Weekly Economic Update
Economic News:
Can the Fed bring inflation under control without causing a recession?
Every year we seem to publish the “Dog Days of August” edition. And there is always new fodder for the edition. Certainly, August a few years ago was unique because we were in the height of the pandemic. This year, the battle between good and evil is taking place within our economy. What is the good? A remarkable jobs machine cranking out hundreds of thousands of jobs every month which is contributing to a resilient economy. This week we will get another picture of the employment situation representing what is right with today’s picture.
What is evil? The Federal Reserve continuing to hike interest rates in an attempt to knock the resilient economy off its perch. It seems the Fed will not rest until they pull the economy into a recession. The bottom line is that interest rates are going higher for a longer period of time because the Fed does not want the economy to be doing this well. Of course, they are using this economic poison to fight another evil – inflation. The Fed would be happy to have an expanding economy if inflation was under control.
So, the real Dog Days of August question this year is—can the Fed bring inflation under control without causing a recession? We think everyone in America should go on vacation in August and find out the answer when they get back in September. Did we mention that the Fed is not meeting in August? Even they need a Dog Days of August breather. Maybe our August editions will feature a beach forecast. Just watch out for dog sharks!
Could Fannie/Freddie Be At Risk?
FHFA sounds the alarm over GSEs' ability to absorb losses in 2022 Annual Report to Congress.
The Federal Housing Finance Agency (FHFA) is sounding the alarm over a high risk-based capital shortfall for Fannie Mae and Freddie Mac, exceeding their risk-based requirements and elevated operational risks. This is according to FHFA’s 2022 Annual Report to Congress. “Despite considerable growth in each Enterprise’s loss-absorbing capacity (net worth), available capital remains in deficit, in large part because the Senior Preferred Stock issued by the Enterprises is excluded from regulatory capital,” the report reads. “The Enterprises remain undercapitalized, with a combined adjusted total risk-based capital shortfall of $421 billion, which exceeds their adjusted total risk-based capital requirements and buffers due to the Enterprises’ accumulated deficits.” Credit risk management continues to be a priority at the GSEs, particularly due to the impacts of the COVID-19 coronavirus pandemic that is partially mitigated by borrowers’ exits from forbearance programs, the report explained. High levels of home price appreciation are also helping, but exposure to nonbank mortgage companies increased in 2021 due to increased sales to the GSEs. The report also makes a series of legislative recommendations related to the GSE’s regulatory capital, including updates to FHFA’s authorizing statute, and additional flexibilities Congress could grant that would streamline the regulation of capital. As it currently stands, FHFA’s authorizing statute “does not expressly permit FHFA to adjust the statutory capital definitions by regulation,” the report states. “If Congress were to give FHFA the same flexibility as the federal banking regulators by amending or removing the statutory capital definitions, FHFA could streamline the capital regulation,” the report explains. (Source: HousingWire)
Real Estate News:
Walkability Equals Quality of Life
New NAR’s survey confirms preference for walkable communities.
The National Association of Realtors (NAR) 2023 Community & Transportation Preferences Survey, which is a national poll of 2,000 adults conducted every three years to gauge people’s partialities regarding their home’s location or potential location as well as community attributes they find desirable, found this year that Americans who live in walkable communities are reporting higher quality of life levels. "With COVID in our rearview mirror, this study shows that a substantial demand for walkability persists for Americans of all ages," said NAR President Kenny Parcell. "NAR has conducted community preference surveys for over 20 years, providing Realtors and their communities with valuable information on shifting American lifestyles and migration trends. To help local communities and Realtor® associations improve the places they live, NAR generates this survey and makes the results available to all." Among noteworthy findings of the survey, if deciding today where to live:
79% said being within an easy walk of other places and things, such as shops and parks, is very/somewhat important. 78% of those indicated that they would be willing to pay more to live in a walkable community.
85% said sidewalks and places to walk are very/somewhat important.
65% said having public transport nearby is very/somewhat important.
56% said they would prefer a house with a small yard and be able to walk to places vs. 44% who would prefer a large yard and would need to drive to most places.
53% would prefer an attached dwelling (own or rent a townhouse/condo/apartment) and be able to walk to shops, restaurants, with a shorter commute to work vs. 47% who would prefer a single-family home (own or rent) and have to drive to shops, restaurants and with a longer commute.
(Source: MReport)