Real Estate News

Jobs: Could Higher Rates Be Good?

October 6, 2015
ECONOMIC COMMENTARY
If you want a good indication of whether the Federal Reserve Board might raise interest rates in their October or December meetings, last week’s employment report gives us a hint. The numbers were disappointing with an increase of under 150,000 jobs and a downward revision in the previous months’ data. This means that there is less pressure on the Fed to move quickly, especially considering the fact that wage inflation continues to be muted. The report continues our good news with regard to low interest rates. Apparently, we are going to have a fall sale on real estate with home price increases also moderating.

On the other hand, many analysts are now thinking that the Fed raising short-term rates would be good for the economy. Why is that so? Right now the Fed has created a great amount of uncertainly regarding the anticipated rate increase. The markets, companies and consumers do not like uncertainty. Rampant uncertainty was one reason our recovery from the great recession was so long and arduous. For example, uncertainly keeps companies from investing in the long-term, and that includes adding permanent workers.

Just a week after the Fed released its statement delaying the expected rate hike in which they indicated that there was major uncertainty created because of international events, Chairwoman Yellen was out speaking about the probability of a rate hike this year — “Most FOMC participants, including myself, currently anticipate…an initial increase in the federal funds rate later this year, followed by a gradual pace of tightening thereafter,” Yellen said. The Fed just can’t keep talking about and then taking no action without creating uncertainty.

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Real Estate News

September Rate Increase?

August 18, 2015

ECONOMIC COMMENTARY
Just as we were enjoying another month of mixed economic news and the markets were “hoping” for a little reprieve from the Federal Reserve Board, one of the Fed Governors shocked the markets with this statement reported by the Wall Street Journal — “It will take a significant deterioration in the economic picture for me to be disinclined to move ahead,” Federal Reserve Bank of Atlanta President Dennis Lockhart said in an interview with the Journal.

The Wall Street Journal article went on to report that Lockhart’s comments followed those of James Bullard, President of the St. Louis Fed — “we are in good shape” for a rate increase in September.These comments by Fed officials shocked the markets somewhat because long-term rates had been falling in late July and early August. Upon release, rates reversed course. The good news is that more bad economic news overseas helped mitigate the increases rather quickly, but it just tells us how jumpy the markets are with regard to the threat of the Fed raising rates in September. As we have continuously pointed out, the greatest effect of the Fed raising rates is likely to be on shorter-term rates. These short-term rates also have risen in anticipation of the Fed making a move.

Meanwhile, there is plenty of time for intervening variables to change the equation. The recent devaluation of China’s currency may put pressure on the Fed because the strong U.S. Dollar continues to hurt our exports. There is one more jobs report to be released before the Fed meets in September, as well as a revision of the measure of economic growth for the second quarter. Many are expecting second quarter growth to be revised upwards. While we progress toward September, we expect the markets to hang on every word uttered by a Fed official. This could cause increased volatility in all markets.

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Real Estate News

Is a Correction Coming?

July 14, 2015
ECONOMIC COMMENTARY
We are approaching almost three years since the last time the stock market underwent a classic correction, which is generally defined as a pullback of at least 10 percent. According to CNN/Money, a correction happens on the average of about every 18 months. Thus, statistically we are more than due at the present time. Note that we are not talking about the end of the bull market which has lasted over six years. The question is: will this correction come in the second half of the year?

For the first half of this year, the stock market has treaded water. This is in contrast to the rest of the bull market in which gains have averaged close to 15% annually for the previous six years. One could argue that this “breather” is a correction, even though there is not a classic loss in value. Another question follows: Why would stocks be stagnating when the economy is picking up steam? Right now there are two factors holding back stocks — higher rates and international pressures, most recently the crisis in Greece. It is not surprising that stocks are weak in light of the issues Greece and Europe are facing. Interest rates and oil prices have also fallen as the crisis has unfolded.

As for rates, stocks have long benefited from super low rates. Now that rates may be rising in the long run due to a better economy, that benefit may be reduced. Of course, it is not like rates are high right now, especially from a historical perspective. Just keep in mind that rising rates do not affect only the real estate sector. They can have a profound influence on all markets. Right now rising rates are actually benefiting real estate as consumers rush to purchase homes to beat the rate increases.

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Real Estate News

Random Real Estate News

REAL ESTATE NEWS

The rent may indeed be “too darn high,” but it’s only going up, according to a new report from online real estate listing service Zillow. According to new analysis from Zillow, U.S. renters paid $441 billion in rent in 2014, up $20.6 billion from 2013’s total of $420.4 billion. That represents an increase of 4.9%. Accounting for an estimated 770,000 additional U.S. renters in 2014, the average renter household spent $26 more per month in 2014 than in 2013, for a total of $312 more paid in rent this year compared to last, Zillow said. “Over the past 14 years, rents have grown at twice the pace of income due to weak income growth, burgeoning rental demand, and insufficient growth in the supply of rental housing,” said Zillow Chief Economist Stan Humphries. “This has created real opportunities for rental housing owners and investors, but has also been a bitter pill to swallow for tenants, particularly those on an entry-level salary and those would-be buyers struggling to save for a down payment on a home of their own.” Humphries said that increases in rent are only going to continue. “Next year, we expect rents to rise even faster than home values, meaning that another increase in total rent paid similar to that seen this year isn’t out of the question,” he said. “In fact, it’s probable.”Source: HousingWire

Most younger renters think owning is a more sensible housing choice for financial reasons, according to Fannie Mae’s National Housing Survey. Seventy-six percent of young renters, defined in this study as between 18 and 39, think owning makes more sense because they’re protected against rent increases, and owning can be a good investment over the long-term. “However, a large majority of young renters have remained pessimistic over the last few years about their ability to get a home loan; in contrast, younger owners have grown more optimistic,” says Sarah Shahdad, strategic planning analyst at Fannie Mae. “Demographic differences between younger renters and younger owners may explain part of the gap in attitudes.” Younger owners are more likely to fall in the higher end of the age range, earn more, and be employed full-time compared with younger renters, Shahdad notes. “The widening of that same gap during the last few years suggests that confidence in one’s ability to get a home loan is growing primarily among those who have already met financial requirements,” she notes. Young renters consider down payments and credit scores to be the top obstacles of getting a home loan. Also, the presence of student loans heightens the difficulty, they feel. But, young renters say, one day, they still plan to buy. “Enhanced housing education and alternative approaches to housing and savings may help renters fulfill their housing aspirations in a financially sustainable way,” Shahdad says. “Educational resources and tools may help renters make more informed decisions about their housing choices and begin managing their finances early and efficiently in order to fulfill their goals.” Also, promoting alternative paths to home ownership may help. Shahdad notes that about three-quarters of younger renters and owners said a lease-to-own arrangement would make renting more desirable to them since it would lead to home ownership. Source: Fannie Mae

Americans 55 years old and older are increasingly expected to begin trading residences as they near retirement, and that has many housing analysts and homebuilders predicting a surge in active-adult homes and communities that appeal to seniors. Homebuilders PulteGroup, Lennar, and Toll Brothers are reporting higher sales in this segment. Builders also are trying to lure this age group with multigenerational amenities, such as a separate private entrance, bedroom, bathroom, and eat-in kitchen attached to a traditional home. The National Association of Home Builders’ 55+ Housing Market Index also reflects greater optimism in the 55-plus housing market. This year, the index reached its highest second-quarter reading since it began in 2008, and it posted its 11th consecutive quarter of year-over-year gains. “One of the factors contributing to the positive signs in the 55+ housing market is the slow but steady increase in existing-home sales in the past several months,” says NAHB Chief Economist David Crowe. “The 55+ market is strongly driven by consumers being able to sell their existing homes at a favorable price in order to buy or rent in a 55+ community.” Source: Investors Business Daily