Housing to Remain Vigorous as Economy Enters Sustained Growth Period, Say Economists 

WASHINGTON, October 30, 2003-The second half of 2003 is seeing a marked resurgence in economic growth and continued vitality in the nation's housing market, according to economists and housing analysts at the recent National Association of Home Builders' (NAHB's) Construction Forecast Conference in Washington, DC.

"It's perfectly clear that economic growth has been accelerating sharply since June, and forecasts of GDP growth for the second half of 2003 and for 2004 are quite strong," said NAHB Chief Economist David Seiders. "Moreover, according to the consensus outlook of economists participating in our event, the housing sector will do very well through 2004. There will be some fade in home sales and housing starts as interest rates gravitate upward next year, but sales for all of 2005 are likely to be the second highest on record and total housing starts should reach 1.7 million units - off only 5 percent from 2003's surging pace."

"Prepare for a liftoff," advised Joel Prakken, chairman of Macroeconomic Advisers LLC. While the fastest growth is happening right now because "the most energy is required in the boost phase," the economy should continue growing in the 4.25 percent to 4.5 percent range all of next year, he said. Prakken cited stock market gains, global economic recovery, the increasing competitiveness of U.S. exports, production gains following the leanest business inventories on record, computer equipment and software upgrades and continuing acceleration in productivity growth as factors that will keep the economy perking heading into next year.

"Business spending is picking up gradually, and we are finally getting some support on capital spending, which has been the missing piece of the puzzle," said Mike Moran, chief economist for Daiwa Securities America Inc.

As for the exceptional rates of home sales and production in recent months, low interest rates should continue to support the single-family sector for some time to come, economists agreed. Rates on long-term mortgages, currently in the 6 percent range, remain very attractive on an historic basis, Moran noted. And even if they were to rise to as much as 7 percent next year - which would be at the high end of forecasts offered at yesterday's conference - "they would still be at the low end of the range prevailing over the past several years," he said.

Mortgage rates shouldn't move much higher until the Federal Reserve alters monetary policy, which it isn't likely to do soon, said forecasters. All the panelists expect the Fed to refrain from raising interest rates until the economy has picked up more slack and is in no danger of entering a deflationary phase. That probably won't happen until late next year or early in 2005.

Continued weakness in the job market begs the question of where all the demand for new homes is coming from, and experts at NAHB's event had several explanations. For one thing, said Moran, "There is a wider market than in the past because homeownership has been opened up to segments that have never participated in the market before." In addition, "Housing prices have held up well and we haven't had the meltdown in prices that many people were looking for. As a result, more people are leaning toward investing in homes."

Even with modestly higher mortgage rates expected next year, the solid outlook for housing remains because "housing has become less interest-rate sensitive" now that buyers have the option of financing their homes with lower-priced adjustable rate mortgages," Moran added. Another factor he mentioned is the home buying public's increased comfort level with mortgage refinancing and the lower costs associated with that endeavor.

Source: Broker Agent News, 11/03

Real Estate Transfer Tax

The Town of Winchester has placed a real estate transfer tax proposal on the Warrant for its Town Meeting this spring. The proposal would charge a 2% tax on the sale of any property in Winchester. The tax would be based on the price of the property, including the owner's equity and debt.

The proposal is similar to a multitude of local and state transfer tax proposals that GBREB fought and defeated over the course of 15 years. The Winchester proposal takes the form of a home rule petition to the state legislature requesting that the state instruct the Town to impose the tax. Following state approval of the petition, no further steps would need to be taken to adopt the tax--neither a vote by Town officials nor a referendum vote by Winchester residents.

The proposal is not specific as to how the revenues generated by the new tax would be spent, a decision apparently to be left to the normal appropriation process.

Winchester is not alone in considering a new tax on real estate transfers, although it appears to be the first municipality to consider such a mechanism to enhance general revenues. At the state level, the Joint Committee on Taxation heard testimony on March 18 regarding H.470 Resolve to Establish a Commission to Investigate the Imposition of Taxes on Real Estate Transactions for the Funding of Local Initiatives. The Massachusetts Association of Realtors^® (MAR) and GBREB went on record opposing the creation of such a commission.
Source: GBREB Gov Affairs, May 2003

Excise Tax on Short-Term Rentals

At the Taxation Committee hearing on March 18, MAR and GBREB went on record in opposition to S.1803 An Act Relative to the Room Occupancy Tax. This bill would extend the hotel/motel tax to all types of residences that are rented for less than three months. Depending upon the location of the property, the tax would range from 5.7% to 12.45% of short-term rental income.

Owners who contemplate a short-term rental would have to register with the Department of Revenue and file monthly reports of income from their property for three years, even if the property has not been rented, there is no such income, and no tax is due. The Taxation Committee has not acted on this legislation.
Source: GBREB Gov Affairs, May 2003

Housing Prospects Good Despite War Concerns

WASHINGTON (March 4, 2003) – Even with the likelihood of war on the horizon, conditions for a historically strong housing market are expected to prevail during 2003, according to the National Association of Realtors^®.

David Lereah, NAR's chief economist, said a primary concern would be the length of any war. "If the Iraqi regime is toppled in short order, there likely will be modest disruption to the U.S. economy and housing markets, and confidence would be restored," he said.

"However, a prolonged conflict or an unexpected turn of events could be very costly. The result would be growing federal budget deficits that would cause interest rates to rise and put the brakes on both housing and the economy, not to mention consumer confidence."
Based on the current direction of the economy, Lereah expects the 30-year fixed mortgage interest rate to rise gradually from an average of 5.9 percent in the first quarter 6.5 percent by the end of the year. "In other words, the average mortgage interest rate this year should be a historically low 6.2 percent."

"Another factor favoring housing in the current environment is the volatility of the stock market," Lereah said. "The general stability of real estate has become more attractive to investors over the last few years."

NAR forecasts 5.50 million existing-home sales in 2003, down slightly from a record of 5.57 million sales in 2002. New-home sales should total 946,000 units this year, down modestly from a record of 976,000 sales in 2002. Housing starts are forecast at 1.71 million units this year, the same as in 2002.
Source: Realtor.org, 3/03

Registry of Deeds and Land Court Fees 
Expected to Rise on March 15
Governor Mitt Romney introduced legislation on February 4 to increase fees at the registries of deeds and the land court. The Administration's bill was initially referred to the Judiciary Committee for a public hearing, but the Senate Ways and Means Committee decided to act on it immediately by attaching it to a fiscal year 2003 supplemental budget already approved by the House. Subsequently, the House agreed to the Senate's action in a conference committee. The new budget, intended to cover deficits in the current fiscal year, was then sent to the governor. With an emergency preamble and a March 7 signature deadline, the new fees are scheduled to take effect on March 15.

New fees for specific documents include $50 for a municipal lien certificate, $100 for a deed, and $150 for a mortgage. $50 will be charged for entering, recording, certifying, and indexing any paper. Recording and filing a plan will cost $50 per sheet. Increases also will be seen in the fee schedules at the land court. The new charges will not apply to any discharge, release or partial release of a mortgage presented for recording or filing within 120 days after March 15.

The new fees are expected to generate an additional $230 million annually to the state, according to the Governor's proposed budget for fiscal year 2004. The FY 2004 budget needs $3.2 billion in cuts or revenue increases in order to be brought into balance.

Surcharge for Registry Improvements
In addition to the increased fees, there will be a surcharge of $5 for every document filed in the registries of deeds. This money will be dedicated to automation, modernization, operation, and technological improvements at the registries. Money collected through the surcharge will be paid into special technological funds until July 1, 2008, at which time it will be forwarded to the general fund of the Commonwealth. This surcharge is in addition to surcharges already in place, currently $20 for most documents.
Source: GBREB, Governmental. Affairs, 3/2003

Wetlands Protection
Many communities in Massachusetts subject wetlands to a dual system of regulation-first under the State Wetlands Act and again under local wetlands by-laws enacted pursuant to the state law. Legislation proposed to create An Act Providing for More Efficient Wetlands Protection would allow for a local wetlands ordinance or by-law only if the Department of Environmental Protection finds that the local regulation has a generally recognized scientific basis, is a recommended "best practice" technique, and is warranted given the community's unique resources needing special or enhanced protection.
GBREB, Government. Affairs, 2/2003

Title 5
Title 5 of the Massachusetts Environmental Code places stringent and expensive requirements on private property owners to install and maintain underground sewage disposal systems. Three bills would address problems inherent in the Title 5 system. Legislation to create An Act to Assure Uniformity in the Regulation of Sanitary Sewage Treatment and Disposal would put a stop to the creation of duplicative and more stringent Title 5 codes at the local government level. Legislation to create An Act Relative to Title 5 Tax Credits would extend an existing residential tax credit program to commercial properties. Legislation to create An Act to Promote Housing Production by Establishing Soil Classes and Soil Absorption System Requirements Applicable to On-Site Sewage Treatment and Disposal Systems would increase the soil percolation rate from 30 to 60 minutes.
GBREB, Government Affairs, 2/2003

Zoning Incentives
The need to encourage greater housing density in appropriate settings is a central element of the current public discussion of ways to encourage smart growth. Legislation to create An Act to Authorize Zoning Density Bonuses would clarify the state's zoning law by allowing local zoning ordinances or by-laws to provide for increases in permissible density or intensity of residential use without a special permit. This legislation would apply to the creation of additional units of affordable housing in mixed-income housing developments, or for the purpose of promoting other public purposes specifically stated in the zoning ordinance or by-law.
GBREB, Government Affairs, 2/2003

Rental Housing Issues
Several initiatives would address some important, statewide rental housing issues. Legislation to create An Act Promoting Water Conservation would permit tenants living in single-family houses or in multi-family properties to pay for their own water and sewer service, with the amount of the payments based upon readings of individual meters or submeters. Legislation creating An Act Authorizing the Assumption of Certain Utility Costs by Residential Tenants would allow for separate charges for gas, water, wastewater or electricity to tenants living in multi-family housing based upon a submetering system or a ratio utility billing system. Legislation creating An Act Relative to Cooking Facilities in Lodging Houses would create a local option for municipalities to all the installation of ranges in single rooms, where currently only a gas or electric hotplate is allowed. Legislation creating An Act to Escrow Withheld Rent would mandate the payment of rent into an escrow account when a tenant is exercising the right to withhold rent pending the resolution of an alleged violation of the State Sanitary Code.
GBREB, Governmental Affairs, 2/2003

Lead Paint Poisoning Prevention
The presence of lead paint in a single-family house or in a multi-family property is recognized as both a public health and a housing issue. Legislation to create An Act Relative to the Lead Paint Abatement Tax Credit would increase the Massachusetts tax credit from a maximum of $1500 per unit to $2500 per unit. This increase would acknowledge the costs of removing or covering lead paint that have increased since the tax credit program was established.
GBREB, Governmental Affairs, 2/2003

Housing Production Incentives
During the campaign, Governor Romney addressed the need for housing production in Massachusetts and promised to double production over the next four years. According to the proposed budget for fiscal year 2004, the Romney Administration proposes to award additional local aid to municipalities in 2005 based on the number of building permits they issue in 2004. This revised formula is intended to help offset infrastructure and education expenses for new residents. In addition, a temporary mitigation account is proposed to ease the transition for towns that face the largest declines in aid under the new local aid formulas.
GBREB, Gov. Affairs,3/200