In this week’s Real Estate News Brief… President Trump wants the Fed to “go negative” with rates, strict new rent control hits California, and hackers steal $250,000 by faking a CEO’s voice.
We begin with economic news from this past week that includes a new report on the strength of the job market. The government reported weaker job growth in August due to a slowdown in hiring, but it also reported an 18-year high for the “quits rate.” That represents the number of people who quit their jobs and corresponds to a strong market because people who quit generally feel confident about finding another job, possibly with better pay. The quits rate hit 2.4% in August.
Inflation also rose in August to 1.7%. It was up .1% due to higher prices for medical care, rent, used vehicles, airfares and recreational items. That puts the figure closer to the Federal Reserve’s 2% target. Low gas prices have helped keep inflation rates low. If you strip out gas and food from the reading, the core rate is 2.4%.
The federal budget deficit hit the $1 trillion mark during the first 11 months of the fiscal year. A strong economy usually decreases the federal deficit, but the government is taking in less money because of the 2017 tax cut legislation. It’s also spending more on the military, and it’s debt obligations, due to higher interest rates. (1)
President Trump would like to reduce those debt obligations by slashing interest rates, and refinancing. He’s been railing against the Federal Reserve for deciding against further rate cuts, and even called board members “boneheads” in a Tweet last week. Trump wants the Fed to cut rates to zero “or less.”
As a side note, during the presidential debates of 2016, Trump told Secretary Clinton that the Fed was doing “political things” by keeping interest rates “at this level.” He said, “We are in a big fat ugly bubble.” We can only assume that what he meant is that the Federal Reserve kept interest rates low during Obama’s term in an effort to stimulate the economy after the Great Recession, but left them low so long that the economy over-corrected and assets bubbled up. Rates had been at near zero levels until 2015 when they were raised a quarter percent and then again in 2016 by a quarter percent, to a range of .5 to .75%.
So, it’s interesting that at a time when the economy is seemingly strong, that the President would want to lower rates again to stimulate the economy. The stock market and real estate values have gone up substantially since 2016, so if he claimed it was in a big ugly bubble then, wouldn’t it be a bigger bubble today? And if we lowered rates to near zero during a strong economy, would that create even bigger bubbles?
The main reason he would want to lower interest rates is to be on par with other countries that have been lowering their interest rates. If we have a strong dollar, our imports become cheaper and our exports become more expensive — which does not help in the trade war. But it also doesn’t help slow down bubbles, and leaves us no ammunition if there is a recession in the future. If rates are at zero levels during a strong economy, where can the possibly go during a recession?
Anyway… There appears to be a light at the end of the trade war tunnel. At the time this podcast was written, China exempted some tariffs on U.S. goods while President Trump delayed some tariffs on Chinese goods. That’s ahead of talks scheduled for next month in Washington, D.C. Wall Street responded with a rally because of a potential trade deal and because of a new stimulus program by the European Central Bank that includes quantitative easing and negative interest rates for banks, in Europe.
Home loans got slightly more expensive this last week. Freddie Mac says the average 30-year fixed-rate mortgage rose seven basis points to 3.56%. But, some economists think fixed mortgage rates will fall much further by the end of the year. Chief economist for the National Association of Realtors, Lawrence Yun, is predicting they will tumble to 3.3% which is a tiny bit lower than a long-time low of 3.31% in November of 2012.
In other news making headlines…
Housing Market Tips Toward Buyers
The housing market advantage appears to be tipping toward buyers. According to a monthly survey by Fannie Mae, fewer people think that “now” is a good time to buy a home. Some want to wait for mortgage rates to drop further. Others are worried about a recession.
Dallas-area real estate agent, Kelley McMahon, told CNBC, “It’s not a seller’s market right now. Now is not the time for sellers to put out these crazy prices. Appraisals have gotten a lot harder, and buyers are a little more cautious. They’re more willing to take their time.” (2)
Tight Inventory Could Last for Years
Economists believe that the housing market will be hobbled by an inventory squeeze until at least 2022. A hundred economists responded to a survey, commissioned by Zillow, which asked when housing starts would reach the historical average of one million new units per month. Some were very pessimistic, saying that won’t happen for another 10 years.
As reported by Inman, the economists were also asked what they thought would help boost inventory levels. Most said that local governments need to speed up the review and permitting process. They also say that local governments need to reduce minimum lot sizes and make it easier to subdivide.
Zillow’s Skylar Olsen said, the American Dream of owning a single-family detached home on a big lot is creating a roadblock for new housing. That’s starting to change as places like Oregon which eliminated single-family zoning restrictions for cities with 10,000 or more residents.
California Adopts Statewide Rent Control
California lawmakers have approved a statewide rent control bill. It’s now the strictest rent control law in the nation, with a 5% cap on yearly rents after inflation. It also makes it more difficult for landlords to evict tenants. The California Association of Realtors had worked with lawmakers on a solution that would be fair to both landlords and renters. It had a higher rent cap of 7% after inflation.
CAR’S president Jared Martin, responded to the bill’s passage, saying, “While several of our recommendations were included in the final bill, including the exemption of single-family homes and condominiums, the final bill did not do enough to increase the supply of affordable rental housing.” He said, “Even legislators who voted yes did so acknowledged its shortcomings.”
Scammer Fakes Voice of CEO
If you get a call from your boss asking you to transfer a quarter million dollars, would you get confirmation that it was actually “your boss” asking you to do this? The CEO of an energy firm in the UK probably wishes he had done so. He was tricked into transferring that quantity of money by a fraudster who used artificial intelligence to mimic his boss’s voice. Cybercrime experts say, there’s software out there that can impersonate voices. It’s a new hacker trick that we need to watch out for. (3)
(1) Federal Budget Deficit: MarketWatch
(2) CNBC Article
(3) Hackers Mimic Voice: Wall Street Journal