April 2016 Phoenix Real Estate Update

Phoenix Real Estate Update


Check out the Elizabeth Banks videos on my website.  Elizabeth explains the home buying process in a educational yet humorous way.


I hope you enjoy this monthly newsletter. Remember whether you are buying a new or resale home it is important to have a realtor to represent your interests. If you know of anyone who is thinking about buying or selling please let me know.  


Do you have a rental property and need a property manager?  Please call or email Karen Van Vugt at 602-316-7028 or ftr9558@cox.net


Sincerely,

Pat Hune

Broker

greathouseaz@gmail.com

1st Southwest Realty

www.greathouseaz.com

Search the real MLS from my website!

Cell 480-703-1976

Fax 480-304-9099

Equal Housing Opportunity

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Market Overview by Pat Hune from Various Sources

If the real estate activity at the end of the first quarter of 2016 is any indication it is going to be a good year for sellers and a tough year for renters and buyers.  Inventory is still sorely lacking in the entry level price range defined as under $175,000.  If a house comes on the market under $175,000 the owner occupant Buyers report being outbid by investor cash buyers. As usual cash is king!  If the buyers are looking for closing cost assistance it makes it nearly impossible to get their offer accepted.  Offering more than asking price to make up for the closing costs does not always work as it raises concerns the property may not appraise.  


There seems to be an oversupply of houses priced from $400,000 to 500,000 up to 1 million.  One example is in Seville in South Gilbert where several houses have languished on the market for over 200 days.  Another is Troon in North Scottsdale where 230+ days on market is not an uncommon.


On the rental side the single family home rents have increased significantly.  Depending on location some rents have increased as much as $200 per month.  Investors are discouraged from raising rents on perfectly good tenants due to the cost of making the property rent ready and lost rent while a new tenant is found.  But if the tenant moves out it becomes a prime opportunity to increase the rent for the next tenant.  A word of caution is to make sure the rent increase does not result in a long delay finding a new tenant. The multifamily rents have also increased albeit only $50 to $75 depending on location and the type of property.  These apartments are typically 2 bedrooms and 1 or 2 baths and fairly small.  As the rents increase the single family tenant will begin to see the benefit to buying versus renting.  As these buyers are competing for entry level priced housing the competition will be even greater than before.  This increased demand will no doubt increase the prices.   The first quarter of 2016 saw the median price increase by nearly 8%.


Articles

1)  STAT Newsletter 

2)  Rental Market  

3)  Multifamily and Commercial Real Estate Trends

4)  Phoenix Metro Apartments:  An Investment and Development Viewpoint 

5)  Property Taxes due May 1, 2016

6)  Real Estate Briefs

    a)  Rental History Can Boost Credit Rating 

    b)  Glendale Wants Light-Rail Extension To Cross Grand Avenue  

    c)  Apartments Use Doggy DNA to Catch Tenants Who Don’t Clean Up After Their Dogs 

    d)  Rejecting Prospective Tenants Based on Criminal History May Violate Fair Housing Laws 

    e)  New Home Sales and Permits Up in 2016

7)  Tales from the Real Estate Trenches 

Why Gift Cards Are A Waste of Money

 

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1) STAT Newsletter Link -(Note the numbers are reported a month behind.  The MLS has renamed to reflect the report is for the prior month.)  STAT is produced monthly  by the Arizona Regional Multiple Listing Service - the database realtors use to list homes for sale and that have sold.   

ARMLS® COPYRIGHT 2016


March STAT


STAT Newsletter and Real Estate Market Highlights

Commentary by Tom Ruff of The Information Market


The first quarter officially ended with a sales volume increase of 3.14% over last year. We have averaged nearly 311 sales per day compared to 306 last year so far in 2016, taking into consideration that there were 62 business days in the first quarter of 2016 compared to 61 in 2015. The increase in sales volume was accompanied by annual increases in both the median sales price as well as total inventory. The median sales price saw a 7.87% increase with total inventory numbers up 4.5%. The increase in total inventory broke the pattern of steady declines seen since last year. Even with the increase, total inventory is below normal levels with serious shortages at the lower end of the market. 

Our rising but lower than normal inventory levels are best explained by the handsome and articulate Mike Orr of the Cromford Report: 

This is deceptive for much of the market because almost all of the missing homes for sale are at the affordable end of the market below $175,000, where they are missing in huge numbers. The absence of the normal low end supply is not just in homes for sale. Affordable homes for rent are also extremely scarce. Entry level buyers and potential tenants are facing strong rises in price with no sign of relief. 

I thought it might be interesting to look at quarterly Maricopa County real estate activity as an average business day. Think of it as a day in the life of the real estate market via public records. I’ve attempted to group the data by areas of focus. When reviewing the numbers you’ll see just how consistent and stable our market has been year-over-year with just a few exceptions. The data is a compilation of Maricopa County public records data enhanced with MLS data. Side note - all of the data is accessible in Monsoon. 

Our market is now dominated by traditional sales. New construction is up approximately 36% year-over-year and is one of the exceptions I mentioned earlier. This is good news for our economy as it means not only an increase in construction jobs but also an increase in business for the trades that market to the buyers of newly built homes. 

Flips are defined as any home that was purchased and then resold in a 6 month period. There are two basic types of flips, wholesale and retail. The wholesale market takes place primarily between investors and these flips can be identified by a very short period of time be- tween the purchase and sale with smaller mark ups. Most flips are retail and this is where it gets interesting as they tell us quite a bit about our market. Flips are normally purchased at below market prices, renovated and then sold for prices that fall into the upper range of what the market will bear. Flips account for 23 home sales per business day. 


ARMLS Pending Price Index (PPI) 

Our last Pending Price Index projected a March median price of $215,000 with the actual median coming in at $215,800, off by 0.37%. Sales volume in March as reported by ARMLS was 8,412 which was 412 sales more than our projected volume of 8,000. Looking ahead to April, the ARMLS Pending Price Index projects a median sales price of $220,000. We begin March with 7,476 pending and 4,538 UCB listings giving us a total of 12,014 residential listings practically under contract. This compares to 11,997 of the same type of listings at this time last year. We expect sales volume in April to be very similar to the numbers last year with an increase in the median sales price. Our projected sales volume for April is 8,400. March was a great month over all as it increased in year-over-year sales volume by 6.5% and the me- dian sales price increased by 7.9% over last year’s numbers. 

In closing I’d like to share a quotation from Sean Becketti, Chief Economist at Freddie Mac, referring to his outlook for the national housing market in 2016: 

Housing markets are poised for their best year in a decade. In our latest forecast, total home sales, housing starts, and house prices will reach their highest levels since 2006. Low mortgage rates, robust job growth and a gradual increase in housing supply will help drive housing markets forward. Low levels of inventory for-sale and for-rent and declining housing affordability will be major challenges, but on balance the nation's housing markets should sustain their momentum from 2015 into 2016 and 2017. 

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2)  Rental Market Check - Rent Check is an ARMLS's  publication tracking single family home rentals.  Click on the link for the statistics.

March Rent STAT


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3) Multifamily and Commercial  Real Estate Trends


Current Phoenix market trends data indicates an increase of 3.2% in the median asking price per unit for Multifamily properties compared to the prior 3 months, with an increase of 17.2% compared to last year's prices. County-wide, asking prices for Multifamily properties are 3% higher at $63,845 per unit compared to the current median price of $62,810 per unit for Multifamily properties in Phoenix, AZ.  There has been an significant increase in the sales prices for duplexes, triplexes and fourplexes with very little available under $225,000.  


Loopnet Commercial Trends


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4)  Phoenix Metro Apartments:  An Investment and Development Viewpoint 

Joseph Meyer, President and CEO of Meyer Development & Constructions Services, Ltd., April 2016


Drive around town and you can’t seemingly go more than a mile without encountering another newly completed apartment project – or one that’s under construction. At least that’s the case in the East Valley where distinct pockets of swank new apartments are fetching rents in excess of $2 per square foot – a far cry higher than marketwide average rents that only pierced the $1 per square foot barrier around ten years ago. Contrast this with the dearth of new apartments in the West Valley where only one new apartment deal has been able to get beyond the boards. In the current cycle, demand for new apartments is highly concentrated in a select few submarkets such as Downtown Phoenix, Tempe or Scottsdale. These submarkets are highly attractive to the millennials and baby boomers searching for an urban, high luxury lifestyle.


From a local investment and development standpoint, the current cycle in Phoenix metro is much different than previous cycles where apartment development was more uniformly distributed geographically and in price point. While the supply of new apartment inventory over the past few years is relatively in line with our historical average (see chart below), what makes this cycle different is the concentration of units in a select few submarkets – all with top of the market rental rates.


Worldwide capital markets are seeking higher yields due to collapses in bond yields and commodities. This has forced investors to seek higher returns in alternative investments which has increased investor demand for real estate – particularly in the apartment sector producing record low cap rates. The viability for building new apartments, despite substantially rising land prices and construction costs, has also increased as a result of this shift of investment. The rub is that the few submarkets where new Phoenix metro urban renters want to live are within established infill locations – with higher land cost requiring higher densities. Higher construction costs for items such as parking structures and mid-rise building code requirements have become a common factor for multifamily developers. The higher costs have in turn pushed rental rates to new levels leading developers to focus only in the few select submarkets. Demand is robust enough in these areas where investors can command high rental rates. Conversely, rents in large areas of Phoenix metro, such as in the West Valley where there is an abundant supply of inexpensive single family rental houses, have not increased enough to offset the cost of building new projects.


How long this trend will continue is up for debate. Commercial banks appear to be getting more nervous about the steady supply of new apartments. Maximum construction loan amounts on new projects have been lowered to an average of 60 percent to 70 percent of total project costs – significantly lower than the average 80 percent to 90 percent levels during the mid-2000s. This requires developers to raise more cash equity for new projects and drives down leveraged yields on new deals. Hopefully, self-regulation in the financial markets will prevent a complete overbuild of the apartment sector in the Phoenix metro area – allowing the market to maintain reasonably sound fundamentals going forward.


Still, the question that nags at me and other industry veterans is how deep is the market for these new communities charging upwards of $2.00 per square foot rents? We’re beginning to see some new apartment projects in desirable submarkets struggle to get these higher rent levels and maintain a steady lease pace. Industry data aggregator, Real Data’s latest Pipeline Report, shows that there’s roughly 6,800 units currently under construction and another 8,500 on the drawing boards – roughly 6 percent of the current marketwide inventory to come on line over the next three to four years. Continued additions to the market at such high rents will eventually undercut rental rates marketwide leading many of these projects to underperform – and a likely pull back in new apartment construction. Will that pull back come before the market goes completely upside down? Let’s hope so.


It becomes a challenging proposition for the new investor contemplating to participate in this latest wave of apartment housing. Institutional capital is making it very difficult for independent investors to compete for choice apartment sites. However, opportunities still present themselves for value added acquisitions in submarkets where rents are poised for increases. Less posh infill submarkets and smaller sites overlooked by the large developers can offer development opportunities. In addition, underserved niches such as workforce, senior or subsidized housing may become more plausible as this current cycle matures – that is, when we begin to see rents rise equally throughout the Phoenix metro market.


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5)  Property Taxes due May 1, 2016


The second half of the 2015 property tax is due March 1 of the following year and becomes delinquent after 5:00 p.m. on May 1. If May 1 falls on a Saturday, Sunday, or legal holiday, the time of the delinquency is 5:00 pm on the next business day. You may pay both halves together until December 31.   If you miss a deadline you may owe fees plus interest charges of 16% per year prorated monthly. To avoid paying on the wrong property, always check the property description and parcel number on the tax statement with your records.  If you do not have a mortgage or the mortgage company does not pay your property taxes for you then be sure to pay them prior to May 1 to avoid the penalty. 


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6) Real Estate Briefs


a)  Rental History Can Boost Credit Rating 

Scott Marchand, Developer/Partner, Whitestone Realty Capital LLC, April 2016


Adding your rental history to your credit report is often the quickest, easiest, and most affordable way to quickly boost your credit score(s). Homeowners build their credit score by paying their mortgage so it only makes sense that families build their credit score by paying their rent. Unfortunately, most landlords and property managers do not report positive rental history so it is up to the renter to leverage this strategy.   Faster than “credit repair”, through our Credit Literacy Initiative, we help families add this new trade line to their credit profile in just 7 to 10 days. One option is to retroactively post up to 24 months which often results in a 30 to 50 point (or more) credit score increase in about a week. 

According to Pam Keller, a mortgage loan officer, “I had a borrower who did not qualify for a loan due to her credit score. She was 40 points off what she needed. Desperate to boost the score, my borrower quickly signed up and within 10 days, her score was up the 40 points needed to put her loan on track to purchase the home! I would have lost the loan otherwise. My realtor partner is thrilled with me, calling me the “miracle worker”. This will be a big lift to my business since many of the borrowers that come my way from referral partners have FICO scores in the low six hundreds. This will allow them to qualify and close on homes where they previously had to wait months to work on credit issues.” 

Better yet, our Credit Literacy Initiative allows non-traditional renters to still leverage this strategy. For example, this strategy can work even if the renter splits rent or subleases. With a liberal grace period, it is reported on-time as long as rent is paid within 30 days of the due date. Participants report outstanding results. For example, Brooke Rhoades personally used this strategy and reports, “My mortgage lender was shocked! With no other changes to my report, my score jumped 78 points!” 

If you would like to add your rental payment history to your credit report or learn more about other strategies to build positive credit in 7-10 days, please visit our website www.creditliteracy.org 


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b)  Glendale Wants Light-Rail Extension To Cross Grand Avenue 

Paul Giblin, The Republic, April 2016


Valley Metro transit planners are re-examining alight-rail route to downtown Glendale after City Council members expressed concerns that the regional transit agency's proposed seven-mile line may not go far enough.  A better alternative, they suggested, would be to extend the line across Grand Avenue to increase the chances that it one day connects to the Westgate Entertainment District and University of Phoenix Stadium.  Getting the light rail west of Grand makes the project far more appealing, said Glendale Councilwoman Lauren Tolmachoff during a council study session last month.  "The addition (of) the Grand Avenue crossing has been pretty much a mind-changer for me, at least exploring this process further," said Tolmachoff, who previously said she was "not crazy" about the proposed route.


However, crossing Grand would create significant engineering and financing challenges. The thoroughfare is six lanes wide and runs parallel to the BNSF Railway line, which splits from one track to two tracks in the area. Valley Metro officials will study the idea, said Megan Casey, the community outreach coordinator for the intergovernmental agency.

Transit officials expect to offer a more detailed recommendation by the end of the year with the goal of opening a West Valley rail extension by 2026, she said.


Getting to downtown

From the east, the proposed route would branch off the light-rail line at 19th Avenue and Camelback Road in Phoenix. It would then zigzag west along Camelback past Grand Canyon University, north on 43rd Avenue and west again somewhere near Glendale Avenue or Glenn Drive into downtown.


The proposed end point had been somewhere near the Glendale Civic Center, just north of Glendale City Hall, but the proposed termination poses two significant problems, according to Glendale Mayor Jerry Weiers:


•There's little space north of City Hall to create an expansive park-and-ride lot like those typically associated with light-rail termination points. Traffic likely would clog existing parking lots and narrow streets near Glenn and 59th avenues. Undeveloped or lightly developed property is plentiful on the west side of Grand.

•If Valley Metro doesn't cross Grand with the initial expansion, transit planners may be hesitant to do it later. "If it dead ends in downtown Glendale, I can't support it. It doesn't make sense to me," he said.


Glendale officials envision a future extension from Grand five miles west to the Westgate Entertainment District, University of Phoenix Stadium and Gila River Arena near Glendale Avenue and Loop 101.


If the light-rail line crosses Grand by 2026, it would be easier to pick up construction later for the Westgate extension, council members said.

Crossing Grand is critical, Tolmachoff said.  "In order to get it out to Westgate and to another transportation corridor, it has to get through — not necessarily downtown Glendale —  but you've got to get from 19th Avenue to the 101 somehow," she said.  She suggested that tracks extend about a mile west of Grand to the Maricopa County Court complex at 67th Avenue also could be a benefit. 


Weiers said he preferred the recommended route for the West Valley extension among several other options Valley Metro planners initially considered. However, he isn't thrilled with any of those options.  He compared Valley Metro to a restaurant that only serves liver.


"Here's what they're saying: 'We're going to give you the chance to eat liver, but we're going to leave it up to you. Do you want boiled liver or do you want fried liver or do you want baked liver or would you like liver with onions?' You go: 'I don't like liver. I don't like liver at all,' " Weiers said.  The recommended route is liver with onions; it's the best of the options offered, but he still doesn't like liver.  He said he prefers stopping the light-rail route along Glendale Avenue east of downtown Glendale and running a less-intrusive trolley line to downtown.


'A lot of challenges to crossing Grand'

Valley Metro planners have other important factors to decide — a path over Interstate 17 near Camelback Road, the exact transition from Glendale Avenue to Glenn near 51st Avenue, traffic configurations and potential station locations.  Transit planners expect to conduct a series of public meetings before issuing final recommendations.


The Grand corridor presents a considerable challenge. Grand is six lanes wide between Glendale Avenue and Glenn. The BNSF Railway is one track at Glendale Avenue, but splits into two tracks by Glenn, one city block north. Furthermore, Grand goes under the intersection of Glendale and 59th and is still somewhat recessed around Glenn. The railroad track remains at street level in the area.


Valley Metro planners are exploring the idea of routing the light-rail line across the Grand corridor at either Glenn or another block north at West Palmaire Avenue. They're also examining whether it would be better to bridge over the corridor or tunnel under it.  "There are a lot of challenges to crossing Grand," said Abhi Dayal, manager of capitol development for Valley Metro. "It's certainly something we'll have to explore to see how we can do it, both in terms of cost as well as construction."  The light-rail line already crosses other expanses, notably Tempe Town Lake, which it traverses on a bridge.


Light-rail projects typically cost between $80 million to $130 million a mile, depending on factors like the number of stations, bridge structures, traffic configurations and more, said Susan Tierney, Valley Metro communications manager.  That formula puts the cost of the seven-mile Glendale route somewhere between $560 million and $910 million, without stretching it over or under the Grand corridor.  Transit planners have yet to determine the cost to cross Grand.


In general, Valley Metro officials expect 50 percent of the funding for the West Valley extension to come from federal sources, 10 to 15 percent from regional taxes, and the remaining 35 percent to 40 percent from municipal transportation taxes in Phoenix and Glendale.


'Catalyst of connectivity' to Westgate

The public appears to share the council's desire to see the line extend west beyond Glendale's downtown, Dayal said.  "We've done several community outreach events and there has been general interest in potentially going out to Westgate at some point, so we certainly want to look at all options that could position us to do that in the future," he said.


No matter the final recommendation, a top goal is to ensure the design allows for a potential extension to the shopping and entertainment mecca, Casey said.  "It's hard to speculate on what might happen after this, because there's no plans for that yet, so our goal is to not preclude further expansion with this project," she said.


During a council study session last month, Glendale Vice Mayor Ian Hugh questioned the methodology of ridership studies and the potential of inflated projections about economic impact.  Councilman Ray Malnar questioned whether an existing Glendale transit tax is adequate to support the plan.

Malnar also asked whether enough thought has been put into how light rail might change downtown Glendale, transforming its current "Downtown USA" atmosphere into a "mini Phoenix" or something similar to Scottsdale.


Councilman Jamie Aldama, whose district includes downtown, said he prefers a more vibrant area that provides more pedestrian traffic for business owners.

Light rail also could help Glendale residents travel to jobs and medical facilities in Phoenix and elsewhere, he said. Light rail likely would help create vibrancy in a decade, but the council needs to consider other steps before then, Aldama said.


Councilman Bart Turner said he hopes to preserve the historic nature of downtown, which has a distinctly Midwestern feel with businesses clustered around a central square.  "As much as I love our downtown, I'm worried that our downtown is at risk. I've seen it go through cycles in the past. It seems to be cycling now," he said.


Light rail would bring new people with disposable income to downtown that will help keep it thriving. The "genius" of the recommend route is that it goes through both the blighted areas of Glendale Avenue east of downtown, plus Glenn, spreading potential redevelopment opportunities for miles, he said.


Councilman Sammy Chavira, whose district takes in both Westgate and Luke Air Force Base, said he wants to continue the westward thrust of light-rail plans well beyond downtown. He called light rail the "catalyst of connectivity."

Light rail causes "generational consequences" that can be positive or negative, said Scott Smith, the interim CEO for Valley Metro and a former Mesa mayor.


Mid-rise residential housing and office building have followed the light-rail line in Mesa, replacing struggling auto lots, Smith said. Small businesses that suffered downturns during the light-rail construction in Mesa have rebounded and thrived since completion, he said.  


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c)  Apartments Use Doggy DNA to Catch Tenants Who Don’t Clean Up After Their Dogs 

Michael Chow, The Republic, April  2016


Dog owners who fail to scoop the poop have met their match at a growing number of apartment communities in the Valley.  Droppings left behind by man’s best friend may no longer be anonymous thanks to a service that uses DNA technology to match dog poop to its source.   Some property managers are using a program called Poo Prints to match dog droppings to the dogs and their owners.  More specifically, it's a DNA match, which property managers are using to connect untended dog droppings with pooches  residing in their  complexes.  "We use it as a sales tool. It's something we knew we'd implement right at the beginning,'' said Kris Tomlinson,  property manager at the Residences at Fountainhead in west Tempe, a 320-unit apartment complex that opened about a year ago.  The complex requires resident’s to submit DNA of their dogs when moving in and pay a $69 fee to cover the cost of the test. Each day the workers check the apartment grounds for dog droppings that were not picked up.  The owners are fined $250 if they are caught.  Tenants are happy to pay the initial $69 fee because most apartment complexes don’t allow dogs at all.  


It works like this: Residents who move in with a dog are asked to submit a DNA sample from their pet, obtained by swabbing the inside of the dog's cheek. The result is placed in a database managed by a Tennessee-based company called Biopet Laboratories, which operates a program called Poo Prints.  Each day, the management company has workers check the grounds for dog droppings that were not picked up. Five pickup stations that include bags and trash receptacles cover the grounds, Tomlinson said.


Tom Simplot, president and CEO of the Arizona Multihousing Association, an industry group that represents apartment company interests in the state, said dog DNA testing was a major hit when it first was presented to property managers several years ago.  "When they first came on the scene, primarily at trade shows in Phoenix and Tucson, they took the industry by storm,'' he said.


The AMA doesn't track how many properties contract for dog DNA service, but it has appeared to be more popular as more apartment complexes that accept dogs are built in the Valley, Simplot said.  About 5,000 apartment units have been added in the Valley over the past two years, and another 5,000 to 10,000 units are expected in the next two years, he said.  “Of those, the vast majority will be pet friendly,'' Simplot said, saying the trend has been toward allowing dogs in new apartments.


Ernie Jones, sales manager for Biopet, said the company started in 2008 conducting lab tests for veterinarians and others. Their work included using DNA to identify dog breeds and conduct hereditary checks for professional breeders. The company started Poo Prints in 2011, after recognizing how the DNA testing could be used to address a widespread problem of pet owner negligence, he said.  The company has about 2,000 apartment complexes across the country under contract and has completed about 3,600 tests through March, he said. He could not provide specific figures for Arizona alone.  "It’s really caught on,'' Jones said. "Basically it's a lot of word of mouth. The apartment associations, the meetings they attend, they share with each other, showing them our program.''


The success has spurred other companies to start providing the service as well.  Several dog owners living at The Residences at Fountainhead said they welcomed the policy.

"I think it's a great idea. It keeps the grounds clean,'' said Nicole Spector, as she tossed a ball for her 7-year-old terrier mix, Stanley.  Paul Carbajal, who was outside with Bear, a golden retriever mix, also welcomed the policy.  "It holds people accountable,'' he said. "It's probably the cleanest apartment building I've lived at as far as dog droppings.''


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d)  Rejecting Prospective Tenants Based on Criminal History May Violate Fair Housing Laws 

Scott M Drucker, Esq,  General Counsel for the Arizona Association of REALTORS(r), April  2016


Throughout the United States, individuals with criminal records, regardless of whether they pose little or no threat, face significant barriers when seeking to buy or rent a home. Amazingly, between 70 million and 100 million Americans, or as many as one in three American adults, have some type of criminal record. And while many have been convicted of only minor offenses, having a criminal record carries a lifetime of consequences. This often includes an inability to secure housing. 

The Federal Fair Housing Act prohibits discrimination in the sale, rental, or financing of dwellings and in other housing-related activities on the basis of race, color, religion, sex, disability, familial status or national origin. Ex-convicts and individuals with a criminal history are not explicitly identified by the Act as a protected class. Nonetheless, the United States Department of Housing and Urban Development (HUD) recently opined that housing providers rejecting tenants or buyers based on their criminal records may violate the Fair Housing Act.  At its core, the issue is whether exclusionary polices based on criminal background checks have an unfair or disparate impact on certain racial minorities who are protected under federal laws governing housing.

On April 4, 2016, U.S. Department of Housing and Urban Development (“HUD issued an opinion regarding the use of criminal background checks in rental properties.  This will change the standards that landlords may apply to applicants.  It is similar to an opinion from the Equal Employment Opportunity Commission (“EEOC”) regarding the use of criminal background checks in employment.  While a lot about the HUD Opinion remains unclear, landlords must take steps immediately to avoid violating fair housing laws.  We have drafted this analysis to provide bullet point notes from the Opinion, as well as a more comprehensive analysis.

As HUD notes, “A housing provider must, however, be able to prove through reliable evidence that its policy or practice of making housing decisions based on criminal history actually assists in protecting resident safety and/or property.” To meet this burden, housing providers must consider factors like the nature and severity of the crime, as well as the length of time since the conviction. By conducting this analysis, housing providers can establish that their policy “accurately distinguishes between criminal conduct that indicates a demonstrable risk to resident safety and/or property, and criminal conduct that does not.” 

At the heart of HUD’s opinion lies the doctrine of disparate impact, sometime referred to as unintentional discrimination. Pursuant to this doctrine, a policy may be considered discriminatory if it has a disproportionate adverse impact against a protected class. For example, a policy that applies to everyone may still prove discriminatory if it tends to affect a protected group or minority more than others.

As applied to its position on criminal history based restrictions, HUD notes that across the United States, certain minorities are arrested, convicted and incarcerated at rates “disproportionate to their share of the general population.” As a result, restricting access to housing on the basis of criminal history is likely to have a disproportionate adverse impact on racial minorities which constitute a protected class. 

HUD’s April 4th guidance also outlines the three steps considered when analyzing claims that housing was denied on the basis of criminal history:

  1. Whether the policy or practice has a discriminatory effect;
  2. Whether the policy or practice is necessary to achieve a legitimate, nondiscriminatory interest; and
  3. Whether there is a less discriminatory alternative.

Bullet Point Summary (From Williams, Zinman & Parham P.C.)

  • Arrests for criminal activity alone, are insufficient to deny someone for occupancy.  Only convictions count.
  • Managers should review  application standards for all crimes, to ensure that there are not unreasonable bans on certain crimes.  Landlords must be able to show a legitimate business interest for any ban based upon criminal history.  For example, there is almost never a justification for banning someone who committed a crime and got out of jail, over twenty years ago and hasn’t committed another crime since.
  • The HUD Opinion requires a case-by-case analysis when someone has been rejected due to criminal history
  • When rejected, the applicant must be given an opportunity to explain mitigating factors why the criminal background should not preclude their occupancy (managers should immediately talk to their attorney to discuss how this mitigating information will be discussed with applicants and reviewed)
  • Managers should be immediately advised that when asked about background checks by applicants, they should respond that “But for limited exceptions, we do not have a blanket prohibition based upon criminal history and each applicant will be reviewed on a case-by-case basis.”
  • Landlords can still have a prohibition against renting to anyone convicted of production and distribution of a controlled substance.

If nothing else, landlords and property managers should take the time to update and revise their screening policies to ensure that their use of criminal background checks does not act as an arbitrary and over broad ban on those with criminal records. All criminal records are not alike, and not all ex-convicts pose a risk to safety or property. And now, housing providers who do not take this into account may find themselves on the wrong side of the law.


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e)  New Home Sales and Permits Up in 2016

Mark Sunnucks, Phoenix Business Journal, April 2016


New home sales and new residential construction permits are continuing their 2016 rise — at least when compared to 2015.  But they are still down from pre-recession levels when builders were building and banks handing out mortgages that built toward a Hindenburg-scale bubble and crash.  Scottsdale-based RL Brown Housing Reports’ latest data batch shows new home sales were up 47.6 percent in March versus a year ago.  Builders sold 1,408 homes last month versus 954 in March 2015.  For the year, home sales are up 37 percent for the first quarter compared to a year earlier, according to RL Brown.


Builders applied for 4,258 construction permits for new homes in the Valley during the first quarter. That is up 32.5 percent from the same period in 2015, according to the Scottsdale real estate research firm.


But how are the current numbers comparing to before Arizona’s calamitous real estate crash?  The first quarter of 2005 saw builders pull 15,381 permits for new homes, according to RL Brown and a past Phoenix Business Journal report.  Builders took out a record 63,570 permits in 2005.  They pulled 12,868 permits in the first quarter of 2006.


The housing market has improved over last year but there is a marked difference between now and from when the bubble was about to burst.  Existing home sales were up 8.7 in the first quarter of 2016 versus the same period in 2015 (21,736 homes sold vs. 19,995), according to RL Brown.


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6)  Tales from the Real Estate Trenches 

Pat Hune, Broker at 1st Southwest Realty


Why Gift Cards Are A Waste of Money 


A few months ago I helped a client clean out her grandparents home after her grandmother passed away.  We were working on the office when we discovered a drawer full of gift cards.  Some of them were expired, some had no expiration date and some were for places no longer in business.  The granddaughter handed the whole batch to me as she had too many things going on to worry about redeeming gift cards. Without putting them into a spreadsheet it was clear there were at least $5,000+ in gift cards.  It became my mission to see how many of these I could get the businesses to honor.  Here are my results so far:

See’s Candy - The gift cards never expire.  They are very happy to redeem them regardless of age.

Mimi’s Cafe - They said the gift card was too old but signed me up for their rewards program and gave me a discount that ended up being more than what the gift card face value.

Trader Joe’s, CVS Pharmacy, Target, Fox Restaurant Concepts - Happy to take them.

Cheesecake Factory - No dice with these guys. They said it was too old. Lost money $25.00.

Corsair Visa Gift card had an expiration date and in the fine print said fees would apply for an unused card. Lost money $75.00.

Mastecard Gift Card - They deduct a monthly fee for not using. The card has an expiration date.  Lost money $100.

Whole Foods - Would not take. Not sure how much money was lost on this one.


In 2009 the Federal Reserve came up with some rules for gift cards.  Cards not used within a year can be charged a monthly fee.  The export date and fee information has to be displayed on the card.  But these rules only apply to Visa, MasterCard, American Express and Discover cards.  Other types of cards can have a fast expiration and fees to make them worthless in a short amount of time.


The New York Post estimates 44 billion dollars, that’s right billion, in gift cards have not been redeemed.  In 2015 Barron’s estimate one billion dollars in gift cards were not redeemed.   When Radio Shack tried to file bankruptcy it could not due to $46 Million in outstanding gift cards.  Walmart teemed up with CardCash to give people the opportunity to exchange unwanted gift cards for a Walmart card instead.  The consumer only gets 70% of the value but it is better than letting the card languish in a drawer where it will eventually become worthless.  Fry’s Grocery in Phoenix offers gas discounts to people who buy various types of gift cards. I am sure this is in hopes the majority of the cards will never be redeemed.


The bottom line is please, please stop wasting your hard earned money by giving people gift cards.  Send them a check, take them out to dinner, send flowers, buy something from Amazon but DO NOT give anyone a gift card.