The Real Estate News Brief: Fed Chair Finalist, Top Property Investing Sector, Adverse Market Fee Bonanza

Real Estate News: Real Estate Investing Podcast

In this Real Estate News Brief for the week ending November 13th, 2021... the two Fed Chair finalists, the top property investing sector, and the billions earned from a pandemic fee on refinancing loans.

Hi, I'm Kathy Fettke and this is Real Estate News for Investors. If you like our podcast, please subscribe and leave us a review.

Economic News

We begin with economic news from this past week. President Biden is reportedly close to a decision on who he’ll nominate as chief of the Federal Reserve. Fed Chief Jerome Powell’s four-year term is up in February, and it appears that Biden is now deciding whether to keep Powell or replace him with Fed Governor Lael Brainard. Brainard is considered more progressive than Powell. She’s described in a Barron’s article as more “dovish on monetary policy and stronger on bank regulation.” Some Fed watchers also believe that Brainard is more in tune with Biden’s economic agenda, but Powell has strong support from moderate Democrats and Republicans, which gives him an edge over Brainard. Biden has said he’ll make a decision “fairly quickly.” Some believe he’ll announce a nomination by Thanksgiving. (1) (2)

Whoever lands that job will be tackling inflation, which surged to a 31-year-high this last week. The consumer price index was up .9% in October, according to the government. That raises the annual rate of inflation from 5.4% in September to 6.2% in October, which is more than triple the Fed’s target of 2%. It’s also the highest rate of inflation since November of 1990. If you eliminate higher prices for food and energy, the core CPI is about 4.6%. That’s up from 4% in September. (3)

The gauge the Fed watches more closely is the PCE which stands for personal consumption expenditures. That’s rising more slowly. The PCE was 4.4% in September and 3.6% for the core rate. October numbers haven’t come out yet.

Initial applications for state unemployment benefits dropped again. There were just 267,000 new claims last week while layoffs also fell to a record low. (4) Employers have been struggling to find enough workers to fill positions. There are currently 10.4 million job openings and just 7.4 million people listed as unemployed. One result of this lopsided situation: Companies are increasing hourly rates to attract candidates. Data from Indeed.com shows that jobs offering less than $15 an hour are scarce. (5)

Consumers are not very happy about the current economic situation. The University of Michigan Consumer Sentiment Index fell to its lowest level in a decade. The November reading was 66.8. That’s a drop of about five points from October, and about 35 points lower than the pre-pandemic reading of 101. (6)

Mortgage Rates

On a more positive note, mortgage rates dipped below the 3% level this last week. Freddie Mac says the average 30-year fixed-rate mortgage was down 11 basis points to 2.98%. The 15-year was 2.27%. (7)

In other news making headlines…

Single-Family Build-to-Rent Boom

Investors are clamoring into the single-family build-to-rent market, as demand and rents soar. A new Green Street report shows that investors are earning 8% on average. That is the highest amount among the 18 property sectors analyzed by Green Street. As reported by the Wall Street Journal, the weighted average return for all property sectors is 6.1%. (8)

Housing economics consultant, Brad Hunter, says that builders provided almost 100,000 new rental homes in 2021, and that investors have pumped about $30 billion into this corner of the real estate market. The momentum has created a frenzy for land that’s suitable for build-to-rent. One builder told the Journal: “You almost have to find the land before it gets put on the market.”

GSE Bonanza from Adverse Market Fee

Remember the “adverse market fee” on refinancing loans during the pandemic? It was a 50 basis point fee for refi loans backed by Fannie Mae and Freddie Mac, and it earned those two GSEs a bundle!

According to the Federal Housing Finance Agency, Fannie and Freddie earned $5.3 billion from that fee. (9) It says the money will cover about 70% of the cost of the GSE’s Covid relief programs, such as the moratorium on foreclosures, and forbearance programs that allowed homeowners to skip their mortgage payments.

The adverse market fee was in force for about 10 months, starting in October of last year.

Opendoor Buys RedDoor

iBuyer Opendoor will be able to pre-approve applicants in just “one” minute, with the acquisition of online mortgage broker RedDoor. The mortgage company was founded in 2018 and has partnered up with more than 70 lenders. (10)

The announcement comes at a time when Zillow has announced the elimination of its iBuying program, and has created doubts about the profitability of the iBuying business. But as HousingWire reports: “Some investors see add-on services… (like mortgages) as a possible way for iBuyers to eventually turn a profit.”

Opendoor expanded into the mortgage business in 2019. And it reportedly “smashed through” earnings estimates for the third quarter with 5,988 homes sold. Year-over-year revenue was up 570%. With Zillow out of the picture, Opendoor now has one less competitor.

That’s it for today. Check the show notes for links. And please remember to hit the subscribe button, and leave a review!

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Thanks for listening. ​​I'm Kathy Fettke. ​​

Links:

1 -https://www.barrons.com/articles/federal-reserve-powell-brainard-biden-nomination-51636737103

2 -https://www.washingtonpost.com/us-policy/2021/11/11/brainard-fed-biden-powell/

3 -https://www.marketwatch.com/story/coming-up-u-s-consumer-price-index-for-october-11636550300?mod=economy-politics

4 -https://www.marketwatch.com/story/jobless-claims-slip-to-267-000-and-touch-new-pandemic-low-11636552204?mod=economic-report

5 -https://www.marketwatch.com/story/job-listings-offering-less-than-15-an-hour-are-starting-to-disappear-in-todays-tight-labor-market-11636657580

6 -https://www.marketwatch.com/story/u-s-consumer-sentiment-declined-in-early-november-to-decade-low-university-of-michigan-271636730264

7 -http://www.freddiemac.com/pmms/

8 -https://www.wsj.com/articles/building-and-renting-single-family-homes-is-top-performing-investment-11636453800?mod=hp_lead_pos10

9 -https://www.housingwire.com/articles/fannie-freddie-made-5-3b-from-adverse-market-fee/

10 -https://www.housingwire.com/articles/opendoor-buys-mortgage-brokerage-reddoor/