10 Charts That Summarize The U.S. Economy - Hint: It's A Mixed Bag

We’re going to talk about the economy. I’m not going to make economic predictions here, but I’m going to try to assess where we are (or might be) in this crazy economy.

• Are we in a recession? 


• Are we about to enter a recession? 


• What is the biggest risk to our financial future? 

Are We in a Recession? 

A lot of experts, pundits, and screaming headlines would say yes.

JP Morgan Chase CEO Jamie Dimon thinks we are headed for a recession. Cantor Fitzgerald doesn’t think the bear market is over. The S&P 500 has lost about 17% year-to-date. With all of these negative headlines, the world seems awfully dark. But just how accurate are they?

“Recession” Comes Up More Often, But Do the Headlines Match Reality? 

Nobel Prize-winning economist Richard Thaler says there’s no recession, despite two straight quarters of negative GDP growth earlier this year. According to Thaler, calling the U.S. economy recessionary is “just funny.”

Besides Thaler, we can always trust the government, right? The Deputy U.S. Treasury Chief predicts a soft landing. He believes the Fed may tame inflation and avoid a recession. Or at least that’s possible. He says we have the capacity to take steps to bring inflation down but also make the needed investments to make sure the economy continues to grow he said. 

Lauren Baker of ITR Economics is a distinguished economist who can provide reliable information for the industry. She did a great job explaining at BPCON22 a contextually sensible view of why the economy might not be as bad as people think and why we may have a soft landing. I will show you several slides from her talk with a brief explanation. 

While U.S. GDP declined two quarters in a row, Lauren pointed out that it’s still at near record levels. In fact, these would still be record quarters if the last quarter of 2021 hadn’t been so high. In context, the GDP looks very healthy.

U.S. GDP By Quarter (2006-2022) – ITR Economics

Lauren used the following slide to explain that slowing economic growth will result in less supply chain pressure. Whether you are an investor, a consumer, a house flipper, or a college student, you’ve probably felt the pain of the supply chain issues since Covid started. Lauren explained that slowing economic growth would relieve some of these supply chain issues.

Global Supply Chain Pressure Index to U.S. Purchasing Managers Index (2000-2022) – ITR Economics

Lauren sure is upbeat! A fact that I really appreciate!

The Producer Price Index, which often leads the Consumer Price Index, showed a sharp decline. This could indicate that the Federal Reserve’s interest rate policies are working.

U.S. CPI to PPI (2000-2022) – ITR Economics

Government spending usually leads inflation by 23 months. After a record increase during the pandemic, government spending has dropped significantly, as you will see in the next graph. Will the Consumer Price Index follow?

U.S. CPI to Total Government Spending (1992-2022) – ITR Economics

Lauren used the following curve to show past and predict future inflation levels:

U.S. CPI (1992-2022) – ITR Economics

She also discussed the dreaded yield curve inversion. Many of you know that when short-term treasury yields surpass long-term rates, there is “always” a recession on the horizon.  

Lauren explained, however, the inverted yield curve we recently saw was only for a few hours one afternoon. It was great for headlines, and newspapers loved it. But does it signal a recession? Lauren also pointed out that there are many yield curves that can be compared. Lauren concluded that this does not necessarily indicate a recession.

U.S. Long-Term Bond Yields to 3-Month Treasury Bond Yield (1998-2022) – ITR Economics

The Federal Reserve shows very low commercial delinquencies, which is great news. This graph going back to the early 1990s is pretty impressive. Banks have every reason to be lending still—right?

Delinquency Rate on Commercial Real Estate Loans (1992-2022) – St. Louis Federal Reserve

Unemployment is shockingly low, and there are a lot of job openings right now. Lauren explained that the labor shortage would not end anytime soon, with millions of job openings. These four sectors alone have almost 2.1 million job openings. 

U.S. Job Openings by Industry (2018-2022) – ITR Economics

U.S. retail sales are slowing, but they are still near record rates. 

U.S. Total Retail Sales (2000-2022) – ITR Economics

Lauren explained that while interest rates are relatively high now, they are still negative when adjusting for inflation. Meaning that even if you took out a mortgage today, you could look at it like you are making money while borrowing money. Dave Ramsey would hate me for saying that.

U.S. 30-Year Mortgage Rate to New Home Median Sales Price (1971-2022) – ITR Economics

Lauren had a lot of great thoughts as she summarized. Here are her three main points on macroeconomic trends:

• U.S. economic growth is dissipating into a “soft landing.”


• Underlying fundamentals suggest commodity prices should stabilize: War is a risk


• Supply chain issues to improve

Lauren concluded that a soft landing is possible. Even likely! That made me very happy, and the audience of about 2,000 in San Diego breathed a sigh of relief. 

Should You Take Comfort in this Potential Soft Landing? 

Not necessarily. Why? Because many factors could cause this economy to topple. The war in Europe is undoubtedly one of them. But there are others. One you might not have thought of—the squeeze on credit markets!

 

 

Source: 10 Charts That Summarize The U.S. Economy – Hint: It’s A Mixed Bag

https://www.creconsult.net/market-trends/10-charts-that-summarize-the-u-s-economy-hint-its-a-mixed-bag/

FHFA Announces 2023 Multifamily Loan Purchase Caps for Fannie Mae and Freddie Mac

​​​​​​​​Washington, D.C. – The Federal Housing Finance Agency (FHFA) announced today that the 2023 multifamily loan purchase caps for Fannie Mae and Freddie Mac (the Enterprises) will be $75 billion for each Enterprise, for a combined total of $150 billion to support the multifamily market. The 2023 caps reflect an anticipated contraction of the multifamily originations market in 2023.

To ensure a strong focus on affordable housing and traditionally underserved markets, FHFA will require that at least 50 percent of the Enterprises’ multifamily business be mission-driven affordable housing.

“The 2023 multifamily loan caps, coupled with a new mission-driven category for workforce housing properties, will continue to ensure that the Enterprises have a strong commitment to addressing the need for affordable housing,” said Director Sandra L. Thompson. “The new workforce housing category will provide incentives for conventional borrowers to maintain rents at affordable levels for extended periods of time.”

In addition, FHFA has changed certain definitions of multifamily mission-driven affordable housing in Appendix A of the Conservatorship Scorecard. In 2023, FHFA will allow loans to finance energy or water efficiency improvements with units affordable at or below 80 percent of AMI to be classified as mission-driven, up from 60 percent AMI in 2022. This increase will allow the Enterprises to expand their effort on energy and water conservation measures at workforce housing properties.

To ensure the Enterprises continue to provide sufficient liquidity and support in the multifamily mortgage market, FHFA will continue to monitor the multifamily mortgage market and will update the multifamily caps and mission-driven requirements if adjustments are warranted. However, to prevent market disruption, if FHFA determines that the actual size of the 2023 market is smaller than was initially projected, FHFA will not reduce the caps.

2023 ​Multifamily Caps Fact Sheet

2023 Appendix A​

Source: FHFA Announces 2023 Multifamily Loan Purchase Caps for Fannie Mae and Freddie Mac

https://www.creconsult.net/market-trends/fhfa-announces-2023-multifamily-loan-purchase-caps-for-fannie-mae-and-freddie-mac/

1120 E Ogden

Retail / Office Space For Lease | 3,674 SF | $20/SF NNN
1120 E Ogden Ave, Suite 101 | Naperville, IL 60563
Broker: Randolph Taylor rtaylor@creconsult.net | 630.474.6441

https://www.creconsult.net/retail-office-for-lease-1120-e-ogden-ave-suite-101-naperville-il-60563/?wpo_all_pages_cache_purged=1

Do You Know Where Your Money Is Coming From? Navigating Today's Lending Market

There is no doubt that the real estate market has been a wild ride since the pandemic changed the normal course of our lives over two years ago. Lending did not escape the effects of Covid-19, and many active investors have learned more about the loan process than they ever did before the pandemic.  

In the spring of 2020, some lenders left active investors in a bind, closing their doors or halting lending while they evaluated the new risks in the marketplace. Over two years later, the market is changing again, and investors need to know how to pivot to keep their pipeline flowing. While everyone is watching rates increase, they are taking their eyes off the real question right now: Can they close this loan?

Realizing a preapproval and rate and term sheet are not set in stone will go a long way in the current lending environment. Lenders are changing underwriting criteria, not making as many or any exceptions to lending guidelines, and lowering loan-to-value midstream in the escrow process. Most investors never thought about the source of their capital before March 2020. The most concerning part of the lending process was getting through underwriting and receiving the message that you were approved and cleared to close. Whatever happened behind the scenes inside the lending machine wasn’t a concern to an active investor. As long as money made it to the closing table, they were happy. This strategy worked until the capital never made it to the closing table. 

When lenders suddenly turned off the spigot to cheap capital, investors scrambled to save deals any way they could. This pushed private lenders with their own capital to lend to the forefront in the hunt for leverage. Active investors scrambled to find funding or negotiate contract extensions to restart the lending process.

Private lenders who lend their own capital have more control. Large nationwide or even regional lenders have significant strings attached to the capital they lend out, and those strings are pulled by forces outside the lender’s control. 

For example, large institutional lenders are often funded by lines of credit from banks or even selling their loans on the secondary market. In both of those cases, there is another entity establishing what they can lend out, where they can lend it, and the pricing of those loans. These lenders require the line of credit to stay open or the capital markets to continue purchasing loans, so they have enough liquidity to keep new loans coming into the pipeline. 

What does that mean for you as a borrower? It means that the rates and terms you are quoted may suddenly change, or funding, in general, may be halted at a moment’s notice. So how can you protect your real estate investing business in this period of turbulence? 

Start asking questions about how the lender acquires their capital and diversify lending sources based on where they get their capital.

The Four Types of Lenders

For the sake of simplicity, you can think of capital in one of four buckets for alternative lending: national lenders, regional lenders, local lenders, and private loans from a lender who lends their own capital, including seller financing. While there are many flavors and options within each bucket, knowing the general purpose of each can help you decide what type of financing to use for which project. 

Alternative lending automatically means it is not going to be the conforming conventional loans you may have used to purchase your own home. Since they are non-conforming loans, the variables offered are numerous and vary greatly. Having a conversation with your lender about the types of projects they fund and general guidelines for their loan products can go a long way to choosing the right lender for the right project. 

National Lenders

National lenders are pretty easy to locate. Their brand and names are spoken widely across online platforms, forums, and even REI meetings. Their business model has the borrower and decision maker for the loan the furthest removed from each other. To these lenders, every application and, ultimately, file on their desk is a series of numbers and check marks. A business model like this shows up to the active investor (borrower) with high single-digit interest rates and lower fees, but those come at the cost of higher documentation requirements, full third-party appraisals, and a longer closing time. This group of lenders is often very sensitive to changes in the capital markets or economic outlooks. If you need a deal to close super quickly with minimal documentation, this may not be the best tool to use. On the other hand, if you have time for the closing such as a refinance into permanent debt, this may be a great option to pursue.

Regional Lenders

Regional lenders may not have the brand recognition of “the big guys,” but within their markets, they can be relatively well known. Their mid-range interest rates and somewhat higher fees often come with lower requirements for documentation and longer financing timeframes than national lenders. Depending on the lender, they may require a full appraisal or may opt to do an online valuation through a third party. These regional lenders can be a great option for borrowers that have some unique borrowing challenges, such as new employment or acquiring financing as a new business entity. 

Local Lenders

Local lenders tend to be smaller asset-backed lenders or smaller bank/credit unions in the market. They tend to lend in just a certain area of a state or the entire state if it’s small enough (such as Delaware or Rhode Island). These local lenders usually have higher rates, especially if they are asset-backed, but also usually have low or no documentation requirements. This translates through to a borrower with higher rates and usually higher fees. These asset-based lenders can often close quicker and use some sort of in-house valuation methods for the real estate securing the loan. Credit unions may also use the same valuation tools but often want a higher level of documentation to understand the lending opportunity. For investors operating in one particular market, this classification of lender tends to be the most helpful since they are local. This class of lenders understands the market they are lending in and has experience with other lending opportunities in the same area.

Individuals

Lastly, we will look at loans that come from individuals, or what we term “private lenders .”These loans come from capital that an individual or their business entity has. These individuals are often seeking to have passive income or put their retirement funds to work in real estate versus the stock market. Depending on the amount of capital they have available to them, they may not always have the liquidity to fund a loan when the capital is needed. Many of these lenders work with established networks of borrowers, sometimes rolling capital from one deal to the next with the same borrower. These lenders may have very low documentation requirements, flexibility on the type of properties they are willing to lend on, and vary in terms of interest rates, fees, and length of the loan. They also can generally close very quickly, sometimes within a few days if needed. While they won’t be the cheapest or longest-term loan out there, the flexibility this type of lender offers more than makes up for it. 

The Type of Lender Determines the Variables

As you can see, there is somewhat of a correlation between the documentation and underwriting guidelines and the rate being charged. When you, as a borrower, can show the standards a lender believes are lower risk, you can then be rewarded with a lower rate. In addition, other value-add components can also increase annualized interest rates and fees being charged. If a lender can get a deal closed in three days with minimal documentation, that can be a more expensive loan because the borrower needs to move quickly or is unable or unwilling to go through a more thorough vetting process for the loan. 

Conclusion

Understanding what your needs are for financing each property really allows you to find not just a lender but the right lender for the job. The lender’s ability to close the loan is more important than rates and terms right now. Ask questions about the lender’s access to capital and if that access is likely to change in the next several weeks. Depending on the size of the lender you are speaking with, they may not be able to answer that question, but thinking about this as a borrower can never hurt to consider. Keeping another lender in your back pocket that may be able to close quickly, even if it is a higher rate, maybe the difference between closing or not.

 

Receive a Loan Quote from eXp Commercial's Capital Markets Partner CommLoan Thousands of Loan Programs. Hundreds of Lenders. One Commercial Real Estate Lending Platform. One-stop shopping and unprecedented access to the capital markets.

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Source: Do You Know Where Your Money Is Coming From? Navigating Today’s Lending Market

https://www.creconsult.net/market-trends/do-you-know-where-your-money-is-coming-from-navigating-todays-lending-market/

9301 Golf

Golf Sumac Medical Offices For Lease | 998 - 2,853 SF | $28/SF MG
9301 West Golf Rd | Des Plaines, IL 60016
Broker: Randolph Taylor rtaylor@creconsult.net | 630.474.6441
https://www.creconsult.net/golf-sumac-professional-building-medical-office-space-for-lease-9301-golf-rd-des-plaines-il-60016/

@properties Implements 1% Broker Fee On Transactions

@properties Christie’s International Real Estate is going into wartime mode with a new fee on agent commissions, The Real Deal has learned.

The Chicago-based brokerage’s co-CEOs Thad Wong and Mike Golden told agents Wednesday it’s tacking on an agent services fee of 1 percent of gross commission income, according to a company-wide email reviewed by TRD.

The move applies to all transactions closed on or after April 1, and comes during a sustained market slowdown in an era of high-interest rates, an environment in which many residential brokerages have been pushed into tough decisions.

“Brokerage revenues are down, and expenses are way up,” Golden and Wong said in the company-wide email. “Inflation has hit everyone, including @properties, and today it costs significantly more to run a large brokerage firm than it did just a couple of years ago.”

The agent services fee will come off the top of all transactions and will be shared between the agent and the company depending on previously established splits. For example, if the commission was $100, the additional fee would be $1, but if the agent’s split is 75/25, the agent would only pay 75 cents.

“While we never thought we would have to institute a fee, it is the most responsible thing we can do, and we think it is very fair given the value @properties provides,” the email said. “We also worked incredibly hard to keep this fee as low as possible.”

The fee only applies to company-owned @properties offices, not its franchises or franchisees of Christie’s International Real Estate, whose brand rights are owned by @properties.

In an interview Thursday, Wong said the company is preparing for a declining market.

“I don’t know if we’ve seen the worst, or if the worst is coming — you have to be prepared,” he said. “If you’re not talking about your plans when things slow down, you’re making a mistake.”

“[Fees are] not uncommon in the industry — it’s uncommon for us,” he added.

The company is also increasing its MLS fee for transactions that include an outside broker to $495 from $250, a move which @properties says will bring it in line with other brokerages. The MLS fee for transactions with the company’s agents on both sides remains at $250.

This earnings season has shown how great the challenge is for residential brokerages.

Anywhere Real Estate — the parent company of Corcoran, Coldwell Banker, Century 21 and Sotheby’s International Realty — and Redfin posted big losses in the fourth quarter, with signals that the first quarter this year will be much of the same. Compass posted a net loss of $158 million in the fourth quarter, up from $154 million in the third quarter but slightly improved over the $175 million lost in the same period of 2021.

Source: @properties Implements 1% Broker Fee On Transactions

https://www.creconsult.net/market-trends/properties-implements-1-broker-fee-on-transactions/

Selling an Apartment Building FAQ's

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Top Frequently Asked Questions on Selling a Multi-family in Chicago

Are you thinking of selling your multi-family property?

Here are some of the most frequently asked questions we get from clients looking to sell multifamily properties in Chicago.

Before You Sell:

How is selling a multi-family different than selling a single-family home?

If you’ve sold an investment property before, you’ll be familiar with the ins and outs of selling a multi-family. However, if it’s your first time, you’ll learn that the process works differently than it would with a single-family or condo.

A large part of a multi-family’s sale appeal will lie in its cash flow. Buyers looking for a multi-family are looking for more than just a home: they will want to see a property that generates good rental income, rents easily, and provides a financial incentive for them to buy. This could be in the form of easy upgrades they can make to boost rental income or as an empty unit for them to occupy and offset their own living expenses.

Do I need a broker to sell a multi-family?

Of course, we’re biased...but we do recommend working with a broker who is experienced in the multi-family market in your neighborhood. Not only will they be able to pull good comps and provide a market analysis of how you should price the property, but an experienced agent will know how to show the proeprty to different types of buyers, whether they are experienced investors or first-time multi-family buyers who want some supplemental income. Brokers who work in multi-family markets are also in the know about rent prices and trends, which will help them sell your home at the right price.

Do I need to make repairs before selling?

Some buyers look for multi-families with units that could benefit from some updating because they see it as an opportunity to raise the rent using some sweat equity. Your agent should be knowledgeable of the renter’s and buyer’s market for your area and property type and will have good recommendations of what types of updates to make before selling.

Making simple upgrades around the property and in common areas like hallways and entryways can be an easy way to boost the property’s curb appeal that won’t break the bank, whether it’s through new fixtures or a fresh coat of paint.

How do I list a multi-family?

One of the most important parts of getting ready to list your property is confirming the number of legal units in the building. In a city full of old homes like Chicago, many apartment units have been created in old basement spaces or have been de-converted into larger single unit. If you sell your property with an incorrect number of legally recognized units, you could face legal issues down the road. To get the most accurate picture of how your property should be valued and listed, get in touch with the local village to confirm the number of legal units listed in their records.

How should I price my multi-family?

Buyers and their lenders will typically appraise a multi-family home using the income approach method instead of simply using comps in the area to compare values. This means that the appraiser will look at the cost of property maintenance and rental income to evaluate a property’s cash flow. To price your multi-family, you should do appraise a building’s income and use comps in the area to accurately represent what someone might want to pay for it.

How should I market my multi-family?

• You’ll want professional photos of each unit to get ready to list your property, which means asking your tenants to clean their spaces and set up a time for the photographer. Having an empty unit comes in handy because it gives you the opportunity to deep clean the space and potentially even stage it with furniture to show off its potential.


• Put together a financial breakdown and lease abstract to show possible buyers. This might include details like current rents, cost of utilities, and other maintenance fees to give them a better idea of potential rental income.

Selling a building with tenants.

How do I sell my multi-family with occupied units?

One of the trickiest parts of selling a multi-family is to make sure that you are aware of your tenants’ legal rights and that you make the selling process as effortless for them as possible.

• Breaking the news to tenants: Announcing that you’re listing your property for sale isn’t the easiest conversation to have with tenants. For them, it means the hassle of cleaning their apartments for multiple showings, a change in landlords, and a potential increase in their rent after the sale. However, you are legally obligated to inform your tenants when you sell the property, so it’s important to have that conversation before getting too far into the selling process.


• Tenant’s rights when a property is listed for sale: To protect yourself from liability and provide a smooth transition for your tenants during the sale process, it’s important to be aware of their rights determined both by the state and by their lease agreement. Your tenants most likely have a right to be notified a set amount of time before showings and have a lease that can’t be terminated just because you want a vacant unit to sell the property. Reread your lease agreements and the tenant’s rights for your city before listing your home or schedule showings.

How do I show a property with occupied units?

An experienced Broker will know the ins and outs of how to show a property with occupied units (which is one of the biggest reasons why you should take your time to find a good agent). The most important concern when it comes to showing units is to make sure that the tenant is aware of the appointment sufficiently ahead of time. Check your lease agreement to see if there are already guidelines in place, or contact your tenant prior to listing the process to come to an agreed-upon amount of days or hours before the showing when they should be contacted.

Have you thought of selling your property and would like to know what it's worth? Request a valuation for your property below:

Request Valuation

 

Source: Selling an Apartment Building FAQ’s

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https://www.creconsult.net/market-trends/selling-an-apartment-building-faqs/