There’s good news on the inflation front: December 2022 marked the sixth straight month that the U.S. rate of inflation has decreased. According to the latest figures from the U.S. Bureau of Labor Statistics, released January 12, the Consumer Price Index (CPI) fell 0.1% in December 2022. It had risen by the same amount in November. The inflation rate rose 6.5% between Dec. 2021 and Dec. 2022, versus 7.1% between Nov. 2021 and Nov. 2022.
And while 6.5% inflation might still feel uncomfortably high to consumers, it is certainly cooling.
What will the Federal Reserve do with this latest information? We’ll find out January 31, when the Federal Open Market Committee (FOMC) meets for the first time in 2023. In the meantime, here’s a peek into how inflation affects the housing market.
Inflation and the housing market now
The CPI’s 0.1% monthly decrease was led by a 4.5% decrease in the energy index, including a 9.4% decrease in gasoline and 16.6% decrease in fuel oil. However, shelter — which represents housing-related costs — was up 0.8% in December.
According to Bankrate’s data, the current 30-year fixed mortgage rate is 6.46%, down from last month’s rate of 6.64%.
In contrast, both the CPI rent index and owners’ equivalent rent index rose 0.8% between November and December of 2022.
Nationally, home prices rose 8.6% year-over-year in November, CoreLogic reports. October’s yearly increase was 10.1%, and September’s was 11.4%. Clearly, this represents a slowdown — although it’s still high by historical standards.
Fannie Mae’s Home Purchase Sentiment Index (HPSI) increased 3.7 points in December to 61.0, but the index remains only slightly above its all-time low set in October. Just 21% of respondents believe it’s a good time to buy, mostly due to the combination of still-high mortgage rates and home prices.
Consumers still pessimistic: “In December, the HPSI inched upward slightly, as consumers reported increased expectations that mortgage rates and home prices may decrease over the next year,” said Doug Duncan, Fannie Mae’s senior vice president and chief economist, in a statement.
“However, the HPSI remains very low by historical standards, and respondents continue to cite high home prices and unfavorable mortgage rates as the primary reasons for their pessimism. As we enter 2023, we expect affordability to remain the top challenge for potential homebuyers. At the same time, existing homeowners may continue to wait to list their properties, since many have already locked in lower mortgage rates, creating minimal incentive to sell and buy again until rates are more favorable. We think the resulting tension will contribute to a continued decline in home sales in the coming months.”
Should you wait for inflation to come down more?
With inflation still weighing on the housing market, should you buy a home now or wait? What about selling your home now?
—For homebuyers
If you can’t make the numbers work, it’s OK to wait things out instead of buying a home today to beat increased prices and rates, especially if you’re a first-time buyer. While you’d be putting off building equity, you might find you’re in a better position to buy in the future, as the market continues to cool and your income can potentially grow.
“Even when inflation does come down on a consistent basis, it doesn’t mean prices falling; it just means prices not rising as fast,” says Greg McBride, CFA, chief financial analyst for Bankrate. “For homebuyers, a more modest pace of appreciation or even a period of stagnant home prices can allow for incomes to grow further. Rather than stretching too much now, you may be able to buy a bit more comfortably in a couple of years if your income growth outpaces home price growth. But there are no guarantees, and rents have certainly spiked in the meantime.”
That said, life circumstances might require you to buy a home now, regardless of market trends, and that’s as good a reason as any. But, when you’re buying near the peak of the market, be prepared to stay in the home for a while if you want to come out ahead when you sell.
—For home sellers
For sellers, the tides are turning. Depending on where you live, you could find fewer takers, or need to come down on price. Don’t forget what happens on the other side of the transaction: When you go to purchase your next place to live, you’ll be another buyer competing for a limited number of available properties — and now likely requiring a new mortgage at a higher rate, to boot.
Homebuying tips when prices are high
If you’re set on buying soon, here are a few ways you can stretch your dollars:
—Put your down-payment savings in a high-yield account: One upside to inflation and the Fed’s response: higher interest rates on savings accounts. If you aren’t already, put your down payment contributions in a high-yield account. Just make sure the account allows you to access your money easily when it comes time for closing — some online savings accounts take three days to deliver your funds when you withdraw.
—Consider a mortgage lender with low or no fees: While it might be more convenient to get a mortgage at your bank, banks typically charge an origination fee, often 1% of the amount you borrow. Many non-bank and online lenders don’t, so if you can find a no-fee lender with attractive rates, you’ll keep more money in your pocket.
—Lock in your mortgage rate: When you find a lender and are applying for a loan, ask about locking in your rate. Now’s not the time to take a chance on your monthly mortgage payment suddenly soaring in price, right before you’re set to close.
Virginia Gov. Glenn Youngkin said Amazon Web Services plans to invest $35 billion by 2040 and build data center campuses in the state — an announcement that comes about a year and a half after AWS sought to build data centers in Frederick County.
AWS, a cloud-computing platform and subsidiary of Amazon, proposed building about 15 data centers across three areas in the southern part of Frederick County and investing $30 billion over 15 years. But, the proposal fell through in 2021, in part because AWS and the county government couldn’t reach an agreement on the project’s timeline.
Follow Jack Hogan on Twitter: @jckhogan
CHAMPAIGN – The 14th annual Prom Benefit for the Eastern Illinois Foodbank will be held on Saturday, March 4 at the Hilton Garden Inn from 7 to 11 p.m.
This year’s goal is to raise 375,000 meals for food-insecure individuals and families in the Foodbank’s 18-county service territory.
At any given time, more than 100,000 people in eastern Illinois, including one in six children, do not have access to enough nutritious food to support a healthy lifestyle. The Prom Benefit was founded in 2008 by Champaign community member Lorianne Bauer as a fundraiser for Eastern Illinois Foodbank and is managed by the Foodbank and a committee of community members committed to alleviating local hunger.
Every year, fun-loving folks come together to relive prom night or experience it for the first time, all while helping fight hunger. This year’s theme is Viva Las Vegas, giving attendees the opportunity enjoy a night of casino games and glitz for a good cause. The event will feature raffle prizes, heavy hors d’oeuvres, desserts, dancing, an open bar, photo opportunities and crowning the prom king and queen.
This year’s Harrington Law Prom Court includes: Nicole Gorman (Above Able Boutique), Jonathan Gossett (Live Real Estate), Jacqueline Kalipeni (City of Champaign), Bridgett Laird (Keller Williams Realty), Stephen McConkey (Champaign Fire Department), Kristen Sackley (University of Illinois), Ashlie Velazquez-Collins (Brookdale Senior Living) and Matthew White (WCIA). The male and female candidate that raise the most money for Eastern Illinois Foodbank will be crowned the night of the event.
Donations to their campaigns can be made online at www.prombenefit.com through Friday, March 3.
Tickets to the event can be purchased for $125 each at www.prombenefit.com through Friday, Feb. 17 or until sold out.
If you or your business are interested in sponsoring the Prom Benefit, visit www.prombenefit.com for details.
Eastern Illinois Foodbank (EIF) works to alleviate hunger in eastern Illinois as the primary food source to a network of 170 food pantries, agencies, and other programs throughout our 18-county service area. Through these agencies, the Foodbank provides meals to more than 1 million people each year. Since 1983, EIF has led the fight against hunger and strengthened communities by providing food access, emergency relief, education, and advocacy to families in east-central Illinois. EIF is a member of Feeding America, Feeding Illinois, the United Way of Coles County, and the United Way of Champaign County. For more information, visit eifoodbank.org.
DANVILLE — Danville Area Community College recently received a $300,000 grant through Illinois WorkNet to provide apprenticeship training in the building trades.
The program runs throughout 2023 and looks to serve nearly 30 area residents seeking careers in carpentry, plumbing and construction.
As a U.S. Department of Labor apprenticeship program, DACC can begin registering students immediately for classes that will begin in February.
Business & Technology Dean Terri Cummings said, “We’re making use of our alliance with Vermilion County Works to build a cohort of students who can get started right away.”
DACC classes will be customized to fit the needs of local employers and unions.
“We’re using our existing classes to allow the enrollees to earn a DACC certificate. We’ll be partnering with the trade unions — mostly carpenters or plumbers. The graduates will have an opportunity to apply for a union apprenticeship with these companies,” said Lead Instructor Greg Hansbraugh.
The grant foots the bill completely for these students.
“Not only will their tuition and fees be paid, students will also earn money while attending classes,” Hansbraugh said.
DACC’s Chief Academic Officer Dr. Carl Bridges says that this year’s goal is to “meet and exceed the grant’s goals, which is to provide training and jobs for the student apprentices.”
If DACC is successful, the grant could be renewed during the next few years.
As for the grant’s long-range goal, Hansbraugh said, “it’s for Illinois to have training facilities established throughout the state based on proven community-college partnerships with unions and employers.”
While looking to continue to support apprenticeships in building trades, DACC also is working with a local energy company and union to develop a similar program to train solar- and cell-tower technicians.
For more information or to apply for the Illinois WorkNet apprenticeship program, contact Greg Hansbraugh at 217-443-8579, or g.hansbraugh@dacc.edu.
Strange how few details landlords and tenants recall from their lease agreements. Outside of payment amounts and end dates, the rest grows hazy over time. Beware: There is peril for the forgetful. Your signature carries significant responsibilities. A valid lease agreement has the muscular force of law behind it. It is the first arbiter of disagreements. And you are bound to that dotted line, hazy or not.
Misunderstandings between the landlord and tenant can arise anywhere. No area is more susceptible to error than those involving maintenance and repairs. These items are not in fine print or located in obscure, sneaky locations at the back of the lease agreement. Maintenance and repair language is in conspicuous locations in almost all commercial leases. If you missed that part, it’s your fault.
Take the the Texas Realtors Commercial Lease, Form TXR-2101. The form has a list of 21 specified maintenance and repair items. You can add more items as needed. Responsibilities lie in the checked boxes. These items are negotiable, but the final agreement’s lucidity condemns the responsible checkbook. You may be unaware of potential financial exposure when things begin to break.
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Triple net charges are especially baffling. These expenses do remind one of charges for additional luggage at the airport. Property taxes, property insurance and common area maintenance, known as CAM, are the titular three.
CAM can mean many things. It implies a common area shared with others and assumes a multi-tenant property. The term is a misnomer if a single tenant leases a property. In that case, a more accurate term may be external maintenance. This may include big ticket items like roof replacement and parking lot repairs. Smaller expenses could be landscaping, electricity for parking lot lights and property management. Whatever items the list contains, you ought to know who is responsible.
To determine property taxes, multiply the property assessed value by the tax rate. The total tax rate is the sum of revenue-seeking taxing entities like cities, counties and schools. Somebody must pay them. You might get away with some deferred maintenance, but you don’t defer tax payments. It is a significant expense and had better be accounted for.
Insurance costs are mostly devoid of controversy.
In gross leases, the landlord pays the property taxes. There may also be a gross lease with a base year adjustment. The tenant pays for increases in taxes over the base year, usually the year the lease executed. In triple net leases, the tenants pay the property taxes. The taxes are often paid in monthly installments. The landlord escrows and then pays to the taxing authority when due. Sometimes the tenant pays them all at once when they become due.
Tenants sometimes grouse that property taxes should be the landlord’s expense. For some oddball reason, they have the notion that property taxes are the operating expense of ownership. That is not necessarily so. If the landlord pays the property taxes, his base rent will likely be higher. He’ll absorb the extra expense. Property taxes are no different than any other operating expense. But who pays what and when is important.
Repairs, maintenance and triple net operating expenses are permanent fixtures to improved real estate. They always exist. Clear the haze. Read your leases. And most of all, cover your assets.
Landlords are feeling the squeeze from workers coming back to the office. More from “Bloomberg Wealth with David Rubenstein.”
Randy Reid, co-founder of
Reid Peevey Commercial Real Estate, has nearly 40 years of property experience in Waco and dozens of Texas cities. He is a member of the Tribune-Herald Board of Contributors.
Banks should be on alert for Russian oligarchs attempting to circumvent U.S. sanctions by investing in commercial real estate, a U.S. Treasury Department watchdog said.
Wealthy Russians with ties to the Kremlin are likely attempting to evade the economic sanctions placed on them in the U.S. by moving money into the commercial-real-estate sector, where complex financing methods and opaque ownership structures can help bad actors hide funds, the Treasury’s Financial Crimes Enforcement Network, better known as FinCEN, said Wednesday.
FinCEN, which serves dual roles as the U.S.’s financial intelligence unit and anti-money-laundering regulator, is the recipient of the suspicious activity reports that financial institutions are required to file if they suspect a transaction may be illicit in nature. Law-enforcement officials can consult the reports when conducting investigations into financial crimes.
The Biden administration has targeted wealthy Russians as part of its response to President
invasion of Ukraine last year, placing those with close ties to the Russian government on blacklists that are intended to prevent them from accessing the U.S. financial system.
The alert issued by FinCEN on Wednesday is the Treasury’s latest effort to prevent sanctioned Russians from finding ways to evade such financial restrictions. In an 11-page report, FinCEN listed a number of potential red flags and typologies it said banks should be on the lookout for.
“Thanks to international pressure and the economic restrictions that more than 30 countries have imposed on Russia for its brutal war against Ukraine, sanctioned Russian elites are increasingly left with fewer options for moving and hiding their ill-gotten wealth,” FinCEN Acting Director
Himamauli Das
said.
Sanctioned individuals may try to use pooled investment vehicles or offshore funds to avoid due-diligence processes, FinCEN said in its alert. Banks aren’t typically required to verify the identities of individuals who own less than 25% of a fund. Sanctioned individuals could keep lowering their stakes to avoid detection, while still maintaining control of the fund, FinCEN said.
Oligarchs also may use shell companies and multiple layers of legal entities or trusts, or transfer their assets to a family member or business associate to conceal their ownership, the Treasury bureau added.
Sanctioned individuals aren’t just investing in high-end or luxury properties, according to the alert. In some cases, they may seek out more inconspicuous investments that provide stable returns without drawing unwanted attention. Such sanction evasion strategies are just as likely to occur in small to midsize U.S. cities as they are in the largest metropolitan areas, FinCEN said.
FinCEN’s latest alert builds on a similar warning issued last year, in which the watchdog advised banks to pay close attention to transactions involving high-value assets such as artwork, luxury yachts and jewelry.
Federal prosecutors have warned that lawyers, consultants and other service providers who work for sanctioned individuals could run afoul of the law.
An indictment unsealed earlier this week charged a former high-level FBI agent and a former Russian diplomat with sanctions violations in connection with work they did for
Oleg Deripaska,
a raw-materials magnate who was placed on a sanctions blacklist in 2018.
Write to Dylan Tokar at dylan.tokar@wsj.com
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The bilateral ties between Türkiye and Venezuela are very good and the close cooperation has been built on solid foundations, Trade Minister Mehmet Muş said Tuesday. He was in the Venezuelan capital, Caracas, to attend the inauguration of the Türkiye-Venezuela Trade Delegation and B2B Meetings with business representatives in the Latin American country.
In his speech at the opening session, Muş thanked the Turkish Exporters Assembly (TIM) and Venezuelan authorities for their contribution to the development of mutual commercial relations and the organization of the business forum.
Reiterating that they celebrate the 73rd anniversary of the establishment of diplomatic relations with Venezuela, Muş said, “The deep-rooted relations we have with friendly and brotherly Venezuela indicate that our close cooperation today is built on solid foundations.”
Stating that six important agreements have been signed between the two countries, Muş said, “Many mutual official visits have been made under the leadership of our presidents, and as a result of these efforts, relations between the two countries have moved to a different dimension.”
Last April, the third meeting of the Türkiye-Venezuela Joint Cooperation Commission was held. Muş said that cooperation was established in many fields from trade to tourism, agriculture and health.
He also added that the unilateral sanctions imposed on Venezuela were unfair and that such sanctions affect the Venezuelan people in an extremely negative manner. “This also harms third countries and free trade. Our country will stand by Venezuela as it has before,” he said.
Muş stated that Türkiye hopes that contact between the U.S. and Venezuela, which started last year, will lead to the normalization of relations between the two countries and the removal of unfair sanctions that were imposed by Washington.
Bilateral trade
The minister went on to say that Türkiye, which believes in global responsibilities and thinks that wealth should be shared more fairly, is taking decisive steps to improve its relations with Latin America and the Caribbean region. “We are taking concrete steps in relations with Venezuela. We are also taking steps to draw the legal framework of our economic relations with mutual encouragement of investments,” he said.
The mutual trade, which stood at $152 million in 2019, reached approximately $1.1 billion last year, the minister informed.
Noting that more than 500 companies established commercial relations with Venezuela in 2022, Muş said: “Our country has risen to the rank of second in 2021 in the countries to which Venezuela exports the most. Despite difficulties caused by unilateral sanctions, the pandemic and global problems, we achieved this. We will increase our bilateral trade volume in the short term in line with the target set by our president, which is $3 billion to $5 billion in the medium term.”
“We attach importance to diversifying our commercial relations in all areas of the economy, from agriculture to tourism, energy and logistics,” he added.
Not many real estate people sent holiday wishes to Board Chair Jerome Powell in 2022 as the Federal Reserve ratcheted rates higher at almost every meeting. But as Chrissie Hynde and The Pretenders sang in their 1979 hit, it is time for everyone in commercial real estate to “Stop Your Sobbing.” Now, as we jump into the unknown of 2023, it’s time to adjust to the new higher rate environment and carry on.
About the only groups in commercial real estate that weren’t crying as rates rose were banks and title companies. The banks, which have been sitting on zero rate deposits for many years, finally got to cash in on hefty profit margins in the last six months of 2022. As rates spiraled upward to over 6%, depositor returns remained near 0%, which created a windfall for banks that isn’t likely to continue in 2023.
Title companies, which for many years have relied on fees to survive, now also have the prospect of earning a respectable return on float. That’s the cash that sits in their bank accounts cost free for a short period of time. For the past 15 years, title companies were earning nothing on float; now they can earn greater than 2% in many cases.
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The rising rate environment for most in commercial real estate, however, was costly. The shock of rising rates ground transaction activity to a near standstill in the last quarter of the year, and tremendous uncertainty still hangs over the market. Many economists are indicating the risk of a recession is greater than a 50% probability in 2023. Recession or no recession, activity has slowed.
Various surveys of commercial real estate participants indicate that lenders and investors alike expect less transactional volume in 2023 than was booked in 2022, and in 2022, there was less investment volume than 2021. Commercial mortgage-backed securities originated in 2022 were down more than 33% from 2021, and the expectations are even lower for 2023. Insurance company lenders are also expecting to put less money out in 2023.
For institutional investors, the so-called denominator effect is also likely to reduce the amount of new money that goes into real estate and other alternative investments. When allocating investment dollars, institutional investors look at their current portfolio and try to rebalance to maintain certain percentages in each category of investment. Because stock and bond portfolios suffered in 2022, the denominator, or overall investment dollars, is lower, and that means real estate is probably overweighted. So, to get portfolio allocations back in line, less money will flow into real estate in 2023.
The good news is, in the first few weeks of 2023, relative stability has returned to the market and rates are lower than they have been in three or four months. Commercial mortgage rates range from 5.25% to 5.75% for five- to 10-year loans on conservatively leveraged properties. Floating rate loans are priced higher because the benchmark Secured Overnight Financing Rate is .75% higher than the 10-year Treasury yield.
Here in Richmond, the biggest challenge is getting new projects financed. At current construction loan rates, it is still difficult to underwrite loan proceeds that exceed 60% to 65% loan-to-cost on development projects. The combination of less leverage, uncertain exit cap rates and inflated costs is putting many projects on temporary pause.
John B. Levy & Co. partner and investment banker Andrew Little can be reached at alittle@ jblevyco.com.
HOOPESTON — The Hoopeston City Council approved acquiring Kelley’s Pub & Grub with a 7-0 vote last Tuesday. Alderman Joe Garrett was absent.
The city offered $2,000 to the owner to sign the property over to the City of Hoopeston. Once the city takes possession, demolition can be taken from Countryside Mall to Market Street, according to Alderwoman Kelly Ferrell.
“It’s a big deal,” said Mayor Jeff Wise, and it “was a long time in coming.”
In other council business, the council heard from Paul Kelnhofer of rural Wellington about damage to his property in a fire training exercise at 812 N. Market St. last year.
“Are you going to pay (for it) or are we going to court?” asked Kelnhofer. He added that a fire inspector said the houses were too close together for the training session.
In other business, the council heard from Alderman Stephen Eyrich that the city had an abundance of water meters since a snafu had occurred when ordering and the water/sewer department had a $116,000 expense that was not budgeted. He suggested that no meters would be ordered in next year’s budget if allowed to keep them.
The council would vote on the additional meters at its next meeting.
Eyrich also added another request to order Waterworth at a cost of $6,450 annually, a predictive tool for evaluating income versus expenses.
In other business, the council:
- Approved the annual membership in the Hoopeston Chamber of Commerce at $100.
- Approved $20,000 of tax increment financing (TIF) money be given to Gabby and Bailey Crose to assist in construction of a new building for Stay Awhile Home Decor, located at 222 E. Main St.
- Approved a $3,129 bid from Keith Bell for a no-longer-needed water department truck.
The next Hoopeston City council meeting will be held Tuesday, Feb. 7 at 7 p.m.