[REN #592] News Brief – Capital Gains Change, Trade Deficits and the Starbucks Effect

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Picture of a Capuccino in a Starbucks Mug for Real Estate News for Investors Podcast Episode #592

In this week’s Real Estate News in Brief… a potential capital gains tax break, the Starbucks effect quantified, and the new normal for lot sizes.
 

Economic News

We begin with economic news from this past week.

Following the Labor Day holiday, the Commerce Department reported that construction spending was 0.1% higher in July than it was in June. That number was much lower than MarketWatch analysts had expected. It was mostly due to a drop in private construction spending. Public sector and residential construction spending showed more strength.

The U.S. trade deficit surged in July, despite trade tariffs. The deficit rose almost 10% to its highest level in five months. The Commerce Department say it’s now $50.1 billion. According to MarketWatch, the surge is due to a strong demand for oil, foreign cars, computers, and pharmaceutical drugs. A strong dollar has also given Americans more buying power. But, there’s concern that a growing trade gap will lead to a lower GDP which is an important indicator for the health of the U.S. economy.
 

Mortgage Rates

Long-term interest rates crept higher this last week. Freddie Mac says the weekly average for the 30-year fixed-rate mortgage is 4.54%.
 

In other news making headlines…

 

New Capital Gains Tax Break?

President Trump is considering a new tax break that could save investors a bundle of money when it comes time to sell. He’s thinking about adjusting the original purchase price of a property or a stock for inflation to reduce the amount of tax owed on capital gains.

The President spoke about it during a recent interview, saying, “There are a lot of people that love it and some people that don’t.” But he said he’s thinking about it “very strongly.”

Treasury Secretary Steven Mnuchin had said in July that his staff was looking into whether they could make this change without approval from Congress. The President’s top economic adviser, Larry Kudlow, claims it would help fire up the economy and eliminate what he calls “phantom income.” (1)
 

Retirement Security

President Trump also issued an executive order this week to help people save more for retirement. The executive order will make it easier for small businesses to join together for multi-employer retirement plans. Right now, businesses must be related. The White House says that only 54% of small businesses with less than 100 employees offer retirement plans.

The National Association of Home Builders issued a statement in support of the President’s order. CEO Jerry Howard said, “This need is particularly acute in the residential construction sector, where most home building firms are small businesses with less than 10 employees.” He said, “The executive order removes needless regulatory barriers that will help more trade groups and small businesses to provide workplace retirement plans for their employees.” (2)
 

Execs: Business is Booming

A new poll of business executives shows some powerful enthusiasm for the economy. The Zogby poll asked executives if their companies were doing better now than two years ago. 83% said “yes” and 76% said the party’s not over — they expect to see more growth.

A statement about the poll said, “At the moment, the economy of the United States is humming, though there are many problems that lurk ahead, such as a recession, interest rate hikes, and an untoward amount of federal debt. But right now, consumers are confident and the psychology of financial markets is one that has a positive outlook.”

Zogby Analytics said it isn’t clear if the executives felt that their prosperity was due to actions taken during the Obama administration or by President Trump. But it did show that a majority of the executives in small, medium, and large companies, believe that Democrats are better for business. 47% said they planned to vote Democrat in the November congressional election while 34% said they will vote Republican.
 

Starbucks Effect Quantified

We’ve all heard of the “Starbucks Effect,” right? It’s generally believed that when a Starbucks shows up in a neighborhood, the area is gentrifying and that real estate prices will rise. A new study out of the Harvard Business School has now quantified that effect. It shows that within a year of opening, nearby home prices rise by a half of a percent.

Researchers used data from Yelp and the Census Bureau to come up with that figure, but it’s not clear if the price increases are due to the arrival of a Starbucks, or just a sign that more affluent people are now living in that area. Harvard economics professor Edward Glaeser believes it may be a sign of affluent shoppers because a higher number of Yelp reviews also corresponds to increasingly higher home prices.
 

Lot Sizes Are Shrinking

Yard space is getting smaller for single-family homes. The Census Bureau’s Survey of Construction shows the median size lot in 2017 was 8,560 square feet. That’s just under one-fifth of an acre. It’s also the first time ever that the median lot size fell below 8,600 square feet.

Regional differences are more pronounced. You’ll find the largest lot sizes in New England. The median there is 4-tenths of an acre. The East South Central and Middle Atlantic areas are next on the list of larger lot sizes. The median in those states is 3-tenths of an acre. Other areas are in the neighborhood of two-tenths of an acre with the very smallest lots along the West Coast. There, the median size is just three-twentieths of an acre or 6,534 square feet. (3)
 

Pilot Controls Drones with His Mind

This last story is more about how technology is shaping our future. The Defense One blog reports that the U.S. military has developed technology that allows a person to control a swarm of drones, and potentially fighter jets, telepathically. It’s done with the help of a surgically-implanted microchip, and signals from the brain that are sent to the aircraft.

It isn’t an entirely new concept. A few years ago, a paralyzed woman with a surgically-implanted microchip was able to steer a virtual F-35 fighter jet. Now, it appears that the technology will allow a single pilot to steer several aircraft at once.

According to the blog, this new development is just another breakthrough in the “rapidly advancing field of brain-computer interfaces.” This technology is also being used to develop brain communication in general, the control of prosthetic limbs, and memory restoration after a traumatic brain injury.

Links:

(1) News Max Article

(2) National Association of Home Builders

(3) Eye On Housing Article

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