We have two news briefs this week. Today’s will cover some of the big news of last week. and tomorrow’s show will cover the big news this week, and there’s lots going on!
We begin with economic news from Market Watch for the week of Oct 30 – Nov 3
Consumer spending hit an eight-year high in September. It was up 1% mostly due to people spending money to repair hurricane damage in Texas and Florida. Economists don’t expect that to continue, however, because personal income was up just .4%. They say Americans used more of their savings to make up the difference.
Home prices continued higher in the last quarter. The latest Case-Shiller report shows the national index rose 6.1% for the year that ended in August. The 20-city index was up 5.9%. That index is now just a few percentage points short of a pre-recession peak.
Consumer confidence is floating higher. The Conference Board’s index hit 125.9 in October. That’s the highest it’s been since December 2000.
Figures for construction spending show it didn’t rise in September but is now up 9.5% for the year. Government data also shows that most of that money is being spent on single-family homes as builders concentrate their efforts on that part of the housing market.
Interest rates held steady. Freddie Mac says the 30-year fixed-rate mortgage didn’t budge from the previous 3.94%. It roughly follows the 10-year Treasury yield which dropped 4 basis points.
Other Real Estate News Making Headlines
President Trump’s New Fed Chief
In other news making headlines, the central bank left short-term interest rates unchanged after its November policy meeting. That wasn’t a big surprise. Many economists are anticipating a rate hike next month, in December, and Fed Chief Janet Yellen has recently said that the “strength of the economy will warrant gradual increases.”
Yellen only has a few more months as the head of the central bank, however. President Trump has picked Fed Governor Jerome Powell as her replacement when her term expires in February. She’s been described as the world’s most powerful woman who’s managed to keep the U.S. economic ship afloat during difficult times. Under her watch, unemployment has fallen to just 4.1%, inflation has idled, wages have gone up, and she’s started the delicate process of reversing the government’s $4.5 billion quantitative easing program that helped stimulate the economy during the recession.
The President could have kept her on for a second term, but decided to replace her with someone who shares her vision. Some economists feel that Powell is a mild-mannered version of Yellen with less experience. He’s even been called “Yellen Lite.” As the Washington Post points out, the fact that Yellen has a good track record as Fed chief and is being replaced by someone who is similar but less experienced has left some people wondering why she’s being replaced at all. She steps down in February.
Merger Creates Nation’s Largest Homebuilder
Lennar announced the acquisition of rival CalAtlantic Group in a $5.7 billion all-stock merger. The deal will create the nation’s largest homebuilder with revenue of $17 billion and almost 250 million buildable lots. The merger is expected to save the combined company about a quarter of a million dollars per year by reducing the overall cost for things like marketing, technology, and what Forbes reports as a “dynamic pricing program” (1).
Lennar CEO Stuart Miller said, “This combination increases our scale in the markets that we already know and in the products we already offer to entry level, move up, and active adult customers.” He said, “Our overall company size and local critical mass will yield significant benefits through efficiencies in purchasing, access to land, labor and overhead allocation to a greater number of deliveries.”
Most of U.S. Inflation Due to Rising Rents
The Commerce Department reported that most of the inflation we’re seeing in the U.S. right now is due to higher rents. It says that consumers are spending 3.81% of their disposable income on rent, while the nominal disposable personal income is growing more slowly. In September, it was up just 2.9%, which is the 22nd month that it’s increased less than rental inflation.
But not all cities are gobbling up disposable income at the same rate. According to money-advice website Earnest, Los Angeles is the most expensive city in the U.S. for renters. Angelinos pay an average $2,600 a month for a rented roof over their heads. That’s about 23.9% of their income. Three other California cities join L.A. as the top five most expensive cities for renters including San Jose, San Francisco and San Diego. New York snuck in that list in the fourth position (2).
The data analysis also found there are plenty of cities where renters can get a great deal. Topping that list is Toledo, Ohio, with an average rent of $550. Memphis, Tennessee; Glendale, Arizona; Kansas City, Missouri; and Lincoln, Nebraska round out the top five least expensive cities. The city with the lowest income to rent ratio is Memphis, where people there give their landlords just 12.2% of their paycheck.
Airbnb Builds Rentals
Airbnb is hoping to resolve disputes over short-term rentals in tight housing markets by building its own rental properties. It’s building its first property in Kissimmee, Florida, near Walt Disney World and will be called “Niido Powered by Airbnb” with 324 units that are rented with a year lease. Tenants will also be allowed to sublet individual rooms or whole apartments for up to 180 nights per year. The people who choose to homeshare will also share revenue with the landlord. And, there will be keyless locks, and a new app that allows for easy check-ins and tracking of Airbnb guests(3).
Airbnb says it’s the first in a series of similar projects in the Southeast. The company says the partnership with Niido is expected to bring significant value to “tenants who can earn extra money sharing their space and guests who will have access to unique listings that come with a set of amenities and conveniences specifically designed for travelers.”
(2) Earnest Article