Situs Newswatch 8/17

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Buyers Swoop in as Real Estate Industry Worries About Uncertainty 

Real Estate markets world-wide are spooked by uncertainty, but as always some brave, hearty souls are taking advantage to scoop up the bargains.

Situs CEO Steve Powel said “It is a very complicated world out there, usually Wall Street hates uncertainty, but stock indexes have hit new all-time records over the past several days despite all the global turbulence. The Real Estate industry is in a similar dilemma.”

In New York, brokers are reported to be losing confidence in the market, with fears driven by the shoot-from-the-hip 2016 U.S. presidential campaign. The Real Estate Board of New York reported a drop in confidence during the April-through-June quarter.“This is clearly good news for buyers,” said Situs Executive Managing Director Steven Bean. “With such a cloudy outlook, prices will not increase, and will start to decrease, as the volume of sales decreases.”

In the U. K., commercial real-estate values fell 3% from June to July based on data from MSCI, due to fear from the after-effects of Brexit. The finding show the biggest losses in central London office buildings, where values fell 3.8%.

“Since the Brexit vote, we’ve seen nearly a 10-percent reduction in the selling price of houses in London and other parts of the country,” said Tim Keast, Situs Managing Director Advisory Europe. “On the positive side, people are taking advantage to buy at these low prices and are even tapping low mortgage rates as well.”

“On the Commercial Real Estate side,” says Situs’ Keast, “there is some evidence that larger transactions could be broken down, so larger players are staying on the sidelines, while smaller firms move-in to take advantage of lower prices.” 

Still Ahead: 

Today

  • FOMC Minutes  2:00 PM ET
  • Situs Executive Managing Director Steve Bean on CCTV, Global China TV for wide-ranging interview 8:00 PM ET

Thursday

  • US Jobless Claims 8:30 AM ET
  • US Leading Indicators 10:00 AM ET

U.S. Home Builders Confident

Builder confidence in the market for new single-family homes rose more than expected in August, a hopeful sign for increased construction.

The closely-watched index from the National Association of Home Builders rose 2 points to 60 from a downwardly-revised 58 reading in July. Economists surveyed by MarketWatch had expected sentiment to stay flat at 59.

A sub-gauge that measures current sales conditions rose 2 points to 65, while the index of expected conditions over the coming 6 months increased 1 point to 67. The index that tracks buyer traffic dropped 1 point to 44.

Any reading over 50 signals expansion. The traffic component hasn’t topped that level since the height of the housing bubble, in 2005.

“New construction and new home sales are on the rise in most areas of the country, and this is helping to boost builder sentiment,” NAHB said in a statement. Although economic data has been erratic in recent months, the fundamentals that support demand for housing, like mortgage rates and job creation, remain strong.

read more: Marketwatch

Low Inventory of Homes for Sale Threatens U.S. Industry

Freddie Mac warns the low levels of available homes for sale is a danger to the industry.

“Low levels of inventory across many markets will continue to put upward pressure on house prices for the foreseeable future,” says Sean Becketti, Chief Economist, Freddie Mac.

On the flip side, Freddie’s outlook for August shows that for the first time since 2012, mortgage originations are expected to top $2 trillion in 2016. Low mortgage interest rates are spurring a burst of refinance activity, and strong home sales and house price growth are supporting purchase mortgage activity.

In other report highlights Freddie is: 

Revising down GDP growth to 1.5 percent in 2016 and 1.9 percent in 2017.

Expecting low mortgage interest rates and strong home sales to boost 2016 forecasted mortgage originations by $175 billion over last month’s forecast.

Projecting interest rates to remain below 4 percent in 2016 as well as 2017. Revising down the 2017 mortgage rates forecast to 3.7 percent for the average 30-year fixed-rate mortgage and 2.1 percent for the 10-year Treasury yield.

Forecasting total home sales to reach 6.04 million in 2016 (the highest level in a decade) versus 5.96 million forecasted last month.

Expecting housing construction to remain on an upward trend, but at a slower pace of increases. Revising down the housing starts forecast for 2016 and 2017 to 1.2 million and 1.4 million, respectively.

U.S. Concerned about ‘New Housing Crisis’

Americans are catching on to the rise in home prices.

The gap between the demand for new homes and the supply coming onto the market, which ‘Business Insider’ dubbed “the new housing crisis,” has caused prices to soar and priced out many first-time homebuyers.

In fact, San Jose became the first city in the US to have a median house price of $1 million for a single-family home in the second quarter, according to the National Association of Realtors.

According to the University of Michigan Consumer Sentiment Survey, people are taking notice of record-low interest rates, which could be a reason for the incredibly high number of people who are planning to buy a new home in the next six months.

“Home buying has become particularly dependent on low interest rates, with net references to low interest rates spontaneously mentioned by 48% — this figure has been exceeded in only two months in the past ten years,” said the release accompanying the survey.

read more: Business Insider 
Home Depot Profit Rises 9.3% as Americans Spend on Remodel

Home Depot Inc., the world’s largest home-improvement retailer, posted second-quarter profit that rose 9.3 percent and boosted its earnings forecast for the year as Americans continued a spree of spending on their houses.

Net income increased to $2.44 billion, or $1.97 a share, in the fiscal second quarter, which ended July 31, the Atlanta-based company said Tuesday in a statement. That matched analysts’ average estimate. Second-quarter sales climbed 6.6 percent to $26.5 billion, also in line with analysts’ projections.

The results reinforced that consumers are still willing to splurge on fixing up their dwellings, spurred along by rising home values. Sales at Home Depot stores open for more than a year rose 4.7 percent, down from the previous quarter’s 6.5 percent gain, but matching analysts’ average estimate, according to Consensus Metrix.
Read more: Bloomberg

Donald Trump Could Pay No Taxes Due to Real Estate Breaks

No one should be surprised, though, if Donald J. Trump has paid far less — perhaps even zero federal income tax in some years. Indeed, that’s the expectation of numerous real estate and tax professionals I’ve interviewed in recent weeks.

Even with hundreds of millions in gross revenue from his vast real estate empire, “it’s both possible and legal that Donald Trump would pay little or no income tax,” said Len Green, an accountant and chairman of the Green Group, a tax and accounting advisory firm. Mr. Green is also a real estate investor, teaches at Babson College and is the author of the forthcoming “The Entrepreneur’s Playbook.”

“I would expect he’s paying little or no tax,” agreed Steven M. Rosenthal, a veteran tax lawyer and senior fellow at the Urban-Brookings Tax Policy center.

That’s because Mr. Trump, as a prominent and active developer, can take advantage of some of the most generous tax breaks in the federal tax code to reduce his reported income to near zero, or even report a loss.

Trump has thus far refused to release his tax returns saying he is being audited,

read more: New York Times

Clinton’s Running Mate – Tim Kaine’s Vision for the Future of Fair Housing

Democratic vice-presidential candidate Senator Tim Kaine drew a bright line on Friday between Hillary Clinton and Donald Trump on a subject important to pretty much every voter: housing. While Americans say that housing is as important an issue as other priorities, so far the subject hasn’t come up much during the campaign. That just changed.

As voters have come to learn, Kaine built his career as a lawyer in Richmond by pursuing fair-housing cases. As the former mayor of Richmond and former governor of Virginia, Kaine has experience examining the issues of fair and affordable housing from a variety of policy perches. He is uniquely qualified to talk about housing—perhaps more so than any candidate in recent years.

“A house is more than just a place to sleep. It’s part of the foundation on which a family can build a life,” Kaine writes in an editorial published by CNN. “Where you live determines the jobs you can find, the schools your children can attend, the air you breathe, and the opportunities you have. And when you are blocked from living where you want, it cuts to the core of who you are.”

His editorial outlines the ways that a Clinton administration would work to make housing fairer and more affordable. Here’s a closer look at those policies, and what Americans should expect if Clinton wins the office.

read more: Citylab

Extell’s NYC Luxury Condo Project Gets Needed Cash — at a Price

In a bid to keep its planned Central Park Tower afloat, Extell Development Co. agreed to a deal that might one day force it to part with the luxury condo project.

A joint venture with China’s SMI USA to build the $3 billion skyscraper on Manhattan’s Billionaires’ Row comes with a deadline: If a construction loan isn’t obtained by May 24, SMI can require Extell to buy out its stake in the partnership — about $300 million — with interest. And if Extell fails to do that, SMI can push the developer to sell the entire project, according to documents filed last week on the Tel Aviv Stock Exchange, where Extell sells debt to investors.

“If I thought there was a more than 1 percent chance of that happening, I wouldn’t put that in there,” Extell’s president, Gary Barnett, said in an interview. “We’re going to get the construction loan.”

In Manhattan’s slowing luxury condo market, where lenders and investors are shying away from financing projects, the partnership with SMI offers a way forward for the West 57th Street tower, in exchange for sizable promises up front. SMI, the U.S. subsidiary of Shanghai Municipal Investment, will get 30 percent of the fees the developers collect during construction, according to the filings. The Chinese firm also will receive monthly interest payments on its investment, based on a 4.5 percent annual return.

read more: Bloomberg

Millennials Getting No Credit

Kids these days: They just aren’t pulling out the plastic like they did in the past.

Data from the Federal Reserve indicates that the percentage of Americans under 35 who hold credit card debt has fallen to its lowest level since 1989, when the Fed began collecting data in a standardized way, according to an analysis by The New York Times.

Some older Americans have also been shedding credit card debt since the financial crisis that began in 2008. But for no other age group has the decline in the proportion holding credit card debt been more rapid than it has been for young Americans — who are often referred to as millennials — the data from the Survey of Consumer Finances shows.

t’s pretty clear that young people are not interested in becoming indebted in the way that their parents are or were,” said David Robertson, the publisher of The Nilson Report, a newsletter that tracks the payment industry.

Their reluctance could have lasting repercussions for millennials, as well as for the financial system and the economy. Early use of credit cards has, in the past, helped young Americans develop a comfort level with credit that can last a lifetime and lead to a succession of big purchases financed by debt. Without a substantial credit history, it is much harder to take out a home mortgage, for example.

“It will probably take them longer to get access to credit,” said Gregory Elliehausen, an economist at the Federal Reserve specializing in consumer finance. “In the meantime, their behavior and some of their habits will have already been formed.”

Over all, Americans’ use of credit cards has recently been creeping up again: Household debt in the United States increased by $35 billion, to $12.29 trillion, during the second quarter of 2016, a 0.3 percent rise from the previous quarter that was driven by credit cards and auto loans, according to a report released on Tuesday by the Federal Reserve Bank of New York.

read more: New York Times

East Hampton Makes the Good Life a Little Better

As the season for wealthy Manhattanites and Wall Street elite to gallivant on their Hamptons summer playground begins to winds down, one town—a second home to celebrities such as Martha Stewart and Jon Bon Jovi—is ramping up spending to improve its already illustrious landscape and stretch of exclusive beaches.

New York’s Town of East Hampton, encompassing 70-square-miles on Long Island’s south fork, is selling $23 million of bonds Tuesday through a negotiated sale. The beach town is fresh off of an upgrade from Moody’s Investors Service, as the credit arbiter last week raised the town one step to Aa1—the second-highest investment grade—restoring the town to its highest rating ever, last achieved in 2003.

The upgrade reflects the town’s “improving financial position as a result deficit financing, ongoing conservative budgeting and strengthened financial management practices,” Moody’s analyst Tiphany Lee-Allen said in a report, expecting East Hampton’s financial position to continue to improve as it carries a positive outlook. Improvements to the Montauk shellfish hatchery dock, construction of town-owned dock pilings and the purchase of storage sheds for lifeguards are among the use of the proceeds.

read more: Crains New York