[REN #471] News Brief: Tariffs, Trade Wars and Trulia

Picture of a man reading a newspaper for Real Estate News for Investors Podcast Episode #471

In this week’s Real Estate News in Brief… tariffs, trade wars, and protectionism hog the spotlight, Trulia turns the tables on housing affordability, and plans for a drone that’s controlled by eye movements.
 

Economic News

Let’s begin with economic news that came out last week.

As you’ve probably heard by now, new tariffs are coming for imported steel and aluminum. President Trump signed the order on Thursday, March 8th, for a 25% tariff on imported steel and a 10% tariff on imported aluminum. Canada and Mexico will be exempt from the tariffs, and possibly other nations as well.

The issue has stirred up a hornet’s nest of controversy about trade wars and protectionism. There are also concerns that tariffs will drive U.S. consumer prices sky high, especially the price of cars, and that the only winners will be American steel and aluminum companies. Other winners will be Canada and Mexico, who can now import these materials and sell them to the U.S.

People opposed to the tariffs claim that free trade offers more competition, which keeps prices down for consumers, and as prices rise, middle class Americans will ultimately pay for this tariff. The few jobs that may be created would not make up for the financial hit to already-strapped Americans.

President Trump had promised to resolve the trade deficit as part of his campaign pledge, and has tweeted that “trade wars are good, and easy to win.”

White House Chief Economic Advisor, Gary Cohn, resigned after this decision was made and shortly after President Trump said, “Everybody wants to work at the White House.” CNBC says, “The idea of Cohn’s resignation was feared by markets, which had seen him as a stable, experienced presence and pro-trade voice within the White House.”

I had the opportunity to spend quite a bit of time with Gary Cohn when I was honored at the Goldman Sachs Builders and Innovators Summit as one of the top 100 Most Intriguing Entrepreneurs. I actually have a funny story about that.

When I arrived at the event, and was handed a glass of champagne as I stepped out of my car and was ushered in to the welcome party, I found myself in conversation with a group of men in suits. We discussed the housing crisis — this was back in 2012 — and I mentioned that Goldman Sachs was probably responsible for it. Then the wind blew the name tags so I could see with whom I was speaking. It turned out to be Goldman Sachs CEO Lloyd Blankfein, and VP, at the time, Gary Cohn. I quickly responded by thanking them for inviting me to their event and honoring me as one of America’s 100 Most Intriguing Entrepreneurs.

The next three days were simply amazing, with team building exercises, five-star meals, and talks with people like Elon Musk, Condoleeza Rice, the founders of Google and 23andMe and really pretty much most of the movers and shakers of the world. It was then that I realized how Goldman Sachs actually runs the country and maybe the world. But apparently not Donald Trump.

So, back to the news… A group of Fed officials have also spoken out about the new tariffs. Fed Governor Lael Brainard, Atlanta Fed President Raphael Bostic, and Dallas Fed President Robert Kaplan say the possibility of a trade war creates uncertainty for the central bank, but it’s too early to tell how it will play out.

Meantime, the tariff announcement coincided with another surge in the trade deficit. The Commerce Department says the trade gap grew another 5% in January to $56.6 billion. That’s the highest it’s been in almost ten years. Imports didn’t actually increase. The wider gap comes from a decline in exports for commercial aircraft and industrial supplies, like oil, according to MarketWatch.

Consumers are buying more goods on credit. The Federal Reserve says that household debt grew at its fastest rate in 11 years in the fourth quarter of last year. It reported a 7.8% jump in consumer credit, and a 3% increase for mortgage debt.

But consumers are also in better shape financially than they have been in years. Net worth has grown and is now 679% of disposable income. Market Watch says that’s the highest since at least the 1940s. It also says that the debt to income ratio is much lower than it was during the peak of the last bubble.

The numbers are also good for job growth. The Labor Department reported an additional 313,000 jobs in February. That’s much higher than the 222,000 figure that Market Watch economists expected. Wage growth is still lagging however. It dropped to an annual increase of just 2.6% in January. Unemployment still stands at 4.1% — the lowest it’s been in 17 years.
 

Mortgage Rates

Looking at long-term interest rates, Freddie Mac says the 30-year-fixed rate mortgage is up another 3 basis points for a rate of 4.46%. That follows the Treasury yield while adjustable rates are more closely aligned with short-term lending rates, which could go higher at the next Fed meeting. (1)

Chicago Fed Chief Charlie Evans said in a CNBC interview that despite strong job growth, and low unemployment, he’s not convinced that a March rate hike is a good idea. He says the economic environment is unusual right now because the inflation rate is so low. He told CNBC he’ll listen to his colleagues at the March meeting, but said in the interview that his preference is to wait a while longer. (2)
 

In other news making headlines…

 

Trulia on Housing Affordability

We’ve been hearing a lot about home prices and consumers getting priced out of various markets, but according to a new report from Trulia, housing is more affordable now than it was 40 years ago. It created an affordability score by comparing the highest home price a median income household could afford with median home prices over the years. Metros that scored above 100 are affordable and under 100, not so affordable, for a family with a median income.

The results show that in 2016 the median household could afford a home that’s 1.5 times more expensive than the median priced home. In 1980, almost 40 years ago, those same families could only afford about three-quarters of the median home price. It says that interest rates have been an “X” factor for homebuyers. They are something you can’t control, but they have a big impact on what you can buy. Because of massive inflation back in the early 80’s, mortgage rates went as high as 16.6%.

Looking ahead, Trulia says that mortgage rates would have to rise to 9.4% or 2.5 times higher than they were in 2016, for median homes to become unaffordable across the country. It also says that low rates don’t solve the inventory problem that will continue to constrain the market, although new home construction could provide some relief. (3)
 

HUD Changes Mission Statement

HUD Chief Ben Carson is responding to a backlash over plans to change the agency’s mission statement. The Huffington Post first reported that employees received a memo saying that Carson wanted to change the mission statement to “better reflect the priorities of both Carson and President Trump’s administration.” But the new statement eliminated an anti-discrimination phrase and that’s causing an uproar.

Carson responded to the criticism saying that he remains committed to housing policy that is fair and discrimination free. He explained that he feels the current statement is too long and wordy, but agrees with every word. The proposed statement hasn’t been finalized yet, so it’s not clear if the anti-discrimination clause will be added back in as a result of the backlash.
 

Rental Housing Jobs

Rental housing jobs are in high demand right now. The National Apartment Association launched its first monthly jobs report that shows almost 4,000 job opportunities in January. And with a robust apartment rental population, the report says the need for property managers, maintenance technicians, and leasing consultants will continue to grow. Other jobs in this category include community manager, assistant property manager, and maintenance supervisor.
 

Drones with Eye Control

Drones are getting more sophisticated as they are put to greater use at job sites. Construction Dive reports that Samsung is working on a drone that can be controlled with your eyes. The control device will have an integrated display that can track a person’s face, pupils, hand gestures, and body position. Those movements would then be translated into commands for the drone. The drone will also have sensors for voice recognition, GPS, and WiFi-based positioning.

Links:

(1) Freddie Mac

(2) CNBC Interview

(3) Trulia Study

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