Real Estate Update 12/18/19

Luxury Construction

The number of new-construction luxury homes at 3,000 square feet or less has increased by nearly 20% since 2013—with a corresponding decline in larger-size, high-price homes. (WSJ)

Delinquent Mortgages

In September 2019, 3.8% of home mortgages were in some stage of delinquency, down from 4.4% a year earlier and the lowest for the month of September in more than 20 years. Since March 2018, the overall delinquency rate each month has been lower than during the pre-crisis period of 2000 through 2006, when the rate averaged 4.7%.

The amount of equity in mortgaged real estate increased by $457 billion in the 3rd quarter of 2019 from the 3rd quarter of 2018, an annual increase of 5.1%. Borrower equity hit a new high in the 3rd quarter of 2019, and borrowers have gained $6 trillion in equity since the end of 2011 when equity stopped declining. During this same time period, homeowners have been staying in their homes longer, preferring to make remodeling updates as their home ages. The rise in home equity provides a source of wealth that owners may be able to tap to finance their home improvements. (Corelogic)

SALT Deductions

The states most negatively impacted by the reduction in the SALT deduction continue fighting: Now they are pursuing legislation that would temporarily raise the SALT cap to $20,000 for married couples in 2019, before repealing it fully in 2020 and 2021. The cap would revert back to $10,000 in 2022 and would be paid for by raising the top individual tax rate to 39.6% from 37%. The bill also would decrease the income threshold for the highest tax bracket. Many politicians have argued that this ‘tax break’ only benefits wealthy high-state-tax-states, but they never mention that these same states pay high state taxes in part because the federal government siphons off 5-15% of federal taxes these states pay to re-distribute to other poorer states. (Bloomberg)

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“After a decade of cocooning, millennials want to buy homes that represent value, which is in keeping with the way they shop for everything else. The delay in homebuying is over, the spending is just beginning.” – Jim Cramer

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Trade Wars

As part of the limited US-CHINA trade deal, the U.S. said it will maintain 25% tariffs on approximately $250 billion of Chinese imports while reducing tariffs on $120 billion in products to 7.5%. The rollback in duties is “smaller than expected,” according to Goldman Sach’s chief economist Jan Hatzius. (CNBC)

Brexit

The Conservatives won the UK elections by a large majority, making Brexit an almost certainty now: There has been a strong build-up of demand from prospective buyers as they wait for the fog of political uncertainty to clear. A number of agreed deals had been put on hold pending the outcome of the general election. Savill’s expects modest price growth in 2020 on the basis that, despite domestic political uncertainty receding, some economic uncertainty will remain until a trade deal is agreed with the EU. This could mean a bounce in demand in the first part of 2020 proving difficult to sustain through the summer months and into the Fall. A stamp duty cut is possible too. With a US-CHINA trade deal – even if it’s not the full deal – and Brexit certainty, the markets now have two of the biggest market unknowns resolved which should allow for better planning and investment…..and improved economic conditions globally.

Buyers & Sellers

Potential buyers outnumber sellers of homes costing $150,000 to $400,000, according to Mark Boud, of Metrostudy. The opposite is true for homes costing $500,000 or more. For homes in the $400,000s, supply roughly equals demand.

In October of 2019 around 10% of sellers received multiple bids on their homes: a year ago that number was closer to 40%. With low mortgage rates and tight supply – especially for affordable entry-level homes – expect this number to rise.

Americans doubled their home equity from 2011 to 2019, now totaling almost $20 trillion. They accomplished it the old-fashioned ways: By paying their mortgages over time, and by not cashing in their equity. Home equity lines of credit, a once-popular way to borrow from equity, have been fading since 2008, as people have repaid their balances faster than they’ve borrowed. (Marketwatch)

U.S. Economy

Wall Street predicts a recession will be avoided in 2020 and the global economy will pick up in the coming months, with U.S. GDP returning toward long-term trend growth around 2%. The first part of the year should be strong, they predict but expect more volatility ahead of the election. The S&P 500 is up almost a staggering 25% for 2019……but let’s not forget the rather notable correction at the end of 2018 that took this index from a high of around 2,930 in September 2018 down over 15% to a low of around 2,485 by the end of 2018. If you used the 2,930 figure, the S&P 500 is up a more sane 8.1%. (CNBC)