[REN #759] Real Estate News Brief: Taxing Billionaires, Bank Strength, and California Escrow Refunds

Picture of a Building for Real Estate News for Investors Podcast Episode #759

In this week’s Real Estate News Brief… the billionaires who support a wealth tax, bank stress test results, and escrow account refunds for California mortgage holders.

Economic News

We begin with economic news from this past week.

New home sales hit a 5-month low in May. The Commerce Department says they were down 7.8% compared to April and ran at a seasonally adjusted annual rate of 646,000. MarketWatch economists had expected a faster pace of 669,000.

However, it’s my opinion that we’ll see more robust numbers in June. Closings of our Quest and Argos homes at Meridian120 in the Reno, Nevada area were also slow in May, but in June we had our best month yet — probably due to low interest rates and great weather. 

There was increased sales activity for existing homes. The National Association of Realtors says that pending home sales jumped 1.1% in May, but were still lower than they were a year ago. Those contract signings will lead to increased closings over the next few months. (1)

Home price growth has slowed a bit more. The Case-Shiller 20-city home price index shows that prices were up 2.5% annually. That’s down from a rate of 2.6% in March.

A government revision on economic growth shows a GDP of 3.1% for the first quarter. MarketWatch reports that stronger business investment offsets weaker consumer spending, but that economists feel the government’s reading is exaggerated. They are predicting a 2.4% GDP for the second quarter. The Atlanta Fed is forecasting 1.5%.

Consumer spending jumped in May, along with incomes, while inflation was stable. Spending was up 0.4%, incomes were up 0.5%, and inflation dropped a tenth of a percent to an annual rate of 1.5%.

Consumers are somewhat jittery over trade tensions with China. The Conference Board says it knocked the consumer confidence index down a few pegs in May from 131 to 121. That’s the lowest it’s been since September 2017. The University of Michigan’s consumer sentiment index was also down in May for the same reason.

Mortgage Rates

This last week brought another nice drop in mortgage rates. Freddie Mac says the average 30-year fixed-rate mortgage was down 11 basis points to 3.73%. That’s helped drive mortgage applications 5% higher in June. (2)

In other news making headlines…

Affordable Housing

President Trump is taking on the affordable housing issue with an executive order. It authorizes the creation of a White House Council to find ways to cut regulations that interfere with the construction of lower cost housing.

Among the regulatory barriers that the commission plans to tackle are things like restrictive zoning rules, rent controls, complicated building codes and permitting procedures, developer fees, labor laws, parking requirements, mandates for energy and water efficiency, environmental protections, and historic preservation requirements.

According to the New York Times, changes to some of the things on the list will get bipartisan support, but there’s sure to be a debate over several others. The new housing council will be led by HUD chief Ben Carson. It will have one year to put together a plan. (3)

Billionaires Support “Wealth Tax”

Some of the nation’s wealthiest citizens are supporting Senator Elizabeth Warren’s proposal for a “wealth tax.” They sent an open letter to all 2020 presidential candidates, saying they are in favor of “a moderate wealth tax on the fortunes of the top 1/10th of 1% of the richest Americans.” They say a wealth tax could help solve the climate crisis, improve the economy, improve health outcomes, create fair economic opportunities, and strengthen our democratic freedoms.

Under Senator Warren’s proposal, households with $50 million or more in assets would pay 2 cents on the dollar. Families with more than a billion would pay an additional 1 cent on the dollar. It would impact an estimated 75,000 families, and raise almost $3 trillion in 10 years. Some of the people who signed their names to the letter were financier George Soros, Facebook co-founder Chris Hughes, and filmmaker Abigail Disney.

Bank Street Tests

The nation’s 18 largest banks passed their annual stress tests. The tests analyze how well the banks would do if there’s a sudden economic downturn or shock to global financial markets.
If they pass the tests, they are allowed to return some of their capital to investors. Credit Suisse showed some amount of weakness in how it was measuring potential losses so the Fed reduced the amount of money it could pay to shareholders until it fixed the problem.

Stress tests are required by the Dodd-Frank Wall Street Reform and Consumer Protection Act so that banks won’t need a bailout like they did in 2008. The New York Times noted that last year Deutsche Bank failed the test, and that Goldman Sachs and Morgan Stanley were told to increase their capital reserves. All three did better this year. (4)

Millions in Escrow Refunds for California Homeowners

The mortgage branch of Citibank will reimburse tens of thousands of California homeowners for unpaid interest on escrow accounts. CitiMortgage agreed to pay a total of $7.8 million to settle claims by some 94,000 homeowners. In California, escrow service providers must pay a 2% interest on that money. CitiMortgage failed to do this as far back as July 2014. (5)

Links:

(1) MarketWatch Articles

(2) Freddie Mac Article

(3) New York Times Article

(4) New York Times Article

(5) Realtor Magazine Article

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