties, or commercial loans — which often don’t have the same protections as loans on residential properties.
“With the federal government’s foreclosure and eviction moratorium, coupled with the CARES Act mortgage forbearance program, the government and mortgage services industry have worked together exceptionally well to prevent millions of unnecessary foreclosures,” Sharga said. “Because of these programs, and the nearly 90% success rate of borrowers resuming mortgage payments as they exit forbearance, a large influx of foreclosures when the programs expire seems very, very unlikely.”
The Consumer Financial Protection Bureau (CFPB) released a notice of proposed rulemaking in early April that would amend Regulation X to provide a special pre-foreclosure review period prohibiting servicers from starting foreclosures until after December 31, 2021. Under current CFPB foreclosure rules, a borrower must be 120 days delinquent before the foreclosure process can start.
The Bureau said that nearly 2.1 million households in forbearance are past the 90-day delinquent mark and said it is concerned that those homeowners may be transferred immediately in to the foreclosure process once their forbearance period expires.
According to the Bureau, while many protections of the CARES Act only apply to federally backed mortgages, the Bureau is looking to set a blanket standard across the industry so that all homeowners would have similar protections regardless of who the owner or servicer of the loan is. The CFPB said it will also cover the private mortgage sector that currently makes up 30% of the market.
“The nation has endured more than a year of a deadly pandemic and a punishing economic crisis. We must not lose sight of the dangers so many consumers still face,” said CFPB Acting Director Dave Uejio. “Millions of families are at risk of losing their homes to foreclosure in the coming months, even as the country opens back up.
May 13, 2021
Things Are Heating Up Early in the Hottest Markets for Real Estate in April 2021
By Cicely Wedgeworth, REALTOR® .com - Summer vacation, here we come! With June in sight and states opening up across the country, real estate activity is buzzing—especially in the Northeast and Midwest, where buyers are jumping fully into the market earlier than usual, according to the latest analysis of Realtor.com® data. Looking at how quickly homes sell and which metros’ listings are viewed the most on our site gives us a picture of which markets are the hottest in the nation. And for the month of April, five of the top 10 markets were in the Midwest.
“The Midwest is the area where we see really strong seasonal patterns, because those markets cool off more dramatically than other markets do in the winter,” notes Realtor.com Chief Economist Danielle Hale. Buyers there typically wait till it warms up more—say, in June—to really get going. But of course this is no typical year when it comes to real estate.
This year, the combination of low mortgage rates, rising home prices, and a large group of people at the typical first-time home buyer age has spurred real estate activity to new heights. Affordability is also a factor—in all but one of the eight Midwestern metros in the top 20, the median home list price was below the national median of $375,000 in April.
Meanwhile, the top two markets remained the same as in March: the New Hampshire metros of Manchester and Concord. Manchester, the state’s largest city, is no stranger to the hottest markets list—it was No. 2 in April 2020. Concord, on the other hand, leaped 22 spots from last year to land at No. 2 this year.
“It’s pure madness,” says Joelle Sturm, a Realtor® with Better Homes & Gardens, Masiello Group, in Concord. “I’ve been doing real estate for 20 years in this area, and I’ve never seen a market like this.” And by that she means multiple offers all over the place, and homes selling for tens of thousands of dollars over the asking price. It’s mostly buyers coming in from Massachusetts, Connecticut, and New York with plenty of cash, she says.
“They almost don’t care what the prices are,” Sturm says. “I feel bad for our local buyers because first-time home buyers are priced out.”
The median list price for Concord in April was up 8.6% compared with one year earlier.
The lack of available homes across the country has caused headaches for buyers, who find themselves caught in bidding wars. Homeowners have been reluctant to list their homes during the pandemic, but as vaccination rates rise, they are easing back into the market. Still, new listings in April were down 25% from the 2017–19 average.
“We’re starting to see sellers come back at least to where they were a year ago, but I fully expect it’s going to continue to be a seller’s market in many parts of the country,” Hale says.
February 16, 2021
Why Can’t We Build Enough Homes to Meet Demand?
By Mark Fleming and Odeta Kushi, First American Insights -- In this episode of the REconomy podcast from First American, Chief Economist Mark Fleming and Deputy Chief Economist Odeta Kushi discuss the headwinds home builders face as they try to ramp up new home construction amid today’s strong demand for housing and an historic housing supply shortage.
Odeta Kushi: Hello, and welcome back to another episode of the REconomy podcast where we discuss economic issues that impact real estate, housing and affordability. I'm Odeta Kushi, deputy chief economist at First American and here with me is Mark Fleming, chief economist at First American Hi, Mark.
Mark Fleming: Hi, Odeta.
Odeta Kushi: Well, you've probably heard quite a bit about the housing supply shortage. And, if you haven't heard about the shortage, you may at least have noticed that house prices around you seems to be going higher and higher. Now, the main reason for that is a decade-long imbalance between housing supply and demand. So today, we'll be talking about some of the headwinds to building more homes. Let's just call them the four L's: labor, land, lumber, and laws. And we'll start with the first labor. Mark, what's the issue? Why can't we get more construction workers? Do we have enough construction workers? I guess, is the first question.
Mark Fleming: I mean, we can't find enough construction workers because we actually need to build a lot more homes, even more than we have historically built in normal and good times. And that actually has to do with the fact that we've had a long decade of increased demand for not just home ownership, but shelter in general, all of the demographic demand from millennials over the last decade, forming new households, has driven up the demand not only for single family homes for people to own, but lots and lots of rental units. In fact, broadly speaking, demand for shelter has increased dramatically. At the same time, as you point out, the amount of construction is underperforming even normal levels, partially due to a lack of labor. You can think of it from a deficit and debt perspective. The debt is the total amount of accumulated deficits. For the last decade, we've been running deficits of not building enough each year to even keep up with the new demand for housing, add all those deficits up, and that creates a significant debt. So, the run rate of a million new homes built a year, that's just not enough. It's just not enough.
Odeta Kushi: So we need to fill the deficit is what you're saying, and build our way.
Mark Fleming: Build our way out of it.
Odeta Kushi: Yeah, absolutely. And it seems like this will be an ongoing issue, because as we know, millennials continue to form households, and baby boomers are living longer than ever. And so we'll continue to form households. And it seems that new home building really needs to keep up the pace. And labor has been one of the major headwinds to building more homes, you need more construction workers in order to build more homes. And, as we recently found, if you look at the ratio of housing starts, so that's the number of new homes breaking ground, relative to construction employment, you know, prior to the pandemic, that was about 1.4 starts per construction worker in the timer period between the Great Recession and just prior to the pandemic. But, before the Great Recession that ratio hovered at around two starts per worker. So pretty low in comparison.
Mark Fleming: Wait, you're talking about the P word?
Odeta Kushi: Productivity.
Mark Fleming: Right. So, fancy ratios aside, the question we're trying to figure out here is, how many homes, can be built by a certain amount of workers? Oh yeah, remember my old 80s references in the last podcast? Remember the Tootsie Pop commercial? How many licks does it take to get to the center of a Tootsie Pop? It's something like that. How many workers do we need to build one house? That's about productivity. And hey, guess what? Has that really changed in the last 50 years? Think back to the middle of the 20th century? How do we build a home, we brought a bunch of supplies to a site, a bunch of labor put this stuff in kind of the same way as today. In fact, where have the big enhancements been in terms of productivity? Well, there's things like the nail gun, that probably helps to some degree, but you still need a human to know where to point it. And so, we have this challenge of basically a lack of any significant productivity growth over the last half century or so in the housing sector. This is still an extremely labor-
intensive industry space. It requires a lot of labor to build a house and that hasn't changed.
Odeta Kushi: And that's a great point, Mark. It does not lend itself well to automation and outsourcing. So, the only way to build more homes is to bring more people to the job – more hammers, more homes.
Mark Fleming: I gotta ask a question because you mentioned outsourcing. You mean, we can't outsource home building? Oh, that's right. It’s because I need the home built here, not somewhere else.
Odeta Kushi: Exactly. It’s unique to the housing market that you can't do that. And so certainly the way to increase homebuilding is to bring more people to work. And, unfortunately, in the aftermath of the Great Recession, the construction industry lost a large number of workers. During the recession, the construction industry lost about one and a half million jobs. If you look at the pre-recession peak to the trough, it's over well over 2 million jobs. And, it's been very difficult to find workers to come back to the
construction industry. And there's a couple of reasons for that. So one of the reasons is that millennials, the people that are entering the workforce, well, they're just not quite as interested in the construction industry. They want jobs that are less seasonal, less physical, and more in an office environment. And that's proving to be a challenge to the construction industry. Because again, they need to attract millennials to work in this field. The other reason is an aging workforce. A lot of those people that lost their jobs in the
Great Recession, they retired, they were older, and they haven't been able to retain or get those workers back. So, it's been very difficult to attract new workers to this industry.
Mark Fleming: Well, where would we typically have gotten those workers in times past?
Odeta Kushi: Well, typically, in the past, I think right now, there's, there's a deep focus on getting that four-year degree moving away from the trades, and moving into college and office environments. And that's, unfortunately lends itself to difficulty finding construction workers.
Mark Fleming: Well, this is effectively the same dynamic that's at play more broadly across the across the economy in the sense that we're moving to being a more service sector-oriented economy and there are different levels of training to do those kinds of office jobs relative to manufacturing and construction jobs. As we pointed out, you know, with manufacturing, there's the opportunity to outsource it to other places to find the labor. With home construction, you can't outsource it. So you have to bring the labor to you, or
back to my productivity comment, find a way to more efficiently utilize the labor that you have. And, you know, we had a little fun a few minutes ago with the idea that there had been no productivity enhancements. But now the pressure is on and we do see, because of this stress of not being able to find the labor to bring, the industry itself says, well, I need to find ways to increase productivity. Maybe the reason we didn't see that much productivity growth was there was no market pressure to make it happen until now. But modular homes – building components in factories and bringing them to the worksite. These are all things that are actively being experimented with today effectively to try and solve this problem – to increase the productivity of the labor because I can't simply add more labor.
Odeta Kushi: That's a really great point and I think eventually that will revolutionize the way that homebuilding is done. But, right now, we still need to put more people to work and a lot of different dynamics going into that.
Mark Fleming: Do you recall...
Odeta Kushi: Yes.
Mark Fleming: Do you recall or maybe you don't? Does anybody recall the old Sears and Roebuck catalogs. And in fact, at the turn of the 20th century, not the 21st century. So we're talking circa 1900s, early 1900s. You could buy a home in the Sears and Roebuck catalog. And they would build it modularly in a factory and bring it to you. And then you had to assemble it yourself. So in many ways, the question is, are we going back in time to Sears and Roebuck catalog era?
Odeta Kushi: You know, these trends do have a way of coming back around, but this is another reference that went way over my head. That's okay, that's okay. And so clearly a lot of issues in attracting more labor at this time. But with the longer run goal of being able to be more productive in the construction industry, hopefully through use of technology. But and I'll just briefly mention this, it is quite important, but we won't spend a lot of time on it. There is the issue of migrant workers. That's something immigration policy
certainly has a lot to do with. A lot of immigrants that come to the US work in the construction industry. And so that has a bearing on the labor force in this industry.
Mark Fleming: That's not actually even construction industry specific. In fact, migration has played a major role throughout recent history in our economic productivity growth and our economic growth in general. In fact, the 80s and 90s we had a lot of migration for all kinds of industries. And that's one of the ways in which we've been able to grow. Growing GDP is a function of putting more people to work wherever you get them from, and putting each person more productively to work, you combine those two things in some way and that's how we get GDP growth.
Odeta Kushi: That's a really great point. Because when you start to see women enter the workforce, you also see in the data, a big boost in GDP growth productivity and that's really a function of women entering the workforce in large, larger numbers than ever before. And you can see that in the numbers. So that's a good point, immigration is also incredibly important to overall GDP growth, not specifically just to the construction industry. So moving past the labor, let's touch a little bit on land, one of the issues…
Mark Fleming: There's no land. I can't find any land.
Odeta Kushi: You summed it up. That's basically the gist of it. There's a lack of available lots. Not just available lots, but a lack of affordable lots. And that's particularly acute in some of the most desirable locations. So let's think maybe San Francisco, maybe we think of Boston, not a lot of places for builders to build. And that obviously results in increased lot prices and a headwind to building more homes.
Mark Fleming: We have to be a little bit more specific here. There's plenty of land in the United States of America. The problem is it's too far away from where we want to work and play. Interestingly, maybe that's a changing dynamic given the pandemic over the last year. But, what we did in the last half of the 20th century was basically expand suburbia, outside of the urban core, you know, think about all the big cities with all their inner and middle suburbs and areas like that. The GI Bill greatly expanded the suburban-
urban landscape. Building was easy and inexpensive, because there was plenty of land that was in within reasonable commuting distance throughout the 50s, 60s and 70s. In fact, most major cities suburbs, you know, were built then. There was a big expansion, largely feeding and serving baby boomers at the time. Now, the challenge is either you infill develop, which is expensive, or you build on the urban or exurban fringe, but that's now pretty far away from most big cities, which reduces its desirability as a as a potential
building site. Because do you really want to do that hour and a half commute back into Washington DC? Maybe not, unless you only have to do it two days a week. So I think one of the dynamics that might happen in over the next year or so is that the attractiveness of what used to be considered unattractive buildable land on the exurban fringe might now begin to look attractive from a builders perspective because our work and commute patterns may have changed more permanently post-pandemic.
Odeta Kushi: That's a great point. And I think that's also why housing tends to go hand in hand with the subject of transportation. Because, if you want to build further out from the urban core where the jobs are located, you really need to have a supportive transportation system to get people to and from the city. But...
Mark Fleming: Or a bigger road, just make the road bigger, keep on widening it, not a problem. Get the autonomous driving cars,
Odeta Kushi: Automated.
Mark Fleming: Automated, that's right.
Odeta Kushi: Yes. So obviously, lack of affordable lots another headwind, and then we move into lumber. But more generally, this is rising material costs, we're focusing on lumber, because there's been an increase in the cost of lumber. Since about the beginning of the pandemic, it has risen dramatically over the course of kind of the last six to eight months. And that really threatens homebuilder's momentum. And so there was a recent NHB study that showed that the higher lumber prices added nearly $16,000 to the cost of a
typical new single-family home, and over $6,000 for multifamily. And that was since about mid-April 2020. So obviously, this is another kind of cost-prohibitive issue that builders are facing in the industry right now. But, that's alongside rising material costs in other areas as well.
Mark Fleming: It's no surprise. Walk past your local home being built and you clearly see that there's a lot of lumber there. There's also a lot of waste of that lumber. And, again, as we talked earlier about the sort of the market driving the need to find productivity enhancements for labor, same thing here. If I can build the walls in a more efficient way with less waste, given the fact that my material costs are higher. There’s now more incentive to do it in a different way. And so again, the idea of modular manufacturing as a way to
more efficiently use those expensive input resources, drives innovation, and I think that will continue if, a big if, if these construction input costs remain high.
Odeta Kushi: Absolutely. So, there's a focus on efficiency as well. Efficiency, productivity. And then there’s the last of our four L’s, which is actually laws. And what we're referring to here is regulatory burdens. And this is regulatory burdens imposed at all levels of government. So national, state, local, making it harder and more expensive for builders to build. Now, for those of you listening, you may have heard a little bit in this last year about Oregon. Oregon was one of the first states to pass legislation to eliminate exclusive single-family zoning. And this is because Oregon is a state that is suffering from a lack of supply. They need to build more homes. And one of the headwinds that they're facing are regulatory burdens in the way of zoning laws. And so this is something that we find results in an increase in the final price of a home. Again, there was a study from the National Association of Builders that showed that
government regulations accounted for over 24% of the final price of a new single-family home. This is a little more difficult to address and likely needs to be done at the local level, but one of the biggest headwinds, I think, to building more homes.
Mark Fleming: Wait, not in my backyard. No.
Odeta Kushi: The NIMBYs.
Mark Fleming: And now, if anyone has paid attention, there are actually YIMBYs. Yes, in my backyard. So, an interesting dynamic, but you actually put your finger on it, and it relates back to the accessibility of land too. The ability to build has become significantly more expensive, as driven by regulatory zoning costs in general. And it varies very dramatically across the country. These are largely locally designed programs and locally implemented. And so actually, from a policy perspective, if we need to build more housing, it
cannot be done at the federal level. It has to be done at the local level, because it's these regulatory and zoning restrictions that are making it more difficult to build, even though the demand is there, which is exacerbating our shortage problem. And one of the funniest things is, when you look at neighborhoods, and the degree or the level of regulatory costs that are involved at the local market level, it's correlated highly with income and homeownership. The higher the value of the homes, and the higher the
homeownership rates, the more costly are the regulatory burdens to build in those neighborhoods. We like to say that the single largest special interest group in the United States is homeowners. Nearly two-thirds of all Americans are a member of this group. And it's homeowners that generally are very cautious about development happening in their neighborhoods, because it facilitates change. And change, it's often unclear whether it's going to be good or bad. There's a lot of that protectionism of your most important asset against the possibility of change in the form of development. Which is really the root cause of something that will not just persist in the short run, but will be a major theme in addressing a healthy housing market for years to come and that is how do we manage and balance all of these competing interests at the same time as providing enough shelter for all the people in this country who want it.
Odeta Kushi: Just one of the basic universal human rights, right? I mean, you have to have a place to live, it doesn't necessarily need to be homeownership, but you need a place to live, whether that's a multifamily development to rent, or it's a single-family home you buy. We need to be keeping pace with household formation. And this seems to be one of the biggest hurdles towards building more homes. It’s very much concentrated and it's not uniform across the US. We do find, when you look at some of these regulatory
burdens, they seem to be concentrated in California and the East Coast. Unsurprisingly. So you see in Massachusetts, and even in Florida, we find higher regulatory burdens. These costs that the builders incur in the process are then passed on to the potential home buyer. And it's not just zoning, right, there are other costs incurred. There are permitting costs. There is the time it takes to get through the approval process. How long it takes for them to build. All of these things have a cost associated to it, and it's tough for them to build.
Mark Fleming: It feels like the old adage – time is money. Right. Time is money. So, it can be done either directly through money or through time, but this ends up being the same thing – money. But these are good problems. I mean, we talked about all these issues, but these are good problems to have in the building industry because the challenge is tons of demand and a struggle to meet it with the supply. I'd much rather be in that position than where the home construction sector was in the global financial crisis. The reason it
contracted so much and the reason so much labor left the market was all of a sudden there was no demand. No demand anymore, relative to the supply. We're in exactly the opposite situation. Our challenge is, how do we meet the demand? And we like to say, build it and they will come.
Odeta Kushi: Absolutely. And I think that's a great way to end. Thank you, everyone, for joining us on this episode of the REconomy podcast. Be sure to subscribe on Apple, Google, Spotify, or your favorite podcast platform. You can also sign up for our blog at firstam.com/economics. And if you can't wait for the next episode, please follow us on Twitter. It's @OdetaKushi for me and @MFlemingEcon for Mark. Thank you and until next time.
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