Looking at the latest report on home sales from NAR and if home sales are cooling off, real estate and money laundering, consumer expectations about home prices, encouraging economic projections, the low level of new homes being built and more
US Existing Home Sales Slowing
According to NAR’s latest Existing Home Sales Report, US home sales are slowing down:
Remember that this is talking about the entire country and does not reflect what is happening in every local market. Do not let national reports fool you about what is happening locally!
If we look at the data for Anderson County SC from the WUAR MLS, we see:
- Home sales in June 2018 are 19.3% lower than June 2017
- The median sold home price in 2018 was 9.4% higher than June 2017
- The average time on market during June 2018 was 47% higher than June 2017
- The number of foreclosures sold during June 2018 was 150% lower than June 2017
While better information than a national report, these statistics are for ALL of the homes sold in all price ranges and areas of Anderson County. You must always compare apples to apples when determining what is possible or probable for a specific home.
In other words, you must look at similar homes that have sold recently in the same area. You have to look at similar homes in the same area that are for sale currently and even homes that were recently taken off the market.
Why Criminals Use Real Estate to Launder Money
Real estate is often the preferred destination for a financial criminal’s ill-gotten gains for the same reason real estate is attractive to any investor: Real estate prices are generally stable and will appreciate over time. Real estate is also functional; a money launderer could use the property as a second home or rent it out, earning income from the investment.
“You’re not gonna lose money on the transaction,” said Chris Quick, a former FBI agent who now runs a private investigation firm in South Carolina. “You buy a piece of real estate for a million, you’re gonna get rent on it or you’re hoping it’ll appreciate in value so when you sell 4 or 5 years down the road, you’re gonna make 25 percent on it. That’s one of the reasons why it’s attractive.”
Real estate also offers a path to legitimacy that is more efficient than the purchase of stocks or other assets related to financial institutions. It’s also less subject to scrutiny—those institutions have a legal requirement to report suspicious activities.
As unpopular as this bit of truth is with some within the real estate industry, it is still the truth. There are many ways to launder money but many crooks prefer using real estate to clean up dirty cash.
This does not mean that all cash deals in real estate is a crook laundering money. Real estate is just one of the ways used to launder money.
There are many cash real estate transaction happening every year. But this does not mean that the majority of cash transactions are crooks laundering money.
Also, since there are large sums of money involved in real estate, some scam artists are drawn to real estate. This is why it is very important to work only with licensed reputable real estate professionals.
Consumers Expecting More Taxes
Highlights from the July 2018 Survey of Consumer Expectations:
- Median inflation expectations at the one-year horizon were unchanged at 3.0%
- Median home price change expectations was 3.7%
- Median one-year ahead earnings growth expectations was 2.4% in July
- The mean probability that the U.S. unemployment rate will be higher one year from now was 34.2%
- The mean perceived probability of losing one’s job in the next 12 months was 14%
- The mean probability of leaving one’s job voluntarily in the next 12 months was 23.2%
- Median expected household income growth increased to 2.8%
- Median household spending growth expectations was 3.2%
- The median expectation regarding year-ahead change in taxes saw its 5th consecutive increase
Check out the chart showing how consumers expect home prices to increase:
3.7% home price growth could be a tad optimistic. BUT considering how demand is still very strong and supply, it is not completely unrealistic.
GDP Projected to Grow 3.1% in 2018
According to the CBO’s Update to the Economic Outlook for 2o18 to 2028, real gross domestic product (GDP) is expected to grow by 3.1 percent in 2018 and by 2.4 percent in 2019:
This will cause the unemployment rate to decrease even more through next year:
They are predicting interest rates to rise as the Fed raises the federal funds rate:
The CBO anticipates that growth in real residential investment will remain subdued in 2018 before picking up considerably in subsequent years. They are projecting that real residential investment will grow by 2.5% in 2018, by 5.0% in 2019, and by an average of 4.1% each year from 2020 to 2022.
They said that the slow growth in residential investment in 2018 is because of how the 2017 tax act has portions that reduce the incentives to own homes. The increase in growth from 2019 through 2022 will be due to household formation and continued easing of mortgage lending standards.
Overall a very encouraging report BUT they do point out:
Economic projections are inherently uncertain. But CBO’s current economic projections are especially so because they incorporate several estimates of the effects of recent changes to fiscal policy, which are themselves very uncertain. In addition, recently implemented changes to trade policies, and proposals calling for further changes, compound the uncertainty surrounding the current economic outlook.
There is no doubt that the tariff/trade policy issue is causing uncertainty. But you never know what the future holds so do what is best for you while planning for any potential hiccups in the future.
The Low Level of New Homes Being Built
Despite healthy and persistent growth, U.S. home construction rates remain far behind historic norms. If permits were issued at historic rates (defined on a per incremental capita basis) over the last 10 years, there would have been some 2.3 million more single-family homes built nationwide. That represents almost two years of ‘lost’ building at the current rate of 1.3 million per year.
Although construction rates have been steadily rising – with June new home sales up 2.4 percent from a year ago – the U.S. is still building fewer single-family homes on a per capita basis than it did historically.
From 1985 to 2000, there were 3.9 single-family residence building permits for every 1,000 residents. Currently, that number is 2.6, a decrease of 33.5 percent.
I have been saying that new home construction is better than it was but is still too low due to household formation. Something else to consider is if new homes are being built, are they the affordable homes in the low and mid price tiers that we need?
The last thing we need in most areas of the country is more higher priced homes!
Fannie Mae CEO’s Undisclosed Romance
A government watchdog has rebuked the outgoing CEO of mortgage-finance giant Fannie Mae for failing to fully disclose potential conflicts arising from his romantic relationship with an executive at another company — the second such reprimand handed to him in just over a year.
Timothy Mayopoulos had recused himself broadly from any business between Fannie Mae and the company, TransUnion, where his romantic partner, Heather Russell, serves as chief legal officer. But the watchdog faulted Mayopoulos — and Fannie Mae — for not flagging a possible conflict involving a credit-scoring project that could benefit TransUnion, according to people familiar with the report.
The report raises new questions about the management and oversight of Fannie Mae, the country’s biggest source of mortgage funding. Fannie Mae and the smaller Freddie Mac, which are backed by U.S. taxpayers, have been under government conservatorship since the housing market collapse and, during that time, have increased their power over the market. Their regulator, the Federal Housing Finance Agency, has been criticized for giving the two companies too much freedom to grow, amid warnings that taxpayers could be at risk.
Timothy Mayopoulos has been CEO of Fannie Mae and a member of the board of directors since 2012 so this is not a case of Trump failing to drain the swamp. It isn’t acceptable though and does make you wonder if TransUnion benefited from this relationship.
Well that is all I have time for today!