While the US median sale price has risen by just under 6% over the past year, the principal-and-interest mortgage payment on the median-priced home has increased nearly 15%. Moreover, while the CoreLogic Home Price Index Forecast suggests US home prices will rise 4.7% year over year in August 2019, some mortgage rate forecasts indicate the mortgage payments homebuyers will face by then will have risen by more than 11%. One way to measure the impact of inflation, mortgage rates and home prices on affordability over time is to use what we call the “typical mortgage payment.” It’s a mortgage-rate-adjusted monthly payment based on each month’s US median home sale price. It is calculated using Freddie Mac’s average rate on a 30-year fixed-rate mortgage with a 20% down payment. It does not include taxes or insurance. The typical mortgage payment is a good proxy for affordability because it shows the monthly amount that a borrower would have to qualify for to get a mortgage to buy the median-priced US home. The US median sale price in August 2018 – $226,155 – was up 5.7 year over year, while the typical mortgage payment was up 14.5% because of a nearly 0.7-percentage-point rise in mortgage rates over that one-year period.
A consensus forecast suggests mortgage rates will rise by about 0.5 percentage points between August 2018 and August 2019. The CoreLogic HPI Forecast suggests the median sale price will rise 1.9% in real, or inflation-adjust, terms over that same period (or 4.7% in nominal terms). Based on these projections, the real typical monthly mortgage payment would rise from $922 in August 2018 to $1,000 by August 2019, an 8.4% year-over-year gain. In nominal terms the typical mortgage payment’s year-over-year gain would be 11.4%. An IHS Markit forecast calls for real disposable income to rise by around 2.5% over the next year, meaning homebuyers would see a larger chunk of their incomes devoted to mortgage payments. When adjusted for inflation the typical mortgage payment puts homebuyers’ current costs in the proper historical context. Figure 2 shows that while the inflation-adjusted typical mortgage payment has trended higher in recent years, in August 2018 it remained 28.1% below the all-time peak of $1,283 in July 2006. That’s because the average mortgage rate back in June 2006 was about 6.7%, compared with an average rate of about 4.6% in August 2018, and the inflation-adjusted US median sale price in June 2006 was $248,980 (or $199,500 in 2006 dollars), compared with an August 2018 median of $226,155.
Walmart 3Q earnings beat expectations, but revenue misses
Walmart, the world’s biggest retailer, said Thursday its third-quarter adjusted earnings per share (EPS) beat Wall Street expectations on strong online shopping, but revenue was a miss. EPS was $1.08, higher than the $1.01 that had been expected and a penny more than the year-earlier quarter. Revenue came in at $124.9 billion, less than the $125.5 billion analysts polled by Refinitiv expected, but higher than the $123.2 billion in the year-earlier quarter. Same-store sales increased 3.4% and e-commerce sales surged 32%. In the US e-commerce sales climbed 43%. The company raised its fiscal 2019 guidance for adjusted EPS to a range of $4.75 to $4.85, up from $4.65 to $4.80.
NAR – realtors see increase in commercial income and sales volume for second straight year
Commercial real estate markets are on the rise, with Realtors® specializing in commercial real estate reporting both an increase in members’ gross income and sales volume, according to the National Association of Realtors® 2018 Commercial Member Profile. Corresponding to tightened inventory conditions, sales transactions for NAR’s commercial members have slowly decreased in the last two years, down from eight in 2016 to seven in 2017. The annual study’s results represent Realtors®, members of NAR, who conduct all or part of their business in commercial sales, leasing, brokerage and development for land, office and industrial space, multifamily and retail buildings, as well as property management. “The commercial real estate industry is strong and is on pace with the growing economy. Although there is a slight decrease in transactions, commercial professionals have reported improvements in their markets and business activity for consecutive years. Realtors® reported that sales volume and costs of sales increased this year, as well as median gross annual income,” said NAR President John Smaby. The median gross annual income for commercial members hit an all-time high of $150,700 in 2017, up from $120,900 in 2016. The median sales transaction volume in 2017, among members who had a transaction, was $3,870,500, an increase from the median sales volume of $3,500,000 in 2016. The median dollar value of sales has also steadily risen since 2013 to its peak of $602,500 for all commercial members in 2017, up from $543,500 in 2016.
The median gross leasing volume was $705,500 in 2017 for members who had a transaction, an increase from $538,500 in 2016. Brokers and brokers’ associates reported the highest annual gross income of $186,900 and $139,700, respectively, while sales agents reported $104,600, an increase from $81,300. Commercial members with less than two years of experience reported a median annual income of $44,000 in 2017, up from $31,500 in 2016; and those with more than 26 years of experience reported a median annual income of $192,600 in 2017, up from $162,200 in 2016. “Commercial real estate professionals are reporting great growth in the past year, which has convinced more and more members to enter the commercial industry. Fifty-one% of NAR’s commercial members worked in sales as their primary service area, followed by 16% in leasing and 12% in investment. Twenty-nine% of NAR’s commercial members worked with commercial buildings, with 13% on multifamily structures, retail, and office space. Forty-nine% of NAR’s commercial members were brokers, 29% licensed sales agents, 17% broker associates, and five% were appraisers. The median age of commercial members remained the same as last year, 60, while the median age for NAR’s commercial members with two years of experience or less was 46. Thirty% were female, up from 27% in 2017 and 70% were male, down from 73% in 2017. Seventy-eight% of commercial members worked at least 40 hours a week.
Oracle loses $10B Pentagon contract protest as rivals fear Amazon is front-runner
The US Government Accountability Office (GAO) denied a protest by tech giant Oracle on Wednesday, which claimed the Pentagon’s $10 billion pending cloud contract violated federal procurement standards and was biased toward e-commerce giant Amazon. Oracle objected to the Pentagon’s request for a single-award contract, said its solicitation process “unduly restrict[s] competition,” and asserted there were potential conflicts of interest related to the procurement process. The GAO shot down those claims, saying the Pentagon’s decision to pursue a single-source contract to obtain the cloud services was fine since “the agency reasonably determined that a single-award approach is in the government’s best interests for various reasons, including national security concerns, as the statute allows.” It also rejected conflicts of interest claims. Oracle filed the protest in August. IBM still has a complaint on file with the GAO that has not yet been resolved. In a statement, a spokesperson for the company said “both the warfighter and the taxpayer ” would benefit from a process that is truly competitive. “We are convinced that if given the opportunity to compete, DoD would choose Oracle Cloud Infrastructure for a very substantial portion of its workloads because OCI delivers the best, most performant and most secure product available at the best price,” the company spokesperson said.
The Defense Department’s pending cloud storage contract, known as Joint Enterprise Defense Infrastructure (JEDI), could span a decade and will likely be its largest yet – valued around $10 billion. The department issued draft requests for proposals to host sensitive and classified information and is expected to announce a single winner next year. Last month, search giant Google pulled its bid for the JEDI contract, amid concerns the job does not align with the company’s artificial intelligence principles. Google has dealt with employee protests and concerns over producing technology for the US military. Amazon, Oracle, IBM and Microsoft are believed to be the top contenders – but the single-source clause sparked concerns among rivals that Amazon was likely to be the winner, due to its other standing cloud deals. Microsoft released a statement in March saying it believes the best strategy would leverage “the innovations of multiple cloud service providers.” Google also said it believed a multi-cloud approach would be in the government’s best interest, “because it allows them to choose the right cloud for the right workload.” Amazon, which already holds a $600 billion cloud contract with the CIA, has a robust cloud computing division, known as Amazon Web Services, which one analyst predicts could generate $60 billion in revenue over the next five years. Earlier this year, the Pentagon dramatically scaled back the value of a contract it signed with Amazon partner REAN, to $65 million from $950 million. The original five-year agreement — which was legally challenged by Oracle – was to help accelerate agencies’ migration to the cloud.
Airbnb takes Boston to court over city’s “draconian” short-term rental rules
The city of Boston has new rules surrounding short-term rentals that are set to go into effect on Jan. 1, 2019. The rules are designed to limit the growing number of short-term rentals in the city by restricting who can list their house or apartment on a short-term rental site. But according to the most prominent short-term rental site, Airbnb, Boston’s short-term rental rules violate the Constitution, multiple federal laws, and Massachusetts state law. Therefore, the site is asking a federal judge to invalidate the city’s rules. This week, Airbnb sued the city of Boston in federal court, claiming that the city’s short-term rental ordinance requires the site (and similar sites) to police its platform far more than it does now and share confidential user information with the city. As the Boston Globe wrote this week, the city’s rules would place serious restrictions on who can rent out a unit or house via the short-term rental site. From the Globe report: “Under the rules set to take effect in January, Airbnb investors and apartment tenants would be prohibited from renting their homes by the night, and property owners would not be allowed to list more than one unit on the website. Airbnb has about 6,300 listings in Boston. Studies suggest an outsized share of its business comes from investors and other hosts the rules are aimed at curtailing.”
Airbnb claims that the city’s rules go “much further than that,” and threaten short-term rental sites with “draconian” punishments should they violate the city’s rules. “This is a case about a city trying to conscript home-sharing platforms into enforcing regulations on the city’s behalf, in a manner that would thwart both federal and Massachusetts law. The City of Boston has enacted an Ordinance limiting short-term residential rentals by hosts. But it goes much further than that,” Airbnb claims in its lawsuit filing. “The Ordinance also enlists home-sharing platforms like Airbnb into enforcing those limits under threat of draconian penalties, including $300-per-violation-per-day fines and complete banishment from doing business in Boston,” Airbnb continues. “Airbnb believes that home-sharing may be lawfully regulated, and it has worked with dozens of cities to develop the tools they need to do so without violating federal or state law,” the filing adds. “Boston’s heavy-handed approach, however, crosses several clear legal lines and must be invalidated.” According to Airbnb, Boston’s short-term rental rules would also force the site and others like it to “actively police third-party content on their websites by penalizing the design and operation of their platforms and restricting and imposing severe financial burdens on protected commercial speech.” And the site claims that the city’s rules would require it to “to disclose to the City confidential information about its users without any legal process or precompliance review.”
Airbnb also claims that the city requires short-term rental platforms to enter into nebulous “agreements” with the city that carry heavy penalties. “The Ordinance, for example, compels Airbnb to enter into undefined so-called ‘agreements’ with the City that will require Airbnb to take down listings posted by third-parties and prevent whatever scope of listings in whatever manner Boston dictates—or else be barred from Boston altogether,” Airbnb claims. According to Airbnb, the city’s rules violate the Communications Decency Act, the Stored Communications Act, the First, Fourth, and 14th Amendments of the Constitution, and the Massachusetts Declaration of Rights. To that end, the company is asking a judge to nullify the city’s rules. The city, of course, is standing by its rules but is not commenting on the lawsuit. “We cannot comment due to pending litigation,” Boston city pokesperson Samantha Ormsby said.
MBA – comments on FHA’s annual report to Congress
Robert D. Broeksmit, CMB, President and CEO of the Mortgage Bankers Association (MBA), issued the following statement regarding the US Department of Housing and Urban Development’s (HUD) Annual Report to Congress Regarding the Financial Status of the FHA Mutual Mortgage Insurance Fund. “The continued growth of the Capital Reserve Ratio is welcome news, and indicates that FHA is effectively serving its core mission in the single-family market – providing safe and affordable credit to qualified first time and low-and moderate-income borrowers – while appropriately managing its risk and protecting taxpayers. “The increase in the MMIF capital ratio to 2.76% in fiscal year 2018 moves the program farther above the 2% statutory minimum. Importantly, the forward book of business continues to perform well, with significant improvements in key indicators such as serious delinquencies, early payment defaults, claims payments, and loss rates. “We are glad to see that FHA is closely monitoring the increasing risk in the forward portfolio, indicated by rising debt-to-income ratios, declining credit scores, and the increasing use of downpayment assistance programs. While current FHA delinquencies are quite low, it is prudent to keep an eye on these trends to ensure the program does not face undue challenges if, and when, the economy and job market cool. “The drain on the fund presented by the HECM program continues a trend that MBA has highlighted previously and remains a topic of concern. Reverse mortgages are an important financial tool that, if used properly, can allow the growing number of retirees to age in place. MBA applauds the recent steps FHA has taken to stabilize and improve the HECM program, and policymakers should continue considering ways to insulate the forward program from the volatility in the reverse program.”
NAHB – statement from NAHB Chairman Randy Noel on FHA actuarial report
Randy Noel, chairman of the National Association of Home Builders (NAHB) and a custom home builder from LaPlace, La., issued the following statement after the Federal Housing Administration (FHA) released its annual actuarial report to Congress: “Today’s FHA report is very encouraging and shows a marked upturn in the health of the FHA Mutual Mortgage Insurance Fund. The net worth of the fund increased more than $8 billion over the past year to $34.86 billion and its capital-reserve ratio jumped from an upwardly revised 2.18% to 2.76%, which is well above the congressionally mandated level of 2%. “The report clearly shows that actions instituted by HUD Secretary Ben Carson and FHA Commissioner Brian Montgomery to enhance the agency’s capital reserves are showing positive results. It’s also another indicator that FHA’s financial picture continues to brighten and should provide momentum for the agency to consider a mortgage insurance premium reduction to help first-time home buyers and young families seeking to enter the housing market.”