[REN #817] News Brief: Rising Home Prices, Lagging Apartment Rents, Housing Crisis Help from Apple

Picture of laptop, apple watch and phone for Real Estate News for Investors Podcast Episode #817

In this week’s Real Estate News Brief… why the current market is great for sellers, what is happening with apartment rents, and how Apple is partnering with California on affordable housing.

Economic News

We begin with economic news from this past week.

The latest report on the trade deficit shows that it was down almost 5% to a 5-month low in September. It fell from $55 billion to $52.5 billion. The shrinking trade deficit is mostly due to the U.S. tariffs on Chinese goods. MarketWatch reports that the gap is growing with other countries. (1) Despite efforts to decrease the U.S. trade gap, economists expect the U.S. to post an even bigger trade gap for 2019, than it did last year.

The Labor Department says that job openings were down in September for a fourth month in a row. MarketWatch economists say that companies appear to be cutting back on hiring.

The University of Michigan reports in its consumer sentiment survey that consumers feel the economy may be weaker now, but they feel more confident about the future. Economists say consumers are encouraged by low interest rates.

Mortgage Rates

Mortgage rates rose a bit with news of a partial trade agreement, but then came back down a bit when the trade agreement was delayed. Freddie Mac says the average 30-year fixed-rate mortgage dropped nine basis points to 3.69%.

They had hit a cycle low of 3.49% in early September, but have jumped higher for six of the last nine weeks. If you want a lower rate, consider taking out a 15-year loan. The fixed-rate average for that is currently 3.13%. However, the payment will be higher than a 30-year fixed-rate loan.

Still, interest rates are at historic lows and will not remain there forever. When a trade deal strikes, you can expect mortgage rates to increase due to investor confidence in the economy. Now is a great time to refinance to lower payments.

In other news making headlines…

Re-Acceleration of Home Prices

Home prices are on the rise once again. The National Association of Realtors says prices for existing single-family homes rose in almost 93% of the largest U.S. metros during the third quarter. (2) They were up an average of 5.1% for a national median price of $280,000.

NAR’s chief economist, Lawrence Yun, attributes the price growth to the lack of supply combined with low interest rates that are enticing buyers to the market. The average supply during this last quarter was 4.1 months, with 1.83 million homes on the market. That’s 2.7% fewer homes for sale than there were last year.

Rent Rates Have Slowed to a Halt

Apartment rent growth is slowing to a crawl, although there are pockets of robust rent growth across the U.S. According to Apartment List, rents rose 1.3% from March to June, and since then, they’ve stalled. That puts the year-over-year rent growth at just 1.4% which is much slower than the 2.1% to 3.5% average from 2014 to 2017.

Wage growth is now outpacing rent growth which is good news for renters. Wages were up 2.9% in the last 12 months. But the rental markets also vary. Mesa, Arizona, is seeing the highest rent growth right now. It’s currently at 5%. Other cities that are higher than the national average are Henderson, Nevada; Phoenix; Las Vegas; Austin, Texas; Colorado Springs; Nashville and three metros in North Carolina.

Apple Promising $2.5 Billion for Affordable Housing

Apple is promising billions in funding for the creation of affordable housing in California. It announced a pledge of $2.5 billion this last week. Apple CEO, Tim Cook, said in a statement, “Affordable housing means stability and dignity, opportunity and pride. When these things fall out of reach of too many, we know the course we are on is unsustainable, and Apple is committed to being part of the solution.” (3)

One billion will be used for a partnership with California to create new housing for low and moderate-income families. Another one billion will be used by the state to help first-time homebuyers with their down payments and financing. Tech giants Facebook and Google have made similar promises to help with housing in California. Microsoft is also doing the same for affordable housing in Seattle. Apple’s pledge is the largest, so far.

Tough Lessons from WeWork’s IPO Flop

The Japanese company that saved WeWork from bankruptcy is admitting that it used poor judgement in its assessment of the office-sharing startup. Softbank CEO, Masayoshi Son, said during an earnings call that his company had taken a $4.6 billion hit because of WeWork. He told investors, “In the case of WeWork, I made a mistake. I won’t make any excuses. It was a very harsh lesson.”

WeWork’s valuation fell from a stratospheric $47 billion to just $7.8 billion after investors analyzed financials ahead of a failed IPO. Softbank’s bailout gives it an 80% stake in the company. He’s still defending his investment and says it was not a “rescue operation.” As reported by the New York Times, Son is calling it an opportunity to buy extra shares at a discount. (4)

J.P. Morgan Chase is another WeWork backer. According to the Motley Fool, it’s one of the office-company’s biggest lenders. CEO, Jamie Dimon, also says that WeWork has taught him some lessons, including the need for proper corporate governance. But, he says he thinks WeWork will survive.

Links:

(1) MarketWatch Report: Trade Deficit

(2) Accelerating Home Prices: National Association of Realtors

(3) Apple and Affordable Housing

(4) WeWork: NYT Article

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