[REN #782] Real Estate News Brief – Rate Cut Predictions, Investing Preferences, and Zombie Foreclosures

Picture of laptop and phone for Real Estate News for Investors Podcast Episode #782

In this week’s Real Estate News Brief… the economy gets political with more calls for a Fed rate cut, real estate regains top ranking as an investing favorite, and an update on national vacancies and zombie foreclosures.

Economic News

We begin with economic news from this past week, and a slight rise in prices. The consumer price index rose .3% in July. That raises the 12-month cost of living increase from 1.6% to 1.8%. The core rate of inflation which strips out gas and food also ticked higher. It’s now at a six-month high of 2.2%. Government data shows that July prices were higher for rent, health care, used vehicles, airline tickets, computers, and household goods. Inflation numbers are still low, however. (1)

New home construction dipped 4% in July due to a slowdown in apartment construction. Projects involving multi-dwelling units were down 17.2% while single-family construction was up 1.3%. Single-family homes account for most new construction. The overall slowdown was offset by an 8.4% increase in building permits. MarketWatch says that home builders continue to face roadblocks that include a labor shortage, high land prices, and higher material costs.

Builders are still encouraged however. The National Association of Home Builders says that confidence in the market for newly-built single-family homes was up one point in August.

Consumers are a little more jittery about the economy this month. The University of Michigan’s consumer sentiment survey fell to 92.1 in August. That’s the lowest it’s been since the beginning of the year, but it’s still higher than the historical average of 86.58. It hit an all-time high of 111.4 in January of 2000, and a record low of 51.7 in May of 1980.

Mortgage Rates

Mortgage rates are idling near a three-year low. Freddie Mac says the average 30-year fixed-rate mortgage is 3.6% — the same as it was last week. There has been a spike in refinance activity, but an analysis by Black Knight shows that 20 million homeowners could lower their mortgage payments by refinancing.

Realtor.com reports that homeowners with 20% equity in their property and a credit score of at least 720 could save almost $270 a month. Holden Lewis of NerdWallet told Realtor.com, “Even if you bought your home last year, you could save money by refinancing right now.”

In other news making headlines…

Fed Under Pressure to Cut Short-Term Rates

Analysts are predicting the Fed will be cutting short-term rates because of softening economic conditions, low inflation levels, a yield curve inversion, and the simmering trade war. Morgan Stanley analysts expect a cut in September and another one in October. They are also predicting four more rate cuts next year which would bring the federal funds rate near zero. That’s where it was during the financial crisis and for seven years of economic recovery.

Chief economist at Barclays, Michael Gapen, doesn’t appear to agree. He told MarketWatch that the Fed isn’t moving into a “recession fighting mode” yet — in reference to the yield curve inverting. In the past, that’s been a sign of recession, but some economists don’t feel it’s relevant to today’s economy — especially with such low unemployment. People are working. Consumers have money to spend.

Gapen isn’t alone in that view. As Money and Markets reports, most economists see a U.S. economic slowdown but not a recession, at least not yet. They expect the U.S. to keep motoring along because of the strong U.S. job market.

St. Louis Fed president, James Bullard, also commented on the inversion of the yield curve, saying only a sustained inversion is “cause for alarm.” The yield curve starts to fall when investors dump stocks and race to buy bonds. The one for the 30-year Treasury bond dipped below 2% last week, for the first time ever. (2)

But, pressure to cut rates is strong from the top. President Trump is not satisfied with the current “reasonably good” economy as he heads into his re-election campaign. He says, the Fed should cut rates “bigger and faster” as a play against China in the trade war. He also wants the stimulus to pump up the GDP. It’s currently closer to 2% than Trump’s 3% campaign promise.

Consumers Prefer Real Estate Over Stocks

A new survey shows that real estate has regained its position as a favorite long-term investment tool. Bankrate conducted a nationwide survey and 31% of the participants named real estate as their top pick for long-term investing. 20% said they like stocks, but last year stocks were more popular than real estate.

Other favorites include savings account, CDs, precious metals, bonds, and cryptocurrency, but that last one only got 4% of the vote. As for the generation with the highest percentage of people voting for real estate — it was the Millennials, despite their reputation as consumers who aren’t interested in homeownership. But even among other generations, real estate was the most popular investment.

If you break the survey down according to income levels, low income households preferred real estate and other investment vehicles, while high earners preferred stocks. Bankrate says, households with the highest income levels had the most interest in stocks.

Zombie Foreclosures

Zombie foreclosures are still a problem in some parts of the country, although the number of properties stuck in the middle of a foreclosure process have dwindled. A report by ATTOM Data Solutions looks at vacancies and foreclosures. (3) It found that 1.5 million single-family homes and condos are vacant. That’s about 1.6% of all homes. 304,000 of those homes are in the process of foreclosure, and about 9,600 are stuck in foreclosure limbo as “zombie foreclosures.”

A zombie foreclosure is one where the homeowners are notified of an impending foreclosure, so they move out, but the bank hasn’t actually made a move to foreclose, so the home sits empty. If the banks don’t want to deal with those homes, they could present opportunities for real estate investors. Although the number of vacant, decaying, foreclosed homes have declined dramatically in recent years, you can still find them. The ATTOM report says the states and regions with the highest percentage of zombie foreclosures are Washington, D.C., Oregon, Maine, Kansas, and New Mexico. 

Links:

(1) MarketWatch Report

(2) James Bullard Comments on Economy: CNBC

(3) Zombie Foreclosures: ATTOM Data

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