Category: US Economy

Three-Quarters of Homebuyers & Sellers Report Changing Plans Due to Inflation: Redfin Survey

Roughly one in 10 respondents are cancelling their plans to buy or sell a home because of inflation. 29% are delaying homebuying plans due to inflation, while 24% are accelerating their plans.

Seventy-three percent of homebuyers and sellers say inflation is influencing their future buying or selling plans, according to a recent Redfin survey.

Twenty-nine percent of respondents said they’re delaying homebuying plans due to inflation, defined in the survey as rising prices of goods and services. Twenty-four percent of respondents are moving up their homebuying plans and 11% are canceling plans altogether. Meanwhile, 10% of respondents said inflation is causing them to move up their home selling plans, 7% are delaying their selling plans and 3% are canceling.

The Redfin-commissioned survey is of 1,500 U.S. residents who are planning to buy or sell a home in the next 12 months. The survey was fielded by research technology company Lucid from December 10 to 13, 2021.

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INFRASTRUCTURE INVESTMENT AND JOBS ACT: WHY IT MATTERS FOR CRE

Learn the significance of the infrastructure bill, which regions will benefit the most and how it will impact the U.S. economy and commercial real estate (CRE) property markets.

On November 15, President Biden signed the bipartisan Infrastructure Investment and Jobs Act (IIJA) into law. Carved out of the more aggressive Build Back Better vision, it marks one of the most significant investments in physical infrastructure in the U.S. in at least half a century. In this report, we provide our quick take on the following: 

  • The infrastructure bill and what’s significant about it  
  • Which regions will benefit the most from it 
  • How it will impact the U.S. economy and property markets   
Key Takeaways 
  • It is estimated that the infrastructure bill will raise GDP growth by a cumulative 3.5% from 2022-2031, and long-term GDP growth by 0.1% per annum.  
  • The IIJA is not expected to place any material pressure on near-term inflation as the money takes time to get dispersed, and it could result in downward pressure on prices longer-term through expected efficiency and productivity gains.  
  • Industrial is the biggest winner, but all property types stand to benefit. 
  • As a result of the infrastructure bill, we estimate that total demand for commercial real estate space could be about 1.2% higher over the next five years.  

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August jobs numbers are bad, but there’s a silver lining

Skilled residential contractor workforce increased in August

The U.S. economy produced just 235,000 new jobs in August, far below economists’ expectations of 725,000 jobs.

It was the slowest month of growth since January 2021. Roughly one million jobs were produced in the months of both June and July.

“There’s no question that the Delta variant is why today’s job report isn’t stronger,” President Joe Biden said Friday. “I know people were looking, and I was hoping, for a higher number.”

Prior months’ data suggested that employers were ready to increase production to meet consumer demand, but the delta variant impacted hiring, said Joel Kan, the Mortgage Bankers Association‘s vice president of economic and industry forecasting.

“Also, this was the first time in six months that leisure and hospitality hiring did not show a gain and the second month in a row that retail trade saw a decline,” he said. “Overall payroll employment is still 3.5% below where it was pre-pandemic. And the leisure and hospitality sector remained 10% behind.”

The Labor Department report on Friday shows an unemployment rate of 5.2% compared with 5.4% in July, and job gains were concentrated in the professional and business services sectors.

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Negative Real Rates Aren’t Reversing Anytime Soon: Paul Podolsky

Money has flowed into the economy in a short period of time without sparking inflation or causing real rates to rise and should open the door to more aggressive fiscal action.

(Bloomberg Opinion) — The collapse in real interest rates to below zero means the U.S. government is being paid to borrow and spend. This is obviously rare, but that doesn’t mean the situation will soon reverse. Absent a low probability event like mass civil unrest or a balance of payments crisis, about the only thing could spur real rates to turn positive would be a massive infrastructure plan by the government.

Now would seem an ideal time for the government to borrow and spend to fix the nation’s increasingly creaky infrastructure. The World Economic Forum ranks the U.S. 13th in the world in terms of the quality of infrastructure, well behind places like Singapore, Switzerland and Germany. But although there is bi-partisan support for additional infrastructure spending, plans put forth by both Republicans and Democrats are too small to move the needle in terms of boosting economic growth by enough to meaningfully push real interest rates, or those after accounting for inflation, back above zero.

This has enormous implications for financial markets. Declining real rates have been the tail wind behind the 40-year upswing in the stock market. Real rates, especially those at the longer end of the yield curve, are a key factor for investors in determining the appropriate price-to-earnings ratio for equities. In short, the lower the real rate, the higher the ratio investors should be willing to accept. But should real rates rise, asset markets will need to re-price, potentially demolishing popular bets like those on technology stocks, gold and illiquid credit assets.

Although tighter coordination between fiscal and monetary policy coordination make it much easier to pull off a big infrastructure program, I’m betting the government is too timid take advantage of the remarkable opportunity in negative real rates. As a result, I’m sticking with an asset allocation that benefits from real rates staying low or even becoming more negative.

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Hundreds of thousands of people looking for suburban homes — Sternlicht on exodus from cities

“I would say it’s not as driven by the Covid situation as it is safety and law and order,” global investor Barry Sternlicht told CNBC.

Global investor Barry Sternlicht told CNBC on Tuesday he believes masses of people are moving away from major U.S. cities in favor of the suburbs.

“There’s hundreds of thousands of people looking for suburban homes, and I would say it’s not as driven by the Covid situation as it is safety and law and order, and that is now pervasive across the big cities of the United States, sadly,” Sternlicht said on “Squawk Box,” referring to recent protests that have sometimes turned violent.

Tax policy is another force that could be playing into the desire for affluent people to relocate from large cities such as New York, said Sternlicht, founder and CEO of investment firm Starwood Capital, which focuses on areas such as real estate and energy infrastructure.

Although cities may be facing declining revenues as a result of the coronavirus pandemic, Sternlicht said, “if you tax the wealthy even more in New York City … and they leave, then the social net has to be absorbed by the remaining residents and you can force them to leave.”

“The Biden tax plan, which I’m happy to pay more taxes, but I don’t think this increase in the capital gains rate is a good idea for investment in our country, which we need to do,” he said. And if that passes and the the limit on state and local tax deductions is not repealed, “you’re talking 60% plus taxes on the wealthy in New York City, and they will leave.”

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The recovery from the coronavirus sure looks V-shaped, going by these charts

The U.S. economy added a record number of jobs in May as it appeared to bounce off the bottom of the coronavirus recession, and now the chart of jobs gains and losses is starting to look like a “V.”

The possibility of a V-shaped recovery — a sharp fall in economic activity followed by a dramatic rise — has been a hot topic of debate since the coronavirus pandemic led to widespread business closures across the United States. The shape of the economic recovery is a popular guessing game on Wall Street with economists and pundits suggesting everything from a “V” to a “W” to even a Nike Swoosh as businesses were slower to get back to normal.

The better-than-expected jobs report follows a series of other recent data points that have shown a quick recovery from their pandemic-era lows and point to a V shape.

Mobility data from Apple showed that requests in directions for driving and walking had nearly recovered to pre-pandemic levels by June 1. The increase in travel demand has extended to flying as well, with major airlines announcing this week that they are bringing back some of the flights that they had suspended due to the pandemic.

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Nearly half of Americans have anxiety over their debt

This is causing physical and mental distress

Adults in the U.S. over the age of 18 say they have an average of $29,800 in personal debt (not including mortgages), and 15% of Americans say they think they will be in debt for the rest of their lives.

According to Northwestern Mutual’s 2019 Planning and Progress Study, this is still an improvement from last year’s average of $38,000 in personal debt.

“The road to financial security is long, even in the best of circumstances,” Emily Holbrook, senior director of planning at Northwestern Mutual, said in a release. “By carrying high levels of personal debt that road gets even longer, often requiring all kinds of detours and other twists and turns. The fact that there’s been some year-over-year improvement in debt levels is good, but the numbers still remain worryingly high.”

An average of 34% of people’s monthly income goes towards paying off debt, the study showed, while another 34% of respondents said they aren’t sure how much of their monthly income goes towards paying off their debt.

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This is how America’s housing affordability is impacting credit quality

Affordability has returned to average historical levels, and it’s having a ripple effect.

It’s official: The era of unusually affordable housing has ended. Well, according to a recent Moody’s Investors Services analysis.

The organization claims that America’s housing affordability has returned to average historical levels, therefore impacting credit quality across numerous housing-related sectors.

“Homes are no longer relatively cheap on a national basis, and certain market segments are in worse shape, reflecting supply-and-demand imbalances stemming from the 2007 through 2012 housing slump, as well as demographic changes and the long U.S. economic expansion and its unevenly spread benefits,” Moody writes. “Reduced affordability is also a lingering issue in the rental market, where the effects are in some ways more severe.”

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Slower, More Sustainable U.S. Economy Emerges

The Federal Reserve’s dovish pivot has been reinforced by the abundant liquidity in the capital markets, according to David Shillington of Marcus & Millichap Capital Corp.

Amid ongoing strength in the domestic economy, concerns over the global economy present a more balanced approach to the growth outlook for this year. Weaker data in Europe and Asia, coupled with the risks associated with a broader U.S. trade war with China, represent potential economic downsides.

As a result, the rapid economic expansion that dominated the U.S. economy in 2018 has largely been replaced with a slower and more sustainable scenario. The Federal Reserve has eyed these developments, putting further rate hikes for this year on hold at its latest meeting in March. The Fed also announced plans to end quantitative tightening, its process of reducing its balance sheet, by September of this year. This follows a tumultuous fourth quarter in financial markets, with spiking volatility in equity markets leading to a steep drop in 10-Year Treasury yields from nearly 3.25 percent to 2.5 percent, the lowest level since the beginning of 2018. The yield curve has begun to price in a much more dovish Fed, with flattening interest rates across a range of maturities leading to a partial inversion in some short-dated issues.

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This housing market clue predicts pending economic slowdown

A key indicator of economic health is steadily declining, and it’s raising red flags.

When it comes to the health of the economy, the housing market is the canary in the coal mine, providing clear and early clues of pending trouble. And that’s why analysts track its performance intently, looking at a multitude of indicators that might signal the looming recession some are forecasting.

Now, one critical clue from the housing market has emerged to suggest economic growth is likely to backslide, and that is a steady decline in single-family authorizations.

In essence: Construction activity appears to be slowing.

Single-family housing authorizations – what some call a key predictor of economic recessions – represent building permits requesting permission to commence construction. In contrast, housing starts signal that construction has already begun.

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