In this Real Estate News Brief for the week ending February 8th, 2020… new lower mortgage rates, the city with a 5-year rent freeze, and a Netflix series about gentrification in Los Angeles.
We begin with economic news from this past week.
Construction spending dropped in December. The Commerce Department says it was down .2%, mostly due to a decline in commercial construction investment. Spending on residential construction was up 1.4%. (1)
The trade deficit shrank slightly in 2019. It’s the first time in six years that the trade gap has grown smaller. The U.S. deficit was down 1.7% to $617 billion. It was $628 billion in 2018. Among the 2020 wild cards are an interim trade deal with China and a reduction in tariffs that could increase Chinese imports. The coronavirus could also have an impact on global trade.
The job market kicked off the new year with a bang. The Labor Department says that hiring picked up in January and the U.S. added 225,000 new jobs. Unemployment rose slightly to 3.6% from a 50-year low of 3.5%. MarketWatch economists are calling our current job market “astounding.”
If you were hoping for lower mortgage rates, you’re in luck. Freddie Mac says the average 30-year fixed-rate mortgage dropped another 6 basis points this last week, to just 3.45%. Those low rates combined with a strong economy and low unemployment are expected to fire up home purchase demand.
In other news making headlines…
The number of high-income renters hit a new high last year. According to a new report from Harvard’s Joint Center for Housing Studies, the share of renter households earning $75,000 a year or more hit 22%. (2) It’s believed that the high cost of housing is pushing more of them into rentals. The study also says that the number of people that are cost-burdened by high rents is also rising, including those at higher income levels.
A renter is considered “cost-burdened” if he or she pays 30% or more of their paycheck on rent. The study says that a total of 20.8 million renters fall into the cost-burdened category. Half of those people are “severely” cost-burdened, which means they spend half their paychecks on rent.
New York City to Allow ADU’s
New York City is tackling the affordable housing problem with a plan that will also help property owners. Mayor Bill de Blasio wants to update zoning laws to make it easier for people to build accessory dwelling units or ADUs. It’s similar to a state-wide law recently adopted in California. The program would encourage the creation of rentable space including basement conversions, garage additions, and new backyard cottages.
De Blasio said in a press release, “The key to unlocking more housing for New Yorkers is just below our feet.” He says, “Legalizing basement apartments will give homeowners a new way to make ends meet and give thousands of New Yorkers an affordable place to live.”
The city would help homeowners build the units with low-interest loans. It also plans to ease parking requirements. The ADU plan is part of a goal to create 10,000 new housing units in New York City over the next ten years.
Surprise Listing in San Francisco
Buying an affordable piece of real estate in San Francisco might get you a parking spot. Realtor.com reports that a new listing caused a stir among home shoppers because it was just $100,000. (3) That’s before they realized it’s for one parking spot at a condominium complex very close to Oracle Park. The listing agent at Compass is promoting it as an investment.
Agent Bill Williams says, “When you buy any asset and you have it, it’s not like you spent the money. You can turn around and sell it again.” He says, “You could leave the money in the bank and you might see the same return, but you wouldn’t have a parking spot.” Realtor.com says that another San Francisco parking spot recently sold for $90,000.
Berlin Calls for 5-Year Rent Freeze
U.S. landlords and investors are not the only ones dealing with rent control. City officials in Berlin, Germany, have approved a 5-year rent cap to deal with a recent spike in rents. They say gentrification is pushing out older and lower-income residents, and they need time to build more affordable housing. The freeze will apply to more than 1.5 million apartments.
As the New York Times reports, the city has become popular among foreign investors because there’s room for growth compared to places like London, Paris, and Rome. They’ve been buying and renovating properties, and of course, raising the rent. Demand is also there because of strong population growth. The Times reports that Berlin gained 250,000 new residents between 2012 and 2017. Germany’s Real Estate Association has been fighting against the rent cap and called it a “catastrophe” for the market.
Netflix Series on L.A. Gentrification
Gentrification is not supposed to be a dirty word, but that may be the message in a new Netflix series. According to the L.A. Times, it’s a series about the gentrification of Los Angeles, called “Gentefied.” It’s based on the experience of co-creator Marvin Lemus who’s a Mexican and Guatemalan American from Bakersfield. Lemus shows how new businesses and more affluent people moved into his East Hollywood neighborhood, displacing those who couldn’t afford higher rents. The first 10-episode season will debut later this month on February 21st.
(2) Harvard Study: High-Income Renters