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CRE: How Trump’s Moratorium on New Financial Regulations Could Help

Donald Trump’s call for a temporary moratorium on new financial regulations could be a boom to commercial real estate and other associated industries.

“While I’m not necessarily for or against Donald Trump as a candidate, he seems to have the right approach to financial regulations,” says Steve Powel, Situs CEO.  “We need to address the impact of all the regulations that are already in place before we start talking about any new ones.”

Trump argues that his background as a real estate developer qualifies him to steer the world’s largest economy.

“I don’t know about that,” says Powel. “But regulations such as risk retention already are having significant impact on the commercial real estate industry and we need to focus on that first. One of our biggest concerns is that the new regulations have had the unintended effect of reducing liquidity in our industry. Reducing liquidity in our marketplace will cause problems down the road.”

Trump also announced major changes to his plan to slash individual income-tax rates, taking the top rate to 33-percent. While that’s higher than the 25-percent top rate Trump had initially proposed, it still represents a cut from the current top rate of 39.6 percent.

“There is too much Wall Street bashing,” says Situs’ Powel. “Main Street needs to better understand the importance of Wall Street and the benefits it brings to them.”

Hillary Clinton’s Housing Vision

Hillary Clinton rolled out a housing plan in February while still battling Sen. Bernie Sanders for the nomination, she will deliver an economic address tomorrow.

One of Clinton’s stated priorities is to address the low homeownership rates among black and Hispanic families. Clinton said she would invest $25 billion to promote sustainable homeownership. She would continue the Obama Administration’s federal initiatives, such as the Neighborhood Stabilization Program, which provides grants for communities to move foreclosed properties back on the market.

Her plan also calls for providing up to a $10,000 downpayment match for first-time homebuyers who earn less than an area’s median income. As for supporting affordable-rental units, Clinton said she will defend the current level of Low Income Housing Tax Credits, which has been the primary tool for propelling development of affordable-apartment units. She said she will provide additional credits in communities where the demand for these credits far exceeds the supply. As for the financial industry, Clinton said she will fight a rollback of Dodd-Frank and favors expanding its reach.She also supports policies that expand access to credit, particularly in poorer neighborhoods.

Clinton’s vice presidential pick, Senator Tim Kaine of Virginia once worked at small law firms litigating civil-rights and fair-housing cases.

The Virginia senator’s biggest financial win of his legal career was a $100 million jury verdict against Nationwide Insurance.

How Low Can it Go: Another BOE Rate Cut?

The pound fell against the dollar on Tuesday, with some blame going to a Bank of England policy maker who said interest rates can be dropped again and quantitative easing can be expanded.

The British currency was down to $1.3001 from $1.3039 late Monday in New York, touching levels last seen in mid-July. It has been flitting above and below the closely watched $1.30 mark during Tuesday’s session.

“Bank rate can be cut further, closer to zero, and quantitative easing can be stepped up”, the BOE’s Ian McCafferty wrote in an op-ed for the Times of London newspaper.

Meanwhile, U.K. economic reports on Tuesday showed the country’s manufacturing output fell 0.3% in June, worse than a FactSet consensus of a 0.2% drop, and industrial production rose 0.1% in June, matching expectations. In addition, the U.K.’s trade deficit widened in June.

For the pound, a “broad $1.29/$1.33 range remains intact, but [there is] immediate pressure clearly on the downside,” said Chris Dorman from the U.K. corporate Treasury sales team for Western Union Business Solutions, in a note.

Sterling’s latest slump comes after HSBC, the U.K.’s largest bank by assets, said the pound could trade as low as $1.10 by the end of 2017. The pound must weaken substantially to prevent the U.K.’s current-account deficit, already one of the largest in the developed world, from blowing out in the wake of the Brexit vote, according to HSBC’s analysts.

Citi Stockpiles ‘Weapons of Mass Destruction’

Citigroup has carved out an an improbable niche, given its history of receiving the most federal aid among banks in the wake of the 2008 financial crisis.The bank, which already has the most derivatives of any of its U.S. rivals, has been buying credit-default swaps from its European rivals, which are under growing pressure to quickly cut holdings of riskier assets.

Several weeks ago, Credit Suisse said it sold a portfolio of derivatives with a gross notional value of $380 billion, which helped the Swiss bank reduce its leverage exposure by about $5 billion. On Friday, Bloomberg News reporters Jeffrey Vogeli and Donal Griffin reported that Citigroup was the winning bidder.Citigroup also bought credit derivatives with a notional value of about $250 billion from Deutsche Bank last year and was in talks to buy more, Bloomberg reported in March.

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Fannie, Freddie Could Need as Much as $126 Billion in Crisis

Fannie Mae and Freddie Mac could need as much as $125.8 billion in bailout money from taxpayers in a severe economic downturn, according to stress test results released Monday by their regulator.

The Federal Housing Finance Agency said that the government-controlled companies, which back nearly half of new mortgages, would need at least $49.2 billion.

The annual test, required by the Dodd-Frank Act, is likely to be used both by proponents of allowing Fannie Mae and Freddie Mac to build capital and by those who think there’s not an urgent need for the government to take that move.

Under the terms of the companies’ bailout agreements, Fannie Mae and Freddie Mac must send nearly all of their profits to the U.S. Treasury and wind down their capital buffers until they reach zero dollars in 2018. After that point, any loss at either company would require a draw from taxpayers.

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Trouble for ‘Tech Bros”

New York real estate has always had a rich cast of characters: the street hustler, the entitled scion, the finance whiz, the double-crossing mogul. But since 2011, a new character’s entered the fray: the tech bro.

Fueled by a rush of venture funding, tech bros took up trendy loft space, introduced the industry to terms such as “acqui-hire” and “pre-revenue,” and targeted all aspects of commercial real estate. But five years after it began, the CRE tech boom appears over.

There have certainly been some successes, but very few local CRE tech firms have really blown up. One reason is an unwillingness by industry overlords to bet big on technology; another is that real estate innovation seems to be more about base hits than home runs. As Richard Sarkis, CEO of Reonomy, put it: venture capitalists are no longer looking for unicorns, but “cockroach startups.”

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Consumer Spending, Income Expectations Rise

U.S. Consumer expectations about spending ticked up in July, and households expected better income growth and finances in the future, positive signs for economic growth.

That data comes from the New York Fed’s Survey of Consumer Expectations, which polls about 1,200 households across the country. Spending expectations for the year ahead rose to 3.8% from 3.6%, the second monthly increase. Respondents see incomes growing 2.8%. Income growth expectations have also increased for two months in a row.

Inflation expectations eased to an annual rate of 2.5%, the second-lowest reading on record and the second straight monthly decline. Prices rose 0.9% in the 12 months ending in June, the Commerce Department said last week.

Survey respondents were more mixed in their views about the job market. The median expectation about becoming unemployed declined to 37.5% from 38.1% but the mean probability of finding a job in the next three months also dipped to 53.3% from 53.6%.

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