In this week’s Real Estate News in Brief… the Fed pulls the trigger on another rate hike, a status report on the FHA, and a facial recognition hack that could compromise your security.
We begin with economic news from this past week and a rate hike by the Fed. Although the Fed has softened its stance on rate hikes, economists generally expected this one to take place. It was the fourth rate hike this year, and raises the benchmark rate to a range of 2.25 to 2.5%. Fed Chief Jerome Powell says that lower accommodative interest rates are no longer needed, and the new hike is now at the bottom level of a neutral range. The committee considers 2.5 to 3.5% as neutral.
As for further rate hikes, Powell says, “There’s real uncertainty about the pace and the destination of further rate increases, and we’re going to be letting incoming data inform our thinking about the appropriate path.” The committee does feel that continued but gradual rate hikes are still appropriate, but it’s now calling for two rate hikes next year, instead of three, and possibly one in 2020.
The decision goes against the wishes of President Trump who’s expressed his opposition to further rate hikes on Twitter. Volatility also continued on Wall Street with more losses, after that announcement and a dispute over border wall funding that could result in a government shutdown.
The sales pace for existing homes surged higher for a second month in a row. The National Association of Realtors says they ran at a seasonally adjusted annual rate of 5.32 million homes in November. That’s a 1.9% increase from October, but MarketWatch reports that it is 7% lower than November of last year. (1)
Builders also broke ground on more new homes in November. According to the Commerce Department, housing starts were up 3.2% from the previous month, for a seasonally adjusted annual rate of 1.25 million homes. Builders also requested more housing permits which will put more new homes in the pipeline. Permit requests were up 5%.
Despite that construction activity, home builder confidence dropped to a three-and-a-half year low. The National Association of Home Builders says the index is down four points to 56, which is just above the midway point of 50, which indicates a positive outlook. MarketWatch blames the drop in builder confidence on a the demand for less expensive homes, which are not profitable.
Core inflation rose slightly last month to 1.9% but it’s still idling below the Fed’s 2% mark. Consumer spending is strong for the holiday shopping season. That’s expected to contribute to a solid GDP for the fourth quarter. The Commerce Department revised the third-quarter number to 3.4%.
Long-term mortgage rates are still hovering around the 4.62% level, according to Freddie Mac. They only dropped one basis point this last week, after rising to almost 5% several weeks ago. Freddie Mac points out that the increase in existing home sales corresponds to this drop in mortgage rates, proving that consumers are sensitive to any rate changes.
In other news making headlines…
Four FHA Trends in 2019
A report from the Urban Institute shows that the Federal Housing Authority is doing well because of a healthy housing market. It shows that higher home prices have put an additional $7 billion into the FHA’s Mutual Mortgage Insurance Fund. (2)
Other trends revealed by the report show that more people are using down payment assistance programs. That increases risk for the FHA because those borrowers have less disposable income to cover unexpected expenses.
Cash-out refinances are also on the rise. They are profitable for the FHA but also represent more risk. Cash-out refinances were up 35% this year, from 23% in 2017. The report authors say this trend “bears watching.”
Credit access is expanding due to the easing of lending rules. The Urban Institute does not feel this is a big risk. It says the rules are returning to a more normal level after becoming overly strict after the financial crisis.
Renters Stretched Thin for the Holidays
Holiday spending is expected to put stress on the renter’s budget. According to RentCafe, consumers will spend an average of $1,100 for end-of-the-year holiday celebrations. That include gifts, sweets, decorations, and family dinners. Many renting families will fall short of that amount by about $400, but the expense will depend on the metro.
New York will set renters back the most. They will need more than $4,000 to cover their holiday expenses. San Diego is also an expensive place for the holidays. Renters there will need an additional $1,700.
Face Recognition Hacking
This last story is one about hackers who have found ways to trick your facial recognition software. Many of use now have smart phones that unlock with a glance from the owner’s face. Other kinds of security systems are also relying on this software, including school gates that will open for parents when their faces are recognized by a camera. An engineering blog says that hackers have used 3-D printed heads to fool a system into unlocking.
Interesting Engineering says: “With no end in sight to the amount of personal data which we access, store and accumulate on smartphones, it is up to the consumers to make better decisions about how best to arm themselves in this new era of highly sophisticated hacking.” (3)