How the Trump Win Will Affect Real Estate

Interest Rates Rise Following Election

We explored how the residential market might fare under the new President’s administration (How the Housing Market Will Fare Under Either Presidential Candidate, Nov. 8). What we have already seen, however, is a rise in mortgage interest rates — though they remain under 4%. Why?

According to Business Insider, (The housing market is suddenly losing one of its biggest drivers, Nov. 19):

“It all started after President-elect Donald Trump won the US election.

One of Trump’s big plans is a fiscal-spending splurge: big investments in infrastructure, and cuts to the US’ towering corporate tax rates.

This plan could jump start growth and inflation, and it’s the latter that rocked mortgage rates. Higher inflation expectations triggered a sell-off in bonds, which push up interest rates when they fall.”

Meanwhile, Janet Yellen has indicated to Congress that interest rates could be raised soon. The chairwoman of the Federal Reserve said  on Thursday that an interest rate hike “could well become appropriate relatively soon” (Fox Business, Nov. 18).

It is good news for homebuyers at this time: rates remain below 4%, and the real estate market remains healthy with housing starts hitting a nine year high this October (Bloomberg, Nov. 17). But with rates likely to rise soon, homebuyers may have less to spend for their homes come spring.

In commercial real estate news, Marcus & Millichap published their report on the election, and the news was largely positive. “The news was largely positive.

On the plus side, Marcus & Millichap said that the U.S. economy should continue to grow as the new president takes office. As the company says, the U.S. economy is now in its seventh year of a durable but moderate expansion. Marcus & Millichap says that 2 million to 2.5 million new jobs should be added during the next year. The country currently has an unemployment rate of 5 percent and 5.5 million unfilled job openings.

Marcus & Millichap predicts that unless an unexpected surprise hits the country, the economy will continue to grow, something that will result in an increase in commercial real estate construction, leases and sales” (Trump won. What does that mean for commercial real estate? Dan Rafter, Nov. 16).

However, the report also anticipates the rise in interest rates. “Marcus & Millichap says that faster economic growth could result in inflationary pressure, pushing interest rates higher. Mortgage interest rates have already jumped following Trump’s election, with many economists predicting that the average interest rate on a 30-year, fixed-rate mortgage loan might soon hit 4 percent.”

 

The Spring Market has Kicked Off, with Twin Cities Housing Availability at a 10-year Low

2077 Scheffer: Sold in 3 Days

The real estate spring market has kicked off with record short supply, according to a number of media outlets. “Presidents Day weekend is traditionally seen by real estate agents and homebuilders as the start of the spring housing market — the busiest time of year for home sales. The number of listings always rises, and it will this year as well, but inventory is already so low to begin with that even the new listings will not be nearly enough,” reports CNBC.

The national trend is true locally as well. On Tuesday, a report from the Saint Thomas Real Estate Program has demonstrated that the availability of Twin Cities housing has hit a 10 year low. Additionally, the metro median home price was $215, 000 at year end in 2015, 10.4 percent higher than January 2014.

Says Judy Shields, President of the Minneapolis Area Association of Realtors: “I think there is extra buying pressure right now. There’s a lot of people out there looking and not a lot available, so it just magnifies the problem.”

While promising news for sellers, this is not to discourage buyers. Preparation is the key to winning a dream home. Says Herb Tousley, Director of the University of St. Thomas Real Estate Program, “if you are looking for a home, be ready,” Tousley said. “Get your financing pre-approved. If you find something you like a lot in a good neighborhood be ready to act on it right away.”

Shields and Tousley cite, as reasons for high demand and low supply:

• the concern of increased interest rates,
• people looking to buy rather than rent, and
• businesses recruiting out of state talent.

Mortgage Rates Approach Record Low

The average rate on a 30 year fixed mortgage is in freefall, reports CNBC, despite the recent minor hike in interest rates. They explain: “Mortgage rates are falling because investors are flooding the U.S. bond market. Mortgage rates follow the yield on bonds that loosely follow the 10-year Treasury. Investors are buying bonds as a safety play in a highly volatile and largely negative stock market. Signs of weakness in the U.S. economy, in addition to trouble in overseas markets, pushed the yield on the 10-year Treasury to its lowest level since 2012, and mortgage rates followed south.”

“…investors are looking for safe havens as global stock markets and oil prices nosedive,” writes Lorraine Woellert, contributor to Forbes. “Money is pouring into Treasury bonds and other safe investments, which helps drive down mortgage rates.”

Companies Flocking to the Heart of the Twin Cities

Companies, not just residents, are flocking to the urban hearts of the Twin Cities, reports the Minnesota Real Estate Journal.  Both residents and tenants are drawn to live-work-play areas, like the one expected to come to the Ford Plant site in Highland Park, Saint Paul.  “Tenants are focused today on downtown CBDs or suburban markets that have a lot of amenities. They are going after these live-work-play environments. There is a lot of that in downtown [Minneapolis/St. Paul], so companies are migrating toward that market. They want to attract the best employees, and to do that they need a presence in the downtown.”

Federal Reserve Raises Interest Rates – What it Means for Housing

Today, as long expected, the Federal Reserve has raised the benchmark interest rate by a quarter percent. It is the first time since December 2008 that the Fed has raised the rates, and they emphasize that they will continue to lift it gradually.

“The [Fed] expects economic conditions will evolve in a manner that will warrant only gradual increases in the fed funds rate,” the Fed said in a statement (Wall Street Journal, December 16). The Fed has stated they will continue to carefully monitor progress, but are reasonably confident that inflation will rise.

How does this affect housing? Some economists are saying that “people who want to buy a house should have a greater sense of urgency.” Explains one real estate consultant:

“Mortgage rates are expected to rise about 1 percentage point over the next several years. That would mean the same-priced house will cost you 12 percent more in monthly payments.

“So if mortgage rates go from 4 [percent] to 5 [percent], payments are going to go up 12 percent; that will hit affordability hard,” he says. “And I don’t think that message has really gotten out there to people — that they understand they should take advantage of where rates are today” (NPR, December 15).

Twin Cities Home Prices Within 6.3% of Record High

Real Estate Week in Review

Average long term US mortgage rates are back down after hitting their highest levels this year (Average US rate on 30-year mortgage eases to 4 percent; 15-year rate at 3.23 percent, Star Tribune Your Money, June 18). On Wednesday, the Federal Reserve appeared ready to raise interest rates for the first time in nearly a decade, due in part to Tuesday’s government report that home construction rates remain significantly higher than a year ago. Many hold “the belief that the economy no longer needs the stimulus of near-zero rates.” Nonetheless, the housing market has been “bolstered [by] the economic improvement and stronger employment picture,” and remains strong for both buyers and sellers.

An analysis of the Twin Cities home prices provided by MAAR reports that home prices are within 6.3% of their record high seen in June 2006 (Twin Cities Home Price Analysis, Minneapolis Area Association of REALTORS, June 18).  Prices have a long term trend of increasing 5% yearly (nominal, not adjusted for inflation). “This market is not fueled by irrational, unjustified speculation and exuberance—a leading cause of bubble-itus,” MAAR reports, “rather, it is fueled by low interest rates, rising rents, job growth, a diverse and robust local economy and slowly rising incomes.”

In area developments, the Timberwolves and Minneapolis have signed a redevelopment agreement for the $129 million renovation of the Target Center (Timberwolves, Minneapolis sign Target Center redevelopment pact, Minneapolis / St. Paul Business Journal, June 19). Detailed design work will begin, with the bulk of the project expected to start in 2016 and wrap in 2017, said the Timberwolves and the Minnesota Lynx in a statement on Thursday. The Target Center is said to be the 6^th busiest building in the nation and the 17^th busiest in the world, hosting 200 events and a million visitors annually.

New Construction at Fastest Rate Since 2007

Real Estate Week in Review

Buyers should continue to see great rates in the months ahead, as the Federal Reserve has indicated they are unlikely to raise interest rates in June (Fed minutes indicate June rate hike unlikely, CBS News).  At April’s meeting, policy makers were divided on if the winter’s weakness would continue, but most agreed that June would be too soon for the hike. The average US rate on a 30-year mortgage went down to 3.84%, while the 15-year loan rate went to 3.05 (Star Tribune Your Money).  Mortgage rates remain at historic lows: this time last year, the 30-year rate was at 4.14% while the 15-year rate was at 3.25%.

US existing home sales were down 3.3% in April, reflecting a shortage of listings and higher prices (Star Tribune). The number of listings was down .9% in April from a year prior. Demonstrating the advantage for sellers, the median home sold in 39 days (with this area seeing many lower market times, often in a matter of days).

However, new construction has surged to its fastest rate since 2007. CBS MoneyWatch reports: “Residential homebuilding jumped in April to the fastest pace in nearly seven-and-a-half years, signaling the economy is pulling out from its weather-related struggles in recent months. The Commerce Department said Tuesday that housing starts last month increased 20.2 percent to a seasonally adjusted annual rate of 1.14 million homes. That pace ranks as the fastest clip since November 2007.”

Around the Cities

CHS Field in Lowertown held their grand opening this week. The new home of the Saint Paul Saints has many features benefitting the community: for instance, it’s green, serves local food and beverages, and was designed and built by local companies (9 Things to Know about CHS Field, Minneapolis St Paul Business Journal).

Lakefront Hotels are making a comeback at Lake Minnetonka, with projects proposed in Wayzata and Excelsior. Says Steve Bohl, the developer of Wayzata’s hotel: “Lake Minnetonka was all about hotels. Now we’re going to be the first back,” said Steve Bohl, the developer of Wayzata’s hotel. “It just brings a legacy back in the market.” The hotel is estimated to draw 22,000 to 25,000 visitors each year, already with inquiries for events including weddings and meetings.

Also in Tourism news, Treasure Island Resort and Casino is planning a $19 million expansion. The 40,000 square foot project will include swimming pools, water slides and outdoor patios.

Excelsior Marketplace is nearing completion, anchored by a Kowalski’s grocery. Grocery-anchored marketplaces are a trend right now in the Twin Cities. “The grocery business is changing so much,” Ryan said. “To have a smaller, more neighborhood type of offering with high-quality produce and meat — yet in a smaller footprint — is very inviting. The organic play is an important part of this industry, too. The Kowalski organization is a leader in that field. The city is fortunate to have them as part of the community. We think it is going to be a spectacular fit.” See more here.

Indeed Brewing, the popular Northwest Minneapolis craft brewery is also planning an expansion, to include another taproom and a gift shop. “The demand for taprooms has grown like crazy and ours has only gotten busier,” co-founder Tom Whisenand said.

This Memorial Day

Miller Grossman would like to take a moment to salute our service men and women who have made the ultimate sacrifice this Memorial Day. Our thoughts are with their families and loved ones. Thank you.

Image from 123rf.com

Saint Paul 2nd Most Livable City

Real Estate Week in Review

The American Association of Retired Persons (AARP) has named Saint Paul its 2^nd most Livable City for Persons 50+, citing the city’s assistance to developers converting vacant structures into condos and lofts, as well as the Light Rail. Minneapolis also ranked in the top 10, at coming in at #5 (AARP Bulletin, May 2015).

On May 12, the Home Price Economics Survey results were published, with news of home values expected to rise. Surveying “a distinguished panel of over 100 economists, investment strategists, and housing market analysts regarding their 5-year expectations for future home prices in the United States,” 111 analysts projected an appreciation in home values from between 11.7% to 27.5% in the next five years (Pulsenomics LLC). Nearly half of the experts surveyed, 42%, said “looser credit restrictions, an improving economy, and the rising cost of renting would drive more people to buy in the next one to two years.”

According to data released by the Minneapolis Association of Realtors, in April, pending sales for the Twin Cities region reached the highest level since June 2005. Offers increased 26% from this time last year, along with a rise in listings.

In “Housing by the Numbers,” CNBC reports homes “selling at a faster clip this spring,” along with higher investor activity and sometimes, fierce competition for homes, translating into good news for sellers. However, buyers shouldn’t be intimidated out of looking for a home this spring, rather they should consider locking in a great mortgage rate now. “Mortgage rates are rising, up pretty significantly in just the past two weeks from an average 3.6 percent on the 30-year fixed to just over 4 percent. In the first three months of the year, rates were lower, prompting a refinance ‘boomlet.’”

Around Town

The Black Forest Inn, an institution in the Twin Cities and home of its first beer garden, turns 50 this weekend. WCCO’s Jason DeRusha did a story exploring the beloved German restaurant and the upcoming celebrations.  Said owner Erich Christ, “We have kids who came here yay high [guesturing], getting married, said their first date is here. Now their grandkids are coming.”

Another institution, Saint Paul’s Tavern on Grand, may be turning off its famous sign soon. No, they’re not closing – but neighbors in the Summit Hill neighborhood have complained that the lights are just too bright and remain flashing too long each evening. If the sign has been as it currently is since before 1981, however, they’ll be grandfathered in from before the city ordinance.

If you want a sign in front of your home that catches attention, call Miller Grossman at (651) 434-7887 (millergrossman@cbburnet.com) for your real estate needs, to take advantage of this great market.

March 2015 Newsletter