From HuffingtonPost

For 30 years, falling mortgage interest rates have enabled homeowners to move into ever-larger homes on the promise of ever-cheaper financing. But that party is over, and the impact on existing home sales could be significant.

After peaking at more than 18 percent in 1981, rates on a 30-year, fixed mortgage fell steadily, bottoming at 3.3 percent in late 2012, according to Freddie Mac. Rates then jumped into the mid-4 percent range before retreating more recently. Nobody expects rates in the teens again, but rates in the 5 percent and 6 percent range are no longer out of sight.

Housing was relatively simple as rates fell. When I first bought a home, I had a mortgage rate of about 8 percent. A few years later, when I re-entered the market, I qualified for a rate of about 5 percent. With this lower rate, I had a choice: I could buy a more expensive and larger home, but still pay roughly the same amount per month thanks to lower financing costs. Or I could buy a similarly priced home to the one I was currently in, and lower my monthly payment and pocket the savings.

And I wasn’t alone. Today’s currently very low rates are helping to boost existing home sales volume by roughly 15 percent, according to Zillow research. This effect has acted as a tailwind for decades, helping millions of homeowners move up the chain to bigger, more expensive homes.

But as rates rise, the script flips. Higher rates will discourage or disqualify some potential future buyers that may have otherwise entered the market when rates were lower. And thanks to a furious refinancing push by lenders and a sense that low interest rates couldn’t last forever, millions of current homeowners are now locked in at mortgage rates close to or at historic lows.

It remains to be seen whether homeowners locked in at today’s low rates will be willing or able to buy again later when rates could be almost double what they were even a year ago. Instead of paying the same amount each month for a larger home, some homeowners may be faced with the prospect of paying more per month for a home very similar to the one they’re already in. This is the phenomenon referred to as “mortgage rate lock.”

The Mortgage Bankers Association is currently predicting that rates on a 30-year, fixed rate mortgage will rise to 5.1 percent by mid-2015. If that happens, then mortgage rate lock will become a pronounced headwind for the housing market, reducing home sales by about 4 percent from current levels even after accounting for positive factors like modestly higher incomes and more households.

Still, many discount this problem, thinking that we will continue to enjoy very low rates for years to come. Admittedly, this doesn’t seem too far-fetched given the most recent data. But even in this more benign scenario, the simple fact that rates aren’t still falling will begin to create a drag on home sales as soon as autumn 2015 (representing 100,000 fewer sales by then, all other things being equal). This drag will have to be offset by higher than normal rates of income growth or much higher homeownership rates, neither of which seems very likely by that time.

The bottom line is this: For a generation, we’ve gotten used to falling mortgage rates and the boost they had on sales. Very low rates in recent years have done the heavy lifting we wanted them to do, namely helping to boost home sales from the depths of the recession. But whether rates rise quickly or not, it’s safe to say that they won’t continue falling over the long-term as they have for the past 30 years.

And as is always the case, there’s no free lunch. We’re about to get the check, not just for the recent very low rates, but for the 30-year-long buffet in which we’ve feasted on falling rates.

By Erik Sherman

A series of emails about ebook prices between Apple and HarperCollins, including ones written by Steve Jobs, were recently released as part of the Department of Justice price-fixing suit against Apple and a number of major publishers. As the site Quartz pointed out, these offer some great insight into how Jobs negotiated.

However, Zachary Seward at Quartz called it an example of “hard-nosed” negotiation at which Jobs excelled. I’d take a different view. This is not hard-nosed. The emails show how an excellent negotiator used a series of principles to create the best conditions for winning. Let’s look in greater detail at the exchange between Steve Jobs and James Murdoch, son of Rupert Murdoch and the ultimate decision maker, and see how Jobs ultimately got his way.

First, set the stage. Apple and HarperCollins had been discussing bringing the latter’s ebooks into the iTunes store for the launch of the iPad. Apple had presented its standard contract. HarperCollins wanted to address the following issues:

• flexibility to price on a title-by-title basis      outside Apple’s pricing tiers
• no so-called most favored nation status, so Harper      would not have to give Apple as good a deal as any other retailers in case      the two companies disagreed on prices and HarperCollins wanted to make      titles available through other outlets at higher prices and, potentially,      higher income for those retailers
• a lower than 30 percent commission on new works
• six month windows on using an agency model      (publisher sets the price and retailer gets a commission) instead of the      12-month window that Apple wanted
• concern that Apple wanted to set prices too high,      meaning that competition with Amazon would be difficult

And yet, Jobs ultimately prevailed. Here is how.

1. Understand the importance of the negotiation.

According to one of the emails, Steve Jobs got on the phone with Murdoch right away. Jobs was a busy man, but he knew that some deals are critical. To have a credible showing of ebooks, he needed all the major publishers, including HarperCollins. However, there was another aspect of importance that didn’t pass him by. If he caved on what he thought he really needed with one publisher, others would eventually find out and push back. Not only was the deal important in and of itself, but also in terms of the effect it could have on other deals.

2. Show that you understand the context and why your proposition is better.

Jobs knew, as did everyone in the publishing industry, that Amazon was driving much of the ebook business. Murdoch verified that Amazon paid $13 wholesale for an ebook title and sold it for $9.99–a lost, but Amazon wanted market share. However, buying high and selling low wouldn’t last forever, as Jobs pointed out:

The current business model of companies like Amazon distributing ebooks below cost or without making a reasonable profit isn’t sustainable for long. As ebooks become a larger business, distributors will need to make at least a small profit, and you will want this too so that they invest in the future of the business with infrastructure, marketing, etc.

Furthermore, Jobs argued that the $9 HarperCollins would get per title was actually sustainable and that the only way to pay more, given that in retail a 30 percent margin is relatively modest, would be to raise prices, angering consumers.

3. Show both kinds of value.

Jobs showed two kinds of value in his email exchange. One was positive value–what HarperCollins would get by working with Apple–and the other was negative, or what HarperCollins would lose by not working with Apple. For example, Jobs wrote that “Apple is the only other company currently capable of making a serious impact, and we have four of the six big publishers signed up already.” On one hand, he offers HarperCollins a tool to oppose industry domination by Amazon. On the other, he offers a soft hint that if HarperCollins doesn’t play ball, it may get left behind by its major competitors.

4. Lay out the reality.

The Jobs coup de grâce relates to the first point. When Murdoch shows signs of compromise, while trying, as Jobs did, to show positive and negative benefits to Apple, Jobs lays out a stark reality:

As I see it, HC has the following choices:

1. Throw in with Apple and see if we can all make a go of this to create a real mainstream ebooks market at $12.99 and $14.99.

2. Keep going with Amazon at $9.99. You will make a bit more money in the short term, but in the medium term Amazon will tell you they will be paying you 70% of $9.99. They have shareholders too.

3. Hold back your books from Amazon. Without a way for customers to buy your ebooks, they will steal them. This will be the start of piracy and once started there will be no stopping it. Trust me, I’ve seen this happen with my own eyes.

Maybe I’m missing something, but I don’t see any other alternatives. Do you?

At that point, the gloves are off and Jobs shows that HarperCollins, and the wider industry, face a stark choice, and that he, Jobs, knows it and recognizes that giving in to Murdoch would actually mean putting HarperCollins in a medium-term bind.

5. Play the emotion

One of the biggest mistakes that businesspeople make is to assume that the process is a rational and logical one. But negotiation is almost always an emotional play. People make decisions because of ego, fear, greed, a need to please, and so on. Notice that Jobs shows the benefit and the risks by painting pictures and not enumerating lists. For instance, he mentions the 120 million customer credit card numbers on file. He deliberately left the image of all that potential money in Murdoch’s mind.

You don’t often see an extended example of a negotiation process handled by someone gifted in the field. It is worth reading through the transcript to follow the back and forth and see how skilled Jobs was.

Erik Sherman‘s work has appeared in such publications as The Wall Street Journal, The New York Times Magazine, and Fortune. He also blogs for CBS MoneyWatch. @ErikSherman

The Foundation for Community Association Research has rolled out a new e-newsletter, Catalyst.  More than ever before, the Foundation seeks to be the industry catalyst for needs-driven research that informs and enlightens all community association stakeholders—community association residents, homeowner volunteer leaders, community managers, service providers, legislators, regulators and the media.

The Summer 2013 issue provides links to surveys, information and offers data-based perspectives you can’t get anywhere else.  Check out this preview:

State CIC Estimates Published in 2012 Statistical Review

Florida and California account for 27 percent of all common-interest communities (CICs) in the United States, according to 2012 data published by the Foundation. This is the first time we have published state CIC estimates. The estimates are featured in the Foundation’s just-published 2012 Statistical Review.

The six-page review also provides national CIC statistics beginning in 1970, as well as 2012 data on the numbers of association board and committee members, community managers and management companies. There are also national estimates on CIC assessments and spending and summary results from a national survey of CIC residents in 2012.

Subscribe to Catalyst for more information.  The brochure can be downloaded for free at www.cairf.org/foundationstatsbrochure.pdf.

Snap Survey Addresses Community Manager Contentment

The Foundation’s first-ever “Snap” survey is a mixed bag in terms of how CAI member community managers perceive their profession, reputation and compensation.

Sixty percent of responding managers say community management has improved “a lot” or “slightly” as a career option in recent years, while 24 percent believe it has declined. Almost half of the respondents say they are “adequately compensated”, while 12 percent say they are “very well-compensated.” Most of the remainder say they are “not well-compensated.” “Pay scales and recognition are still not what they should be for the responsibility we carry,” said one respondent.

Subscribe to Catalyst for more information.  A PDF of the survey results can be downloaded at www.cairf.org/research/snapsurvey_march2013.pdf.

Managers Urged to Complete Salary Survey

The Foundation has once again retained Industry Insights, Inc., a third-party survey research firm, to produce its Manager Compensation and Benefits Survey. Strict confidentiality is maintained, and neither CAI nor the Foundation will see any individual data. Enter yourself in a drawing to win an iPad Mini by completing the survey by June 28 (it takes less than 10 minutes) and entering your name and contact information at the end of the survey (optional): https://www.iisecure.com/CAI/survey.asp?Type=NEW.

This year’s survey will address:

• Annual wages paid to large-scale, onsite and portfolio      managers, as well as CEOs, and others
• Employee benefit information
• Vacation and sick leave
• Retirement and pension plan information

To get the full issue and subscribe to future issues, e-mail Jake Gold, at jgold@caionline.org.  CAI Members will automatically receive Catalyst.  Visit www.cairf.org to learn more and find out how you can support the Foundation’s mission, common-interest communities and homeowner volunteers and industry professionals who make them preferred places to call home.

U.S. home prices posted year-over-year gains for the fourth consecutive quarter as prices rose 10.2% in the period ending in March, according to the S&P/Case-Shiller national index.

The index posted its highest annual returns since 2007, according David Blitzer, head of S&P’s index division.

But the strong gains over the past year may be a bit of a statistical mirage, according to Robert Shiller, a Yale economist and co-founder of the index. “Foreclosure sales are down, so naturally [price] indexes that include foreclosures are up,” he said.

Foreclosures sell for less than comparable non-foreclosure properties, so with fewer of them selling, home prices will show gains.

Eventually, the percentage of distressed properties being sold will stabilize near their historic norms and will play less of a role in future home price comparisons. When that happens, price gains will flatten out a bit.

There’s another factor arguing against continued price gains, according to Shiller. Home prices are already at what he considers “normal” levels, adjusted for inflation. Even the steep housing downturn only took prices to where they would have been if they hadn’t skyrocketed during the bubble.

Index co-founder Karl Case worries about the low number of housing starts recorded this month. That’s a possible sign that the economic recovery is flagging, which would slow home sales as well.

“New construction is a big deal and starts are the most important number,” he said. “It goes right to the GDP.”

Both economists, however, are still cautiously bullish for two main reasons. First is the fact that near-record low mortgage rates have made home buying more affordable. The second is all the pent-up demand in the housing market after years of sluggish sales.

Phoenix recorded the largest year-over-year price spike, with a 22.5% jump. San Francisco prices rose 22.2% and Las Vegas prices grew 20.6%. New York, at just 2.6%, saw a modest annual increase.

3 bills Florida HOAs should know about –  Three new bills were presented to the Florida Legislature that, if passed, will affect the state’s many condo and homeowners associations. Some of the changes up for vote including limiting the term length of association directors and forbidding members delinquent in payments from running for the Board of Directors. Florida: Lexology.com (free registration)

Texas legislature and HOAs: Conflicts and interests –  One man’s HOA experience in Pflugerville, Texas highlights how associations, ostensibly created by and for the people in a neighborhood, usually operate more like mini-government agencies. Nowadays, cities and counties often require new developments to create property owners’ associations. In a booming state like Texas outsourcing these services to an HOA management company may be the only option for a cash-strapped municipality.  Texas’ a long and colorful history of lopsided special-interest influence has complicated the HOA management industry. Texas: The Texas Tribune

Judge rejects condo’s demand for HOA receivership – Tensions between disgruntled Arizona condo owners and their homeowners association board came to a head Monday in a six-hour hearing to decide whether residents’ allegations of financial misconduct justified placing the HOA into receivership. After the attorneys for several hours questioned and cross-examined experts, board members and residents, Maricopa County Superior Court Judge Michael Gordon ruled there was insufficient evidence to warrant putting the association into receivership. Arizona: AZcentral

Colorado HOA-related legislation  – Read about the CAI sponsored legislation that is working its way through the Colorado Legislature.  SB126 requires HOAs to accommodate owners who want to install electric car-charging stations in a complex parking lot. It has been signed into law.  Lawmakers passed HB1276 to revise the way HOAs collect delinquent dues and fines, and setting specific rules for pursuing foreclosure actions against homeowners passed and awaits consideration by the governor.  Headed to the governor, HB1134, would require all HOAs, no matter how large or when they were created, to register with the HOA Information Office and Resource Center. Lawmakers also sent Hickenlooper House Bill 1277 which would require community association managers, management company executives and those who directly supervise managers to be licensed in Colorado. Colorado: The Gazette

By Jeremy Quittner

Construction leads the way, but the recovery is affecting a broader base of businesses, according to a new study.

The construction industry continues to add fire to the economic recovery, according to the March private company index from Sageworks.

While the Sageworks index supports a host of other recent data that point to a housing market recovery, it also indicates economic improvement for a broader segment of private companies.

“Construction is growing sales and growing profitability, which is a good thing for companies in that industry,” says Libby Bierman, an analyst for Sageworks. “But things are pretty positive for [all] private companies, with average sales for the entire sector showing double-digit growth.” Construction is a key indicator to watch because it affects so many other industries, such as the wholesalers and retailers that provide supplies.

Sageworks analyzes 1,000 financial statements from private companies every day. The companies range in size from less than $10 million to over $1 billion. The current data is for the six months ended March 31.

Total sales across all industries increased 10 percent for the last six months, about flat from the same time period a year ago. Meanwhile, profit margins increased significantly: 7.3 percent compared with 4.5 percent in the same time period.

Sales increases in the construction industry jumped to 13.2 percent from 10.4 percent a year ago. Profit margins more than doubled to 4.5 percent.

“The construction industry has grown at a very healthy rate for the past two years, which is encouraging, ” says Brian Hamilton, Sageworks’ chairman, noting that the real estate industry was the worst hit and the last to rebound from the recession. However, that doesn’t mean the pace will continue, bolstering other sectors.

Four years into a recovery, “can we say for the next three years the construction is going to be strong? I don’t know. You are betting against odds on that one.”

The increases in profitability across the board are largely due to companies increasing efficiency, Bierman says.

The picture isn’t entirely rosy, however. Manufacturers’ sales growth increased, but at a slower rate than last year, declining nearly 5 percentage points to 10 percent. Wholesale businesses fared worse, with sales growth slowing by nearly half to 7.7 percent.

Wholesale businesses had been on a tear in 2012, increasing revenues by 13 percent for the year, so they had a much bigger base to improve upon, Bierman says.

The number of days it takes private companies to get paid has also crept up by 8 days, to 46 for the period ending March 31. That could be a worrisome trend in the future, suggesting customers are having cash concerns.

Generally speaking, though, “private companies are growing their top line and bottom line and this bodes well for future investment in companies and hirees, and provides a strategic cushion for business owners to make decisions,” Bierman says.

Jeremy Quittner is a staff writer for Inc. magazine and Inc.com. He previously covered technology for American Banker and entrepreneurship for BusinessWeek.