Fed raises the rate – first time for 2018.

Housing_Economy.jpgAs expected, the Federal Reserve announced Wednesday that it is increasing the federal funds rate for the first time in 2018.

Earlier this year, observers placed the likelihood of the Fed increasing rates by 25 basis points at the end of its March meeting at more than 75%.

And Wednesday, that’s just what the Fed did.

Citing the strength of the economy, the Federal Open Market Committee voted to increase the target range for the federal funds rate to between 1.5% and 1.75%.

Previously, the target range was 1.25% to 1.5%.

“Information received since the Federal Open Market Committee met in January indicates that the labor market has continued to strengthen and that economic activity has been rising at a moderate rate,” the Fed said in a statement.

“Job gains have been strong in recent months, and the unemployment rate has stayed low. Recent data suggest that growth rates of household spending and business fixed investment have moderated from their strong fourth-quarter readings,” the Fed continued.

In addition to expecting this rate increase, observers also predicted that the Fed will increase rates two more times this year.

It appears those predictions will likely prove true, as the Fed further indicated that it plans to raise rates twice more this year.

“The Committee expects that economic conditions will evolve in a manner that will warrant further gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run,” the Fed noted. “However, the actual path of the federal funds rate will depend on the economic outlook as informed by incoming data.”

The members of the FOMC also increased their projection for GDP growth. At the last FOMC meeting in December, the FOMC members indicated that they expected to see GDP growthof 2.5% in 2018.

Now, the FOMC members report that they expect to see GDP growth of 2.7% this year. The FOMC members also increased the GDP growth projection for 2019 from 2.1% to 2.4%.

The March FOMC meeting was the first since Jerome Powell took over as Fed chair following Janet Yellen’s resignation.

 Pic and Story Source: housing wire.com
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Housing inventory may increase

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Although current housing inventory continues to slip, driving up home prices and limiting homebuyers across the U.S., one expert says that could all be about to change.

After analyzing February’s housing starts data, First American Financial Corp. found the housing inventory shortage could soon see relief. First American Chief Economist Mark Fleming pointed out February’s employment report showed a boost of nearly 7,000 residential construction jobs from January to February this year.

In fact, the increase in February’s construction labor growth was the strongest since August 2008, and the number of residential construction jobs is up 3.8% from last year, First American pointed out. It also explained this growth in construction jobs will support further improvement in the pace of home building.

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(Source: First American, U.S. Census Bureau, Federal Reserve Bank of St. Louis)

In February, builders broke ground on fewer homes in February than they did in February 2017, but this was mainly due to a drop in multifamily starts. Single-family housing starts actually increased 2.9%, Fleming pointed out.

Housing completions, or the number of new homes added to the current housing stock, increased significantly from the year before, indicating relief for the supply shortage. An increase in permits along with the surge in construction employment means this relief could continue into the spring home buying season and the year ahead.

“Despite a drop in housing starts, the annual increase in housing permits and completions, in conjunction with the rise in construction employment, signals an upward trajectory for housing starts for the spring home-buying season,” Fleming said.

 

Pic and Story Source: housingwire.com

Millennials and the housing market

laptop_couple_homebuying.jpgMillennials are the largest living generation, however, according to Freddie Mac’s March Insight report, they are falling short of dominating the housing market.

Freddie Mac’s latest report examines the young adult generation, Millennials, or those born from about 1980 to 1994. With the youngest Millennial turning 24 this year, many are beginning to wonder what’s keeping the largest generation since the Baby Boomers from entering the housing market, and what will happen when they do.

As of 2016, there were about 45 million young adults aged 25 to 34 in the U.S., which is four million more than those aged 35 to 44, according to the U.S. Census Bureau. Freddie Mac explained that a population of this size should be fueling the housing market. There’s just one minor problem.

The headship rate, or percentage of those heading a household, among young adults age 25 to 36 was down 3.6 percentage points in 2016 compared to 2000. If Millennials formed households at the same rate seen in 2000, this could have resulted in 1.6 million additional households in 2016.

But while household formations, or the lack thereof, could seem to be holding Millennials back from entering the home buying market, Freddie Mac suggested it could actually be the other way around. The GSE’s research indicates the two biggest factors explaining the decrease in household formation rates are housing costs and labor market outcomes.

From 2000 to 2016, real median home prices increased by 29%, but young adult per capita real incomes increased only 1%.

However, the household formation rate could soon drastically increase, bringing a new wave of demand to the housing market. Freddie Mac explained that even if later than previous generations, Millennials should soon begin to enter the housing market at a higher rate. It forecasts that Millennials and the following generation, Generation Z, could add somewhere between 19 and 21 million additional new households by 2025.

“We expect that as life progresses and today’s young adults age, they will add around 20 million households to the U.S. economy, driving housing demand over the next decade,” said Len Kiefer, Freddie Mac deputy chief economist. “But, housing costs are a major factor holding back young adult household formations.”

“Our research results indicate that 28% of the decline in young adult household formation is due to housing costs, Kiefer said. “If housing costs continue to rise, we could see about 600,000 fewer households over the next decade.”

 

Pic and Story Source: housingwire.com

Foreign investors driving up real estate in California?

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Scott and Erica Rothenberg thought the years of scrimping and saving had finally paid off.

The three-bedroom house outside of Elk Grove—an upper-middle-class suburb of Sacramento—checked all of the boxes: quiet neighborhood, quality school district, ample space to start a family.

But the couple knew competition for the house—like most houses in desirable California neighborhoods—would be cut-throat. Their agent warned they’d be bidding against not only a glut of young Sacramento-area families vying for a starter home, but also wealthier Bay Area residents fleeing astronomical prices. Even wealthy foreign investors from China, sensing an opportunity to park their cash and make steady returns, were getting in on the action.

“I was like, ‘Are you serious?’ In Elk Grove?,’” said Scott. “It’s really hard to deal with because it’s like, how do I compete with this? How do I compete with all this money? It really kind of blew me away.”

The Rothenbergs offered $10,000 above asking price, in the low $300,000s, and wrote the owners to explain who they were and how they loved the house. Days went by. Then their agent broke the news. The bid wasn’t too low—it was actually the highest offer the seller received, the realtor told them. But another buyer offered cash—meaning a cleaner, quicker sale.

“We were pretty upset, we figured it was just some investor who was going to rent it out,” said Scott. “If we would have lost out to a person who was going to occupy, we wouldn’t have been as upset.”

Their hunch was right. The property ended up being rented out, to another California family hoping to own a house someday, maybe when the market cools a little.

Which made Scott wonder: How much are foreign buyers and investment firms—two of the most common sources of all-cash transactions—impacting the average California family’s ability to buy a home? He reached out to CALmatters to help answer that question. So we tried—starting with foreign buyers. Here’s what we learned. 

See how many all-cash home sales happened in your neighborhood

With the help of real estate data firm ATTOM Data Solutions, we’ve mapped all-cash home sales for each zip code in California from 2005 to 2017. Zip codes with less than 100 total sales over that time period were omitted from the map. Enter your zip code or city name to find your neighborhood on the map. 

https://mlevin.carto.com/viz/c75e47a5-7e3c-4611-96b4-d35d93114ef1/embed_map

The data on foreign buyers is weak. And likely underplays their influence.

Back in 2006, about 10 percent of California single-family homes were purchased in all-cash transactions, according to the real estate data firm ATTOM Data Solutions. A decade later, it’s nearly 25 percent. That means a quarter of California’s extremely tight housing inventory is unlikely to go to households like the Rothenbergs—moderate-income families who need a mortgage to buy a home.

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While all-cash buyers are often treated as a rough proxy for international buyers—the California Association of Realtors estimates they are more than twice as likely to pay in cash as domestic buyers—in reality they are more varied. Some are rich enough to not need to finance a first (or second or third) home, or simply prefer California real estate to the stock market. Private investment firms snapped up a ton of cheap homes during the foreclosure crisis—at one point more than one in three California homes was being purchased with all-cash. And increasingly older people, or their children, are liquidating assets to make all-cash offers.

But experts came to see foreign buyers as a bigger force in the market, and a contributor to the rise in single-family rentals California has seen the past 10 years.

“My guess would be that it’s flipped and that foreign buyers are now having a bigger impact than institutional investors,” said Daren Blomquist, senior vice president at ATTOM. “They aren’t a huge percentage of buyers, but certainly they are one of the reasons that the California market has bounced back so strongly from the recession.”

So what percentage of California’s housing stock is owned by foreign investors?

Let’s start with this major caveat: Foreign buyer real estate data is not good. California sales deeds don’t require a buyer or seller to disclose citizenship or residency status. So analysts rely on rough proxies for foreign ownership.

The house the Rothenbergs tried to buy is a good example. You can verify that the transaction was all cash, which is a good flag for a foreign buyer. You can verify that the tax address for the buyer is outside California, which is also a good flag. You can see the buyer’s surname, but given California’s demographic diversity, that’s hardly evidence foreign ownership.

But that’s all you can really say. Judging by the records, the owner of the Rothenbergs’ dream house could be a foreign-based investment buyer—or he might just be a wealthy Chinese-American who lives outside California and wants to invest in Sacramento real estate. (Attempts to contact the owners and the management company of the property were unsuccessful).

The California Association of Realtors estimates that 3 percent of last year’s purchases went to international buyers. Their data even suggests the share of international buyers has been on a downward trajectory since 2008—but that data relies on a survey of realtors, and could be undercounting.

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“For one thing, the survey is conducted in English,” said Oscar Wei, senior economist for the California Association of Realtors. “So if you have Chinese buyers and Chinese agents, they may not necessarily want to participate in a survey written in English.”

Wei also acknowledges that Realtors may not always know the citizenship status of their clients, and that the timing of the survey could bias the overall results towards domestic buyers.

His rough estimate: 5 to 10 percent of the state’s single-family housing stock could be owned by international buyers.

So can we conclude anything reliable about foreign buyers?

We do have a decent grasp on where they’re coming from.

The fear of Chinese millionaires gobbling up American homes as just another piece in their global investment portfolio can veer into the cartoonish and xenophobic very quickly. As recently as 2014, Canadians purchased more U.S. homes than Chinese buyers, according to the National Realtors Association. And while Canadians are actually more likely to make all-cash offers, they receive nowhere near the scrutiny as the Chinese.

In California, however, Asian buyers do dominate: Last year they accounted for 71 percent of California homes sold to foreign buyers. That dwarfs the next closest group of international buyers, Latin Americans at 14 percent.

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No state in the country has attracted nearly as much attention from Chinese buyers as California, site of nearly 40 percent of all Chinese home purchases in the U.S.

Why are the Chinese so enamored with California real estate? First, it’s important to understand what we mean by “foreign.” Those statistics include recently arrived immigrants, of which California has quite a few. There’s legitimate debate over whether those immigrants should be counted as “foreign.”

Many of the recently arrived Chinese snapping up California properties are holders of EB-5 visas—a U.S. program granting green cards to foreigners who invest $500,000 in U.S. business.

“The wife and kids are in the U.S., some of the husbands are here some of the time and some are not, they have a portion of their money here and they have a portion of their money in China,” says Lin He, a real estate investor and developer who courts Chinese property speculators in places like Newport Beach and Irvine.

The number of Chinese diaspora already settled in areas such as Orange County and the San Gabriel Valley attract a great deal of foreign investment because cultural and language similarities make the purchase process easier.

Much of that money goes towards primary residences—Chinese visa holders living with their family in a U.S. home. But after getting a foothold in California, many recently arrived Chinese view residential real estate as an attractive investment strategy—one that was not readily available to them in China, either because of government policy or exorbitant cost.

“The real estate in Beijing and some other places is really expensive,” says He. “They spend a year here, they buy a house, they say, “You won’t believe it, it’s so cheap here.”

The National Realtors’ survey found only 40 percent of Chinese foreign buyers intend to use their U.S. home as a primary residence for their recently immigrated family. The remainder eyed it as an investment vehicle, vacation home, or for use by a student.

The Chinese government is not fond of letting its citizens’ burgeoning wealth wind up in American housing tracts. For years they’ve tried to clamp down on private investment leaving the country. A rule that limited Chinese citizens from taking more than $50,000 outside the country was more rigorously enforced last year, reducing Chinese home buying here according to some reports.

But He cautions that people “will figure out ways to get money out of China. The appetite is always there, it’s just a matter of how they get the money out.”

What can California learn from Vancouver’s Foreign Buyer Tax?

The housing market in Vancouver, Canada resembles many California cities. Costs for single-family homes and condos have skyrocketed, making the city and its surrounding suburbs among the priciest places to live in North America.

Vancouver homes have also been a favored destination of overseas investment, primarily from China. Many residents fretted about the influence of foreign dollars on the city’s limited housing stock, but although good data was scarce, experts figured foreign buyers accounted for about 5 percent of home purchases.

Two years ago, under intense pressure from Vancouver residents, the British Columbia provincial government began mandating that homebuyers disclose citizenship on sales documents. The data revealed that in fact, 10 to 15 percent of houses were going to neither Canadian citizens nor permanent residents.

So the provincial government slapped a 15 percent tax on all sales to foreign home buyers. The immediate response was stunning: Within a few months, the price of a single-family property in the greater Vancouver area dropped 20 percent. In contrast, prices in Toronto and other major Canadian cities kept rising—buoyed in part by foreign capital searching for a new market outside Vancouver.

But the impact of the foreign buyer tax on Vancouver’s housing market appears to have waned somewhat. While foreign ownership is down, the price of single family home is about back to where it was before the tax enacted—well beyond reach for many Vancouver families.
That doesn’t mean the tax isn’t making Vancouver home prices slightly more affordable than they otherwise would be, proponents say. It means the tax isn’t singlehandedly making Vancouver home prices affordable.

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“The foreign buyer tax will have helped, and there is zero doubt about that,” says Joshua Gordon, public policy professor at Simon Fraser University and a tax supporter. “Whether it’s a panacea, and it is quite clear that is not a panacea, is a different question.”

Gordon cautions that taxing foreign buyers is not the same thing as taxing foreign money going into local real estate. Foreign investors can use local friends and families to purchase property for them. Or they can channel their money through investment funds or other instruments.

Are foreign buyers driving up prices by keeping homes off the market?

The idea of a foreign buyer tax has been floated in some quarters of California, including Silicon Valley, but has never received significant legislative attention at the state or local level.

That’s partly because without solid data on foreign buyers, it’s tough to gauge how much they might be driving up California prices.

Most economists agree that locales attracting lots of foreign investment—Irvine and the San Gabriel Valley, for example—are seeing prices rise because of an influx of foreign capital. It’s difficult to extrapolate that effect statewide.

Those who argue the effect of foreign buyers on California home prices is overstated often cite the type of homes offshore investors are often interested in: newly constructed houses and higher-priced houses at the top of the market. They also point to ever-rising prices in California neighborhoods that have little appeal to foreign buyers.

“It’s a very limited number of homes,” says He, the Orange County real estate investor. “They may sell faster, but I don’t think it has much impact on price.”

But while the most intense competition from abroad might be for more expensive properties, that demand can still have an impact down-market. Blunt that demand, says Wei, the Realtors’ economist, and “you’d probably see some softening in the higher-priced properties. And that would lead of course to some softening in home prices not just in those areas, but it would trigger down to the statewide median price.” But he stresses that average home prices wouldn’t see a major dip.

Despite the focus on foreign buyers demand for listed houses, their effect on the inventory of current houses for sale could be just as important. If foreign buyers are more inclined to buy property as a long-term investment vehicle, they may be less inclined to sell.

“The typical homeowner now stays in their house seven to 10 years,” says Rosanna Garcia, a Sacramento-area agent who specializes in investment properties for foreign buyers. “If you’re looking at a foreign investor, they’ve got the money to wait. The longer you can hold on to it, the more money you can make in the end.”

That means fewer properties on the market, and more to rent.

Garcia stresses that it’s easy to blame foreign buyers for California’s housing market woes, rather than focusing on the lack of new construction or other distortions to the state’s dysfunctional housing market.

And it’s not only foreign buyers who are making all-cash offers like the one that beat out the Rothenbergs. Next we’ll examine the role of private investment firms in our continuing coverage of California’s housing crisis.

Header Pic and Story Source: calmatters.org

Senate passes rollback of Dodd-Frank 67-31

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Late Wednesday, the Senate passed S. 2155, or the Economic Growth, Regulatory Relief and Consumer Protection Act, by a vote of 67-31.

Now that it has passed, the bill returns to the House for approval.

The bill contains policies rolling back certain key parts from the Dodd-Frank Wall Street Reform and Consumer Protection Act. The bill would allow some smaller and mid-sized banks to omit their cash balances held at the Federal Reserve and other central banks when calculating their supplementary leverage ratio, or what determines how much capital they need to hold.

Mortgage Bankers Association President and CEO David Stevens released a statement applauding the work of Sen. Crapo and the bipartisan coalition of senators who worked to ensure passage of the bill.

“I want to commend Chairman Crapo and the bipartisan coalition of senators that worked for months to ensure the passage of this important piece of legislation. This bill will further ensure consumer protections and adequate access to mortgage credit. Specific mortgage related portions of the bill include: SAFE Act amendments which provide mortgage loan originators with 120 days of transitional authority to originate when moving from a federal depository to a non-bank (or across state lines), Subjecting Property Assessed Clean Lending (PACE) or property retrofit loans to Truth In Lending Act consumer protections, critical consumer protections to U.S. veterans who use the VA Home Loan program, clarifying the High Volatility Commercial Real Estate rule to help promote sustainable construction and development, and targeted TILA/RESPA Integrated Disclosure fixes. MBA now calls on the House to swiftly take up this bill for consideration,” Stevens said.

House Committee on Financial Services Ranking Member Maxine Waters, D-Calif., issued a statement in response to the bill’s passage, calling out the removal of consumer protections that were put in place after the financial crisis:

“As I have said before, this bill repackages harmful provisions from Financial Services Committee Chairman Jeb Hensarling’s Wrong Choice Act, and removes key consumer protections put in place following the financial crisis. It takes our financial system in the wrong direction, and serves as a giveaway to banks that are already posting record profits,” Waters statement read.

“To make matters worse, Chairman Hensarling has indicated that he believes the bill doesn’t go far enough, and is demanding that the Senate pack this already bad bill with even more harmful bills. Among other things, those bills would allow payday lenders to evade state interest caps, force regulators to loosen rules that the financial services industry considers inconvenient, and weaken stress tests for megabanks,” the statement continued.

Pic and Story Source: housingwire.com

U Haul Prices 10 times higher for those leaving the Bay

1024x1024.jpgAre you thinking about leaving the Bay Area and its crushing housing costs and mind-numbing commutes behind?

The move could cost you.

Highlighting the recent push to flee Silicon Valley, moving-truck rental company U-Haul charges much higher rates – in some cases more than 10 times higher – for travelers leaving the Bay Area, compared to those entering it.

It’s simple supply and demand, says Mark Perry, a finance and economics professor at the University of Michigan and scholar with the American Enterprise Institute think tank. As the Bay Area exodus continues, U-Haul is watching its trucks drive out of the region and not return – leaving the company with a shortage in the area, Perry wrote in a blog post. So the company is raising and lowering its prices accordingly.

“They’re almost paying people to get the trucks back into San Jose,” he said in an interview. That suggests “there’s a huge outflow, and a lot of outbound moves leaving the area, and very few moves coming in.”

Moving from San Jose to Las Vegas, Nevada? You’ll shell out $945 to rent a 10-foot U-Haul truck, and $1,990 to rent a 26-foot truck, for up to four days, according to the U-Haul website. But make the move in the other direction, and you’ll pay $119 for a 10-foot truck and $132 for a 26-foot truck.

Moving from Phoenix, Arizona to San Jose is the same – $119 for the smallest truck, and $132 for the largest. But a trip from San Jose to Phoenix costs $618 and $1,301.

Moves to and from San Francisco, and to and from Oakland, saw a similar price difference.

U-Haul’s varying rates depend on several factors, including supply and demand, a company spokesman wrote in an emailed statement.

“U-Haul utilizes a proprietary rates and distribution system, and a management team that considers many factors when determining pricing for equipment rentals from one location to another, not the least of which is supply and demand,” Jeff Lockridge wrote. “We endeavor to make our equipment available at the lowest cost to everyone, regardless of where customers are traveling in the U.S. or Canada.”

In the fourth quarter of last year, the San Francisco metro area was the region in the U.S. with the most residents looking to move elsewhere, according to a recent study by real estate website Redfin. The study, which analyzed 1 million users looking for new homes, found 15,489 – or more than 19 percent – of San Francisco-area residents surveyed were planning to move out of the area, with the most popular destinations being Sacramento and Seattle, Washington.

U-Haul charges $517 and $680 to rent a truck for a move from Seattle to San Jose, and $1,654 and $3,482 for a trip from San Jose to Seattle. Sacramento to San Jose costs $85 and $110, while San Jose to Sacramento costs $259 and $370.

Moving company North American Van Lines, which publishes an annual report on migration trends, last year found California was one of the top five states people left – a distinction the state has never had before. In 2017, 60 percent of moves involving the state were people leaving, and 40 percent were people arriving, according to the study.

Story Source: SacBee.com
Pic Source: bayareacouncil.org

Reform vote for Dodd-Frank postponed

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The Senate announced Thursday it would postpone the vote on its Dodd-Frank reform bill until sometime this week after it couldn’t agree on the bill’s more than 100 amendments.

Last week, the Senate passed a motion to proceed to debate on S. 2155, a bill that would overhaul major parts of the Dodd-Frank Act. Originally, the Senate expected to vote on it at some point last week.

However, members of the Senate have since been unable to agree on which of the more than 100 proposed amendments should be included with the bill. The Senate announced it would vote of a series of the bill’s amendments early this week.

More than 80 of the 100 proposed amendments come from Democratic critics of the bill, and would limit the number and type of banks that would be helped by the bill.

Late last year the Economic Growth, Regulatory Relief and Consumer Protection Act, which was sponsored by Banking Committee Chairman Mike Crapo, R-Idaho, with nearly 20 co-sponsors on both sides of the aisle, was introduced in the Committee on Banking, Housing and Urban Affairs.

But while the bill is bipartisan and holds significant support from the housing industry, it does still have its critics. Read more about the ongoing debate, here. However, despite the opposition, the bill is expected to eventually pass in the Senate.

Republicans have also added their fair share of amendments. For example, the Senate must also consider a substitute amendment from Crapo that would expand the bill’s scope. The amendment eases security laws in order to compromise with House Republicans, and compromises with Democrats by adding several consumer protections.

But while most expect the bill to pass in the Senate, it is uncertain what turn it will take in the House, as it seems House Financial Services Committee Chairman Jeb Hensarling, R-Texas, wants to take the bill even further, according to one of the bill’s critics.

“To make matters worse, Chairman Hensarling has now indicated that he believes the bill doesn’t go far enough, and is demanding that the Senate pack this already bad bill with even more harmful bills,” said the committee’s Ranking Member Maxine Waters, R-Calif. “Among other things, those bills would allow payday lenders to evade state interest caps, force regulators to loosen rules that the financial services industry considers inconvenient, and weaken stress tests for megabanks.”

Pic and Story Source: Housingwire.com