Local Market Monitor’s National Economic Outlook for August

Local Market Monitor, a National REIA preferred vendor, recently released their National Economic Outlook for August, 2018 where they share their thoughts on developments taking place in the U.S. economy.  Interestingly, they find “the high level of consumer spending a bit disturbing” and suspect it might have been built on borrowed money & credit cards.

National Economic Outlook – August 2018

August 14, 2018
By Ingo Winzer

I normally don’t pay much attention to the Gross Domestic Product. I’m not an economist and how you can accurately estimate the output of as large and complicated an economy as the US to within a percentage point is thankfully beyond my understanding. Furthermore, the swings from one quarter to the next are sometimes so large that the number in an quarter seems meaningless. The last time GDP was over 4 percent (4.9 percent, in the third quarter of 2014), in the very next quarter it was 1.9 percent.

But the 4.1 percent GDP growth in the second quarter of this year has been trumpeted as evidence of a very strong economy, so we better have a closer look. The largest portion of the 4.1 percent was 2.7 percent due to consumer spending. Other than that, exports were up, imports held steady, and the government spent a bit more. I actually find the high level of consumer spending a bit disturbing because I strongly suspect it was built on borrowed money – credit cards.

GDP is an income statement, not a balance sheet, and if GDP looks good only because consumers keep borrowing, what’s good in the short run will have bad consequences down the road. The next GDP report comes out in late October, just in time for the elections.

Overall, jobs in July were up 1.6 percent from last year, the same level we’ve been at for months. Jobs were up 2.6 percent in manufacturing – this is a big deal if it continues. Manufacturing is now just 10 percent of the economy (measured by jobs) but if it’s doing better because US factories have become more efficient, we can expect the entire sector to keep growing for years.

Jobs were up 2.6 percent in business services, 1.8 percent in healthcare, 1.8 percent at restaurants, 1.3 percent in finance, and just 0.6 percent in retail trade. As always, government jobs were flat.

Don’t miss what else Ingo has to say about the economy this month.  Click Here to see his FREE 6 minute webinar. 

About the Author: Ingo Winzer is President of Local Market Monitor, and has analyzed real estate markets for more than 20 years. His views on real estate markets are often quoted in the national press and in 2005, he warned that many housing markets were dangerously over-priced. Previously, Ingo was a founder and Executive Vice President of First Research, an industry research company that was acquired by Dun and Bradstreet in March 2007. He is a graduate of MIT and holds an MBA in Finance from Boston University. He resides in Cambridge, Massachusetts.

Click here for more information about Local Market Monitor.

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Vacant Big-Boxes Being Used as Immigration Detention Centers

San Antonio Express-News: Security guards monitor the perimeter of a facility, which was formerly a Walmart in Brownsville, TX.

Every area has them…..empty “big box” stores.  Whether they were a Walmart or a Kroger’s there’s usually one thing for certain;  they generally sit empty for a long time and are often eyesores to the community.  A recent article in Texas’ San Antonio Express-Newsdiscusses an unlikely use for these shuttered spaces (that has also generated some controversy) as detention centers for illegals.

While this is certainly one way to repurpose a nonproducing asset, it was completely unforeseen:

“According to a special warranty deed, Walmart placed restrictions on the property forbidding the space from being used as a grocery store, supermarket, wholesale club similar to a Sam’s Club, discount store, pharmacy, adult book or adult video store, bar or nightclub, among other uses….In several tweets, Walmart has said it was “really disturbed by how our former store is being used … we had no idea it’d be used for this.”

Click here to read the full story at the San Antonio Express-News.

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Freddie Mac Has a New Plan to Cap Rent Increases

Source: WSJ and RealPage Inc.

We have had several posts about rent control and its harmful unintended consequences, and now this:  The Wall Street Journal (as reposted by Realtor.com) is reporting that Freddie Mac (in a new twist in controlling rent increases) is launching a new program that will offer lower-cost financing to owners who agree to cap rent increases for the life of their loans.  While similar to “rent control” it differs dramatically in that it is a voluntary arrangement between the private owner and the lender.  The program launched in early August and is available nationwide.   Eligible properties start with at least 50% of rents affordable to households earning 100% of Area Median Income or less. Borrowers then agree to limit rent growth on 80% of the units for at least the 10-year loan term.

“The initiative comes at a potentially appealing time for real-estate investors who are facing a slowing rental market. Freddie Mac will provide mezzanine debt—which is more risky but pays a higher interest rate than senior debt—at below market cost.”

Click here to read the full story on Realtor.com.

Click here to read Freddie Mac’s release about the program.

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Half of all US Homes Built Before 1980

According to a recent report from the NAHB’s Eye on Housing, the median age of owner-occupied homes was 37 years, which is 6 years more than it was just a few short years ago.  The NAHB attributes this to modest gains in residential construction over the past ten years.  We see it as an opportunity to fix-n-flip, especially in this tight market with low inventory driving up prices.

“This aging housing stock signals a growing remodeling market, as old structures normally need to add new amenities, or repair/replace old components. Rising home prices also encourage home owners to spend more on home improvement…”

Click here to read the full report at the NAHB’s Eye on Housing.

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Nationwide, Buying a Home is 26% Cheaper than Renting

A new report from Trulia says that, nationwide, buying a home is 26.3% cheaper than renting.  Of course this all depends on the particular area, however their study also shows that for the first time in five years renting has come out best in two West Coast metros: San Jose and San Francisco, CA.  Both of these locales have soaring home values and flattened rents.  They also point out that in a few other areas (like Honolulu and Seattle) the savings from buying a home has dissipated, leaving home buying with a slight advantage.

“To be sure, in most places, buying is still a significantly better financial proposition. But, looking nationwide, the steady upward march of home prices has shrunk the savings from buying in every one of the country’s 100 largest markets.”

Click here to read the full report on Trulia.com.

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Single-Family Home Prices Increased in 90% of U.S. Metros

According to the National Association of Realtor’s latest quarterly Metropolitan Median Area Prices and Affordability report, Single-family home prices increased in 90% of measured markets, with 161 out of 178 metropolitan statistical areas (MSAs) showing sales price gains in Q2 compared to one year ago. Twenty-four metro areas (13%) experienced double-digit increases, down from 30% in Q1, 2018.  The NAR’s report provides a breakdown of condo and co-op prices by metro market.

The five most expensive housing markets for single-families in Q2 were San Jose, California ($1,405,000); San Francisco-Oakland-Hayward, California ($1,070,000); Anaheim-Santa Ana-Irvine, California ($830,000); urban Honolulu ($795,200); and San Diego-Carlsbad ($645,000).  The five lowest-cost metro areas in Q2 were Youngstown-Warren-Boardman, Ohio ($94,400); Cumberland, Maryland ($94,900); Decatur, Illinois ($96,900); Elmira, New York ($106,300); and Erie, Pennsylvania ($121,700).  In addition, total existing-home sales, including single family & condos, decreased 1.7% to a seasonally adjusted annual rate of 5.41 million in Q2 from 5.51 million in the first quarter, and are 2.4% lower than the 5.55 million pace experienced during Q2 of 2017.

Lawrence Yun, NAR chief economist, says this year’s spring buying season did not meet expectations, despite very strong demand. “The ongoing supply crunch affecting much of the country worsened for most of the second quarter, as the growing number of interested buyers in many markets overwhelmed what was already a meager level of available listings,” he said. “With not enough homes for sale, multiple bids caused prices to rise briskly and further out of the reach of some prospective buyers.”

 

Click here to read the full report at the NAR.

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Best Neighborhoods for Buying and Investing!

What are the best neighborhoods for buying and investing?  ATTOM Data Solutions helps answer that question with their 2018 Neighborhood Housing Index where they ranked rank over than 10k neighborhood housing markets nationwide based on six factors impacting the hyperlocal housing market: affordability, home price appreciation, school scores, crime rates, unemployment rates and property taxes.  Their top 5 markets were:  Pine Ridge neighborhood in the Naples, Florida, metro ($632,871 median price); Westlake neighborhood in the Mobile, Alabama, metro ($196,179); Union neighborhood in the San Jose, California, metro ($795,000); Westmoreland neighborhood in the Charlotte, North Carolina metro ($326,000); and Hunters Hill neighborhood in the Denver, Colorado, metro ($271,000).

“While home prices are typically higher in higher-ranked neighborhoods with better schools and lower crime, there are still many top-notch neighborhoods with more reasonably priced homes,” said Daren Blomquist, senior vice president at ATTOM Data Solutions. “The top five neighborhoods in this ranking represent a diverse set of markets across the country, illustrating that great neighborhoods come in many different forms.”

Click here to read the full report at ATTOMdata.com.

 

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Yardi Reports Another All-Time High for Rents

According to the latest Yardi Matrix, U.S. multifamily rents rose $3 in July to $1,409 – which they report is yet another all-time high.  Year-over-year in July, rents were up 2.8%.  Yardi says the multifamily market continues to demonstrate steadiness and that growth continues to be led by secondary markets being driven by strong late-cycle economic performance.

“Economic conditions remain favorable for the multifamily industry, especially in secondary markets that are leading the nation in employment growth. Domestic migratory patterns are also driving demand in key markets in Florida and the Desert Southwest. Households received an income boost via the 2017 tax reform package, which has allowed many to afford higher rents.”

Click here to read the full report at yardimatrix.com.

 

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Top Cities Where Seniors are Housing Cost-Burdened

Recent data from the U.S. Census Bureau shows that retirement-aged Americans across the country are struggling to find housing they can afford.  To that end, the folks at smartasset.com investigated just how much money seniors spend on housing and what cities are the most expensive for seniors.  Specifically, they looked at the number of senior renters and homeowners who spend at least 30% of their income on housing.  They found two main points; Seniors who rent are more likely to be housing cost-burdened (over 2x as likely as senior homeowners) and Seniors in big cities struggle.

“Many Americans miss the opportunity to save, which means they miss the chance to invest…Without the gains from investing, it is almost impossible to save enough for retirement.”

 

Click here to read the full story on smartasset.com.

 

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How Pros Choose a Fix-and-Flip Property

Are you someone who has thought about investing in a rehab project?  A recent article over on AskaLender.com looks at the process of doing a fix-n-flip and explains the process of buying a fixer-upper, remodeling and/or renovating it and then selling it at a profit.  They rightly point out that “it’s important to know what you’re doing when taking on a fix-and-flip project. If you make a mistake, your profitable investment could turn into a costly money pit.”  Indeed….always do you due diligence before making any investment.

Doug DeShields

Doug DeShields, president of the National Real Estate Investors Association, and an active rehabber himself, said he typically looks for homes that were built between 1950 and 1975. “They have good bones, good structure,” he said. “They’re typically brick and we can tend to do well in those houses.” Part of knowing whether a house has “good bones” or not is having some familiarity with what it takes to make necessary repairs, according to DeShields. “You do not have to be the world’s best carpenter,” he said. “You don’t have to swing the hammer one time. But what you need to do is have a good feel for the various aspects. You need to know a little bit about construction, whether you can physically do it or not. You need to know what makes a good property.”

Key points:

  • Shoot for 70 percent of the after-repair value (ARV) minus cost of repairs.
  • Look for homes with good bones (i.e., a solid structure).
  • Choose newer homes for faster, less thorough flips.
  • Get all proper permits for repairs or additions.
  • When starting out, get a mentor to teach you the ropes.

Click here to read the full article on askalender.com.

 

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