Acts of Congress, executive decisions from the White House, Fed actions. What happens in the nation’s capital impacts buyers, sellers and homeowners across the country – including here in California.
Several important decisions have been made over the past few weeks that could affect how we buy and sell homes, including:
• The $1.3 trillion spending package.
Signed into law last week, this bill authorizing federal spending and keeping the government open for another six months provides a boost to affordable-housing programs advocated by both developers and housing-advocates.
The measure includes a 12.5 percent increase in tax-credit allocations for the next four years. For California, that means an additional $250 million a year. That’s about half of the amount lost through cuts created by last year’s tax bill.
Still, the new credits, along with other provisions of the bill, will provide incentives to builders who include affordable housing in their developments, helping to offset their costs.
“The increase couldn’t have come at a better time,” Sen. Maria Cantwell, D-Wash., told the Los Angeles Times. Cantwell has been among Congressional Democrats pushing hardest on this issue.
“This down payment will help us deal with the tremendous deficit we have in affordable housing.”
• Interest rate hike.
Also last week, the Federal Reserve increased its key short-term interest rate from 1.5 percent to 1.75, the highest level in a decade, citing a stronger economy.
This follows a similar hike in December, and there will likely be two or three more increases in 2018.
While the rate is not directly related to mortgage interest rates, the change will likely trickle over to impact consumers.
That’s good news for those with money in savings accounts. Homeowners with adjustable-rate mortgages, though, are likely to see their minimum required payments increase.
And higher mortgage rates mean lower affordability for those looking to purchase a home.
For most of 2017, interest rates on most conventional 30-year fixed mortgages hovered around 4 percent. Now they are closer to 4.5 percent and expected to hit the low 5s before the end of the year.
A 1 percent increase represents about $30 per month per $100,000 of home financing. The median price of a home sold in Livermore since Jan. 1 is $760,000. With 20 percent down, a buyer would have a mortgage of $690,000 on such a home.
That means the same mortgage would cost about $200 per month more at the end of 2018 than at the end of 2017. For some buyers, that will be the difference between qualifying or not qualifying for this mortgage.
• Tariffs on steel and aluminum imports.
President Trump announced his intention to impose tariffs of up to 25 percent on imported steel and up to 10 percent on imported aluminum, which could increase the costs of constructing homes and other buildings.
While these products from certain countries – notably Canada and Mexico – are exempt, and we don’t yet know exactly what the tariffs will look like, homebuilders are concerned it will raise the already steep costs of construction.
“The proposed tariffs could measurably raise the cost of building materials and hinder home construction of affordable homes,” according to Lawrence Yun, chief economist for the National Association of Realtors.
“But more importantly, tariffs and restrictions to international trade will hold back economic growth and job creations. A better way to raise GDP growth is to produce more homes. Job growth and additional housing inventory will greatly help American workers and American consumers.”
A year ago, the president imposed a 20 percent tariff on Canadian softwood lumber, leading to a 31 percent increase in the cost of lumber used in construction, according to Bloomberg. Industry insiders are fearful of similar increases in the cost of steel.
The intent is to help the U.S. steel industry, but analysts doubt American companies alone can meet the demand for steel used in construction, as well as that used to manufacture automobiles and other products.
The impact is likely to be minimal on single-family homes, but more significant in the construction of multi-family homes, according to industry analysts.
Across all types of commercial construction, steel accounts for 6 percent to 8 percent of the cost to construct a building. That percentage can rise to as much as 20 percent when the costs to install features like heating, ventilation, and air conditioning are factored in, according to Kathryn Thompson, CEO of Thompson Research Group, an equity research firm specializing in construction and related industries.
Indeed one place where the tariffs are likely to be strongly felt is the solar panel industry, which was hit earlier this year with direct tariffs on imported parts and panels.
• Changes to consumer protection legislation.
The Senate has passed and the House is considering legislation that would amend the Dodd-Frank Wall Street Reform and Consumer Protection Act, passed in the wake of the collapse of several large financial institutions.
The bi-partisan bill would exempt small and community banks from various rules, loosen requirements for certain mortgages, alter regulation on municipal debt, and change the threshold for banks to be subject to enhanced prudential regulation (often called the SIFI threshold) from $50 billion in assets to potentially as high as $250 billion.
Republicans in the House are calling for even more changes. Opponents argue the bill goes too far already.
If you are wondering what is happening in real estate in your neighborhood, consult your local Realtor today.
Cher Wollard is a Realtor with Berkshire Hathaway HomeServices Drysdale Properties in Livermore.