A WEEKLY GLIMPSE OF REAL ESTATE NEW
7/27/26
War & Tariffs Spur Inflation: The FED meets tomorrow and Wednesday and is expected to make no change to their short-term Federal Funds Rate of Interest. The President’s encouragement to lower interest rates appears to be a distant wish as the Iranian War coupled with renewed tariffs have pushed inflation to an annual 4.2% (well over the FED’s desired 2% annual rate). Predictions regarding a possible quarter percent rate increase at the FED’s mid-September session are running 50-50 and trending toward an eventual rate increase. Seeking additional funding to prosecute the Iranian ? (I’m not sure what to call it – can’t be a war because that would have required Congressional approval but it does seem much more than a skirmish, misunderstanding or even hostilities. The President calls it a conflict.). Complicating the inflation picture is the President’s new tariffs, enacted under a controversial and mostly dormant 1930 law (the Smoot-Hawley Tariff law that was largely credited with stimulating the great depression). The 50% tariff placed on Canadian lumber will result in higher construction costs, which seems incongruent with the Congressional emphasis on increasing affordable housing opportunities (via the housing bill, unsigned by the President, but allowed to become law via the pocket veto route). Although it is unlikely that we will see lower mortgage rates anytime soon, the goods news perhaps is that rates may not significantly increase either.
Understanding the Appraisal Process: The vast majority of real estate purchase or refinance transactions require an independent appraisal, which provides a lender the verification that the property upon which they are asked to make a loan provides sufficient collateral. An appraisal is an opinion of value supported by the recent sales of comparable neighborhood properties. Appraisers use specific forms and follow appraisal guidelines. I have consistently found appraisers eager to support the contractual purchase price but the verification information must also support that objective. (A new form is being introduced and I will report more about the form after having some real-world experience with it.)
The initial valuation typically begins with a real estate agent advising a potential borrower generally about home values. Upon selection of a specific property, many agents provide their own recent sale comparables (many which are likely to be used in the appraiser’s report) in providing guidance in making a fair offer. Upon the contract’s approval and acceptance, the appraisal process shifts to the mortgage lender with whom the borrower is acquiring financing.
Everyone wants the transaction to proceed as quickly as possible and since the appraisal report can take some time to acquire there is an urge to immediately order the appraisal. Now here is the tricky part. An appraisal is paid for via the borrower’s credit card when it is ordered. Appraisal costs are substantial, often starting at $850 with $1,000 or more is not unusual (the introduction of the new appraisal form will very likely increase these fees). Borrowers are urged to have all other details agreed to before ordering the appraisal. For instance, inspections (pest, home roof, plumbing, etc.) are usually a condition of the transaction. Paying for an appraisal only to discover that one or more of the inspections are unacceptable could result in a loss of all or a portion of the appraisal fee. Waiting for inspection approval can add weeks to the time frame and for this reason, we urge sellers to acquire inspections available for review upon the acceptance of any offer. Consideration of this potential delay can avoid
at best disappointment, and at worst anger over the disruption of plans for either vacating or obtaining entry to the home.
The Potential AI Bubble: There is general acceptance that the hot stock market is fueled largely by artificial intelligence investment. Many would also agree that it is likely that this is an AI bubble that will burst ‘sometime’. The increasing opposition to the erection of energy plants, due to increasing concerns regarding overburdening local power and water grids, may be the initial resistance that slows the AI advance. There is also a greater acceptance that, while transformative in the long haul, artificial intelligence is increasingly viewed as a poor replacement for engaging in the eyeball-to-eyeball communications desired by many consumers. While the economic impact will be substantial with a bubble burst, the greater concern is the psychological impact upon individual consumers and the economy overall. Instability initiates hesitancy which easily translates into a pause in economic growth.
There is also a connection with AI and the President’s desire for lower interest rates. Much of the AI infrastructure construction and future build-out is debt financed. An increase in interest rates increases borrowing costs and could inhibit future expansion. Given that these projects have yet to show profit, investors could rethink the promised future values of AI stocks or even the broader market. Although some might consider it premature, it might be time to consider the possibility that AI is approaching a point of over promising and under delivering.
Affordability Issue Remains Alive and Well: Although the feeling related to the term affordability is individually personal, the sense that everything is more expensive remains pervasive. Consumers use this term to describe their concern over rising prices, inability to purchase a home, employment apprehension or merely any financial uncertainty. Although the President dismisses the concept of affordability altogether, legislators and the mortgage industry have generally approached affordability by seeking ways to reduce the costs of home loan acquisition. The recent housing legislation attempts to find ways to increase the housing supply vs focusing on buyers’ ability to qualify and purchase. As previously reported here, the housing measures will require time to come to fruition. In the meantime, it is difficult to read the tea leaves around an inflationary market (home values vary substantially by location but locally continue to appreciate albeit in the low single digits) accompanied by a hard-to-read employment climate. It is most likely that we will continue to experience interest rate volatility within a narrow band of adjustment. As sellers adjust to an increasing home inventory for sale, buyers may find bargains that inspire purchasing in spite of elevated rates. Potential buyers would be wise to remain patient but pay attention to the market, become pre-approved and proceed when the right home is found at an affordable price within their comfort zone.
Minimal Legislative Days: The Senate will be in session only 10 days between today and September 1st with another 13 days from September 14th prior to November election day. The House of Representatives have recessed for August and is scheduled to be in session only 15 days beginning September 14 until election day. These days can increase based mostly on the urgency of pending legislation. The President’s Save America Act passed by the House awaits Senate approval within the next 10 days. Currently there are insufficient votes in the Senate unless a rules change occurs. Unless passed in this session, it is unlikely that there will be sufficient time for States to initiate any ‘change the vote’ process prior to the mdi-term election.
The Save America Act, presumably proposed to curb non-existent voter fraud. is largely viewed as restricting the vote legislation. It proposes elimination, except for a few instances, of vote by mail. While most Americans anticipate some form of voter identification the proposed law imposes severe restrictions on what can represent said ID. It is anticipated that the changes would mostly affect the elderly, students at out of state schools, persons of color and women whose birth certificates will not match married names – coincidently a predominantly Democratic voting constituency. Regardless of which side of the political aisle one represents any legislation focused on restricting voting rather than increasing participation should be suspect as to its motive.
Weekend Update: Anxious for any good news, the market reacted positively to the several days cessation of hostilities in Iran. Rhetoric seesawing from bombing Iran back to the Stone age to we are on the cusp of peace has made it difficult to trust any information about the Iranian war. Unreliable war information has been coupled with a new imposition of arbitrary tariffs of 10 to 12.5 percent on most nations with whom we regularly trade (with a 50% tariff on select items, including lumber, from Canada). Continuing uncertainty suggests little relief from high consumer prices, at least in the near term.
Until next week, be good to yourself and kind to others.
7/13/26
Housing Bill Becomes Law: Congress, by large bi-partisan votes, passed ‘historic housing legislation” (so called by the politicians) but the president declined to sign the housing bill until Congress passed his unpopular voter registration/suppression legislation. Unable to garner sufficient votes for his bill we waited for the decision for the housing bill. We entered a period wherein the president could veto (likely to be overturned by Congress), allow the bill after ten days to become law or sign the bill. The way legislation works, the bill was going to become law with or without his signature but many thought he would sign it, perhaps at the last moment, in order to take credit for the legislation. His failure to sign the bill and its impact upon the upcoming mid-term election is being debated.
We reviewed some elements of the housing bill last week and while much of it is aspirational and parts of it will take time for implementation we applaud the effort. The bill focuses on increasing home supply recognizing that it may be a bigger challenge than merely attending to the financing aspect and easing buyer qualification capacity. It is sweeping legislation but it affects will not be felt for some months. We will hear it much discussed as both political parties take credit for its passage.
With all of the drama around the housing legislation and its focus on creating greater supply, I found Rob Chrisman’s musing (in the Chrisman Commentary) interesting – “if U.S. fertility is dropping and immigration numbers are going down, has the (housing) problem shifted from lack of supply to a lack of demand for housing”? In the near term, the status quo is anticipated including limited inventory, cautious buyers and only need to sell sellers.
Possible War & Consumer Prices: Amid accusations from both sides regarding who is at fault, the tenuous memorandum of understanding (MOU) has collapsed. For now, it seems we will resume a bombing campaign, which the military insists has never been successful in obtaining a nation’s capitulation. If true, we are likely to experience higher prices, including gas, for an indefinite period. There has never been a clear explanation of why we initiated a war nor are we privy to a plan to end hostilities. Our assumptions are that the ship blockade will remain in force, we will continue to burn through our missile arsenal and be told that we “are doing very well in demolishing Iran and Iran will accept our demands very soon”.
In the meantime, the price of oil climbed (after having declined a bit) which generally affects other consumer goods. The White House announced the introduction of Freedom Gas at a lower $3.47 per gallon cost (typical price is between $3.88 and $4.00 a gallon in the region). 25 stations located in Pennsylvania and New Jersey offer this savings via a reduction in their profit margins (the President indicates that this was a voluntary plan by a consortium and there is no government subsidy in play with this process). The effort is very welcome but at the risk of appearing negative, it is unknown how extensive this program will become in the nation and how long it can be sustained without government intervention. Higher prices will likely keep would-be buyers cautious and seeking seller assistance in the home selling process.
The FED Ahead: The President’s “I want him to be completely independent” comment regarding his newly appointed FED chairman, Kevin Warsh, quickly gave way to robust criticism when the FED held rates steady rather than lowering them at their mid-June meeting. Given the recent war news with Iran, it is likely the President will be disappointed again at the FED’s July 28-29 session. Inflation remains the FED focus as it stubbornly sits at nearly double the FED’s 2% a year goal. Although it is a bit early for predictions, the consensus is that the FED would likely maintain rates at, least one more time, in hopes of not having to raise them later in the year. While focusing on curbing inflation, the FED is facing a challenge in the employment sector (see jobs comment below). In this ever-changing financial climate two weeks before their next meeting can seem like a lifetime. Meanwhile, rates have settled in the 6.5% range (for conventional loans and qualified borrowers).
The Job Market: The Bureau of Labor Statistics (BLS) recently reported that nonfarm payrolls in June were 57,000. Even after revisions to the April (117,000) and May (86,000) this slower pace of job creation was a surprise. The softening unemployment rate (from 4.3% to 4.2%) was the lowest reading since June a year ago. There was a scramble of explanations as job openings exceeded expectations while workers’ “perceived” difficulty in finding a job rose to its highest level since January 2021. Looking at statistics, the main reason for workers’ job search concerns was that 90% of the added jobs in recent months have been in the healthcare, leisure, hospitality and local government sectors. Another worrisome issue is retail hiring was a mere 7,500 during a summer season that more typically sees more jobs, at least temporarily. July may see an increase in employment due to World Cup Soccer events but the current decline in retail job creation may be a reaction to higher prices and consumer belt tightening, especially in discretionary spending. Meanwhile, the FED may have to focus on the inflation portion of their mandate (curb inflation and maintain full employment), at least in this coming meeting.
Privatizing Fannie & Freddie: I want to follow up on last week’s comment regarding the Supreme Court’s propensity for granting ever growing powers to the Executive Branch. The two Government Sponsored Entities (GSEs), Fannie Mae and Freddie Mac, are crucial to the liquidity of our current home financing arena. A conventional home loan initially funded via a local lender, is almost immediately transferred to Fannie or Freddie upon the closing of the purchase of refinance transaction. The replenishing of the original lender’s funds allows that entity to continue to fund future home loans. Without this liquidity, loan funds would soon be depleted.
The GSEs have retained semi-autonomy after having been taken into receivership following the financial crisis in 2008. Recent years have seen periodical suggestions to remove the entities from receivership and privatize them. Bill Pulte, current head of both entities and a longtime acolyte of the President has raised the privatization issue again. A long-time desire of the President and with the above-mentioned increase in Executive power, this is a growing possibility.
Privatization advocates suggest that investors would loosen the sometimes-restrictive rules of the GSEs while interest rates would become more competitive via an investors attitude for doing business. Critics worry instead about a scarcity of private funding accompanied by interest rate increases and possibly even more emphasis on risk-free transactions. Those who remember the past “too big to fail” philosophy that promoted the highly criticized “bank bailout” fear that privatized GSEs could easily result in another investor bailout at consumer expense.
There are numerous decisions before GSE privatization could occur. This may remain only a wish list item. (We might be reminded that President Obama’s Affordable Care Act ‘ACA’ has been systematically dismantled over the last 15 years with the promise of a better replacement system that has never occurred.) It is never as easy as expected when replacing something that is critical and is working.
A Personal Comment of the Iranian Conflict: There is no question regarding the negative impact the war with Iran has had and continues on have on our economy, especially rising consumer costs. Both parties blame the other for breaches of the Memorandum of Understanding (MOU) which was flawed from the beginning. Upon its release, the MOU was severely criticized as highly favoring Iran. Confusion was immediate as the U.S. ‘interpretations’ of the document were discounted by the Iranians. The President, in his rush to reach some agreement, was accused of having relied upon civilian negotiators lacking sufficient skills. As of the weekend, the question of who controlled the Strait of Hormuz remained unclear. The result of a new bombing campaign suggests a likelihood of a prolonged period of high consumer prices that trickles down to our housing element. Reminder; Our focus now seems to be opening the Strait of Hormuz but the Strait was open prior to what some call this war choice was initiated. Secondly, nearly all military strategists doubt that a nation can be forced into compliance by bombing alone but troops on the ground in Iran seems unthinkable.
Until next week, be good to yourself and kind to others.
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