July 2019: Fed interest rate cut probability grows

Will the Fed cut interest rates in July 2019?
by Team Stessa, posted in Newsletter

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Patti Domm of CNBC opened up the week with an aptly titled article, It’s no longer a question of if the Fed will cut interest rates, but when. Domm noted that the surprisingly weak jobs report for May, falling Treasury yields, and the futures market moving to price in an almost three-quarter point rate cut before December, have many Economists saying it’s likely the Fed will cut rates. This could be as early as July.

Megan Henney of Fox Business reported that on Tuesday, Chairman Jerome Powell hinted that the Fed could respond to the escalation in the U.S.-China trade war by lowering rates. “Powell, during a listening event in Chicago on Tuesday, said the Fed is closely watching how global trade developments will impact the U.S. economy, noting that policymakers were prepared to act as necessary to sustain near-record expansion.”

Matt Phillips of The New York Times weighs in with an informative market-based probability chart predicting a rate cut at the Federal Reserve’s July meeting.

July 2019 Fed interest rate cut probability

Source: NYT

Fannie and Freddie update

Fannie Mae and Freddie Mac play a pivotal role in the businesses of many investors, which is why this week’s news is so important. According to Charles Gasparino and Lydia Moynihan of Fox Business, “The Trump administration is in the nascent stages planning what people inside the government say could be history’s largest public offering as it looks to release the mortgage agencies Fannie Mae and Freddie Mac from government control.” This public offering could exceed $100 billion according to reports, with Wall Street bankers discussing the move in recent weeks with Trump administration officials informally.

Felice Maranz of Bloomberg reports however that analysts from Raymond James note that a long list of “preparatory steps”—such as earnings history and capital reserves—means that any potential Fannie and Freddie IPOs would be at least 3-4 years off.

These preparatory steps could hurt President Trump politically, according to Austin Weinstein of Bloomberg. Any boosting of capital reserves means higher mortgages costs, which in the end could hurt the President politically as homeownership becomes more out of line with the pocketbooks of Americans. Allan Lopez and Christopher Maloney of Bloomberg weigh in on this debate, with the opposite view, noting that reforms could actually save homeowners money in the long run.

Hurricane season and real estate

With the Atlantic Hurricane season just beginning, CoreLogic in its annual Storm Surge Reportnotes that 7.3 million homes are at risk, with reconstruction costs estimated at $1.8 trillion, a 300,000 home and $200 billion in reconstruction increase since 2018. “Narrowing down to metropolitan areas, Miami, New York City, Tampa, New Orleans and Virginia Beach, Virginia hold the greatest risks.”

WeatherNation weighs in with a slightly more optimistic outlook, noting that “the forecast changed from expecting a “less active” season (as compared to normal), to now, a near normal season.” A forecast from Colorado State University (CSU) called for 14 named storms, 6 of which would become hurricanes, and 2 of those becoming major hurricanes. Here are the CSU predictions:

Hurricane season effect on real estate in U.S.

Source: WeatherNation

For real estate owners along the coast, Marshall Shepherd of Forbes picks up on the trend of “stalled hurricanes” along coastal cities as being particularly bad news. “There’s nothing good that comes with a hurricane hanging around your neighborhood for a long time. You get much more rainfall flooding, which is a leading cause of hurricane-related deaths, as well as more wind damage.”