[REN #802] Real Estate News Brief: Record Low for Unemployment, Warning from Ex-Fed Chief, Demand for Single-Story Homes

Picture of Newspapers for Real Estate News for Investors Podcast Episode #802

In this week’s Real Estate News Brief… unemployment hits a 50-year low, a former Fed chief issues a warning, and the single-story home is being rediscovered.

Economic News

We begin with economic news from this past week. 

The latest report on U.S. construction spending shows a 0.1% rise in August to a seasonally adjusted annual rate of $1.29 trillion. That’s about 1.9% less than it was in August of last year. Of that amount, $507 billion was for residential construction. That’s 0.9% higher than the previous month but still off 5% from a year ago.

U.S. manufacturing fell substantially in August which has upset Wall Street investors and triggered more worries about an upcoming recession. The Institute for Supply Management says its index fell to its lowest point since the end of the 2007-2009 recession. That represents a slowdown in economic conditions for the U.S. and around the globe. Economists blame the trade war while President Trump blames the Federal Reserve for refusing to authorize bigger rate cuts.

There’s also been a big slowdown in the service side of the economy. The ISM says it grew at its slowest pace in August since 2016. Job growth is also sluggish, along with wage growth but the unemployment rate is hitting a 50-year low. The Labor Department says it dropped to 3.5% in September. (1)

Mortgage Rates

Mortgage rates haven’t moved much. Freddie Mac says the average thirty-year fixed-rate mortgage went up one basis point this last week to 3.65%. (2) The government enterprise expects to see low mortgage rates continue for the rest of the year.

In other news making headlines…

Former Fed Chief GDP Warning

Former Fed Chief Janet Yellen issued a warning about the economy, saying that current Fed policymakers are too “optimistic.” The Fed recently predicted that the 2019 GDP would grow at a rate of 2.2%, and slow to 1.9% over the long-term. That’s not very impressive in itself, compared to the 3% GDP we’ve seen in recent decades. But Yellen says even that is an “optimistic projection.” (3)

She says that labor force productivity has been on the weak side for several years and the GDP has been mostly supported by consumer spending. She pointed out that business investment has contracted more than expected, in light of the trade war. Her warning came before the latest data on manufacturing, which also supports her argument.

Big Step Toward Fannie, Freddie Release

The U.S. Treasury Department has taken a big step toward the privatization of Fannie Mae and Freddie Mac. The two mortgage companies have been under government conservatorship since a bailout in 2008. They’ve since returned to profitability and the Trump administration has started a reform process for the U.S. housing finance industry that includes the release of Fannie and Freddie from government control. (4)

In an agreement with the Treasury Department, the mortgage giants are now allowed to retain a total of $45 billion worth of their earnings — $25 billion for Fannie and $20 billion for Freddie. That represents about a year’s worth of earnings. The previous amount was about $3 billion each.

The National Association of Realtors says that it supports housing finance reform. It also says it will be working to make sure any changes will also benefit U.S. consumers.

Demand Rising for Single-Story Homes

Home builders are seeing a strong demand for single-story homes. Realtor.com says that Census data shows that the construction of single-story homes is increasing more rapidly than the construction of two-story homes. (5) It shows that the percentage of new homes with two or more stories dropped from 55% in 2017 to 53% in 2018. For single-story homes, it went up from 45% to 47%.

According to the National Association of Homebuilders, most of the growth for single-level homes was in the Southeast and South Central states. It was also significant in the Western Mountain states and the West Coast. A Redfin report also shows that single-story or ranch-style homes were the most popular homes sold.

Baby boomers appear to be driving that demand. 80% say that’s what they prefer. Only 35% of Millennials feel the same way.

Living with Mom and Dad

More and more younger people are opting to live with Mom and Dad in their 20’s and early 30’s. Research by ATTOM Data Solutions shows that young adults are 46% more likely to live with their parents now than in 2007.

They are also much less likely to get married at that age. According to Apartment List, 76% of 26-year-olds lived with a spouse 50 years ago. Today, only 24% of them are  married and living with a spouse. Researchers say the high cost of housing and changes in household dynamics are impacting the future of affordable housing.

Links:

(1) MarketWatch Article

(2) Freddie Mac Article

(3) Money and Markets Article

(4) Realtor Magazine Article

(5) Realtor Magazine Article

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