The number of homes for sale across the United States increased at a record rate in July, signaling that higher mortgage rates and soaring prices are decreasing consumer demand for housing, according to a report published by Realtor.com on Aug. 9.
The growing number of homes for sale could mean that would-be buyers may have more negotiating power when it comes to purchasing property, as inventory levels continue to rise. This will no doubt be a welcome change to potential buyers, after years of the increasing rise of home prices, lower inventory levels, and increased demand.
According to Realtor.com, the number of active listings of homes for sale rose 31 percent from a year earlier in July, marking a record-high increase for a third consecutive month and the largest increase in inventory in the data history.
Meanwhile, the total inventory of unsold homes, including pending listings, increased by 3.5 percent year over year, which Realtor.com said was due to a decline in pending inventory. However, the total inventory of unsold homes increased for the first time since September 2019.
Newly listed homes also declined by 2.8 percent in July on a year-over-year basis, according to the report.
Interest rates have risen as the Federal Reserve has tightened its monetary policy in an effort to combat soaring inflation, which stood at 9.1 percent in June. As a result, increased mortgage costs have put a damper on the housing market.
Good News for Homebuyers
Currently, the contract rate on a 30-year fixed-rate mortgage is averaging 5.54 percent, according to data from mortgage buyer Freddie Mac. This time last year, the 30-year fixed-rate mortgage averaged 2.78 percent.
The latest report suggests that the housing market may finally be balancing out, which could in turn provide more options to homebuyers who are still actively searching for a new home.
However, inventory has yet to return to pre-pandemic levels, and the number of active listings in July was 15.7 percent below 2020 and 45.4 percent lower than the pre-pandemic average during 2017–19.
In addition, while the outlook for homebuyers appears to be more positive in terms of higher availability, house prices are still at an all-time high. At present, the nationwide median list price in July at $449,000, up 17 percent from a year earlier and down just slightly from the all-time high reached in June.
The report comes as the Federal Reserve is expected to announce, in September, another rate increase of 50 or 75 basis points, which could see sellers cutting down house prices in an effort to stave off market competition.
“With inventories increasing, buyers will have more negotiating power,” Danielle Hale, chief economist for Realtor.com, told Bloomberg. “The two years of a market heavily tipped in favor of sellers appears to be in the rearview mirror.”
However, Realtor.com noted that newly listed homes declined by 2.8 percent in July, compared with the same time last year, suggesting that seller sentiment may have shifted and owners are reconsidering selling their homes amid a volatile economy.
“It was so outrageous that we assumed it would never pass,” was one comment passed on to Antonia Mercorella, CEO of the Real Estate Institute of Queensland (REIQ).
“I think a number of us were scratching our heads wondering who came up with this particular reform because I think it’s really taking tax to a new level, and it is concerning,” she told The Epoch Times.
Mercorella is referring to the Queensland government’s recent decision to expand land tax liability—one of four new taxes introduced in the Australian state’s most recent budget in what is considered an attempt to arrest fast-rising debt and public service costs.
Land tax in Australia is normally paid by investors—above a certain threshold—on residential and commercial holdings to the relevant state or territory government.
In turn, average investors may look to diversify their portfolio and buy properties across the country in different jurisdictions—taking into account the differing thresholds—in an effort to reduce their tax burden.
However, in an Australian-first, the Queensland government will charge land tax based on the total value of an individual’s holdings nationwide—a move now being watched closely by other state governments.
Mercorella warned the implementation would not be easy and questioned the logic behind the move.
“What is land tax used for? How can you possibly justify basing the value of land tax on property that’s not within your borders? It just beggars belief—it actually is illogical,” she said.
A Bad Deal for Renters
However, Queensland Treasurer Cameron Dick has framed the new policy as one where the government is stopping investors from sidelining young families from entering the property market.
“Young families in places like Logan and Ipswich face unfair competition from Sydney-based speculators who are flipping properties around the country at a furious rate,” he said in a December 2021 statement. “We’ll close that loophole while ensuring there are no land tax changes for Queenslanders who own land wholly within our state.”
But, Mercorella believes this is an oversimplification of the matter.
“I think that’s way too simplistic an argument to say that if you took away investors that renters could afford to buy. I think that’s failing to recognise that there are people in our community who choose and would prefer to rent,” she said.
Currently, the majority of rental properties (36 percent of Queenslanders rent) are provided by regular mum and dad investors, while social housing—backed by the state government—only accounts for three percent of the supply.
Further, investors contribute significantly to government coffers, including higher stamp duty fees and land tax (state-level), council rates (council-level), and capital gains tax upon sale (federal).
“It’s the cumulative effect of these things that we’re concerned about, there’s more money that you’re forking out, in addition to mortgage repayments and other rates and bills associated with holding a property,” Mercorella said. “The reality is that the extra costs an owner incurs will inevitably be passed on to tenants.”
This will compound pressure on prospective renters who are already finding it tough to find a place to live.
The Greater Brisbane area—the capital of Queensland—recorded a vacancy rate of just 0.7 percent (as opposed to a healthy vacancy rate of 2.6 to 3.5 percent), a situation that has driven up rental prices across the city, according to the REIQ’s Residential Vacancy Report for June.
The situation was pushed into overdrive during the pandemic after lockdown policies triggered mass interstate migration away from the more populous states of New South Wales and Victoria, with Queensland being the major beneficiary receiving around 80,056 net migrants between 2020 to 2021. Around 44,705 came from New South Wales, and 23,299 came from Victoria, according to the Australian Bureau of Statistics.
The surge of interest saw many owners decide to sell their property, which had the following consequences: First, the emergence of a new pool of cashed-up renters who had just sold their property; second, another pool of existing renters forced to vacate their property because it had been sold; and last, pressure on current renters to pay more and match rising rental prices.
Lack of Detail Suggests Troubled Future Rollout
Recent Budget Estimates hearings suggest the state Labor government still has plenty of work to do before it can implement the tax.
Leon Allen, Queensland’s Deputy Under Treasurer, conceded that there were no existing arrangements with other jurisdictions regarding data sharing on what properties a person might own. Further, he added that the success of the policy would be “highly dependent” on how much information could be obtained—all states and territories run their own land registries independent of the other.
“It is reliant on us utilising available information as opposed to any direct feeds from other state revenue offices. Our estimations [on the revenue to be gained from the expanded land tax] are very tentative at this point,” he told the Committee on July 26.
Allen was also unable to respond immediately to questions on what effect the policy could have on the state’s housing affordability crisis and whether the parliamentary tax committee knew of the initiative.
The State Treasurer Dick said he believed the government would need to hire just nine employees to get the program underway, also noting that it would have access to “alternative mechanisms” and “third-party providers” to find out what properties an individual owns.
In response, Mercorella questioned whether it was actually financially worth doing.
“I would have thought that the cost of administering, policing, and enforcing this policy is likely to be greater than any actual financial gain.”
A Government Spending Beyond Its Means
The expanded land tax is one of four new taxes introduced in the latest Queensland budget, including a higher gaming tax, the higher payroll tax for large businesses (a “mental health levy”), hikes to the state’s mining royalties—the latter sparking a direct response from the Japanese ambassador. On top of this the government upped the penalties for speeding, seatbelt and red light traffic offences.
“This is what happens when government spends beyond its means, the people pay, and they pay, and they pay,” Campbell Newman, the former Liberal-National premier of Queensland, told The Epoch Times. “They’ve thrown caution to the wind, and they just don’t have any financial discipline.”
“The government has massively increased the administrative side of the public service and yet failed to deliver better frontline services. As a result, the costs have gone through the roof, and they’re desperate to raise cash. That’s why they are mugging everyday investors.”
Current debt levels are expected to reach $127.4 billion (US$87.8 billion) by 2024-25.
Premier Annastacia Palaszczuk has faced criticism for public service wage rises, as well as her government’s decision to spend $198.5 million on building and leasing a 1000-bed COVID-19 quarantine camp in Wellcamp—144 kilometres west of Brisbane—and shuttering it just six months after opening. Only 700 people stayed at the facility during that period.
State opposition leader David Crisafulli said the costs equated to around $325,000 per guest.
“The state government could’ve bought a one-bedroom unit for each guest,” he said.
Newman also said high coal and gas commodity prices had contributed to the budget’s bottom line, essentially masking the need for financial discipline. But at some point, the Queensland government would need to rein in spending—which could be challenging in the lead-up to the 2032 Olympic Games.
“Rather than take advantage of high coal and gas prices to get things under control, they just kept spending—when the commodity cycle turns, they will have huge problems,” he said.
“As the tranches of debt mature, they will need to be refinanced,” he added. “The interest rates have gone up substantially, and that means rather than dollars going into police, ambulances, and hospitals, they’re going to interest payments to overseas financiers.”
A decade ago, China was praised as a miracle. The twin crisis (real estate and debt) will be another miracle. The miracle is, as always, something in story books. In reality, there seems to be no miracle at all. Half to one-third of a century ago, when West Germany and Japan had been regarded as economic miracles to take over the United States, it turned out not to be so. Then the “four little dragons” in Asia (South Korea, Taiwan, Hong Kong, and Singapore) were viewed as another miracle; the bubble popped in just a few years. Later, a quarter of a century ago, it was the BRICS’ turn (China, Brazil, Russia, India, and South Africa). Now the leader is making another miracle.
All these cases point to only an up-down or boom-bust phenomenon. All were cyclical and far from secular, exhibiting a longer cycle at most. In other words, none of these were sustainable over decades. These were not miracles, and there was no magic behind them. This kind of growth is often a garbage-in-garbage-out (GIGO) without much quality. Whether Japan in the 1980-1990s or China in the 2000-2010s, economic growth was fueled mainly by bricks and mortar; a sharp rise was as easy as a sharp fall.
When encountering abnormal profits, financial returns, or growth, always recall the law of one price. Always ask yourself why others are making 1-3 percent growth, but you have 10-15 percent.
Either you are spending your past (from savings), gaining from your neighbours (the so-called beggar-thy-neighbour), or spending your future (from borrowings). Fair to say, the exceptional low growth during Mao’s era saved China quite some potential after 1978. But the real estate boom since 2003 and especially after 2008 seemed to exhaust their future significantly.
Borrowings result in debt, which has to be paid back ultimately. The experience in the 2010s seemed to suggest this would not happen—a miracle of no repay needed. Now it becomes another miracle instead—an unprecedented twin crisis. Maybe not. This is not new in history but has been repeated many times before. Without going too far back, Japan experienced it in the early 1990s, Asia ex-Japan experienced it in the late 1990s, the U.S. experienced it in the late 2000s, and Europe experienced it in the early 2010s. Cases were abundant every decade.
An appropriate case should be Japan since the nature of the two countries as well as the scale of the bubble are highly similar. U.S. experience showed that eight years was needed to clear the leverage—from mid-2006 when housing prices peaked to mid-2014 when its unemployment rate returned to below seven percent.
Japan did not publish housing prices but land prices in the past. The accompanying chart shows China is now stepping on Japan’s footprint of 28-29 years ago. The similarity looks amazing should the second-tier housing price (house prices in second-tier cities) be used.
The worst time seems to have just passed, but without allowing a sharp price crash, correction is bound to take an extended time. A prolonged gloom will last another decade or two until the 2030s or even 2040s to fully repay.
Views expressed in this article are the opinions of the author and do not necessarily reflect the views of The Epoch Times.
When Shannon Tebb listed her downtown Toronto loft for sale in mid-June, she did everything to make the property attractive for buyers. She hired stagers, painted walls, washed the windows, listed the place below market value and advertised all over social media.
But by July, she was pulling the property off the market—and not because she’d found a seller.
Tebb terminated the listing because the market shifted so significantly that the bidding wars and frenzied pace of sales seen earlier this year had dissipated.
Last month, the Canadian Real Estate Association (CREA) reported June home sales amounted to 48,176, a 24 percent drop from 63,280 during the same month last year. On a seasonally adjusted basis, sales were down almost six percent from May.
The fall has been attributed to interest rates, which are rising at a faster pace than some anticipated and pushing up the cost of a mortgage, and inflation, which recently hit a 39-year high.
Both have made it routine for properties to sit for weeks or months, pushing sellers to make tough decisions.
Since she wasn’t getting much interest on her listing, Tebb terminated it and turned the loft into a rental property instead.
“Everyone was saying, ‘nobody’s going and looking at anything,’ so then we lowered the price…and we had a few walk-ins but nothing, no offers.”
Strata found a surge in people mirroring Tebb’s decision to delist their property.
While January’s hot market saw 380 terminated condo listings in the Greater Toronto Area, the real estate company said June brought 2,822—a 643 percent increase.
“We’re seeing a lot of sellers just not getting the price they want and so they’re like, ‘we’re going to hold off’ or ‘I don’t want to sell $50,000 lower from what my neighbour got a month ago because that’s a lot of money,’” said Anna Wong, a Strata sales representative.
“We were in a seller’s market for a while … and right now sellers are having a hard time adjusting.”
CREA found the national average home price in June fell two percent from the same month last year to $665,849 and, on a seasonally adjusted basis, was down four percent from May.
“We are seeing some sellers stick on the market. They’re listing their properties trying to get yesterday’s prices and they’re staying on for long periods of time,” said Dan Campanella, a broker with Keller Williams Advantage Realty, who represented Tebb.
Some terminate their listings and continue to live in the properties while they wait for a better time to sell, but others not fetching their desired amount delist to experiment with pricing or turn to the surging rental market.
Research firm Urbanation recently reported falling vacancy rates in Toronto in the second quarter pushed up the average rent to $2,533 with a record high of $3.57 per square foot, up 5.9 percent in the second quarter compared with the first.
Rentals.ca similarly found average rents in Canada were up 9.5 percent from a year earlier, while Vancouver had a 24.7 percent jump from a year earlier and Calgary saw a 26.1 percent increase.
Campanella describes the rental market as “on fire,” largely because of prospective first-time buyers.
“When their purchasing power drops significantly, they can’t buy their first condo but they still need to move downtown, so now that means there’s more and more people looking for rentals,” he said.
“The prices are skyrocketing.”
Anne Hermary, a Vancouver real estate adviser with Royal LePage Westside, has similarly seen a surge in the rental market.
While she hasn’t dealt with any listing terminations, she suspects some sellers won’t wade into the market because of current conditions.
“I am sensing from my database of clients who have properties, that don’t necessarily need to sell or make a move, there’s no motivating factor right now,” she said.
“They may have been thinking of downsizing. They’re waiting to see what happens.”
Buyers are playing the waiting game too, Hermary added.
“Some are completely out of the picture now because they can’t get financing approval for what they’re hoping to buy, but others are just waiting because they feel the market is going to continue moving down in price.”
By Tara Deschamps
Australian house prices continued to fall as five out of eight capital cities saw a drop in prices in July, with Sydney and Melbourne leading the downward trend.
According to real estate data provider CoreLogic, Australian home values dipped by 1.3 percent in July, the third consecutive monthly drop, following a near 29 percent national surge in house prices during the COVID-19 pandemic.
However, capital city house prices were still 5.4 percent higher than in the past year, while regional prices were up 17 percent.
Among the capital cities, Sydney recorded the most significant fall in home values at 2.2 percent.
Additionally, house prices dropped 1.5 percent in Melbourne and Hobart, 1.1 percent in Canberra and 0.8 percent in Brisbane. This was the first time the Queensland capital saw a dip in home values in two years.
In contrast, Perth, Adelaide and Darwin reported a growth rate of between 0.2 and 0.5 percent.
CoreLogic research director Tim Lawless said while house price growth had already slowed down before the recent series of interest rate hikes, the housing market had gone downhill quickly since the central bank lifted the cash rate for the first time in May.
“Due to record high levels of debt, indebted households are more sensitive to higher interest rates, as well as the additional downside impact from very high inflation on balance sheets and sentiment,” he said.
Economists predicted the Reserve Bank of Australia to raise the cash rate by 0.5 percent to 1.85 percent at the board meeting on Aug. 2 after annual inflation hit 6.1 percent in the June quarter, the highest rate in 20 years.
July’s House Price Drop Comparable To 2008 Global Financial Crisis
Lawless said the drop in house prices in July was comparable to the start of the global financial crisis in 2008 and the recession in the early 1980s.
He also mentioned that Sydney experienced the sharpest fall in house prices in nearly 40 years.
Meanwhile, regional housing markets also softened in July as national prices decreased by 0.8 percent.
While regional New South Wales saw the most significant drop in home values at 1.1 percent, regional South Australia led the country with a 1.1 percent growth in house prices.
CoreLogic said although regional property markets were still doing better than their capital city counterparts, major regional centres were not immune to falling house prices.
Republicans on the House Select Subcommittee on the Coronavirus Crisis and the House Committee on Oversight and Reform have launched an inquiry into thousands of deaths at New York nursing homes during the COVID-19 pandemic.
In a letter to New York Gov. Kathy Hochul (pdf), the ranking members from the two committees pointed to guidance issued by former Gov. Andrew Cuomo on March 25, 2020, which stated that “no resident shall be denied readmission or admission to the [nursing home] solely based on a confirmed or suspected diagnosis of COVID-19,” and “[nursing homes] are prohibited from requiring a hospitalized resident … be tested for COVID-19 prior to admission or readmission.”
This order contradicted guidance issued by the U.S. Centers for Disease Control and Prevention and the Centers for Medicare and Medicaid Services (CMS), the July 26 letter said. It “likely” led to the “unnecessary deaths” of thousands, the letter added.
The letter reminded Hochul that her administration had promised to be “fully transparent” with regards to the data related to nursing home admissions and COVID-19 deaths.
“This investigation is even more important considering troubling reports from the New York Assembly Minority Leader that you are in ‘no rush’ to provide answers to the families that lost loved ones in New York nursing homes,” the letter said.
The letter asked Hochul to produce critical material regarding the issue no later than Aug. 9. This includes the total number of COVID-19-related nursing home deaths, all state-issued guidance, executive orders, and directives regarding hospital discharges to nursing homes.
In an interview last year, former White House Coronavirus Coordinator Dr. Deborah Birx admitted that Cuomo’s March 25, 2020 guidance violated CMS guidance. She also said that readmitting potentially positive COVID-19 residents back into nursing homes had negative consequences.
In January 2021, New York Attorney General Letitia James published a report stating that the state’s health department under-reported COVID-19-related nursing home deaths by up to 50 percent.
In March this year, New York state Comptroller Thomas DiNapoli released a report (pdf) stating that during the 10-month period between April 2020 and February 2021, the New York Health Department had failed to account for around 4,100 lives lost in nursing homes because of COVID-19.
Meanwhile, the state administration is reportedly planning to hire a third-party auditor who will be given until late 2023 to deliver a final report on the state’s response to the COVID-19 pandemic. An initial report on the findings is expected by May 2023.
New York State Assemblymember Ron Kim, a Democrat, has blamed Hochul for waiting too long to launch an investigation to scrutinize the Cuomo administration’s efforts to allegedly falsify the COVID-19 death toll.
What “was the intent behind hiding the accurate death toll numbers, which precluded the legislators from intervening sooner on behalf of their panicked constituents?” Kim said in a statement, according to The Associated Press. Kim’s uncle died in a New York nursing home from a suspected COVID-19 infection.
A new report has shown that the growth of apartment prices across Australia has surpassed houses’ in the June quarter for the first time in three years.
According to the June Quarterly House Price Report by digital property portal Domain, buyers had to spend $618,542 (US$431,893) on average to acquire a unit in Australia’s capital cities, an increase of 0.1 percent in value.
In contrast, the average price of a capital city house dropped 0.9 percent to $1,065,447 compared to the March quarter.
“Affordability constraints, reduced borrowing capacity, and the relative underperformance and perceived value (that) units offer will help steer buyer demand to affordable options, likely to be both units and entry-priced houses,” said Domain chief of research and economics Nicola Powell.
“The changing market dynamics across our capitals are also being driven by a rebalancing of supply and demand, weighing on overall buyer sentiment.”
The fall in house prices during the June quarter comes following a period of significant growth and the Reserve Bank of Australia’s decision to raise the cash rate in May.
Sydney and Melbourne–Australia’s two most important housing markets–witnessed the most significant housing price decline among Australian capital cities.
Sydney’s median house price dipped 2.7 percent to $1.55 million in the June quarter, while the average price in Melbourne dropped 0.9 percent to $1.07 million.
In contrast, house prices in Brisbane, Adelaide, Perth and Hobart reached new record highs during the same period, with Adelaide reporting the strongest gain, up 3.6 percent to $793,220.
Regarding unit prices, Canberra recorded the highest growth at 4.4 percent, followed by Adelaide at four percent and Darwin at three percent.
Overall, the report showed that the average house price across capital cities in June 2022 was still 10.9 percent higher than a year earlier, while unit prices increased by two percent during the same period.
And compared to the pre-COVID-19 pandemic levels, house prices soared by 34 percent, while unit prices only saw a 10 percent growth.
Australian Unit Prices Expected to Fall In 2022
Despite the growing figures in the June quarter, the Commonwealth Bank of Australia predicted the average price of dwelling units in Australia’s capital cities to drop by six percent in 2022 and eight percent in the following year.
More specifically, the bank forecast that Sydney would see an 11 percent drop in 2022, while Melbourne unit prices would fall by 10 percent this year and another eight percent in 2023.
Additionally, during the June quarter, the Australian Bureau of Statistics reported that the cost of building new dwellings and housing rents rose all over the country.
While construction costs jumped by 5.6 percent, rents rose by 0.7 percent, which was the largest increase since the September 2014 quarter.
Shortages of building materials and labour, high freight costs and ongoing high levels of construction activity continued to push building costs higher, while historically low vacancy rates were driving rents up in all capital cities.
As the U.S. real estate market slowly cools and sales volumes decrease significantly, whether housing prices will plummet has become a major concern for many. But one economist has predicted there will not be an abrupt collapse as experienced after the previous U.S housing bubble.
Due to the FED’s interest rate hike and rising mortgage rates, people are less eager to purchase homes. Data indicate that U.S. home sales fell to a two-year low in May.
This also applied to the popular California housing market.
According to a report from the California Association of Realtors (CAR), due to a decline in housing demand, home sales in California fell 8.4 percent in June from May and 20.9 percent from June 2021.
The statewide median home price in June was $863,790, down 4 percent from May, but up 5.4 percent up from June 2021.
Shortage of Supply
Although housing prices are on a downward trend, William Yu, an economist at UCLA’s Anderson School of Management, noted that housing prices will not fall drastically because of the stark supply and demand imbalance that still exists in the housing market.
“We probably won’t see a crash like the ones we saw in 2007, 2008, and 2012. Back then, there was an oversupply,” he said. “This time, there is a shortage of housing supply.”
Some buyers plan to wait for housing prices to plummet before entering the market. Yu advised them not to expect too much.
Fed Aims to Cool Down Housing Market
Freddie Mac’s data shows that the 30-year mortgage fixed rate averaged 5.51 percent for the week ending July 14.
As the Federal Reserve continues to raise interest rates aggressively, housing markets are cooling rapidly in many cities across the United States. Six California cities, including San Jose, Oakland, San Francisco, Sacramento, Stockton, and San Diego, are among the top 10 American cities with the fastest cooling housing markets.
Yu said that the interest rate increase will certainly have a serious impact on home buyers who rely on loans, so housing market cooling down is normal and expected.
“In fact, this is also the main goal of the Federal Reserve to raise interest rates, which is to cool down the housing market,” he said, adding that in his opinion, an overly heated market is not a good thing.
According to Yu, the low-interest rates of the past two years have caused an abundance of money, even to the point of flooding, and now the money is starting to tighten.
“It’s not a bad thing. It’s actually meant to keep housing prices from getting out of control,” he said.
Difference From Last Housing Bubble
As the housing market cools, many people are worried that the U.S. housing market will again collapse. However, Yu said he believes that a repeat of the last housing bubble is unlikely.
He pointed out that after 2008, the U.S. housing market experienced a prolonged and severe depression, followed by a severe shortage of overall new home supply each year until the last two years, when home starts began to return to their historical average. Due to the long-term shortage of supply, coupled with the population growth rate in the United States, people will notice that the overall housing supply and demand are still unbalanced.
“Many people may ask why housing prices are so high and rising so fast. One of the main reasons is the chronic undersupply of housing,” Yu said, pointing out that this is the key difference between the current situation and the last housing bubble.
“Last time, there was an oversupply. When the housing bubble occurred, there was a severe, long-term digestion period,” he said. “This time, there is a shortage of housing supply, so even if a recession occurs, its effects on the housing market are likely to be less severe.”
On July 13, Jerry Konter, president of the National Association of Home Builders (NAHB), stated in response to a House Fundraising Committee hearing on the housing crisis: “The housing affordability crisis is caused by one factor: as a nation, we have failed to build enough housing to meet demand.”
In order to lower inflationary pressures, Konter urged Congress to pass legislation that would assist the housing industry in increasing the supply of much needed housing.
Sen. Josh Hawley (R-Mo.) thinks it is “long past time” that the Department of Defense (DOD) and other federal agencies stop doing business with consulting firms like McKinsey that also have contracts with elements of the Chinese government.
“The fact that these consultants are awarded huge contracts by our Defense Department and other federal agencies, while they are simultaneously working to advance China’s efforts to coerce the United States is appalling and completely unacceptable,” said Senator Hawley said in a July 18 statement.
“It is well past time that we hold these companies accountable and prohibit this kind of conflict of interest in government contracting,” Hawley said.
To that end, the Missouri Republican is introducing a legislative proposal—titled the “Time to Choose Act”—that would prohibit federal agencies from contracting with consulting firms that hold a contract with the Chinese government, the Chinese Communist Party ((CCP), or any of either’s subsidiaries, affiliates, or proxies.
“The bill would force these government contractors to choose whether to stand with the United States in its efforts to protect Americans against China’s imperial ambitions, or forfeit U.S. government contracts,” the statement said.
The Hawley statement singled out the London-based McKinsey & Company, which describes itself as a “global management consulting firm,” and noted that concerns have been raised in recent years about the 27,000-employee international corporate giant’s relationship with China.
Hawley pointed to a November 2021 NBC News report that found “McKinsey’s consulting contracts with the federal government give it an insider’s view of U.S. military planning, intelligence and high-tech weapons programs.
“But the firm also advises Chinese state-run enterprises that have supported Beijing’s naval buildup in the Pacific and played a key role in China’s efforts to extend its influence around the world.”
McKinsey, which also maintains a large office in the nation’s capital, currently has nearly 1,400 individual contracts issued by named U.S. government departments and agencies, with a total potential value in excess of $3.8 billion, according to data compiled by usaspending.gov, the federal website that tracks official outlays.
Hawley’s main concern is with firms that do business with DOD and China, and McKinsey’s largest category of total potential value contracts with the federal government are from the defense department.
These include 112 contracts with a total potential value of more than $983 million, according to usaspending.gov.
But McKinsey has five times as many individual contracts with the General Services Administration (GSA) through its Federal Acquisition Service (FAS), with 570 contracts worth a total potential value of $2.3 billion.
The company also 68 contracts worth potentially more than $48 million with the Department of Housing and Urban Development.
Complicating the effort to clarify how much business the U.S. government is currently doing with McKinsey is the fact USASpending.gov also lists 298 contracts that have no federal agency identified as the issuer.
Many, if not all of these contracts, are thought to be with intelligence agencies. The potential total of these contracts could be as high as $18.5 billion, according to the government data source.
Two McKinsey spokesmen separately declined to provide comment for this news story.
Both also declined to say why they did respond to the November 2021 NBC report, saying then “we follow strict protocols, including staffing restrictions and internal firewalls, to avoid conflicts of interest and to protect client confidential information in all of our work.
“When serving the public sector, we go further: In addition to managing potential staffing conflicts, we are subject to our Government clients’ organizational conflict of interest requirements and comply with these obligations accordingly.”
There are currently no known U.S. investigations of McKinsey contracts with the federal government as a result of the firm’s work with either the Beijing government, the CCP or Chinese companies, which are typically effectively extensions of the regime.
McKinsey also has four contracts with the FBI with a total potential value of $8.6 million and six with the IRS, with a potential total value of $9.2 million.
Housing markets in Canada are really upside down. Recently, Canada’s aggregate housing price index suffered the biggest decline in nearly 20 years. On July 6, CBC News—the Canadian public broadcaster—reported, “The Toronto Regional Real Estate Board (TRREB) said 6,474 homes were sold in the Greater Toronto Area last month, down by 41 percent compared with last June.”
Furthermore, as reported by Bloomberg in mid-July, “Greater Toronto has seen benchmark prices fall 4.5 percent in three months to C$1.21 million (about $928,000). But the declines are steepest in the cities and towns around Toronto that gained the most during the Covid-19 pandemic as people used the freedom of remote work to move further away.”
Will this happen in the United States? Probably not. I do not foresee the entire United States suffering a nationwide housing market crash for a number of reasons. First and foremost, the quality of mortgage underwriting is much higher than mortgage underwriting was leading up to the 2008 housing crisis. Second, the United States still has a housing shortage; last calculation was 4 million homes needed to be built to meet demand. Much of the growth seen over the past few years has been delayed growth from the massive shock of the 2008 housing crisis. Furthermore, the markets that have seen the most growth recently are in the Sun Belt region of the Southwest, Midwest, and Southeast. Regardless of rising rates, housing is still in demand in these areas.
I do see segmented price depreciation in different regions, due to inflated costs and changing demographics. The most expensive housing markets in the United States are usually in the major metro areas of the West Coast and the Northeast coast. According to Redfin, a real estate brokerage, the top five markets that are seeing the most in price reductions and slowing demand are: San Jose, California; Sacramento, California; Oakland, California; Seattle, Washington; and Stockton, California.
As the Fed mentioned in its recent Beige Book release: “Housing demand weakened noticeably as growing concerns about affordability contributed to non-seasonal declines in sales, resulting in a slight increase in inventory and more moderate price appreciation. Commercial real estate conditions slowed.”
Additionally, Moody’s housing economist, Mark Zandi, said in a letter to clients: “Rising mortgage rates are cutting into the housing market, but the initial impact is more noticeable on refinancing activity than either demand for new/existing homes or residential investment. The hit on the latter is coming.”
It is hard to talk about housing without talking about interest rates. Interest rates affect housing prices—100 percent—and the two have an inverse relationship. As the Federal Reserve raises interest rates, housing prices start to drop. As the Fed cuts rates, housing prices rise. The lower the interest rates, the more affordable it is to finance a home purchase with a mortgage; the higher the rate, the more expensive.
On July 13—in an article in The Hill titled “Why is the Fed taking a hammer to the housing market?”—Sylvan Lane reported:
“The Federal Reserve’s rapid interest rate hikes are taking a serious toll on the housing market. Home prices and sales have fallen throughout the year as buyers recoil from rising mortgage interest rates—one of the first sectors of the economy affected by Fed rate hikes. As the Fed boosts its baseline interest rate range, borrowing costs for consumers and businesses rise along the way. The average rate for a 30-year fixed-rate mortgage rose to 5.3 percent at the end of last week, according to Freddie Mac, up from 3.1 percent at the start of the year. While mortgage rates have fallen slightly since peaking in the wake of the Fed’s June rate hike, the sharp increase in interest rates has already taken a hammer to what had been a historically hot housing market.”
Add to this the fact that rents are continuing to rise, and—along with rising interest rates—new home buyers are priced out of the market while simultaneously devoting more of their income to rent. The average apartment rent in New York City is now at $5,000 per month, which is up 1.7 percent from the $4,975 average rent recorded in May, and a 29 percent increase from June 2021, according to brokerages Douglas Elliman and Miller Samuel.
In other words, home prices are falling in parts of the United States, and rents are rising across the country.
This adds to the uncertainty we are facing right now. And right now we’re living through a time where core commodities are still in flux—both with supply and pricing. Consumer confidence is everything in the United States. The stock market has been positive only three weeks out of the last 13. That is the worst performance by the U.S. stock market since 1928.
According to CNBC on the morning of July 18, home builder sentiment dropped 12 points to 55. This is the “largest single-month drop in the survey’s 37-year history.” It should be noted that less available housing means less housing supply; and if the Fed does begin cutting rates September of 2023, then prices will rebound.
Should homeowners be worried? If you don’t live in one of the high-priced coastal cities, wait and see.
Views expressed in this article are the opinions of the author and do not necessarily reflect the views of The Epoch Times.