[REN #814] Real Estate News Brief – Future Rate Cuts, Insurance Rates on Fire, Not-So-Transparent Broker Fees

Picture of a House on Fire for Real Estate News for Investors Podcast Episode #814

In this week’s Real Estate News Brief… what the Fed says about future rate cuts, why California home insurance rates could skyrocket, and a new report that says most brokers “hide” their commission rates

Economic News

We begin with economic news from this past week and another interest rate cut by the Federal Reserve. The Federal Open Market Committee approved a quarter percent cut to a range of 1.5% to 1.75% for the federal funds rate. It’s the third one this year. Fed Chief Jerome Powell said during a press conference that the job market remains strong, inflation remains subdued, and the economy continues to grow at a moderate pace, although manufacturing has been slowing down. He also indicated that the central bank was unlikely to lower rates further unless there is a “material change” in the economy. Economists expect the GDP to sink further next year so that may prompt more cuts, but it looks like the Fed will sit tight for now, without that kind of development.

The outcome of the Fed meeting did not sit well with President Trump who wanted a more substantial cut. He said in a tweet, “We should have lower interest rates than Germany, Japan and all others. We are now, by far, the biggest and strongest Country, but the Fed puts us at a competitive disadvantage. China is not our problem, the Federal Reserve is!” (1) Many economists feel that further rate cuts would eliminate a safety net that we may need if we sink into a recession.

The latest report on the GDP shows it was down to an annual rate of 1.9% in the third quarter. It was 2% last spring. Unemployment is low giving consumers plenty of money to spend on goods and housing, but businesses are not spending as much because of other issues, like the trade war.

Pending home sales were up in September for a second month in a row. The National Association of Realtors says they rose 1.5%. That’s more than double what economists anticipated in a survey by Econoday. The gains were led by the Midwest and the South. Pending home sales were down in the Northeast and the West.

U.S. home prices were down in August. They dropped 0.2% in August, for year-over-year price growth of 2%. (2) The S&P CoreLogic Case-Shiller 20-city price index shows that prices in 17 of the cities were lower. New York shows the biggest price drop of minus 0.4%. Phoenix prices were up the most. They were 0.7% higher.

Builders were busy in September. The Commerce Department reported that construction spending was 0.5% higher. That brings the annual rate to $1.29 trillion dollars. Private residential construction accounted for most of the increase, and for single-family homes, the increase was 1.3%.

Mortgage Rates

Interest rates crept higher for a third week in a row. Freddie Mac says the average 30-year fixed-rate mortgage rose three basis points to 3.78% this last week. Rates are still low enough to encourage home buyers as they struggle to find homes in a tight market.

In other news making headlines…

California Fires to Push Insurance Rates Higher

California homeowners at risk of wildfire can expect to see higher insurance rates. As the L.A. Times reports, we’ve had several years of catastrophic losses, and that’s pushing rates skyward. (3) One insurance broker told the Times that for people with a higher risk, rates could double or even triple. Some of that expense comes from non-renewals and the need to seek insurance from a company that might charge more. 

State insurance commissioner Ricardo Lara says that he’s working on solutions for this insurance crisis, but will need the help of lawmakers. There is a program called California FAIR plan to help homeowners who can’t find insurance anywhere else. It is a state-sponsored program that covers up to $1.5 million of a structure and its contents. But, it is not a comprehensive plan and should only be used when all other options have failed.

Study: Brokers Hide Commission Rates

A new analysis by the Consumer Federation of America claims that real estate brokers are not very transparent about their commission rates, which are typically between 5 and 6%. The CFA says that more than 99% of the 263 brokerages surveyed did not publicly list their commissions. It also found that most of these firms were reluctant to share their commission rates over the phone, although when pushed, they did share that information. (4)

The report also says that commission rates are not really negotiable, despite claims by the National Association of Realtors that they are. Almost 75% of the real estate agents in the survey said they would not lower their rates. And those commissions can be a substantial expense for sellers. If you are selling a $300,000 home, an agent’s commission, which is usually split with the buyer’s agent, can cost you about $18,000. 

NAR’s Mantell Williams said in a Yahoo Finance blog, “NAR considers transparency critical to an ethical negotiation with a prospective seller or buyer, including how commissions are calculated. We encourage brokers to have a conversation with their prospective clients about commissions at the very beginning of the relationship.” (5)

Links:

(1) Business Insider Article

(2) MarketWatch Article

(3) LA Times Article

(4) CNBC Article

(5) Yahoo Finance Article

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