National REIA’s Monthly Government Affairs Update…
Sloppy Inflation: The discussion around inflation has become quite sloppy. Rather than focus on all the misstatements, please know that references to inflation “coming down” is in no way an actual reduction in costs. It is a reduction in the rate of increase. This is critical when thinking about budgets and longer term planning. The deflationary aspect of the economy has not reared its head except in parts of China. In the event deflation starts, prices will actually go down. So will value. Have a discerning ear…
Another Domino: In late May, Tennessee Governor Bill Lee signed into law Tennessee’s new anti-squatting legislation. The new law will take effect on July 1, 2024. Click here to learn more.
Sticky Red Tape: A recent report from the National Multifamily Housing Council (NMHC) says building codes can raise concerns about construction costs and make it increasingly difficult to develop much needed housing. Go figure... Click here to read more about the report.
Paneling: While at a recent conference, Charles Tassell moderated a panel discussing the valuations & future valuations of Single Family Rentals. Accordingly, there are four themes creating a pattern: 1 – The current shortage of affordable/entry-level housing is creating consternation for those entering the market. 2 - Demand from Millennials is beginning to wane and will do so through 2027. 3 - Boomers who retired at age 65 (around 10K a day in 2011) are starting to exit homes, many of which will need to be renovated for the current market, will increase supply well in to 2030. 4 - Interest rates will be the barometric gauge with 5 point something percent being considered the number that will allow many of the interest rate-locked homeowners to move out of their current low interest mortgages.
Developing Equilibrium: In November of 1942 after British forces routed Rommel out of Africa, Winston Churchill quipped that “Now this is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning.” This seems apropos in context of the war in Ukraine and a turning of sorts in Israel/Gaza, and the impact of this strife on resources - especially oil. Around the world, an equilibrium is developing in the U.S. especially. In our post-Covid economy re-shoring is picking up where other commercial construction is slowing. Stay tuned to the economic forecasts!
Chicken Littles: The past several years have given rise to many raising concerns that the economic sky is falling. These “chicken littles” may be prophetic, but a play too early in the market can still be wrong and costly. With that in mind be sober and practical about the need to neither be optimistic or pessimistic but realistic considering the ups, downs, and pros and cons of each deal, while preserving enough capital for a rainy day…because the deals on those rainy days may be good, but short lived!
Hoovering Up: After a year of the FDIC telling small and regional banks not to worry about their commercial RE exposure and NOT to record it as “Mark to Market” on their books, in May the FDIC reversed course. It’s interesting that several of the largest banks seem ready to hoover up these smaller branches, with Republic First Bank (different than First Republic from CA in 2023) among the first. The FDIC can audit the bank and immediately take over those that are illiquid, something that marking to market commercial RE is almost certain to do for many community banks.
Additionally, Freddie Mac is crowing about not pushing foreclosures while at the same time selling their 22nd RE tape to Wall Street Equity firms with homes greater than 90-days delinquent…with a small caveat not to foreclose until 2025.