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In this Real Estate News Brief, we'll look at economic news from the week ending September 10th, 2022...

Hi, I'm Kathy Fettke and this is Real Estate News for Investors. If you like our podcast, please subscribe and leave us a review.

Economic News

Last Monday was Labor Day, and there were few reports issued during the rest of the week. But Fed Chief Jerome Powell rocked the stock market when he spoke at the Cato Institute. It was a conference on monetary policy, where Powell vowed to fight inflation with more rate hikes, and led economists to believe we\u2019ll see another .75-1 basis point hike at the central bank\u2019s meeting later this month. It would be the third such rate hike in a row, and would bring the Federal Funds rate into a range of 3.25 to 3.50%. (1)

Powell said during the speech: \u201cHistory cautions strongly against prematurely loosening policy. I can assure you that my colleagues and I are strongly committed to this project and we will keep at it until the job is done.\u201d Fed officials want to get inflation back down to the 2% level. The Consumer Price Index was 8.5% in July.

Powell also stated there could be some \u201cpain\u201d in the job market which includes the possibility of layoffs. But despite the rate hikes that have already taken place, the job market is still strong.

In my opinion, it's going to take some time to burn off the massive liquidity that Powell injected into the market over the past two years. According the Federal Reserve Bank of St Louis's M2 chart, the amount of money circulating in early 2020 was $15.2 trillion. Today, it's hovering around 21.6 trillion dollars. That's over $6 trillion dollars still more still in circulation.

It's like Powell couldn't take his foot off the gas until March of this year, and then suddenly hit the breaks.

However, the government does not seem to be slowing down the printing presses, with it's student loan debt cancellation program that could cost up to $1 trillion and now the Inflation Reduction Act that only 1 in 4 of voters believe will actually reduce inflation, according to a recent survey from Morning Consult/Politico. 34% believe it will make inflation worse.

A Forbes article state that the federal government had a $2.8 trillion deficit in fiscal year 2021, mostly comprised of Covid-19 relief spending including stimulus checks and emergency rental assistance. The deficit amounted to approximately 13% of GDP and accounted for the second largest deficit since the end of World War II. Deficits over the last five decades have averaged just 3% of GDP.

But the brakes haven't hit the labor market quite yet.

The latest weekly unemployment report shows that initial jobless claims have dropped to a three-and-a-half month low, which is close to a record low. There were 6,000 fewer applications for unemployment benefits, compared to the week before. They were down to 222,000. The low point was last March with 166,000 new claims. (2)

Mortgage Rates

Another pain point related to inflation is the cost of a home loan. Freddie Mac says the average 30-year fixed-rate mortgage was up 23 basis points to 5.89% last week. The 15-year was up 18 points to 5.16%. Freddie says that the rates vary quite a bit from one lender to another so it\u2019s wise to shop around. (3)

In other news making headlines\u2026

Bank of America No-Down Loan

Bank of America is launching a new program for first-time homebuyers that includes no down payment, no closing costs, and no mortgage insurance. It\u2019s called the BofA\u2019s Community Affordable Loan Solution, and is designed to expand homeownership opportunities for minorities. (4)

Applicants will not have to have a minimum credit score. Instead, they will be able to qualify based on other data, such as payment histories for things like rent, utilities, phone, and auto insurance. Income and home location will also be considered. And they will have to complete a homebuyer certification course that is provided by BofA and HUD-approved counseling partners.

Personally, I find it interesting that a no-money down loan would be offered now, so late in the housing cycle. Housing is teetering on a precipice, with some markets already seeing price declines. In my opinion, this is not a wise time to bring on a loan like this, so hopefully the bankers and borrowers will be very careful not to issue these loans in markets that are currently over-priced and potentially repricing.

Tomo\u2019s Solution to the Appraisal Gap

Fintech mortgage company Tomo is offering a solution to the deal-killing appraisal gap. That\u2019s when a borrower is approved for a certain loan amount, and the home then appraises for more than the buyer had planned to borrow.

This last week, Tomo announced its new Tomo Appraisal Coverage. Buyers can get the coverage by getting an underwritten pre-approval from Tomo Mortgage. They must also put a minimum of 10% down, and work with a Tomo partner who will run the address through a verification process before an offer is made. (5)

Other exclusions include foreclosures, and properties that have health or safety issues, or a Fannie Mae rating of C5 or C6, which refer to property conditions. AND, homebuyers must be purchasing the property as their primary residence, so it\u2019s not available for multi-family properties.

It doesn\u2019t cost anything extra for the coverage, but the loan must meet all the criteria I just mentioned. And it must be a conforming loan.

Now \u201cSand\u201d Is in Short Supply

Builders have been faced with numerous supply chain issues that have left them scrambling for things like lumber, windows, doors, and metal pipe. Now, \u201csand\u201d is in short supply. (6)

We see sand almost everywhere we look, but builders need a special high-quality sand that is not as easy to find. Stanford University scientist, Eric Lamden, said in one article that sand found in the desert isn\u2019t good for construction because the grains have been eroded by wind, making them too smooth for good adhesion. He says: \u201cThat is why the tall buildings of Dubai, a desert city, were built with sand imported all the way from Australia \u2013 as skyscrapers require extremely high-quality aggregates.\u201d

He also says it\u2019s unlikely that we\u2019ll run out of the kind of sand that\u2019s needed for construction, but that regional shortages do occur, causing delays. He says it\u2019s also possible to crush rock or recycle old construction materials to get the sand that is needed.

That\u2019s it for today. Check the show notes for links at newsforinvestors.com. And please remember to hit subscribe, and leave a review! If you haven\u2019t joined RealWealth, please hit the join for free button, in the upper right-hand corner of our website. As a member, you have access to our real estate market data and our list of real estate professionals, including experienced investment counselors. Our website also includes hundreds of webinars, articles, and podcasts on everything related to real estate, with a special focus on single-family rentals.

Thanks for listening. I'm Kathy Fettke.

Links:

1 -https://www.marketwatch.com/story/powell-says-the-fed-wont-be-distracted-by-politics-as-it-moves-strongly-to-bring-inflation-down-11662644203?mod=newsviewer_click

2 -https://www.marketwatch.com/story/jobless-claims-fall-to-3-1-2-month-low-of-222-000-layoffs-still-near-record-low-11662640760?mod=economic-report

3 -https://www.freddiemac.com/pmms

4 -https://www.prnewswire.com/news-releases/bank-of-america-introduces-community-affordable-loan-solution-to-expand-homeownership-opportunities-in-blackafrican-american-and-hispanic-latino-communities-301614686.html

5 -https://www.housingwire.com/articles/tomo-launches-solution-for-the-dreaded-appraisal-gap/

6 -https://www.bdcnetwork.com/add-sand-shortage-supply-chain-woes