The Real Estate News Brief: Inflation Scare, Looser Credit Standards, and the Impact of Government Regs on Home Prices

Real Estate News: Real Estate Investing Podcast

In this Real Estate News Brief for the week ending May 15th, 2021... a surprise jump in consumer prices, a looser lending environment, and how government regulations impact home prices.

Economic News

We begin with economic news from this past week that includes a few good reports on the job market. Unemployment claims fell again, to a new pandemic low. Initial state claims are now down to 473,000. That’s the fifth week in a row they have dropped, and reflects a huge hiring effort by U.S. companies as the economy continues to recover.

The March report on job openings shows 8.1 million unfilled positions. That’s up from 7.5 million in February. They had dipped to as low as 4.6 million soon after the start of the pandemic. But the problem now is finding enough qualified employees to fill all those jobs. Some people blame generous unemployment benefits, while others argue that many parents have kids at home and no childcare, or that COVID-19 may still be a threat for some people, especially those who are not vaccinated.

New evidence of inflation caused some panic on Wall Street this last week. There was a sharp stock sell-off after the government reported the steepest rise in consumer prices since 2009. The Labor Department says the index was up .8% in April which is almost a half point higher than economists had predicted. Year-over-year, the rate of inflation has gone from 2.6% in April of last year to 4.2% this year.

The Federal Reserve believes that this is temporary because the economy is recovering so quickly. The central bank believes that prices will settle back down with inflation numbers falling back to a long-term goal of 2%. Some economists also say that the current rate of inflation is exactly where it would be if the pandemic had never happened.

The stock market did bounce back on Friday, but inflation concerns will likely persist. The University of Michigan blames those kinds of worries for a decline in consumer confidence. The index fell six points in May from around 88 to 82.

Mortgage Rates

Inflation hasn’t done much with mortgage rates, so far, which is great for home buyers. The thirty-year fixed-rate mortgage is still under 3%. It was down 2 basis points this last week to 2.94%. The 15-year was down 4 points to 2.26%. It’s been ticking lower for the last month but rates are expected to climb somewhat higher by the end of this year.

In other news making headlines...

Lenders Making It Easier to Get a Loan

Homebuyers may find it a little easier to get a loan as lenders compete for their business. The Mortgage Bankers Association says that the Mortgage Credit Availability Index was up 5% last month for conventional loans, 7% for jumbo loans, and 13% for conforming loans. That suggests a loosening of credit standards as the economy recovers and the housing market continues on an upward trajectory.

First-time home buyers are also flooding into the market. According to data from the National Association of Home Builders and Wells Fargo, 43% of the new homes are going to first-time home buyers so far this year. That’s up from 32% in 2018.

The High Cost of Government Regulation

We’ve heard a lot about the high cost of lumber and how that’s impacting new home prices, but that’s chump change next to the cost of government regulations. The National Association of Home Builders say that 23.8% of the average sales price on new single-family homes is due to regulations during construction. If your average sales price is $397,000, you are paying about $94,000 in fees.

NAHB chairman, Chuck Fowke, told the World Property Journal: “This study illustrates how overregulation is exacerbating the nation’s housing affordability crisis and that policymakers need to take bold steps to reduce or eliminate unnecessary regulations that will help builders increase the production of quality, affordable housing.”

Rising lumber prices have added another $36,000 to the price of a new home. Those costs were not part of this study.

Existing Homes Now More Pricey Than New Ones

The median price for existing homes is now higher than the median price for a new home. The National Association of Realtors says the price for an existing single-family home is now $334,500, while the Census Bureau says the median for a new home is $330,800.

This flip-flop on value hasn’t happened for more than 15 years, but economists say it doesn’t mean that existing homes are truly more expensive. They say the lack of low-priced existing homes and the continued demand for high-priced homes has skewed those numbers higher, and that an increase in less expensive new homes has skewed those numbers lower.

NAHB chief economist, Robert Dietz, says that new homes are still more expensive on a per-square-foot basis.

The Quicken Loan Name to be Retired

Quicken Loans will officially change its name to Rocket Mortgage this July. Quicken founder, Dan Gilbert, introduced Rocket Mortgage five years ago as a digital mortgage service. The company now plans to put the entire mortgage process online under the Rocket Mortgage name, so Quicken Loans will be permanently retired on July 31st.

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Links:

www.NewsForInvestors.com

https://www.marketwatch.com/story/unemployment-claims-fall-to-pandemic-low-as-businesses-seek-to-hire-more-workers-11620910124?mod=economic-report

https://www.marketwatch.com/story/u-s-job-openings-soar-to-record-8-2-million-but-businesses-say-they-cant-find-enough-workers-to-hire-11620742194?mod=home-page

https://www.marketwatch.com/story/u-s-inflation-climbs-in-april-to-the-highest-level-in-13-years-cpi-shows-11620823628?mod=mw_latestnews

https://www.marketwatch.com/story/u-s-consumer-sentiment-index-slumps-unexpectedly-in-may-11621002642?mod=economic-report

http://www.freddiemac.com/pmms/

https://www.housingwire.com/articles/volume-hungry-mortgage-lenders-loosen-credit-standards/

https://www.worldpropertyjournal.com/real-estate-news/united-states/washington-dc-real-estate-news/real-estate-news-national-association-of-home-builders-nahb-regulatory-costs-to-new-home-prices-in-2021-chuck-fowke-government-regulations-for-homebui-12511.php

https://magazine.realtor/daily-news/2021/05/06/are-existing-homes-really-more-pricey-than-new

https://www.housingwire.com/articles/quicken-brand-will-be-officially-retired-on-july-31/