What's Hot and What's Not


Volume 23 Issue 11
November 2017


By:
U.S. Senator John Seymour (ret.)


NATIONAL ECONOMY: Sometimes, “boring is good.” Such is the case for our national economy.

According to the U.S. Department of Commerce, our Gross Domestic Product (GDP) grew at a healthy 3% rate in the third-quarter and the national unemployment rate remained steady at 4.2% for the month of September.

Despite the record number of devastating hurricanes including Harvey, Irma, and Maria, totaling an estimated $252 billion in property losses, their full economic impact has yet to be seen.

Growth in median incomes for American workers has been slow, to practically non-existent, at an annual rate of just 0.13%. However, despite the anemic wage growth, the American consumer continues to spend with an annual increase of 2.4%.

On a personal note, my wife, Judy, continues to do her very best to ensure that the Seymour family does its part in contributing to the growth in consumer spending! According to national reports,”on line” spending has increased by 7.4% this year, and is projected to grow another 8.8% in 2018 and 12.4% in 2019. My personal estimates of Judy’s “online” spending have been far in excess of the national increases. One of my personal data indicators is my increasing inability to gain access through our front door, as the daily piles of “amazon” delivery boxes now present a “clear and present danger” to access!

For those who believe that American businesses are “hoarding” their cash, the third-quarter GDP report included a surprisingly high rate of business spending on equipment, up 8.4%. The negative side of the third-quarter GDP report is that private commercial building construction fell 5.2% and new home construction and sales fell by 6%. But for the sluggish and sleepy real estate markets, we would have already achieved that much desired 4% plus growth rate. Most economists are predicting a continuing 3% economic growth rate for the fourth quarter of this year.

THE FED WATCH & MORTGAGE RATES: As we go to press on this issue of the newsletter, FED Chair, Janet Yellen and her Federal Open Market Committee (FOMC) Members are meeting regards the Federal Reserve Bank interest rates and monetary policies.

Expectations are low for any changes in the current 0.50% to 1.25% borrowing rate nor the execution of their long-awaited sale of their mortgage-backed securities policies.

However, this may well be Janet Yellen’s “swan song” as Chair of the Federal Reserve Board since President Donald Trump has indicated that he will announce his choice for the Fed Chair by November 2nd.

The political rumor mill predicts that the probable selection for the next FED Chair will be current Board member Jerome Powell. He is a Republican, former investment banker and is expected to continue the current policies of the Federal Reserve Board.

MORTGAGE RATES: The 30-year fixed rate mortgage, with a 20% down payment, continues to “hover” near the 4% level. With little or no help to the housing markets, mortgage credit remains relatively “tight.”

The Mortgage Bankers Association reports on mortgage credit availability with their Mortgage Credit Availability Index (MCAI).

The last MCAI reading was hovering at 180. At its peak, the MCAI was near 800 in 2007. Restrictive federal real estate lending regulations have prevented any easing since the “sub-prime” loan crash.

CONGRESS & THE WHITE HOUSE: : Congress continues to wallow in its self-created bitter partisan swamp. Little has been accomplished in this 115th session of the house and the Senate has nothing to show for itself but intra-party as well as inter-party dissension and dis-organization.

Having failed twice to pass anything close to “repeal & replace” Obamacare, the Republicans have now been politically “boxed” in and left “holding the bag” on the entire health care issue. Obama’s passage and enactment of federal healthcare, without a single Republican vote, has become a perceived “right” by the American voter. The Republicans with political majorities in every branch of our government are now responsible for what happens to this new public “entitlement” program along with Social Security and Medicare.

The political dilemma in which Republicans find themselves is that healthcare costs continue to rise faster than inflation and cost cutting measures or controls are seen by voters and the Democrats as a denial of a federal entitlement program.

Faced with the negative “politics” of limited cost reductions, the next best Republican strategy is to “shift” the control and cost of healthcare to the states from the federal government. The problem with that strategy is that 30 states currently have Republican Governors who are not about to burden their voters with the cost of what they know will be the most expensive “entitlement” program in government.

As if the failure and inability to handle the healthcare issue weren’t enough to challenge the Republicans, they are now faced with the issue of federal tax reform.

Today, the President and Republicans have said that they will unveil the “specifics” of their tax reform proposal. In painting the big picture, President Trump has promised a corporate tax reduction along with a major tax reduction for “middle-class” taxpayers.

The cost of the tax reform proposals has currently been estimated at $1.1 trillion; however, President Trump and Congressional Republican leaders have said that the cost will be more than made up by economic growth at a 4% to 4.5% rate.

The political dilemma that Republicans face with the tax reform proposals is that in order to keep conservative Republican support, they need to keep the lost revenues, in tax deductions, below the $1.1 trillion level otherwise they will be increasing the federal deficit and lose the needed Republican votes.

The House Budget Resolution, including the potential tax reform cost of $1.1 trillion, narrowly passed the House by a vote of 216 to 212. This vote is indicative of the political difficulty in keeping House Republicans unified.

Certain proposed provisions of the tax reform plan have come under heavy opposition. The possible elimination of the existing federal income tax deductibility for payment of State & Local taxes caused 20 House Republicans to vote against the House Budget Resolution.

The proposed limit to tax deferred contributions for 401(k) tax savings accounts has been opposed by President Trump and numerous Senate and House members.

Politically powerful housing advocate organizations have adopted formal opposition positions to the tax reform proposals. The National Association of Realtors (NAR) and the National Association of Homebuilders (NAHB) opposition are based on the potential reductions or elimination of home mortgage and property tax deductions.

As one who has personally experienced the political challenges on the side of housing advocate and the side of legislators trying to effect change in government, I can reliably report that this current challenge of federal tax reform is like trying to “thread a needle” from a distance of ten feet away.

Although President Trump has promised the “greatest change in federal tax reform in our history,” my expectations are that the changes will be minimal and hopefully enough for Republicans to claim a victory.

FEDERAL INDEPENDENT COUNSEL INVESTIGATION: Leading the federal investigation on Russian involvement in the Presidential election of 2016 is Robert Mueller, a former Marine, Vietnam Veteran and former Director of the FBI.

Having received an indictment from a federal grand jury, this week Mueller filed federal charges against Paul Manafort, former Trump Campaign Manager and his associate, Richard “Rick” Gates. Charges include conspiracy, money laundering, and failure to register as a foreign agent plus nine other charges.

Mueller also announced the arrest and guilty plea of George Papadopoulos, campaign policy advisor. Although it is far too far to pass judgment on the guilt or innocence of Manafort or Gates, the political fallout on the President’s Administration is already occurring.

The President’s poll numbers have been dismal and will now sink to even lower depths. Currently, just 38% of the voters approve of his performance. Comparatively, Clinton’s low was 48% and Obama’s 55%.

Polls are temporary and are subject to rapid change in either direction; however, they do impact an individual’s ability to lead a government and a political party.

With a less than successful record of political leadership, to date, Trump will now have an ongoing greater challenge. His prospects for a second term have been seriously damaged.

NATIONAL HOUSING MARKET: After three straight months of decline, existing home sales inched up by 0.7% during the month of September, according to the National Association of Realtors (NAR). Compared to sales one year ago, they were down by 1.5%. Sluggish sales were rightly blamed for losses caused by hurricanes Harvey, and Irma as well as continued low housing inventories for sale.

Unsold inventories of existing homes for sale rose 1.6% in September but were 6.4% lower than one year ago. At the current sales pace, unsold inventories represented a 4.2 month’s supply.

The National Association of Homebuilders (NAHB) reported new home sales rose an unexpected 18.9% in September. That’s the strongest month of new home sales since October of 2007. Current inventories of unsold new homes represented a 5.0 months’ supply at the current sales pace.

CALIFORNIA ECONOMY & STATE GOVERNMENT: : After three straight months of decline, existing home sales inched up by 0.7% during the month of September, according to the National Association of Realtors (NAR). Compared to sales one year ago, they were down by 1.5%. Sluggish sales were rightly blamed for losses caused by hurricanes Harvey, and Irma as well as continued low housing inventories for sale.

Unsold inventories of existing homes for sale rose 1.6% in September but were 6.4% lower than one year ago. At the current sales pace, unsold inventories represented a 4.2 month’s supply.

The National Association of Homebuilders (NAHB) reported new home sales rose an unexpected 18.9% in September. That’s the strongest month of new home sales since October of 2007. Current inventories of unsold new homes represented a 5.0 months’ supply at the current sales pace.

GOVERNOR BROWN’S DUAL LEGACIES ON LIFE SUPPORT: Jerry Brown’s dreams of a bullet train running from San Francisco to San Diego appear to have become a political nightmare, headed for the railroad yard cemetery.

No surprise to have President Trump tell his Department of Transportation, not a penny more for California’s proposed bullet train. The $643 million federal grant had been opposed by all of the California Congressional members.

If that wasn't enough, in order to get his “Cap ‘n Trade” program extended, which has become Brown’s poster child for Climate Change, he agreed to a voter initiative for the June of 2018 ballot that, if approved, will require a two-thirds vote of the state legislature to fund the bullet train, a highly unlikely event.

The other Brown legacy project has been the proposed construction of two 35- mile tunnels at a cost of $17.1 billion. The proposed tunnels would run from the Sacramento- San Joaquin Delta to the California Aqueduct system.

The tunnels would be paid for by participating water districts, primarily the Metropolitan Water District and the Westland’s Water District, located in the Central Valley.

The Metropolitan Water District approved the plan at their October 10th meeting; however, the Westland’s Water District Board on a 7 to 1 vote had previously vetoed the plan on the basis of the increase in costs to farmers. Westland’s estimates were that water costs to farmers would increase from $160 per acre foot to over $600 per acre foot.

The water tunnels are not a dead project, as Brown may find another way to satisfy the objections of the Westland’s Water District.

CALIFORNIA HOUSING MARKET: The California Association of Realtors (CAR) reports that existing home sales in September rose 2.2% compared to the previous month of August, and were up 1.7% compared to September of 2016.

The median price of an existing home dropped 1.8% compared to August; however, it was up 7.5% when compared to September of 2016.

CAR’s unsold inventory Index for September was a 3.2 months’ supply at the current sales pace. A “stable” housing market has historically been defined as a 6.0 months’ supply of homes for sale.

California currently, has an annual shortage of 80,000 housing units. The recent package of pro-housing bills signed by Governor Brown promises to deliver just 10,000 housing units per year.

Until such time as state and local governments change the costly government regulations and construction fees for affordable housing, the crisis will only worsen.

DISCLAIMER: This monthly newsletter is posted by Orange Coast Title Company and its family of companies. The opinions expressed herein are solely those of the author and not of management or their employees. Any criticisms, corrections or suggestions are always welcomed at jfseymour55@gmail.com.

SOURCES: LA Times, OC Register, Fresno Bee, Sacramento Bee, San Bernardino Sun, San Diego Tribune, Wall Street Journal, NAR, CAR, NAHB, MBA, CBIA, & CMBA.