[REN #420] News Brief: New Tax Bill Signed, Most Expensive Metros and a New Trend for Renters

picture of woman and phone for Real Estate news for Investors Podcast #420

In this week’s Real Estate News in Brief… the biggest story is the passing of the Tax Reform legislation. We also have the latest on America’s most expensive zip codes, and a new trend for working adults who live in rentals.
 

Economic News

We begin with economic news from this past week, and home builder confidence that’s now higher than it’s been in almost two decades.

The National Association of Home Builders’ reported the monthly sentiment index rose five points in December to 74. MarketWatch said, builders “seem to be in a sweet spot.” They are enjoying a strong demand for homes that are selling quickly. They also anticipate higher profits because of the tax overhaul (1).

Homebuilders are showing their enthusiasm with the second-highest number of housing starts since the economic recovery. The Commerce Department reported that housing starts were up 3.3% in November, to a seasonally adjusted annual rate of 1.297 million homes. That’s also 12.9% higher than a year ago.

Building permits dropped 1.4% however. That indicates future building activity. They are still 3.4% higher than they were last year at this time. MarketWatch reports that builders are more focused on the construction of homes than apartments.

There’s also strong demand for existing homes with sales hitting pre-bubble highs. The National Association of Realtors reported that existing-home sales surged 5.6% in November to a seasonally adjusted annual rate of 5.81 million homes. That, along with the tight supply, drove home prices up another 5.8% and pushed the median home price to $248,000.

New home sales also surged to new heights. The Commerce Department said, it jumped 17.5% in November to a seasonally adjusted annual rate of 733,000 homes. That’s the highest level in ten years.

NAR reported, more buyers paid in cash. It said that “continues to add a layer of frustration to the supply and affordability headwinds that aspiring first-time buyers are experiencing.”

There was a slight revision to the Q3 gross domestic product. The government lowered it from 3.3% to 3.2%, which is still above a 3% level that’s often viewed as a sign of economic strength.

Adding to that growth was an increase in personal income and spending for November. The Commerce Department reported a .3% increase for personal income, and .6% for spending.

Consumer sentiment fell slightly, mostly among lower-income Americans. The index is still above historical levels, but there’s growing belief we will see another downturn within the next five years.
 

Interest Rates

Economists are expecting mortgage rates to rise next year, and they are getting closer to the 4% mark. Freddie Mac reports, the 30-year fixed-rate mortgage rose 10 basis points in the last week to 3.94%. It says the rate was established “before” the passage of the Tax Reform bill and another surge in rates, so we will likely see another increase in mortgage rates over the next week.
 

In other real estate news making headlines…

 

Tax Reform Hits the Ground Running

President Trump signed off on a massive tax reform package that cuts the corporate tax rate from 35% to just 21%. Small business owners will also get big tax advantages, with smaller benefits for individual taxpayers. It’s the President’s first major legislative victory since he took office. And, with $1.5 trillion in tax cuts, it will save many taxpayers thousands of dollars a year. It is especially beneficial for people in the real estate field.

Tax cuts will, supposedly, pay for themselves with economic growth, but if that doesn’t happen, the bill calls for automatic spending cuts. Some of those cuts could affect programs that many older Americans rely on — like Medicare and Medicaid. The Congressional Budget Office said cuts to Medicare could be as much as $25 billion. Current law prevents automatic cuts to Social Security.

President Trump initially said he would delay the signing of the bill until Congress prevented any immediate automatic cuts to Medicare. He apparently changed his mind today, and signed the bill on his way out of town. At the time this podcast was written, there was no word on whether Congress would act to prevent those automatic cuts. The new tax laws take effect at the start of the new year.
 

Most Expensive Zip Codes in America

Forbes published its list of most expensive zip codes in America, and New York is “not” at the top of the list. The number one priciest zip code is Atherton, in the San Francisco Bay Area. It also happens to be the city where I grew up, but back then, my parents only paid $100,000 for their home. The median price in Atherton is now $10 million dollars (2).

Atherton was third on the list last year, behind Manalapan, Florida, and the Upper East Side of Manhattan in New York City. Manalapan is now in second place, but several other Bay Area cities bumped New York zip codes off the top of the list. Los Altos Hills took third place, with a median price of almost $8 million. Palo Alto was fourth with a median price of about $7 million. The city of Ross, in Marin County, took fifth place. The median there is just under $7 million. New York finally makes an entrance in sixth position, followed by Woody Creek, Colorado, and then Beverly Hills, California.

Forbes ranks the top 500 zip codes with information on median prices, inventory levels, and days on the market. The analysis compares data for almost 30,000 zip codes covering about 95% of the population.
 

Working Adults Save Money as Roomies

Zillow published a report that shows an increase in the number of working adults who are living with roommates, or their parents, in order to cut their expenses. The report shows that a good 30% of working adults are doing this. That’s up 8% since the year 2000.

Places with the greatest number of older roomies are Los Angeles, Riverside, and Miami because they have some of the highest rents. Americans typically spend about 30% of their paychecks on rent. In these areas, they spend about half.

Zillow senior economist, Aaron Terrazas, said, “Working adults are able to afford to live in more desirable neighborhoods without shouldering the full cost alone.” But, he said, this trend is not limited to expensive cities, “The share of adults living with roommates has been on the rise in historically more affordable rental markets as well. Unless current dynamics shift and income growth exceeds rent growth for a sustained period of time, this trend is unlikely to change.” (3)
 

Hyperloop Starting to Live up to Its Name

Virgin Hyperloop One is reporting another increase in speed for its ultra high-speed transportation pod. It hit a new record of 240 miles per hour during a third test run outside of Las Vegas, Nevada. That’s a big increase from the last demonstration when it hit 192 miles per hour.

The magnetically-levitated pods are expected to hit a maximum speed of 700 miles per hour, at some point, but The Verge reports the test track it’s running on now would have to be extended another 1.2 miles for that to happen.

There is plenty of competition in the development of the Hyperloop system. Elon Musk’s own Tesla-branded pod has already hit 201 miles per hour. We may be seeing a leapfrog effect here, as the companies increase speeds.
 
Links:

(1) MarketWatch Report

(2) Most Expensive Zip Codes: Forbes

(3) Working Adults Living With Roommates: Zillow

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