Homeownership Rate Falls to Lowest on Record
U.S. homeownership fell to the lowest rate on record in the second quarter, the U.S. Census Bureau reported today, according to the Washington Examiner. The homeownership rate fell from 63.5 percent in the first quarter to 62.9 percent in the second, tied for the lowest level since early 1965, when records were first kept. Homeownership has been plunging since the mid-2000s in the wake of the housing bubble’s collapse and amid demographic changes in the U.S., particularly the aging of the baby boomers out of peak homeownership years and the population growth of minorities more likely to rent than buy. The only age group that saw a rising homeownership rate over the past year was 35- to 44-year-olds, with younger and older people turning more to renting. "Broadly speaking, the falling homeownership rate is a sign that renting isn't only for those just starting out or making a transition, but is becoming an increasingly viable longer-term option for many households," said Zillow chief economist Svenja Gudell. "It also means incomes are not yet rising quickly enough to broadly support new homeownership, and that inventory remains too tight to allow for meaningful access to affordable housing."

Puerto Rico Faces Next Bond Deadline Aug. 1
A month after defaulting on about $800 million, mostly corresponding to constitutionally protected, general-obligation (GO) debt, the Puerto Rico government will be servicing most of its debt payments due on Aug. 1, Caribbean Business reported today. Holders of Sales Tax Financing Corp. (Cofina by its Spanish acronym) paper and Employee Retirement System (ERS) pension bonds would all receive their payments due next week, sources confirmed to Caribbean Business. Moreover, small interest payments on certain Highways & Transportation (HTA) and P.R. Industrial Development Co. bonds would also be met. In all, more than $300 million would be paid across these credits, although debt-service reserve accounts will be tapped into to meet these payments. On the default side come Aug. 1, roughly $11 million corresponding to Puerto Rico Infrastructure Financing Authority’s bond anticipation notes would be missed, as well as a $1.5 million interest payment on GO bonds. Moreover, approximately $50 million would add to the more than $90 million that has already been missed to date on Public Financing Corp. (PFC) bonds, which first defaulted a year ago. While the Puerto Rico Oversight, Management & Economic Stability Act (PROMESA) provides that the fiscal control board will decide when and if the government will meet interest payments on its constitutionally guaranteed debt, it is unclear what happens during the time the board is not constituted.

Opinion: P.R. Control Board Must Be Independent
This summer marks the beginning of an unprecedented era for Puerto Rico and its relationship with the federal government of the United States. Thanks to the years of irresponsible fiscal policies that have resulted in the island territory’s staggering public debt, the federal government has effectively suspended our right to self-governance at the request of the current administration, installing a control board to rectify our mistakes, better our finances and reinvigorate our economy, according to a commentary in today’s Caribbean Business. The task this board must undertake is colossal, and it will undertake it in an atmosphere clouded by uncertainty, thanks to a Securities & Exchange Commission investigation into the debt issuances authorized by outgoing Government Development Bank President and former Puerto Rico Treasury Secretary Melba Acosta, and a congressional “task force” that will assess the outstanding debt and offer dubious, politically driven recommendations to the board. The key to all of this will be the board’s total independence, both from the domestic political pressures of Puerto Rico and the divisive national debt politics, which took center stage in the months leading to the passage of the Puerto Rico Oversight, Management & Economic Stability Act (PROMESA). However, there is no doubt that stakeholders on all sides of this crisis will seek to influence the board for their own benefit — even if doing so does not help the board to serve its ultimate mission of bringing growth back to our economy.

Analysis: The Economy Is Again Under the Sway of Asset Prices
The past two recessions were ushered in by a collapse in asset prices. Now it appears that the risk of a repeat is growing, according to an analysis in the Wall Street Journal yesterday. After plunging in the aftermath of Britain’s vote to leave the European Union, U.S. stocks have hit fresh highs. Real estate is quietly doing the same: Home prices are just 2 percent below the peak hit in 2007, while commercial property values have hit records. The result is that net wealth in the U.S. now tops 500 percent of national income. Ominously, net wealth has reached that level only twice before: from 1999-2000 during the Nasdaq bubble, and 2004-08 during the housing boom. The mere fact that asset prices are high doesn’t mean they are overvalued, or about to crash. But it is a sign of an economy structurally more vulnerable to sudden shifts of sentiment in the financial markets. Central banks have compounded that vulnerability by pumping up growth with low and even negative interest rates that have kept asset markets inflated. Those inflated prices make it more treacherous to return interest rates to normal, according to the analysis.

Analysis: Why the Federal Reserve Is Rethinking Everything
The Federal Reserve is being forced to reevaluate its most basic assumptions about the economy after trillions of dollars of stimulus and years of ultralow interest rates have failed to generate a more robust recovery, according to an analysis in the Washington Post yesterday. For years, the central bank’s top officials pointed to “persistent headwinds” emanating from the Great Recession as the culprit for the tepid pace of the economy’s expansion: Government spending cuts were depressing growth. Households were paying off debt, spending less and saving more. Borrowing money got harder. Once those trends turned around, they argued, the economy would get back to normal. Seven years after the recession officially ended, many of the headwinds have indeed dissipated — yet normal remains elusive. Fed officials have all but given up hope of the 3 percent rate of expansion once considered the baseline for a healthy economy. Instead, they are coming to grips with the possibility that lackluster growth is the best this recovery can offer. The Fed’s most recent economic projections show growth leveling off this year at 2 percent and remaining there for the foreseeable future. That, in turn, has pushed down the central bank’s estimates of how high it will raise interest rates and how quickly it will do so.

CIT Pioneers Pay Link to 'Tone at the Top' for CEOs
With corporate culture under increased scrutiny by regulators, shareholders and the general public, it was only a matter of time before management responsibility for maintaining the “tone at the top” for compliance entered the executive compensation scoreboard, according to the Wall Street Journal Tuesday. CIT Group Inc., provider of financing and leasing to middle-market companies, made “tone at the top” for compliance a qualitative measure in the scorecard for the performance of its chief executive in what some governance experts say could become a trend, as corporations continue to explore ways to instill a culture of compliance and effective risk-management. “We have seen a few companies using ‘tone at the top’ as one of the subjective, qualitative points the board takes into account when it is evaluating the compensation of the CEO,” said Mary Alcock, counsel at Cleary Gottlieb Steen & Hamilton LLP in New York who focuses on employee benefits and executive compensation. “With the increase of regulation and shareholder activism, companies are trying to insulate themselves as much as possible from having it be discovered that the tone at the top was all wrong,” said Pamela Marcogliese, a partner at Cleary Gottlieb’s capital markets practice. Many provisions to ensure that compensation programs are offering the right incentives to executives, such as maximum pay caps and clawbacks, have been adopted by companies in recent years, but looking at more qualitative elements in performance is a recent development.

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