[REN #739] Real Estate News Brief – Busy Home Builders, Lender Loan Bias, Wealthy Baby Advantage

Picture of bear and clouds for Real Estate News for Investors Podcast Episode #739

In this week’s Real Estate News in Brief… why home builders are so busy, what lenders think of smaller home loans, and what money can do for a child’s success in life.
 

Economic News

We begin with economic news from this past week and home sale activity that’s giving builders more confidence about the housing market. The National Association of Homebuilders reported a 3-point rise in their home builder confidence index to 66. Anything higher than 50 is in positive territory. NAHB chairman, Greg Ugalde, says, “Builders are busy catching up after a wet winter and many characterize sales as solid, driven by improved demand and ongoing low overall supply.”

There are also more homes headed into the sales pipeline. The Commerce Department reports that housing starts were up almost 6% in April to an annual rate of 1.24 million. Permits to build new homes were only up 1% however, and both numbers are lower than they were last year during the spring season.

The trade war with China has not had a big impact on the price of imported goods, so far. The Labor Department reported that import prices were up just .2% in April. If you exclude gas and oil, they were down slightly. MarketWatch economists say the lack of inflation is due to the strong dollar which makes it cheaper to buy foreign goods.

A reading on consumer sentiment surged to a 15-year high in May. The University of Michigan’s index jumped to 102.4 as consumers enjoy a thriving job market. But this reading was taken before tariff negotiations collapsed with China. (1)
 

Mortgage Rates

Long-term mortgage rates are falling closer to the 4% mark and giving spring home buyers a price break. Freddie Mac says the 30-year fixed-rate mortgage was down 3 basis points this last week to 4.07%. It says, “The real economy remains on solid ground with steady job growth and five-decade low unemployment rates, which will drive up home sales this summer.”
 

In other news making headlines…

 

Trump Pushes for Rate Cut

President Trump reiterated his call for a rate cut this last week, saying if China cuts its interest rate, the U.S. Federal Reserve should too. And if that happens, he says the U.S. would win the trade war with China. He said in a tweet, “China will be pumping money into their system and probably reducing interest rates, as always, in order to make up for the business they are, and will be, losing. If the Federal Reserve ever did a ‘match,’ it would be game over, we win!”

The President has previously pushed for a rate cut saying that Federal Reserve policy is stifling the U.S. economy. He’s also been criticized for trying to influence the Fed with his calls for a rate cut because it’s supposed to operate independently from any political pressure.
 

Lenders Don’t Like Skimpy Loans

Smaller is not better when it comes to getting a home loan. The Wall Street Journal reports that people applying for smaller loans are getting rejected at a higher rate than people applying for high-dollar loans with similar credit quality. Housing experts say that lenders have a hard time making a profit on small loans, so they cater to people seeking larger ones.

President of the Structured Finance Industry Group, Michael Bright, says, “The whole system incentivizes high-balance loans.” According to real estate research firm ATTOM Data Solutions, the number of mortgages between $10,000 and $70,000 was down 38% last year compared to 2009. They are down 26% for loans between $70,000 and $150,000. And, they have gone up 65% for those higher than $150,000. (2)
 

Nextdoor Expands with Big Money Raise

Neighborhood social networking site Nextdoor is expanding rapidly around the globe and just raised another $123 million. It announced in a press release that it’s now worth more than $2 billion and plans to increase its presence in the U.S. and other countries and expand into new ones. It claims to have networks in more than 236,000 neighborhoods.

Nextdoor gives neighbors a way to communicate and connect with each other. It’s free to join, and helps people post information on local contractors, events, crime and safety issues, lost pets, and other topics. It recently expanded into real estate listings for the user’s neighborhood.
 

Rich Babies More Successful than Smart Babies

A new Georgetown University study finds that a child’s success in life depends more on family wealth than the baby’s intelligence. The study shows that 7 out of 10 wealthy kindergarten students with low test scores were doing well financially at age 25. Only 3 out of 10 poor kids with high test scores did as well. They drew their conclusions after tracking the success rates of kindergartners from the 1989 to 1990 school year through college and into the job market.

Researcher Tony Carnavale said of the study, “If you’re born well off and you don’t show talent, you have a better chance of ending up in a good job than if you’re a low-income talented student.” The study says all students will stumble from time-to-time but the wealthy ones have a safety net that helps get them back on track.
 
Links:

(1) Consumer Sentiment: MarketWatch

(2) Small Home Loans Hard to Come By: Wall Street Journal

(3) Nextdoor Expands

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