[REN #939] Real Estate News Brief: GDP Plummets, Real Estate Sizzles, and Virtual Mini Vacations

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Real Estate News Brief: GDP Plummets, Real Estate Sizzles, and Virtual Mini Vacations, Real Estate News for Investors Podcast Episode #939

In this Real Estate News Brief for the week ending August 1st, 2020… we have a sharp drop in the gross domestic product, a real estate market that defies gravity, and a new way to feel like you are taking a vacation with your laptop.

Economic News

We begin with economic news from this past week, and a new record for the U.S. GDP, but not in a good way.  The government says, the gross domestic product dropped a whopping 32.9% from April to June, on an annualized basis. That’s the worst drop in GDP ever, with the closest being in mid-1921.

That’s a shocking number, of course, but it’s not a surprise. The economy was shut down for most of the second quarter. Analysts had predicted it would drop even more, at a rate of 35%. Although it’s a better-than-expected report, the economy faces a big challenge in the months ahead. (1)

It’s also important to note that the recession actually began in February, pulling first quarter growth down 5%. On a quarterly basis, the Q2 decline was 1.8%  according to CNBC.

Fed Chief Jerome Powell talked about the challenge saying, the “pandemic and its fallout represents the biggest shock to the U.S. economy in living memory.” But he also spoke positively about job gains in May and June that erased half of the previous decline. Consumer spending has also been strong, along with the savings rate.

The Fed Chief assured the nation that the central bank will keep doing whatever it can to stabilize the economy. He said, “The Fed is acting as a firefighter. The fire is already happening. The best thing we can do is try to limit the damage.” The Fed also voted to keep the federal funds rate where it is, close to zero, until the job market recovers and inflation starts rising.

The job market is taking a small step backwards right now. After weeks of a decline in unemployment claims, they’ve been “up” for the last two weeks. The latest report shows that 1.434 million people filed for unemployment which is about 12,000 more than the week before. Continuing claims also rose to 17.06 million. (2)

Consumer spending has been strong. The government reported a 5.6% increase in June. That’s after an 8.5% increase in May, which was also the month that many people received a $1,200 stimulus check. Congress is still debating whether to issue another round of stimulus checks in August, and how much they should be.

Let’s move on to real estate, which is one sector that is thriving. The National Association of Realtors reported a 16.6% increase in contract signings last month. That’s a 6.3% increase from a year ago, long before the pandemic. The new numbers show a strong economic rebound for real estate. NAR Chief Economist, Lawrence Yun, says, “It is quite surprising and remarkable that, in the midst of a global pandemic, contract activity for home purchases is higher compared to one year ago.”

Home prices have also been virtually unaffected by the pandemic thus far. The Case-Shiller 20-city price index actually shows a 3.7% year-over-year gain in May. The national index shows that prices were up 4.5%. The top three cities for home price gains are Phoenix, Seattle, and Tampa.

Low mortgage rates have encouraged a lot of people that now is the time to buy a home. The Commerce Department says the homeownership rate was 67.9% in the second quarter. That’s up from 65.3% in the first quarter. The rental vacancy rate also did well. It was down from 6.6% in the first quarter to 5.7% in the second quarter.

Consumers are feeling more pessimistic about the economy. Both the Conference Board’s consumer confidence index and the University of Michigan’s consumer sentiment survey were down in July. The confidence index slipped from 98.3 to 92.6, while the sentiment survey shows a dip from 72.9 to 72.5.

Mortgage Rates

Mortgage rates are back down this week for an average that’s below 3%. Freddie Mac says, the average 30-year fixed-rate mortgage dropped two basis points to 2.99%. The 15-year is down 3 basis points to 2.51%.

In other news making headlines…

Record Low Interest Rates Make Jumbos More Expensive

Buyers who need conforming loans are getting the biggest benefit from those low rates. Jumbo loans that are used to purchase larger homes or homes in more expensive markets are not being offered with the same low rates.

According to Bankrate.com, the interest rate for an average 30-year fixed-rate jumbo loan was 3.77% in July. That’s a big change from the last four years when smaller, conforming loans were consistently more expensive than jumbos. (3)

Banks often prefer jumbo loans even though they can’t be sold to the GSE’s Fannie Mae and Freddie Mac. Borrowers are usually wealthier, making banks feel that jumbo loans are a lower risk so they don’t care about selling them off.

Instead, they keep them on their books, but keeping them on the books means less money to loan to other borrowers. And right now, the Fed has agreed to buy an unlimited number of mortgage-backed securities so banks are offering a much lower rate for conforming loans that they can sell, than they are for jumbo loans.

Freedom Mortgage Is Hiring

Freedom Mortgage has some big hiring plans to handle the spike in business activity. It announced that it would be hiring 3,000 mortgage professionals and support staff over the next six months. The positions include all levels of experience, along with remote work. According to HousingWire, Freedom moved 98% of employees to a work-at-home plan starting in March. It plans to continue doing that, and add to its remote workforce for some of those new jobs. (4)

CEO Stanley Middle says of the remote work concept, “Working from home has helped our growth, since we are not limited by office space. As we grow and increase our market share, we’ll continue to offer work from home positions.”

Redfin Reports Real Estate “Tornado”

Real estate company Redfin reported, second quarter earnings that show a big jump in revenue and a big jump in buyer demand. Revenue was up 8% to $214 million which was well above analysts’ estimates. Buyer demand was also impressive. Redfin says, it went from a year-over-year rate of -41% in the first quarter to +40% in the second.

CEO Glenn Kelman said in a statement, “Redfin’s online visits and customer inquiries have been growing at a faster rate than at any point in the last three years. We’re inside a tornado, hiring agents, lenders and closing specialists at breakneck speed to keep up with demand.”

WindowSwap

A new website that makes you feel like an international traveler is gaining popularity. The website is called WindowSwap. It’s a little like the “View from My Window” group on Facebook, but instead of still shots, this website shows live camera shots with audio. The cameras are positioned in front of a window and often show the scene outside the window or pets wandering in and out of the camera frame inside. 

Links:

(1) MarketWatch Report: Economy

(2) MarketWatch: Jobless Claims

(3) Interest Rates: Wall Street Journal

(4) Freedom Mortgage Hiring Plans

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