In this week’s Real Estate News in Brief… another mortgage rate dip, government funding for Opportunity Zones, and eviction reprieves for the holidays.
We begin with economic news from this past week.
Inflation held steady. The consumer price index rose just .2% in November. The annual rate is now 2.2% which is slightly above the Federal Reserve’s target level of 2%. Lower gas prices, plane tickets, auto insurance, and cell phone rates helped keep inflation at bay.
The needle didn’t move much for wholesale prices either. The producer price index only rose .1%. The yearly rate is now 2.5%. That’s down from a seven-year high of 3.4% just five months ago, according to MarketWatch.
The federal government spent a bundle of money in November. The U.S. deficit for the month of November was $205 billion. That’s $66 billion more than it was last November. MarketWatch reports that the CBO is projecting a $973 billion deficit for the year, which is very close to the $1 trillion mark. It also published a list of 121 ways to reduce the deficit that include caps on federal spending for Medicaid, cuts to the Defense budget, and higher payroll taxes. (1)
The Federal Reserve will hold its December meeting next week. Economists are expecting another quarter-point hike for short-term interest rates. There is some pressure from the White House to hold off. President Trump has been berating the central bank for raising interest rates and said in a recent TV interview that he hopes the Fed “won’t be raising interest rates anymore.”
Long-term mortgage rates dropped again this last week to their lowest level in three months. Freddie Mac says the average for a 30-year fixed-rate mortgage was just 4.63%. That’s down 12 basis points from last week.
In other news making headlines…
President Trump signed an executive order to promote the government’s new Opportunity Zone investment program. The order creates a White House council consisting of 13 federal agencies that are being asked to pour more funding into Qualified Opportunity Zone projects.
The QOZ program is meant to spark investor interest in distressed communities by offering big tax breaks. The extra government funding is supposed to encourage and reassure investors that these zones are worthy of their investment dollars.
Millennial Home Buying Spree
Millennials are about to go on a big home buying spree. There are new predictions from the U.S. Census Bureau and First American that Millennials will purchase about a million homes each year for the next ten years. That’s ten million homes by 2018 for people who are 22 to 37 years old.
First American senior economist Odeta Kushi says that millennials are often thought to prefer renting over buying. She doesn’t believe that’s true. She says they still appreciate home ownership but have a different timetable for buying a home, and different motivations.
According to the HousingWire blog, Millennials place a priority on “lifestyle choices.” As more and more settle down to form families, it says that we’ll see a corresponding increase in millennial homeownership, as one of those lifestyle choices. (2)
Freddie Mac released the results of a housing inventory analysis that shows the U.S. needs another 2.5 million homes to meet long-term demand. Freddie Mac Chief Economist, Sam Khater, said in the report, “Weak supply has driven up housing prices rapidly, which in turn is acting as a force to balance demand against supply.”
On the supply side, he blames higher construction costs and a lack of skilled labor. Opposition to new development projects or NIMBYism is also a factor, along with people migrating to urban areas faster than those regions can accommodate them.
Khater says, the situation will continue until construction ramps up. He says, of all the things having an impact on household formation, housing construction costs present the biggest obstacle.
Single-Family Home Worth $61 million?
A new analysis proves, once again, that location is very important for real estate. NeighborhoodX did an analysis on property values and found that in Manhattan’s Chelsea neighborhood, a 2,000-square-foot home on a .21-acre lot would be worth about $61 million.
The home itself would only be worth about $1 million. The value is in the land which is also zoned for skyscrapers. As the Wall Street Journal explains, “Manhattan land prices presume buyers will build as densely as zoning allows.” The $60 million comes from calculating zoning that would also allow a skyscraper, which is big business.
NeighborhoodX also calculated the cost of a single-family homes in few other high-priced cities. In San Francisco’s South of Market area, a 2,000-square-foot-home on an acre of land would cost about $26 million. That includes construction costs of $330 a square foot. In Hong Kong, a 6,200-square-foot-home on a .17 acre lot in an exclusive neighborhood would cost about $448 million. (3)
No Holiday Evictions
Fannie and Freddie are giving tenants a break for the holidays. They announced this past week that they are suspending foreclosures and evictions from December 17th through January 2nd. That applies to families in single-family homes and buildings with two-to-four units.
Fannie Mae’s Jacob Williamson said of the reprieve, “We believe it is important to extend the timeline of help for struggling borrowers during the holidays.”
(1) U.S. Deficit: MarketWatch
(2) Millennial Homeownership: HousingWire
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