In this week’s Real Estate News in Brief… the government shutdown’s impact on real estate, a new U.S. rent record, and state-to-state migration winners and losers.
We begin with a short week for economic news because of the New Year holiday, and a government shutdown that’s now at least two weeks long. Since many non-crucial departments are closed, government economic reports have been delayed. Construction spending in the month of November is one of them.
It remains to be seen how long this shutdown will last as President Trump continues his demand for border wall funding before he signs a spending bill. The shutdown will not affect the operations of Fannie and Freddie because they are not government agencies, but the real estate industry is being impacted in other ways.
The FHA is operating, but staffing has been greatly reduced so services, such as the endorsing of loans by HUD, could be delayed. HUD has posted a shutdown contingency plan at its website that shows how the agency is handling the situation.
The VA is also operating and issuing loans, but there could be delays in determining eligibility. That includes the issuing of NOV or Notice of Value documents, which are the VA’s form of an appraisal.
The Department of Rural Development or RD is not expected to issue any new housing Commitments or Guarantees. It will also be difficult to verify Social Security Numbers or a government employee’s employment status.
FEMA workers are still on the job issuing flood insurance policies, after a brief suspension of the program because of the shutdown. The outcry from the housing industry, lenders, and elected officials was so strong, the White House reinstated the program. FEMA workers are also performing other important tasks such as disaster relief for wildfire victims in California.
Long-term interest rates were down slightly for the start of the New Year. According to Freddie Mac, the average 30-year fixed-rate mortgage dropped four basis points, to 4.51%. The Freddie Mac updates say, “Low mortgage rates combined with decelerating home price growth should get prospective homebuyers excited to buy. However, it will be interesting to see how the recent turmoil in the stock market will affect home buying activity in the coming months.” (1)
Turmoil Shakes Investor Confidence
That turmoil has shaken investor confidence in the economy. According to the Wall Street Journal, there’s a growing belief that we’ll see more economic turbulence in 2019, and the Federal Reserve will not follow through on its plan for more rate hikes. (2)
Investors monitor Fed-funds futures to determine which way interest rates are going, and they reportedly show a 91% probability that we’ll finish 2019 with an overnight lending rate at the current level, or lower. That’s a 360 degree reversal from the reading in November.
That’s a good example of how quickly the economic environment can change, and why investors need to be prepared. Always run your proforma as if a recession were coming. If the numbers still work out in a worst case scenario, and you have a good back up plan, you can ride it out and even profit during a downturn.
In other news making headlines…
Renters Spend Record Amount on Rent
Higher rents have contributed to a new record for the amount of total annual rent paid by U.S. renters. A report from HotPads shows they paid $504.4 billion last year. That’s an additional $12.6 billion more than they paid in the previous year for approximately 100,000 fewer rental units. There are currently about 43.2 million renter households in the U.S.
HotPads says the current median rent is up 3% from last year, to $1,475, and that 10% of all rent collected is being paid by renters in the New York City metro area. HotPads economist, Joshua Clark, says they could go higher. He says, “If interest rates continue rising in 2019, more would-be homebuyers may decide to continue renting, which could put additional pressure on rent prices.” (3)
City-to-City Rent Differences
Real estate is much more local than national averages, as a report from Adobo illustrates. The apartment search site tracks where rents are increasing and where they are decreasing.
It says that rents rose in 28 states and the District of Columbia, and fell in 22 others. But the changes were not substantial. Adobo says that changes in almost all the states were within 2%.
San Francisco has the highest rents, which are still rising, along with the other top 6 high-priced markets. Springfield, Montana, had the lowest rents, but those rents were also on the rise, last year.
People Are Migrating South
United Van Lines says that more and more people are moving away from the Northeast to states farther south and west. New Jersey was the biggest loser. It lost the largest percentage of residents in 2018. 69% of the moves were “outbound.” Illinois, Connecticut, New York, and Kansas also lost more people than they gained. Vermont was the only Northeast state with a high number of people moving there.
The report also shows that retirees are leaving California for other less expensive states in the western half of the U.S. Young professionals like Seattle and Washington, D.C.