|Housing Recovery: There’s No Ceiling in Sight
The U.S. housing market is still showing strength, well into the economic recovery that began in 2009. While single-family housing starts, which totaled an annualized 877,000 in January, are less than half the 1.8 million recorded in early 2006, before the financial crash and recession, there is ample reason to believe that starts, sales, and prices will continue to escalate.
Recent housing demand has been boosted by a host of factors, including an increase in millennial home buyers, steady job growth, and relatively low interest rates. There are some reasons for concern, notably affordability in certain markets as demand outstrips supply and the cost of mortgages if interest rates rise. For perspective on current trends and the longer-term outlook, Barron’s recently turned to Mark Zandi, chief economist at Moody’s Analytics and a long-time student of the housing market.
Barron’s: Mark, you recently made a strong case for continued strength in the U.S. housing market. Can you summarize it?
Mark Zandi: Sure. The current supply of housing is still well below underlying demand. That supply includes single and multi-unit housing and manufactured housing, such as mobile homes. Give or take, that’s around 1.3 million units per annum, up considerably from the bottom during the housing bust of a decade ago. But that’s still very low, relative to demand, which includes the sum of household formations. If a household forms, it has to live somewhere. My calculation also includes obsolescent housing, which involves everything from housing destroyed by hurricanes and wild fires to normal teardowns.
Then there are second homes, many of them vacation homes. There are many baby boomers with lots of cash thinking about retirement, and they are putting up second homes. Total underlying demand is running at 1.6 million units per annum, at least. That’s a gap of 300,000 units annually, relative to supply, and it is on top of a market that, broadly speaking, is undersupplied. The vacancy rates across the housing stock are about as low as they get. There are some soft spots in the high-end apartment market, but the broad housing market is undersupplied.
read more: Barron’s
Trump to Impose Steep Tariffs on Steel, Aluminum, Stoking Trade War Fears
President Donald Trump announced on Thursday he would impose hefty tariffs on imported steel and aluminum to protect U.S. producers, risking retaliation from major trade partners like China, Europe and neighboring Canada.
Fears of a trade war triggered a selloff on Wall Street.
Trump said the duties, 25 percent on steel imports and 10 percent on aluminum, would be formally announced next week, although White House officials later said some details still needed to be ironed out.
Trump believes the tariffs will safeguard American jobs, but many economists say the impact of price increases for users of steel and aluminum, such as the auto and oil industries, will destroy more jobs than curbs on imports create.
“We’re going to build our steel industry back and our aluminum industry back,” Trump said.
Shares of U.S. domestic steel and aluminum makers rallied, but shares of companies ranging from auto makers to airplane makers fell on the potential impact of the higher costs they will have to pay for the metals.
read more: Reuters
Trump’s Tariffs ‘Could Not Have Come at a Worse Time’ for Anyone Planning to Buy a Home
The US housing industry is in the crosshairs of President Donald Trump’s planned tariffs on steel and aluminum.
The National Association of Homebuilders was among several trade organizations that spoke out against the tariffs, or import taxes, announced on Thursday. That’s because higher steel costs would raise construction costs for its members, which could eventually could be passed on to homebuyers.
The construction industry is no stranger to tariffs. In April 2017, Trump slapped the first tariffs of his presidency on five Canadian lumber companies, ranging from between 3% to 24%. The tariffs were in response to Canada’s restrictions on the import of US dairy products.
Lumber prices have gained 31% since then, according to Bloomberg data. And now, homebuilders may have to add higher steel costs to the mix.
As things stand, they’re unable to meet demand for housing, and this imbalance has driven a shortage of affordable housing in many major cities. New residential construction rose to a 10-year high in 2017, but the number of entry-level units still wasn’t enough.
“Given that home builders are already grappling with 20 percent tariffs on Canadian softwood lumber and that the price of lumber and other key building materials are near record highs, this announcement by the president could not have come at a worse time,” Randy Noel, chairman of the NAHB, said in a statement.
read more: Business Insider
Starbucks Says Empty Storefronts Are Leading to Lower Rents
Starbucks Corp. Chairman Howard Schultz sees a blessing in all the empty storefronts across the U.S.
Facing a crush of vacancies —and the rise of e-commerce — retail landlords are beginning to cut rents, the executive said in a memo. That stands to benefit the world’s largest coffee chain, which has more than 14,000 U.S. locations.
“Over the last few weeks, I have been in a number of U.S. cities and observed firsthand the abundance of empty storefronts across the country, in prime A1 locations,” Schultz said in the memo, which was released by Starbucks.
“We are at a major inflection point as landlords across the country will be forced (sooner than later) to permanently lower rent rates to adjust to the ‘new norm.’”
Schultz, who retired as Starbucks’ chief executive officer last year, blames the rash of empty stores on lower customer traffic and the high cost of leases signed in the past three to seven years. That’s left plenty of room for Starbucks to expand its U.S. restaurants, including its newer Reserve and Princi locations.
The 64-year-old made the pronouncement ahead of Starbucks opening its first Reserve store — a more upscale offshoot of the coffee chain. The cafe, which makes it debut in Seattle on Tuesday, will include an Italian-style bakery featuring its Princi brand.
read more: Bloomberg
30-Year Fixed Mortgage Rates Rise for Eighth Consecutive Week
The 30-year fixed mortgage rate increased again last week, marking the eighth consecutive week that these rates have seen a rise according to the latest Primary Mortgage Market survey by Freddie Mac. The survey indicated that the 30-year fixed-rate mortgage averaged 4.43 percent for the week ending March 1 up from last week’s 4.40 percent. A year ago at this time, the rate averaged 4.10 percent, the survey said.
The survey found that the 15-year fixed mortgage rate averaged 3.90 percent during the week, up from last week when it averaged 3.85 percent and the five-year Treasury-indexed hybrid adjustable-rate mortgage averaged 3.62 percent this week, down from its average of 3.65 percent last week.
Attributing the rate climb to the Treasury yields that have also seen a steady climb, Len Keifer, Deputy Chief Economist at Freddie Mac said, “Optimistic testimony on Capitol Hill from Federal Reserve Chairman Jerome Powell sent Treasury yields higher as Powell stated his outlook for the economy has strengthened since December. The 30-year rate has been on a tear in 2018, climbing 48 basis points since the start of the year and increasing for eight consecutive weeks.”
Keifer was optimistic about the housing market, though. “As we documented, historically when mortgage rates surge, housing swoons. But we think the strength in the economy and pent-up housing demand should allow U.S. housing markets to post modest growth this year even with higher mortgage rates. We really have to wait for housing markets to heat up in spring, but early indications are that housing demand remains robust to these rate increases.”
read more: The MReport
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