[REN #613] News Brief – Home Starts, Permits and Existing Homes Sales Down

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Picture of a Man holding Coffee in front of a computer screen for Real Estate News for Investors Podcast Episode #613

In this week’s Real Estate News in Brief… we’ve got a lot of housing data, and lots of questions as to what it all means.
 

Economic News

We begin with economic news from this past week.

Home builders continue to feel confident about the housing market, although housing starts and building permits fell in September. The National Association of Home Builders’ monthly confidence index rose one point to 68 in October for an average of 69 this year. That’s off five points from a high of 74 in December, likely due to the high costs of construction.

Economist for the Associated General Contractors of America, Ken Simonson says, “Contractors are paying more for the materials they use and workers they employ but aren’t able to pass most of those new costs on to their clients.” The Commerce Department reported a 5.3% drop in housing starts in September, and a 0.6% drop in permits.

Existing home sales slid again in September. The National Association of Realtors reported a 3.4% decline in those sales for a seasonally adjusted annual rate of 5.15 million homes. That’s the lowest rate we’ve seen since November of 2015, according to MarketWatch. (1)

Home prices are still rising however. The median sale price is 4.2% higher than is was a year ago, at $258,100. Realtors are blaming higher mortgage rates and more affordable rents, for that drop in sales.

I was interviewed on ABC News last week and the reporter asked if I was concerned that existing home sales are down for the 6th month in a row. I told her I was not concerned because for the most part, the housing market is on solid ground.

Those who bought homes in the past 10 years have built up quite a lot of equity and are locked into very low payments with 3 and 4% interest rates, and in some cases, even 2%. They will not be quick to walk away from these homes, even if they were to lose their job, because rents will likely be much higher than their mortgage payments. Plus, now people can just airbnb a room or two, and make the numbers work. It’s very unlikely that we would see a housing crash in the near future, unless we suddenly had too much supply. With people living longer and staying put, and household formations on the rise, but builders unable to produce affordable housing, most homes that are in the affordable price range will be in high demand for years to come. Mainly sales of higher priced homes are slowing down.

The federal deficit grew by another $113 billion dollars in the last fiscal year, to a total of $779 billion. That’s a 3.9% increase, or 0.4% more than the GDP. Higher interest rates on public debt are responsible for a large part of the increase, along with an increase in spending for Social Security and the defense budget.

When it comes to creating jobs, U.S. job openings just hit a new record high of 7.1 million. That’s more than the official number of unemployed Americans. The announcement prompted a tweet from President Trump about the “incredible” and “astonishing” report on the job market.

It’s rare that a president has stimulated the economy at such a late stage in the economic cycle. Policies are still aimed at creating more jobs, when in fact we appear to have a surplus of jobs and not enough workers. It’s especially strange that the administration’s stimulus programs are in direct competition with the Federal Reserve’s monetary tightening measures – which are the opposite of stimulus.
 

Mortgage Rates

Long-term mortgage rates did a slight reversal in the last week. According to Freddie Mac, the average 30-year fixed-rate mortgage dropped 5 basis points to 4.85%.
 

In other news making headlines…

 

Zero-Down Mortgages for Low-Income Buyers

There’s a new push to improve the rate of homeownership among low-income families. The Neighborhood Assistance Corporation of America, or NACA, is holding events across the country to help people buy homes with no down payment, and a below-market interest rate of about 4.5%.

As reported by Realtor.com, borrowers must attend classes on homeownership and meet with counselors for budgeting. They must also provide all the typical documents including income statements. Bank of America is backing the program with “$10 billion in mortgage commitments.”

While critics say the program is dangerous because these buyers have no “skin in the game,” program officials disagree. NACA CEO Bruce Marks told CNBC, “There have been no foreclosures among the loans that we’ve originated in the past six years.” BofA’s A.J. Barkley says, “We have seen significant wins in this partnership.” (2)
 

Americans Choose Renting Over Buying

The high cost of buying a home has convinced many renters that it’s cheaper to keep on renting. New research from Freddie Mac shows that 78% of the people renting believe it’s more affordable than buying their own home. That number is up 11-percentage points from just six months ago.

The perception that renting was a better option was also held among the various generations. It was 75% among millennials, 70% among Gen X-ers, and 81% for baby boomers.

The survey also found that 66% of renters needed to juggle their expenses to pay their rent in the last few years. Many said they had to spend less on essential items, with older millennials reporting the greatest hardship. But despite those issues, 63% expressed satisfaction with renting, and 58% said they had no plans to buy a home at this time. That’s up from 54% in February.
 

You Can’t Take It with You

Microsoft co-founder Paul Allen died, and has left behind a massive real estate empire. Allen died at the age of 65 from complications of non-Hodgkin’s lymphoma. His net worth is thought to be around $20 billion dollars.

As the Real Deal reports, he was a “major real estate player.” It lists Allen’s properties as “a 120-acre site in Beverly Hills that he listed for $150 million earlier this year, a 13,000-square-foot mansion in Beverly Hills, two apartments in Manhattan, 11 mansions in Seattle, a hilltop mansion in the French Riviera and a house in London.”
 

California Mandates Gender Diversity at the Top

A new state law will put more women in leadership roles at major corporations, including those in the real estate industry. The law mandates that public companies put at least one woman on their boards by the end of 2019.

President of Commercial Real Estate Women, Wendy Mann, told Realtor.com that just 9% of top executives in the industry are women. She says of the mandate that, “It’s a step in the right direction.” And, that it will “demonstrate the value and opportunity that exists with diversity at the table and it will catch on as a positive opportunity with companies.” (3)
 

Most Lucrative Side-Hustles

Real estate is topping a list of side jobs, or what a blog called “The Hustle” describes as “side hustles.” That website conducted the survey and found out that 35% of the people who responded have a gig on the side, and that as many as 11% of those side hustlers are doing it with real estate.

Real estate is also the most lucrative side hustle. The blog says it will typically pay about $90 an hour compared to free lance farmers who might get $9 an hour. The average hourly pay for a side hustler is $25 an hour, however. Survey results are based on responses from more than 3,500 people.

Links:

(1) MarketWatch

(2) Realtor Magazine Article

(3) Realtor Magazine 

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