CRE along with the housing and mortgage industries are on edge, waiting for a clear plan from the major central banks on how quickly the era of cheap money will draw to a close. Even as the average 30-year fixed rate mortgage fell for the sixth straight week to 3.78 percent (for the week of Sept. 7), the sensitivity of financial markets is causing concern among central bankers and could prompt the Fed to delay plans to wind down its massive balance sheet.
The Fed’s balance sheet today has assets worth approximately $4.45 trillion, considerably higher than the $858 billion on its books in August 2007, just prior to the start of the financial crisis. Mortgage-backed securities account for more than $1.7 trillion of the current portfolio.
Low inflation readings are giving Federal Reserve officials second thoughts about what the markets have presumed all along — that they would raise short-term interest rates again this year.
New York Fed President William Dudley recently said, “It’s too soon to judge exactly the timing of when the next rate hike might occur, but the path is still clear that short-term rates are going to move higher.”
“Rising interest rate dynamics set the stage for tougher affordability assessments, especially for those with imperfect credit,” says the Collingwood Group Managing Director Tom Booker. “Lenders will need to find ways to take and manage credit risk to fuel a more-robust housing market.”
Several Fed officials have indicated that they are poised to announce at their Sept. 19-20 meeting that in October they will start slowly shrinking their $4.45 trillion balance sheet, but may leave rates unchanged.
… And In Europe
The Central Bank is likely to announce plans next month for phasing out the bond-buying program that has helped reinvigorate the Eurozone economy.
ECB President Margio Draghi has signaled the bank could announce a plan to gradually end a program of asset purchases, known as quantitative easing or QE.
For CRE investors, this may pose a great opportunity.
“The ECB is faced with a conundrum. Despite years of near-zero percent rates and QE stimulus, the Eurozone is not showing signs of a significant economic pick-up. In particular, inflation remains stubbornly low (1.3 percent compared to the 2 percent target), putting the ECB in a tight spot to continue the stimulus despite the risks building up with an ever-increasing ECB balance sheet,” says Situs Managing Director & Head of Distressed Solutions Wilhelm Hammel from Germany. “From afar, the situation looks far more positive, with unemployment falling to long-term lows and the overall economic outlook being healthier than some years back. The nature of the EU means that various markets face different challenges, so the positives of low interest rates and QE are far more necessary for some than others. All this, in my view, makes it rather difficult for the ECB to cut back the QE program or raise interest rates in the short- or even mid-term. Low interest rates and QE appear to be the new normal, for now.”
The Fed is much further along than the ECB in unwinding its stimulus programs. The Fed stopped purchasing bonds in 2014 and started raising short-term interest rates in late 2015.
The ECB is only now considering an end to its bond purchases and is nowhere near considering reducing its holdings or raising its interest rates from zero and below.
As always, we caution to check with a good advisor such as Situs before taking any action on CRE investments.
Situs RERC Hires Andrew Sabatini to Co-Lead Valuation Management Group
Situs RERC has hired Andrew Sabatini, MAI, and Tom Johnson as Managing Directors and Frank Yanofsky, CPA, as Director in the Valuation Management Group.
The Valuation Management Group will now be co-headed by Brian Velky and Andrew Sabatini, both reporting to Ken Riggs, Situs RERC’s President. As co-heads, Brian and Andrew will work together to continue to grow the business.
“Andrew, Tom and Frank have been known to Situs RERC for many years as some of the top professionals in the valuation industry, and we are delighted they are joining Situs RERC to work with leadership to build on the legacy of success and help drive further growth,” said Situs President Nick Rudenstine.
To read the full press release, click here.
UK Economy Held Back as Services Weaken, Consumers Struggle
Britain’s economy is failing to recharge after slowing sharply in the first half of the year.
IHS Markit said its latest round of industry surveys suggest growth of about 0.3 percent this quarter, matching the pace of the previous three months. It published the forecast after its gauge of services, the biggest part of the economy, indicated the slowest expansion in almost a year in August. The index drop was bigger than economists had forecast.
The services slowdown was most evident in consumer-facing sectors such as hotels and restaurants. Household spending has weakened this year as inflation outpaces wage growth and concerns about the economic outlook dampen shoppers’ enthusiasm.
IHS Markit’s Purchasing Managers’ Index for services fell to 53.2 — the lowest since September 2016 — from 53.8. Its other industry reports showed manufacturing strengthened in August, while construction growth slowed. Chief Economist Chris Williamson warned the decision to leave the European Union is weighing on optimism and momentum in the economy is “gradually being lost.”
The services survey also showed that a measure of new business weakened, with respondents citing “fragile” confidence.
read more: Bloomberg
Amazon’s Takeover of Whole Foods is Good for Biz
Amazon.com Inc.’s splashy takeover of Whole Foods, complete with deep price cuts, brought a surge of publicity to the chain.
But it hasn’t been clear how many customers actually came out to the stores.
Now we have a better sense of that, based on data from Foursquare Labs Inc.
The grocer saw a traffic bump of 25 percent nationally in the first two days after the Amazon takeover, compared with the same period a week earlier, according to data from the technology company. At stores in Chicago, the customer surge was even higher: 35 percent.
read more: Bloomberg
Incredible Shrinking Dollar
The dollar skidded to new lows against a basket of rival currencies on Friday, and some strategists see further downside ahead for the currency that’s already lost nearly 11 percent this year.
The dollar index hit its lowest level since January 2015 in early Thursday trading, at the 91.011 mark; this was a further decline from the 2017 low hit in the previous session. As the likelihood appears to dwindle that the Federal Reserve will hike its federal funds target rate later this year (as inflation remains tepid and political drama swirls in Washington), so too has the relative value of the dollar.
The greenback has been under “significant” pressure for precisely this reason, said Stacey Gilbert, head of derivatives strategy at Susquehanna. Furthering the depressed levels in the dollar are geopolitical issues related to the North Korea nuclear situation and “kicking the can down the road” in raising the federal borrowing limit.
“We continue to have dovish speak from two Fed speakers just recently this week, which is also causing some pressure here on the dollar,” Gilbert said Thursday on CNBC’s “Trading Nation.”
“The sentiment in the dollar is certainly cautious, and continues to be cautious. You can see the pressure. The consensus called that the dollar was going to be stronger this year; probably one of the worst consensus calls out there,” she added.
read more: CNBC
Congress Investigates Equifax Hack
A key House committee plans to hold a hearing on the massive Equifax data breach that affects 143 million Americans.
Rep. Jeb Hensarling, R-Texas, chairman of the House Financial Services Committee, announced the hearing but the panel has not yet announced a date.
“This is obviously a very serious and very troubling situation, and our committee has already begun preparations for a hearing. Large-scale security breaches are becoming all too common,” Hensarling said in a statement. “Every breach leaves consumers exposed and vulnerable to identity theft, fraud and a host of other crimes, and they deserve answers.”
Equifax, which provides credit monitoring and other information services, said the exposed data include names, birth dates, Social Security numbers, addresses and some driver’s license numbers. More than 200,000 U.S. credit card numbers were also obtained.
Equifax discovered the breach on July 29, and the company disclosed it Thursday. The announcement set off confusion among consumers, who sought the best way to respond to the massive breach.
read more: CNBC
Five U.S. Cities Where You Can Live Well on $50,000 a Year
You can live a good life on less — if you move.
Earlier this year, the U.S. cost of living increased the most it has in nearly four years, according to data on consumer prices from the Bureau of Labor Statistics reported in Bloomberg — spurred by higher prices for gas, cars, clothing and more.
And while that means it may be more expensive now for many Americans to just exist, there are plenty of spots in the U.S. where you can live pretty well on $50,000 or less, as a GoBankingRates survey released this week revealed. But, of course, the question then is often: Just because I can live cheaply in these places, do I want to live in them?
So Moneyish analyzed some of the cities with a reasonable cost of living to find cities with a rich culture, decent weather and lots of things to do — and where you can live decently on $50,000 or less.
Have a prosperous day ahead.
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