The Real Estate News Brief: Inflation as Top Economic Priority, Homebuyer Budget Reduction, Falling Lumber Prices

In this Real Estate News Brief for the week ending June 4th, 2022... what’s being done about inflation, how inflation is impacting homebuyers, and why lumber prices are actually falling. 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, and lots of talk about inflation. President Biden launched a new effort last week to tackle inflation. As reported by the Washington Post, he was apparently fuming to aides that not enough was being done to control inflation. That turned into a flurry of activity to get the ball rolling and send a positive message to the American people. He met with both Federal Reserve Chief Jerome Powell and Former Fed Chief Janet Yellen in the Oval Office, and said in a public address that fighting inflation was his top economic priority. (1) President Biden also published an op-ed piece for the Wall Street Journal outlining a three-part strategy for fighting inflation. The first part involves the Federal Reserve’s responsibility for controlling inflation, which it’s now doing with aggressive rate hikes. Biden says he won’t meddle with that, but for part two, he says he will do what he can, or with the help of Congress, “to make things more affordable for families.” That includes an effort to lower prices for gas, utilities, prescription drugs, and other everyday goods. The third part involves deficit reduction. The Congressional Budget Office projected the deficit will fall by $1.7 trillion this year. Biden wants to see even more of a reduction with what he calls “common-sense” tax reforms. (2) *Ironically, what was not mentioned was the Fed's stimulus, and the trillions of dollars that were created over the past two years that increased the money supply by nearly 50%. Additionally, the Fed had continued to buy Mortgage Backed Securities to support the housing market, until spring of 2022, when home prices had already increased by 20%. So in my opinion, the Federal Reserve together with the US government contributed to the inflation they are now trying to combat with rapidly rising rates and Quantitative Tightening. If you'd like to hear more about my opinions on how we got here, listen to the new podcast, On the Market, which is sponsored by FundRise. I am a regular guest expert on that show, and we go into detail on what's behind the headlines. There’s a bit of good news about Social Security thanks to the strong job market recovery. The Treasury Department says that Social Security benefits are now fully funded through 2034. That’s one year longer than previous estimates. It also says the disability insurance program has enough funds to pay full benefits for the next 75 years, through 2097. Last year, Treasury officials said that funds would be gone by 2057. (6) Unemployment claims fell for a second week in a row. There were just 200,000 initial claims, and 1.31 million continuing claims. Continuing claims are the lowest since 1969. (7) The unemployment rate in May was at 3.6%. (8) Now to the housing market: Construction spending was .2% higher in April, mostly due to money spent on residential construction. It was up .5% for single-family homes, .8% for multi-family buildings, and down for non-residential private and public construction. (9) *The latest Case-Shiller home price report shows that prices hit a new record high in April. The 20-city index was up 3.1% in April for a yearly rate of 21.2%. Keep in mind that April closings probably had rate locks in March, before interest rates increased two points.(10) Mortgage Rates Mortgage rates didn’t move much this last week. Freddie Mac says the average 30-year fixed rate mortgage was down just one basis point, to 5.09%. The 15-year was up one point to 4.32%. (11) Purchase applications are now about 14% lower than they were a year ago, thanks to higher rates. The Mortgage Bankers Association says the average contract rate for a 30-year with a 20% down payment was 5.33% last week. (12) In other news making headlines... Inflation Impact on Homebuyer’s Budget Inflation is taking a huge bite out of the homebuyer’s budget. According to the National Association of Realtors, homebuyers have to chop $40,000 off their budget for a home because they are paying more for everything else. (13) NAR says the average consumer is paying about $500 more per month compared to a year ago. That’s an extra $6,000 a year. NAR’S chief economist Lawrence Yun expects a 10% decrease in housing demand thanks to higher prices, although he still expects a 5% increase in home prices because of the tight inventory. Lumber Prices Tumble Lumber prices are coming back down to earth. The National Association of Homebuilders says they fell 12% this last week to their lowest level so far this year. (14) The Wall Street Journal reports that prices are coming down because the housing market is cooling off a bit. It says that orders for lumber are slowing down so inventories are building up, and sawmills are slashing prices. That’s it for today. Check the show notes for links. And please remember to hit the subscribe button, and leave a review! You can also join RealWealth for free at newsforinvestors.com. As a member, you have access to the Investor Portal where you can view sample property pro-formas and connect with our network of resources, including experienced investment counselors, property teams, lenders, 1031 exchange facilitators, attorneys, CPAs and more. Thanks for listening. I'm Kathy Fettke. Links: 1 -https://www.washingtonpost.com/politics/2022/05/31/biden-inflation-frustration/ 2 -https://www.wsj.com/articles/my-plan-for-fighting-inflation-joe-biden-gas-prices-economy-unemployment-jobs-covid-11653940654?mod=opinion_lead_pos5 3 -https://www.cnbc.com/2022/06/03/feds-mester-says-inflation-hasnt-peaked-and-multiple-half-point-rate-hikes-are-needed.html 4 -https://www.cnbc.com/2022/06/02/fed-vice-chair-lael-brainard-says-its-hard-to-see-the-case-for-the-fed-pausing-rate-hikes-.html 5 -https://www.cnbc.com/2022/06/01/the-feds-mary-daly-says-rate-hikes-should-continue-until-inflation-is-tamed.html 6 -https://www.cnbc.com/2022/06/02/social-security-trust-fund-will-be-able-to-pay-benefits-longer-than-expected.html?&qsearchterm;=social%20security 7 -https://www.marketwatch.com/story/u-s-unemployment-claims-drop-to-200-000-as-layoffs-fall-to-lowest-level-on-record-11654173646?mod=economy-politics 8 -https://www.marketwatch.com/story/coming-up-u-s-jobs-report-for-may-11654257620?mod=economic-report 9 -https://www.marketwatch.com/story/u-s-construction-spending-rose-slightly-in-april-271654094325?mod=search_headline 10 -https://www.marketwatch.com/story/increase-in-u-s-home-prices-hits-another-record-high-case-shiller-shows-11654004193?mod=bnbh_mwarticle 11 -https://www.freddiemac.com/pmms 12 -https://magazine.realtor/daily-news/2022/06/02/mortgage-applications-are-falling 13 -https://www.realtrends.com/articles/inflation-cuts-homebuyer-budgets-by-40000/ 14 -https://magazine.realtor/daily-news/2022/06/03/the-lumber-bubble-may-have-just-burst 15 -https://magazine.realtor/daily-news/2022/06/01/top-cities-for-renting-in-2022