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Homebuilder Lennar Offers
to Pay $13,000 of Home
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The Miami-based homebuilder unveiled a plan to pay off student loans of homebuyers up to 3% of the home purchase price or $13,000, whichever is lower.
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The incentive is attractive, but it doesn't make financial sense. While everyone would like to carry less debt, homebuyers will essentially roll this student loan debt into their mortgage. Yes, Lennar is taking great pains to say that this isn't the case, but really? Does anyone believe that a person WITHOUT student loans won't get a discount on their new digs by the same amount?
If we jot the numbers down on a piece of paper, rolling the student debt into the mortgage extends the repayment and ups the interest rate, so, overall, the borrower will pay more. But it can still make sense in terms of optics. The borrower will have a lower overall monthly payment, and one less item on his or her credit score, which will show better when trying to qualify for future loans.
It still makes me nervous to see homebuilders start playing with incentives. This reminds me of 2006 when builders in Florida would give new homeowners a car or a boat. Really!!
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Fireman's Relief and Retirement
Fund of Irving, Texas,
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The pension fund claims that, while courting investors, Uber engaged in illegal activities to pad its growing business and did not disclose it. When the activities came to light, the company's valuation dropped.
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I'm shocked ... that one would believe that Uber would do anything illegal ... You mean the company built on the premise of offering unregulated taxi services, evading city taxes, registration requirements, training requirements, and safety inspections would do something unethical? No way! Uber might be a blessing to partygoers and travelers, but the company has never made an issue of breaking any law ... ever.
The pension fund invested $2 Million in Uber through Morgan Stanley in 2016 at $62.5 Billion valuation. Later, Uber lowered its valuation by $18 Billion, handing the pension a 29% loss of $570,000. The pension fund should be suing Morgan Stanley, or simply taking its lumps and moving on.
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President Trump Suspends
Jones Act for Puerto Rico
During Recovery from
Hurricane Maria...
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The president set aside the 1920 law that requires all ships moving goods between U.S. ports to be U.S. flagged, U.S. staffed, and at least 75% domestically manufactured.
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Now if he'd only set aside the law for the rest of the nation, forever. I wrote about this law a couple of years ago, tagging it as one of the worst business-restricting regulations on the books. Congress thought the law would ensure a regular fleet of commercial vessels the Navy could press into service during wartime, but the reality is quite the opposite. Very few ships qualify under the Jones Act, so few goods ... and almost no energy ... move between U.S. ports. Scrapping the law completely would be best.
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Puerto Rico Electric Power
Authority (PREPA) Bondholders
Offer Bankruptcy Relief
... With a Catch ...
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The bondholders offered to forgive $150 Million of the bankrupt power authority's debt, as well as lend it $1 Billion. In exchange, the bondholders want to jump to the front of the line in recovering their investment.
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What a great chess move! The bondholders, mostly mutual funds, recognize that PREPA is now not only bankrupt (which it was before the hurricanes), but also devastated. But because natural forces caused the physical damage, PREPA can apply for disaster funds to rebuild.
The funds only come if PREPA can match the dollars, so the bondholders have offered up $1 Billion, which would allow PREPA to apply for up to $9 Billion in disaster relief. The funds would arguably be used to build new, up-to-date infrastructure, and the bondholders would jump the line for repayment. Brilliant! Unless, of course, you happen to be another PREPA bondholder who can't cough up nine figures to help out the corrupt power authority, then you're just out of luck.
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S&P CoreLogic Case-Shiller
Home Price Index Up 5.8%
in July Over Last Year...
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The 20-city index ticked up from June's 5.6% annual price growth.
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Miami is the only city in the index affected by a hurricane, so I don't expect much change when we get the numbers for September. Real estate prices remain elevated, so we're still pricing out 1st time homebuyers, which will keep activity low for the foreseeable future.
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New Home Sales Down
-3.9% in August...
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Sales dipped -4.7% in the South, the largest region, but also fell in the West and the Northeast.
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It's hard to imagine that Hurricane Harvey didn't drive down the numbers, especially because Houston is the largest new home market in the country. But weakness around the nation didn't help.
New home sales now sit 1.2% below the same time last year, and prices aren't faring much better. The median price of a new home last month was $300,200, down -6.1% from the median price in July, and is only 0.4% above the median price in August last year.
Given the hurricanes, I think the September report will be worse, but then the pace will pick back up again in October. Even so, sales remain tepid at best. Without the push of 1st time home buyers, it will be hard to get new home sales back near 1 Million units a year, which will drag on GDP and employment.
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Durable Goods Orders Up 1.7%,
and Up 5.1% Over Last Year ...
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Excluding transportation, orders improved 0.2%, and 6.1% over last year.
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There was good news in most areas. Core capital goods orders rose 0.9% and are now 3.6% ahead of last year, reflecting higher business spending. Even motor vehicle orders rebounded a bit.
I expect this number to improve dramatically over the next 60 days as consumers flooded by the hurricanes replace everything from washing machines to refrigerators and cars. It will probably take four to 6 months for the spending bubble created by the hurricanes to work through the retail sector.
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Oil Inventory Down 1.8 Million Barrels, Gasoline Inventory
Up 1.1 Million Barrels ...
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The numbers are beginning to stabilize in the wake of Hurricane Harvey.
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The hurricane shut down gasoline production at several refineries near Houston. Overall, refineries ran at 75% of capacity. As more production comes back online that figure is closer to 90%, which will quickly add supply to the market and should bring down the price at the pump.
As for oil, transportation is getting back to normal, but there are geopolitical concerns keeping prices elevated. The Kurdish vote for independence threatens to disrupt that region's oil flow, and the cloud of North Korea still hangs over international trade.
Still, U.S. inventory sits well above the long-run average for this time of year at 471 Million barrels. There's plenty of oil.
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Investor Buys Apartment in
Ukraine with Cryptocurrency...
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Using the global real estate startup app Propy, the individual used Ether to purchase the apartment, and the transaction was recorded on Ukraine's title database using blockchain.
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If you didn't get all that, don't worry. The upshot is that Ukraine has a problem. They've been at war with Russia for years, which has depressed real estate prices. So, the country now allows foreigners to buy real estate, and Ukraine will reflect all transactions on a public database to ensure transparency and protect ownership. The open ledger uses blockchain, which is also the backbone of most cryptocurrencies.
Ether recently traded at $300 per unit, after starting the year at $9. That's a pretty good rate of return. I hope everyone who owns it takes the opportunity to cash out and buy something real. Wait a minute, if they did, then the price would go to Zero. Hmm. That's the dilemma with cryptocurrencies, no one is compelled to use it, so there's no way to know if it will retain any value.
Beyond that, the land registry using blockchain is a home run. If only we did that in the U.S., and kicked title insurance to the curb. It will be nice when open ledger accounting takes hold in this way and drives down the price of transactions on things like real estate.
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This Week's Events Reviewed
In Next Digest
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The first week of October is light on economic reports, but will end with the U.S. Employment Situation Report.
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The Demographic & Economic Digest provides an excellent opportunity for timely dialogue. I value your opinion and feedback and would love to hear from you. What do you think?
Sincerely,
Bob
Robert A. Hardies, CFP, MS, ATP
Financial & Portfolio Advisors, Ltd.
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