[REN #913] Real Estate News Brief: Fed’s Economic Plan, Small Business Optimism, Short-Term Rental Surge

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Real Estate News Brief: Fed’s Economic Plan, Small Business Optimism, Short-Term Rental Surge, Real Estate News for Investors Podcast Episode #913

In this Real Estate News Brief for the week ending June 13th, 2020… the Fed’s plan for the economy, why small businesses are optimistic, and a sudden surge in short-term rental reservations.

Economic News

We begin with economic news from this past week and word from the Fed that the federal funds rate will probably stay right where it is, at zero, for the next couple of years. Fed Chief Jerome Powell said in a news conference after the mid-year meeting, “We’re not even thinking about raising rates.” He didn’t mention negative rates either which is something that other countries have done. Powell also said the Federal Reserve would use a “full range of tools” to support the economy. That includes the buying of Treasuries and mortgage-backed securities to provide lending liquidity to the market. The Fed’s current balance sheet is about $7 trillion dollars. (1)

The unemployment report shows a seasonally-adjusted 1-and-a-half million people applied for benefits this last week. Jobless claims are going down from a 7-million weekly peak toward the end of March. The latest report shows that more and more people are returning to work. Continuing claims are now at 18.9 million. That’s down about 16% from a peak of almost 23 million people receiving benefits in early May. (2)

The unemployment rate is currently at about 16.3% or 13.3% depending on which numbers you include in the result. The government had reported a stunning drop in unemployment on Friday, June 5th to just 13.3% but later said that that was about 3 percentage points less than what it should be because of the way people answered questions on the survey. Many apparently felt that they still had jobs, but wrote down that they are currently absent from their jobs. (3)

Small businesses are more optimistic about a rebound, thanks to the Paycheck Protection Program. The PPP program provides emergency loans to businesses which are forgivable so long as they spent a certain percentage of the loan on employee retention. The Trump administration lowered that percentage from 75% to 60% so businesses can use more of the money to pay basic operating expenses. (4)

That optimism has also led to a belief that the recession will be short-lived. The National Bureau of Economic Research officially declared that it began in February and put an end to the longest economic expansion since 1854. It lasted 128-months or almost 11 years. (5)

Mortgage Rates

The homebuyer rebound continued this past week thanks in part to mortgage rates that are near an all-time low. Freddie Mac reports that the average 30-year fixed-rate mortgage rose three basis points, but is only 3.21%. (6)

The Mortgage Daily News has pegged the average even lower. It says the 30-year fixed-rate mortgage dropped “below” 3% to just 2.97%. That happened on Thursday, June 11th, after a big stock market sell-off. Investors turned to bonds which pushed mortgage rates lower to compete for those investor dollars. Freddie Mac’s report came out right before that sell-off which may account for the discrepancy. (7)

In other news making headlines…

Mortgage Application Surge Continues

One sure sign of the homebuyer rebound came from the Mortgage Bankers Association. It says that purchase applications were up another 5% last week. They are now 13% higher than they were a year ago. MBA economist, Joel Kan, says, “The recovery in the purchase market continues to gain steam, with the seasonally-adjusted index rising to its highest level since January.” (8)

The number of applications for refinancing were also up 11% last week. That’s 80% higher than they were a year ago.

Opportunity Zone Deadlines Extended

The IRS is extending an important Opportunity Zone deadline. The program gives investors 180 days to reinvest any capital gains they get from an investment into an Ozone project. But, due to the pandemic, there’s now a longer grace period for deciding on exactly where to put that money. For any 180-day period that ended or ends between April 1st and December 30th, investors now have until the very last day of the year to decide how they want to reinvest. (9)

The Opportunity Zone program encourages investors to put money into communities that need revitalization. In exchange, they get a big tax break and the longer an investor keeps the money in the investment, the bigger the tax break. The program was created as part of the Tax Cuts and Jobs Act of 2017. So far, investors have put more than $10 billion into 406 qualified Opportunity Zone funds. 

Sudden Jump in Short-Term Rental Reservations

Short-term rental hosts are seeing a sudden jump in reservations. Statewide lockdowns are being lifted and people stuck in their city homes for months are planning getaways on Airbnb and Vrbo. According to Realtor.com, Airbnb has more nights booked for U.S. listings between May 17th and June 3rd than it did a year ago, long before the pandemic! Airbnb is reporting more overall listings than it had before the crisis. (10)

It appears many of the destinations are within driving distance. Among the top destinations are Big Bear Lake in Southern California, the Smoky Mountains, and Port Aransas, Texas. Airbnb CEO Brian Chesky told Bloomberg, “People… do want to get out of their homes; that’s really, really clear. But they don’t necessarily want to get on an airplane and are not yet comfortable leaving their countries.”

Vrbo president, Jeff Hurst, said of the surge, “If you draw a 250-mile circle around any major metro — every place where you see water… or mountains or national parks, the homes around it are what are starting to get booked up.”

Links:

(1) MarketWatch Article

(2) Wall Street Journal Article

(3) CNBC Article

(4) Realtor Magazine Article 1

(5) Realtor Magazine Article 2

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