In this week’s Real Estate News in Brief… the nation marks a major economic milestone, when we might see the Fed cut rates, and why new tax laws could turn more renters into homeowners.
We begin with economic news from this past week and new assurances of a strong job market. The Labor Department reported a record gap between the number of job openings and people looking for work. As of April, there were a seasonally adjusted 7.449 million job openings and just 5.824 million job seekers. That’s the biggest gap on record going back to the year 2000.
What has cooled down in recent months is the pace of hiring. The last report on job creation shows us just 75,000 new positions in May. The Wall Street Journal mentioned a few possible reasons for that low number including a shrinking supply of workers, especially in the construction industry. The article says, there were about 400,000 unfilled construction jobs in April. That’s about 150,000 more than April of last year. (1)
New inflation numbers also came out. They show another tiny .1% bump in the consumer price index. That brings the annual rate of inflation down to 1.8%. It was at 3% last summer. MarketWatch says, the lower numbers are the result of cheaper energy and more moderate health care charges. Offsetting the downward trend are rising rents. The core rate, without food or gas prices, also slipped from 2.1% to 2%.
We are fast approaching a major milestone for the current economic expansion. If the economy keeps motoring along like it is through the end of the month, we’ll hit the 10-year mark for this growth cycle, and set a new record for longest expansion since 1854. That’s when economists began tracking the economy in this way. As Bloomberg reports, no one is partying. There are plenty of economists who believe we are about to get hit with a recession. JPMorgan Chase says, the probability of one beginning during the second half of the year is about 40%.
Consumers are showing signs of discontent. The University of Michigan’s latest reading on consumer sentiment was down a few points to 97.9. Bloomberg economists believe it’s due to the tariff war and a job creation slowdown. As Bloomberg points out, it’s about 15 points higher than it was five years ago under President Obama.
Long-term mortgage rates didn’t budge from last week. Freddie Mac says, the average 30-year fixed-rate mortgage previously dropped to 3.82% and that’s where it is now. The low rate has driven the number of mortgage applications higher. The Mortgage Professional Association says, they are at a 2.5 year high, mostly due to strong refinancing activity.
In other news making headlines…
Rate Cut Forecasts
Economists are speculating on the possibility of a rate cut in the next few months. Many are predicting the Federal Reserve will lower short-term interest rates in July, as an insurance policy against a possible recession. A survey by The Wall Street Journal found that almost 40% of the 46 economists who participated believe the central bank will cut rates next month. Another 30% are saying September. (2)
The decision will be based on a combination of factors including inflation, employment, financial markets, the slowing global economy, and the effects of the trade dispute. The current federal-funds rate falls in a range of 2.25% to 2.5%. The Wall Street Journal says, most economists believe it will drop to 2.12% by the end of this year and 1.96% by the end of next year.
Renters Reap Reward from Tax Reform
Renters are reaping the rewards of the 2018 federal tax bill. According to John Burns Real Estate Consulting, they are paying almost $3,000 a year less, on average, in federal taxes. The savings can top $5,000 in pricey rental markets like San Jose, California, and drop to about $2,000 in Miami. (3)
The report authors, say the savings are mostly due to the higher standard deduction of $12,000 for individuals combined with lower taxes. They also say the extra income could help many renters save up for a down payment on a home, and turn them into homeowners.
China Impact on U.S. University Housing Market
U.S. realtors expect the ongoing trade war tiff with China will impact the U.S. housing market near universities and colleges. The Real Deal Reports, the Chinese government is warning U.S.-bound students about “prolonged review times” and higher “rates of visa rejections,” apparently to discourage them from going. Since Chinese parents often buy homes for their children to stay while they are going to school, a big pull-back in Chinese attendance could rattle the university housing market.
The National Association of Realtors says, Chinese buyers spent more than $30 billion on residential properties across the U.S. last year. It also found that Chinese buyers were the most likely to purchase a home for a child going to a U.S. college. And there were some 363,000 Chinese students at U.S. colleges last year.
(1) Job Market: Wall Street Journal
(2) Interest Rates: Freddie Mac