[REN #677] News Brief – Government to Reopen, Dip in Home Sales, and Massive Bank Security Breach

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Picture of journal, cup, keyboard and mouse for Real Estate News for Investors Podcast Episode #677

In this week’s Real Estate News in Brief… a possible deal to reopen the government, a big dip for existing home sales, and a massive security breach that exposes home loan information.
 

Economic News

We begin with economic news from this past week, and an announcement from President Trump about a deal to end a partial government shutdown that’s now more than a month long. It began on December 22nd over President Trump’s demand for $5.7 billion in border wall funding. He has vowed not to “cave in” to Democratic demands to reopen the government without the money he wants for the wall.

At the time this blog was written, the President said, he had reached a deal with Congressional leaders to fund the government for three weeks while they negotiate. That will put nine unfunded departments back into business and send missed paychecks to some 800,000 federal employees. But, the situation is not yet resolved. The President says if they don’t reach an agreement during the next three weeks, he will declare a national emergency and get the funding he wants.
 

Shutdown Hobbles Federal Agencies

Among those waiting for back pay are members of the U.S. Coast Guard, which is run by the Department of Homeland Security. Unlike Defense Department employees, DHS employees are either furloughed or working without pay. Other agencies have also been hobbled by the shutdown. A Fox News report cites one FBI agent who says the shutdown “has eliminated any ability to operate.” A shortage of air traffic controllers is also impacting air travel with flight cancellations and some closures. (1)
 

Impact on Federal Housing Program

The Department of Housing and Urban Development is another example the shutdown’s impact. Landlords who accept Section 8 tenants are not getting the HUD subsidy. They will get paid eventually, but HUD have encouraged landlords to bridge the funding gap by dipping into their own reserves.

The situation has been even more tenuous for tenants with affordable housing contracts that expired during the shutdown. Some landlords may not want to wait around for those delayed renewals, and tenants have not been able to appeal to HUD for help. It’s not clear how long it will take these departments to do their “catch up” work when they are back up and running.
 

Opportunity Zone Program on Hold

The government shutdown is also throwing a monkey wrench into the Opportunity Zone program. The program gives investors a massive tax break if they use gains from another investment to pay for a project in a Qualified Opportunity Zone. But, the rules have not been finalized, and many investors want to know the details before they proceed. The IRS had scheduled a public hearing for January 10th, but that was cancelled. A new hearing won’t be rescheduled until the Treasury Department is back open.

There are also more warnings about damage to our economy from the shutdown. Even the President’s top economist is saying it could cause a “major mess” if it drags on for a whole quarter. Presidential economic advisor, Kevin Hassett, says, the U.S. GDP could drop very close to zero, but he dismissed concerns about a possible downgrade. He believes the GDP will bounce back once the government reopens.
 

Existing Home Sales

We do have housing data to report, from the National Association of Realtors, that shows a big drop in existing home sales. NAR says, they were down 6.4% in December with all four major U.S. regions showing a decline. NAR’s chief economist, Lawrence Yun, says the drop is partially due to higher mortgage rates when contracts were signed in previous months. He says, “When mortgage rates lower, some revival in home sales is expected going into spring.” (2)

Government data on new home sales is delayed because of the shutdown.
 

Mortgage Rates

Long-term mortgage rates are holding steady. Freddie Mac says the average 30-year fixed-rate mortgage is 4.45%.
 

In other news making headlines…

 

Fannie Mae 2019 Projections

 
Fannie Mae is predicting that home sales will stabilize next year, as the Federal Reserve relaxes its rate-hike strategy. Fannie’s Strategic Research Group projects a 2.2% economic growth rate in 2019 which is down from an estimated 3.1% last year. Likely contributors to a slower pace of growth include: fewer tax cut benefits, a decline in consumer spending, the impact of the shutdown, and additional stock market volatility.
 

Final Tax Rule on Pass-Through Business

The IRS issued final rules on the new 20% tax deduction for pass-through entities in time for the tax-filing season. The rules affect some 30 million U.S. businesses, including many real estate investors and property owners who operate as LLCs.

The rules are generous to real estate investors. They can get the full 20% deduction if they spend at least 250 hours a year on the business. Under the updated rules, REIT mutual fund investors also qualify but property owners involved with a triple net lease do not. Income caps for the deduction are $157,500 for individuals and $325,000 for married couples. Final rules are included in a 247-page document.
 

Hackers Expose Home Loan Docs Online

Tens of thousands of home loan documents with highly sensitive personal data were found in an unprotected online database on January 10th. Bob Diachenko, of SecurityDiscovery.com,says, he found 51 gigabytes of information that included 24 million files from several banks and some federal agencies.

Diachenko says, “This information would be a gold mine for cyber criminals who would have everything they need to steal identities, file false tax returns, get loans or credit cards.” The database has been secured, and banks are trying to identify affected customers.

The information appears to have come from a data and analytics firm called Ascension. It’s not yet clear why it appeared on an unsecured server. The security breach is still being investigated. (3)

Links:

(1) Government Shutdown: Fox News Report

(2) NAR Homesales Report

(3) Massive Data Breach

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