Learn > [REN #302] News Brief: Redfin IPO, New CA Real Estate Fee, and More Retail Store Closings (and Openings!)
In this week’s Real Estate News in Brief the central bank offering a glowing assessment of the economy. Other reports show that home affordability has hit a nine-year low, and that stores across the nation are closing at a more rapid pace than expected.
We begin with economic news from Market Watch:
The Commerce Department reported Monday that construction spending was unchanged from April to May. It’s running at a seasonally adjusted annual rate of $1.23 trillion dollars. But, if you look at construction activity for the “first half of the year,” spending is up 6%.
The Labor Department released June unemployment numbers on Friday that show a 4.4% jobless rate. That’s “up” slightly from 4.3% in May but it doesn’t mean that more people are unemployed. Market Watch reports the higher number is due to more people entering the labor force looking for work.
Consumer paychecks grew slightly in June. Average earnings rose .2% to $26.25 an hour. Wages are up 2.5% over the last 12 months which Market Watch reports as “below the usual gains at this late stage of an expansion.”
Interest Rates jumped off a 7-month low over the last week. The 30-year mortgage rose 8 basis points to an average 3.96%. That follows an increase in the 10-year Treasury yield.
Federal Reserve Reports to Congress
The Federal Reserve offered a rosy picture of the economy on Friday in its semi-annual report to Congress. It reported that the economy was producing jobs at a steady pace, that consumer confidence and investment were healthy, that there’s little evidence of a liquidity problem, and there are only “moderate signs” of risk in the financial markets.
The economy has been rumbling along at a 1.5% annualized growth rate, which falls in the “risk” category. It’s below the central bank’s 2% target and indicates that the economy could be doing much better. Some economists say the slow GDP could delay delay another rate hike until possibly December. The last rate hike came in June when the Fed raised the overnight lending rate to a range of 1% to 1.25%.
As I mentioned, mortgage rates track the U.S. Treasury yields and those rose after the release of the report, which could nudge mortgage rates higher. Fed Chief Janet Yellen is set to testify on the report next Wednesday in the House of Representatives and Thursday in the Senate.
Other Real Estate News Making Headlines:
Home Affordability Index
A new report by ATTOM Data Solutions shows that U.S. homes are now the least affordable since the third quarter of 2008. The index hit 100 for the second quarter of this year. That means the average wage needed to buy a median-priced home is equal to its historic average but in this case, many areas are outpacing wage growth.
The report shows that in almost half of the counties analyzed, the median-priced home is now less affordable than historic affordability levels due to the offset between higher home prices and slower wage growth. Least affordable areas include the San Francisco Bay Area, Brooklyn, Park City (Utah), and Key West.
Daren Blomquist at ATTOM says that home price appreciation during this last quarter has experienced its fastest growth in more than three years. And in 87% of the 464 counties analyzed, they grew faster than wages. Blomquist says the combination of higher home prices, higher mortgage rates and slowing wage growth have quote: “Eroded home affordability nationwide to the lowest level in nearly nine years.”
Communities across the nation are seeing an increase in store closings. A new report from Fung Global Retail & Technology shows that 5,321 stores closed as of June 23rd. That’s a 218% increase from the rate of store closings last year. It also represents a sharp increase from 3,396 store closings at the end of April.
Fung Global says department and specialty stores accounted for most of the shutterings. Radio Shack is at the top of the list with 1,000 store closings this year. Payless is second on the list with 512. Fung Global director Deborah Weinswig says: The industry is in the middle of a major disruption, but there are bright spots.”
Among those bright spots for the brick-and-mortar retail sector are store openings. At the top of “that” list is Dollar General with 1,290 new stores. Dollar Tree is second. Other familiar stores on the rise are TJMaxx, Ulta, Ross Stores, Sephora, H&M, Walmart, Dick’s Sporting Goods, Target, Costco, Nordstrom, and Forever 21.
New California Real Estate Fee
The California Senate approved a new tax on real estate transactions to raise money for low-income housing. The legislation adds a $75 fee onto real-estate related documents such as deeds and notices with a $225 cap per transaction. It will apply to mortgages and refinancing, but will not apply to residential or commercial sales.
If it’s approved by the Assembly, it’s expected to raise as much as $300 million a year for the development of affordable housing. Democrats claim it will help an estimated 1.5 million families in California.
Seattle’s high-tech real estate broker Redfin has filed to go public. It’s hoping to raise $100 million dollars and is raising speculation as to it’s valuation. Inman wrote an article comparing Redfin to Zillow, which went public in 2011 and is worth $9 billion now. The blog writes that if Redfin’s revenue is $267 million or one-third of Zillow’s, does that make Redfin worth $3 billion?
Redfin makes money by charging 1 to 1.5% commission on home sales. It has also raised $167 million in venture funding since it was founded in 2004, according to TechCrunch. Some say the IPO will be a game changer for the real estate industry, for one, because public companies reveal their inner workings and numbers.
We’ll find out soon. The IPO could happen later this month.