Big Time Real Estate Players Give Tons of Funding to Gov Desantis as Housing Prices Soar

Over the past year, Governor Ron Desantis has raised more than $7mil from Real Estate Developers. One of these includes Moshe Popack, a bigtime real estate investor. Popack invited the Governor and some of his top contributors to his 10,000 square foot Miami Beach mansion, an event that was reported as a $200,000 non-monetary or in-kind contribution from Popack. That number makes this the most expensive fundraiser put on by an individual in the past 20 years in the state of Florida. Although Popack is not a regular on Florida’s finance circuit and is not a usual political donor, he is part of the pack of donors from Florida’s red hot real estate market. 

Real Estate donors are now one of Desantis’ largest donor groups as he prepares to run for reelection as well as potentially president in the near future. $2.5mil of the $7mil came from real estate industry-aligned donors who have never given a political buck in the past. The political cash has been in part due to Desantis’ push to reopen Florida ahead of other states at the height of the pandemic, which helped executives with their bottom line. However, all of this money is coming at the height of the affordable housing crisis highlighted by those who say that the crisis is benefiting real estate leaders at the expense of the average joe, or low-income Floridians. One real estate developer said, “The biggest reason I can think of is that demand is so damn high, we are all making a lot of money.”

Desantis has raised money across several industries as well, including hospitality, who benefited from Desantis’ push to reopen Florida as soon as possible. However, the larger chunk is still from real estate. Florida realtors CEO Margy Grant in an interview said that when the pandemic began in 2020, he made sure that real estate was deemed an essential business (100% true), allowing Florida realtors to continue to work and find qualified homeowners the right home.

Boise, Idaho Housing Market Cooling Off, Is this the Start to a Less Competitive Housing Environment?

Boise, Idaho became one of the havens for remote workers during the pandemic. Boise saw a 194% migration to the city compared to people leaving the city and has been called one of the best places to live for millennials. They have found much lower living costs, a better work-life balance, as well as easier access to nature. This has been a popular trend among millennials looking to find better housing prices compared to coastal cities. Boise led the migration wave from big cities back at the start of the pandemic and is leading another wave, dropping home values. 

Typical home values in Boise, Idaho increased only .4% last month, down from 4.1% back in June, making it the first to play with decreasing home values. The pace of gains in the housing market was not sustainable and although the slow down is hitting western mountain towns currently, we are likely to see a slow down in other places like Texas and Florida. Although growth is slowing, this does not mean that prices will automatically start to drop. Many buyers are coming from other states, like California, with higher wages and more spending power, the same story goes for the Miami-Dade county. However, with rates increasing at their fastest pace in 40 years, we are likely to continue to see a decline in growth.. At least we hope so.

Florida Students Get Lessons in real estate as Rents Skyrockets

“I wish they taught me that in school” is a term that my generation seems to say a lot. We do not know how to write checks. What about investing? Forget about it! Unless there is a tik tok video about it, we do not even know what a mortgage is! Another piece of useful knowledge is in real estate investing and the pros and cons of renting vs. buying. Real estate investing is something that most adults do not even consider until well into their adult lives. Realtor Kella McCaskill has taken matters into her own hands and wants to educate young adults on real estate!

Twice monthly, McCaskill goes to Lina Bean Academy, a private school in Tampa, to conduct real estate workshops. She is teaching things from down-payment assistance to savings plans. Although her workshops change weekly, all topics come down to an ultimate goal of teaching kids about housing affordability and financial hardships surrounding real estate as rent and mortgage rates increase, and home values increase at an unusually fastest pace. “We want our kids to be thinking about the real world,” says school founder Ischolina Williams. The Academy was founded on Williams’ goal of serving kids with special needs, such as ADHD or those facing learning barriers due to problems at home. Most kids at the school are receiving tax-funding scholarships and come from struggling homes. The increasing cost of rent is becoming a major issue. “We had several students who have become homeless in our school,” stated Williams, “we try to make sure they understand what’s going on around them. We want to empower them with education so that they can plan for the future they want.” Many of the students have expressed their gratitude to Miss McCaskill and we look forward to hearing more about their endeavors! Thank you Kella!

Meta M&A Executive leaves Role to Join Real Estate Startup Pacaso

Lara Cumberland is leaving her role at Meta to join real estate startup Pacaso as the running COO. Pacaso, founded by Zillow executives Austin Allison and Spencer Rascoff, is in the business of co-owning luxury vacation homes. 

The company was founded in 2020 and launched later that year, raising $75 million in funding with a $1 billion valuation in March of 2021 with another $125 million with a $1.5 billion valuation in September 2021. The company sets up an LLC for up to 8 members to be equal shareholders. Pacaso holds no shares in the LLC or ownership of the property, but takes on the task of scheduling customers as well as maintaining the property. It is an absolutely brilliant idea, if you ask me, especially seeing how much vacation rentals have blown up in the last 3 years in Miami. Instead of buying a $200,000 property, 8 people can come together and buy a $1.6 million property with a much better return on your investment.

Cumberland decided to leave her role at Meta because she believes Pacaso is “is at a really exciting space in their trajectory.” She also believes her experience will be a great addition to the team! “My technology experience – matched with my track record of leading, scaling and integrating teams – positions me well to guide Pacaso, alongside Austin and top-tier company leaders, in this exciting next phase,” she told website TechCrunch. She is just one of many who announced they would be leaving Facebook due to their vision of transitioning their branding and structure to a metaverse future.

Brickell Church Selling Out as Membership Plummets, Coveted Land for Sale

Pastor Christopher Benek with First Presbyterian Church plans to sell the Brickell property that has been a fixture in the community since 1896. Benek was hired in 2018 as a “crisis-management specialist” to lead First Miami Presbyterian out of retirement, however it looks like things have taken a turn for the worse.

First Presbyterian Church peaked with almost 1,500 members at one point, but has dwindled down to barely 100. “They’ve been a financial wreck for years,” Benek stated. “Those problems don’t get solved overnight.” The church is facing $7mm in back taxes and Benek has negotiated to sell 2.2 acres of the 3.4 acre property to a local developer for $240mm, a piece that was valued at just $66mm four years ago. This land has been coveted by local developers for years as it is one of the last pieces of waterfront property in the heart of Brickell. For the last 2 years, religious affiliation has continued to decline with membership of denominations of Christianity falling from 78% in 2007 to 63% in 2021. With large physical footprints, but few congregants, many churches have faced the tough decisions of their viability. 

Miami with its housing shortage and being dubbed the most expensive city for homeownership in America, developers are capitalizing by constructing multi-unit apartment buildings anywhere they can. In the first part of the deal, the church will keep its sanctuary, but lose its school, office space and full parking lot. However, it would receive 20,000 square feet of added worship space beneath the lavish pool deck on the 11th floor of the bay-front 80-story luxury condo tower that the developer plans to build.

Long time member Cary Tolley, however, has condemned the deal. “If this transaction goes through, it won’t be long before the church closes its doors.” Benek believes the opposition is only about control and politics as there has been no critique from Tolley about the actual build. Some members of the congregation find Pastor Benek off-putting as he uses the words “leveraging” and “scaling” often and wonder where his true intentions are. Pastor Benek launched a Virtual Reality service set which many congregants found a waste of time and money. Pastor Benek held the deliberations and final voting over the deal through video chat, which many members felt was disingenuous. Benek responded saying, “Is the spirit of God not so big that it can’t work through zoom?”

Economic Shock from Interest Rate Increases Beginning to Cool the Housing Market Slowly

The Federal Reserve is done sitting on the sidelines as inflation continues to dilute American’s purchasing power. The red-hot housing market is one of the drivers of inflation, but as the FED continues to raise rates, some good work is getting done. 

There is much evidence that the FED raising rates is taking some steam out of the housing market. There has been a clear shift since rates hit 5% at the end of March/Beginning of April. Devyn Bachman, VP of research at John Burns Real Estate Consulting, gave some much needed color on the issue. “We are hearing about qualification issues, rising cancellations, and increased buyer hesitancy, particularly at entry level points and in remote locations,” Devyn stated. Inventory bottomed out in mid-March, but since then has posted 3 weeks of rising inventory. Real estate Redfin also reported an increase in the share of sellers reducing their prices on their site, an indicator that demand for second homes is decreasing.

This is still a slowing rate of growth, however. We are still in the middle of the hottest real estate market in recorded history. Bidding wars are normal, inventory remains historically at rock-bottom. The reason buyers are backing out of the market is due to mortgage rates increasing at the quickest pace in 40 years. Mortgage brokers are quoting borrowers at 5% instead of 3%, adding an additional $400 or so to their monthly payment. With all of this being said, not many speculators expect home prices to drop anytime this year. "My short answer is that unlike the housing bubble and crash of the mid 2000s, the recent increase seems to be sustained by the substantive supply and demand issues I have detailed—not by excessive leverage, looser underwriting standards, or financial speculation," Fed governor Christopher Waller told a conference audience in March. "I am hopeful that at least some of the pandemic-specific factors pushing up home prices and rents could begin to ease in the next year or so."

Bill in Rhode Island Looking to Ban "Love Letters" to Sellers

In this real estate market, buyers are looking for anything they can do to get a leg up and win an offer. One such strategy is through a personal letter, or “love letter,” as some jokingly call it. This entails writing a personal, heartfelt letter to the seller of the property explaining their current situation and why they would greatly appreciate the deal to go their way. Most agents we have spoken to in the Miami-Dade area said that they stopped this practice as it raises fair housing concerns. However, in Rhode Island, it is getting to the point where state rep Terri Cortvriend has proposed a bill to ban them.Cortvriend says that the practice could sway home prices as well as a bias towards a certain buyer that is based on factors nobody else can control.

Rhode Island realtor Michael Harrison had some thoughts on the matter. “We did receive a couple of letters for one listing, and there was one that I couldn’t share with my seller, [the] reason being, they attached a photo to their letter. There are some fair housing guidelines that we have to abide by.” Another realtor Paul Zarella said that he doesn’t think that the ban is necessary. “I don't find them very useful, but if someone does want to use that, I think as long as a buyer or a seller aren't making decisions based on race or gender or identity, things of that nature, I don't see a problem with sharing some information,” stated Zarella."There are different things that you can do to make your offer stand out that are more important to a seller than, you know, if your dog Sparky is going to play in the yard," said Zarrella. "They might tell a seller, although we have a right to inspect your property and back out for any reason, we're going to give up that right unless we find a problem greater than $5,000 or something like that."

Rates Above and Beyond 5% Mark, Pushing Past Speculators Original Thoughts

According to Market Watch, real estate speculators were predicting rates to hit 5% by early May. However, yesterday, April 11th, average 30-year fixed rates have officially hit 5.25%.

Although 5% is still historically low, this signifies the highest level for rates in a decade. Rates in 2019 crawled to 4.94%, but never reached over the hump. 

Monthly Payment to Debt-to-Income in Almost Pre-meltdown Territory

We all know that mortgage rates have been moving higher and higher, but the real MVP of this post are the home values as well as rising debt-to-income ratios

Black Knight recorded its highest year-over-year home price growth at 19.6%. Notably, the annual growth rate was at least 10% in all of the nation’s markets for the first time in history, with the top slots coming in as high as 30%! This is in areas like Tampa, Raleigh, Phoenix, Austin and Nashville. All of us in the industry know how crazy the Miami price growth has been, but it did not even come in top 10! While these appreciated figures are very much in line with other HPI’s, or home price indices, the most disturbing data is in the average mortgage payment associated with the average priced home. Rates are now lower than they have ever been before, even with the most recent FED hikes. However, the difference in price has now offset the difference in rates. 

However, the average payments only provide us with half of the puzzle. The next set compares median home income to the average home prices to keep up with Fannie/Freddie’s, and most NON-QM product’s, Debt-to-income ratio requirement. In other words, what percentage of the homebuyer’s income is needed to come up with the monthly payment. The rule of thumb is that only 50% of your monthly income can go towards your mortgage payment, or you will not qualify. For some loan programs, like interest-only, the DTI can only be as high as 43%. Plus, the higher your DTI, the worse your pricing! 

As the chart shows, the ratio was only ever higher for the few years leading up to the financial meltdown. This is also the average for the U.S. In some areas like Miami, this ratio is as high as almost 35%! Now, all of this does not mean that it will produce the same result as in 2008. There were many more factors in play back then that contributed to the meltdown, like horrible lending standards, however it does open our eyes and keep us on our toes for the near future.

Getting Creative to Win Deals for Your Clients!

This week, the Bayside team met with realtor Jeremy Hanson of Coldwell Banker Realty here in Miami. We chatted about the current market conditions and winning deals. With limited inventory and countless stories of all-cash, over-asking offers and appraisal and inspection waivers, securing a deal may seem daunting. However, Jeremy offered some insight into how to be successful at winning deals with financing, and without having to waive contingencies that open the buyer to much more risk. “People are still using financing, and your financed offer can still look strong. It is all about speed, efficiency and having a great team in place to make sure all your bases are covered.”

Jeremy went into more detail about giving the seller more confidence in your offer. His first point was speed, speed, and more speed. “The faster you can contact the agent, see the property and put an offer down, the better your chances of getting an offer accepted are.” This point is also reflected in terms of establishing your team. “In terms of the lending team, if a client and I go and check out a property at 10 am on a Saturday and want to place an offer, we will need a customized pre-approval within minutes, not hours.” Jeremy emphasized other team members who often get overlooked, like your inspection team. “You need to have your inspection company on speed dial and if you know your inspector, you can minimize your inspection window, which is another thing sellers are looking for in this market,” another aspect that integrates the team mentality and speed. “Real estate is a team game. Many people often overlook how many team members it takes to close a deal, or think it is the seller v.s. the buyer or the seller’s agent vs. the buyer’s agent. This is incorrect, we are all on the same team to best serve our customers.”  

Another factor in making a strong offer is placing a large earnest money deposit. This shows the seller that you are serious about purchasing the property and have the cash to back it up. “I always recommend putting at least 10% percent down in earnest money and at least 20% of that should be included in your initial deposit.” While it seems like a small detail, this is something that makes your offer just a little bit stronger. 

The offer, like many things, is really a sum of all parts matter. If you can make each little piece of the offer just a little bit stronger, your total offer package looks much stronger. Combine that with a strong team to execute the details of that offer and you can put yourself ahead of the pack - even with a financed offer!

Is a Housing Bubble Brewing? If so, How Close to the 2008 Damage?

The insanely hot real estate market is beginning to raise some eyebrows. A paper published by the Federal Reserve Bank of Dallas titled “Real-time market monitoring finds signs of brewing U.S. housing bubble,” stated “Our evidence points to abnormal U.S. housing market behavior for the first time since the boom of the early 2000s. Reasons for concern are clear in certain economic indicators…house prices appear increasingly out of step with fundamentals.”

During the pandemic, historically low mortgage rates (we will miss you) and a demographic wave of first-time millennial homebuyers helped to spur the ongoing housing boom. Does that alone explain the explosion in home prices though? Another factor could be the fear of missing out, a key factor in the last housing bubble. However, while researchers see a bubble beginning to form, they do not think we are headed for a 2008-style crash. “Based on present evidence, there is no expectation that fallout from a housing correction would be comparable to the 2007-09 global financial crisis in terms of magnitude or macroeconomic gravity. Among other things, household balance sheets appear in better shape, and excessive borrowing doesn’t appear to be fueling the housing market boom.”

This is definitely true. The lending industry is much more regulated now since the 2008 crash. If anything, the Bayside team is seeing less people qualifying for conventional loans than ever before. Due to rising home prices and stagnant wages? Yes, however also due to much stricter guidelines. We have seen a higher number of NON-QM loans due to the stricter guidelines with homebuyers using, for example, bank statements instead of tax returns to qualify. Industry professionals are hoping that spiking mortgage rates can help to tame runaway home price growth before prices get so high it leads to a bursting bubble. While higher rates will tame the housing market down, it is hurting millennials, who are supposed to be driving the new housing market, as their debt-to-income ratio rises and wages stay consistent. Higher rates will also discourage investors, which accounts for a large portion of home sales today. Believe it or not, one of our clients had an offer accepted and was supposed to sign the next morning. Before they could sign, an investment bank came in and paid all cash… this is the market that Americans are dealing with today.

Office Space Real Estate Stress Deepening

Now 2 year post-pandemic, office vacancy rates are rising at quicker levels than expected. Commercial real estate data suggests that working from home is becoming a more permanent feature of the American economy. Vacancy rates continue to climb in major markets across the country and worldwide, and signs of potentially defaulting loans appear to be growing. The largest jumps in office vacancies have been in San Francisco, Seattle, NYC and LA.

Analysts at British multinational bank Barclays, noted last week that the share of office mortgages that have been either put on a watchlist of loans looking to be in trouble, or “special servicing,” where loans with missed payments are sent, has hit more than 21%, the highest since the financial crisis. This is an indication that something like a bubble could be forming within the office sector. More recently, private equity company Blackstone, one of the largest PE firms in the world, stopped making payments on a loan backing their 600,000 SQFT office tower in Manhattan. This building is expected to be vacant next year after one of its main tenant’s decided not to renew their lease.

The bottom line is that companies who began WFH during the pandemic are most likely not going back. Think about the money saved on rent, electricity, operation costs, hardware etc. by running the entire business remotely. While office real estate is not going to collapse overnight, as most are locked into leases of at least 10 years, trends are suggesting worrying data about office mortgages and suggest that we will see significant change for years to come.

Blockchain Technology Beginning to Change the Landscape of Real Estate!

Real Estate is an asset class that is waiting to become further integrated with Blockchain technology. Now, 89% of all traded security tokens are for Real Estate showing us a further adoption. Security tokens are essentially digital, liquid contracts for fractions of any asset that already has value. This allows investors to preserve their ownership stake on the blockchain ledger. Security tokens are not always used for cryptocurrencies, they are sometimes used for cars or corporate stock. Of that 89%, 87% were for residential real estate and 2% for commercial. 

Ownership of title and property is well-suited for blockchain applications as it can offer triple-ledger accounting (Seller, Buyer, and signatures) that is built directly into the security token. Security tokens and blockchain increase legitimacy and verifiability/trustworthiness of all parties in a transaction, an aspect that plagues the real estate industry. For example, title searches. It takes much time and money for lenders and buyers to do a title search on a property to ensure that the seller can legally transfer title to the buyer. Instead of having to wait 3 days and jump through hoops and ladders, it would just take a simple blockchain search.

Blockchain integration into everyday life, finance and real estate has been slow and cautious. After 2008, real estate lending and real estate transactions have become highly regulated. Pair that with the growing blockchain and you have a recipe for slow growth. However, this movement could be coming quicker than we think. All industries change and technology becomes more advanced. You either get with it or get left behind!

Rising Foreclosures! What Does this Mean About the Current Market?

In January, there was a seven-fold increase in foreclosure starts than in December. About 33,000 loans were referred to foreclosure according to mortgage analytics company Black Knight. ATTOM Data Solutions also concluded that lenders repossessed 2,634 properties in February, an increase of 70% from last year.

What does this mean for the housing market? This shows that many of the pandemic-related measures to keep Americans in homes have pretty much worn off at this point. Many who were in the government forbearance program got back on their feet and ended their forbearances in 2020 and 2021. Those who remained in forbearance into 2022 are most likely suffering long term financial hardships. “When their forbearance ends, they’re less likely to be able to resume their payments and more likely to end up in foreclosure”, stated Holden Lewis, home and mortgage expert at Nerd Wallet. There are many loans that are coming up on their final forbearance month that are either in loss mitigation or past due after coming out of mitigation, which still may enter foreclosure in the coming months. 

This foreclosure uptick also represents the still ongoing economic recovery from COVID-19. We lost 20.2 million jobs in April, 2020 alone as the government imposed wide ranging lockdowns. We have added back 18.8 million jobs, but we are still short of the pre-pandemic levels. January’s foreclosure rate still remains 40% below the value registered before the pandemic. The housing market is still going strong due to record low interest rates (even the almost 5% rates we are now seeing). Due to housing supply being tremendously low, nobody is getting even a foreclosure sale for a steal.

Rates Headed to 5% at the Fastest Pace in History!

Rates are continuing to trend upwards. The last 3 months have been the quickest rate spike since 1994. Those who were in the market back in the mid 90s are laughing at the new home-buying generation complaining about the rate spike… sounds like a very millennial thing to do (I am a millennial myself). 

1994 and 2022 are tied at the moment for the most short-term damage done to mortgage rates. As you can see in the figure below, we are seeing a dramatic rise in both instances. 2013 as well as 2017/18 also saw sharp rate hikes, but nothing compared to what we are seeing currently. 

Miami is the Most Rent Burdened City in America

Our city might be beautiful and busting, however the rent is becoming a burden! Another newsletter, another week, and again, rent is just too high. The residents of Miami are more burdened than any other, according to a study done by Apartment list.

The study shows that just about 62.7% of Miami renters are cost burdened. What does cost burdened mean? If you pay more than 30% of your monthly income to rent, then you are cost burdened. 56.5% of residents are cost burdened with 34% of Miami renters are paying more than 50% of their monthly income to their housing expenses! That is an absolutely mind-blowing statistic. During the pandemic, we saw rents begin to plummet. I personally found my 2-bedroom apartment in the heart of Brickell for $2,800 (Thank you Jeremy Hanson!) which is a dream for today’s market. 

What do you do? You buy a new place, that simple! Oh, wait… inventory is at a 40-year low with many places selling almost 10% above asking? Interest rates are almost double what they were just 6 months ago? This market is challenging to say the least! Miami home values are rising much faster than wages. The Apartment List did a study as to whether a household making the median income could comfortably afford rent, which, by the way, was $1,360 in 2018! The analysis concluded that the average household would need to spend 39.3% of its income to rent each month.

Soaring Home Prices Widen the Wealth Gap Significantly

Over the past decade, homeowners have seen massive increases in wealth. However, most of the wealth went to the wealthiest households. Over the last decade, home wealth has increased $8.2 trillion dollars, but the middle to low income households saw only 26% and 4% respectively. In addition to the wider gap, as home prices have inflated, most middle and low income households are priced out of the new housing market. Places like Phoenix, Atlanta, Las Vegas and some towns in California saw increases of over 200%. Although middle to low income homeownership fell, the number of middle income homeowners increased in a bout 917 cities across the country. These cities and markets include Dallas, Houston, Atlanta, Orlando, Portland, and Seattle. The cities with the largest drop in middle income households over the last decade were Los Angeles, New York, Chicago, Boston, Detroit and Philadelphia.

This is yet another example of homeownership leading being a proven method for building long-term wealth. Home values do generally increase over time. Maybe not by as much as the past year, but they do appreciate in value. For example, if you bought a typical home 10 years ago for $162,600, you’re likely to have accumulated $229,400 in housing wealth according to the National Association of Realtors.

Construction Wages Grow at Fastest Pace in 40 Years as Construction Demand Grows

Homebuilders are hiring more workers and paying higher wages than ever before, a sign that we could see more affordable housing popping up in the near future. The industry saw 60,000 new jobs in February and wages saw a 6% growth Year-over-Year. This is the fastest growth that the industry has seen in the last 40 years. 

The construction industry has definitely seen its fair share of setbacks over the years. Lack of supply, labor shortages and demand shortages have affected construction over the last 3 years. “The rise is positive news for an industry that has been grappling with chronic labor shortages”, says Odeta Kushi, First American’s Deputy Chief Economist. ”We need more homes built, and in such a labor-intensive industry, you need more workers to build more homes.” 

Housing affordability remains at historic lows as the lack of available homes for sale has driven competition and pricing up. However, higher wages could lead to more affordable housing being built. The downturn in construction is due to many factors, however mostly due to the shortage of skilled workers. Kushi stated that this has been an issue for almost a decade now, however she is optimistic that we are beginning to see an upswing. ‘Attracting skilled labor will remain a key objective for construction firms in the coming quarters and will become more challenging as the labor market strengthens and the unemployment rate declines.” If the homebuilding sector welcomes more workers, it could relieve the housing market of its affordability issues.

FOMC Meeting Last Week Announces Current Rate Hike as Well as Future Hikes

On March 16th, Fed Chairman Jerome Powell announced a .25% rate hike of the federal funds rate. This is tamer than what we expected was going to happen, as some economists were expecting a .50% hike this month. What is the federal funds rate? This is the rate at which commercial banks lend money to each other overnight. There is a bit more color with a rate ceiling and rate floor, however in simplest terms, the more expensive it is for commercial banks to lend, the higher the rates for consumers. As it becomes more expensive for consumers to borrow money, demand drops. This is one way the Fed hopes to pull back the current inflation rate. Their goal, given to them by congress, is reaching an inflation rate of 2%. What does this mean for mortgage rates? They will continue to rise at the same or quicker pace than they currently are.

Jerome Powell also said there is a “misalignment” in the labor market, but not a wage-price spiral. A wage-price spiral is the economic phenomenon of price increases as a result of rising wages. When workers receive a wage hike, they demand more goods and services which in turn, causes prices to rise. The wage increase then increases costs on businesses that are passed onto the consumer in terms of higher prices. Powell does not believe that is what we are seeing now, but a misalignment of supply and demand in the labor market. “What we have now, if you look at the wage increases that we have ... the increases are running at levels that are well above what would be consistent with 2% inflation, our goal, over time,” he stated. 

The Fed noted as well that they will begin reducing their balance sheet, or “expects to begin reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities at a coming meeting.” The last alteration was in 2019 and the Fed’s balance sheet now is sitting at about $9 trillion dollars. They are expecting to cut it by about 1/3rd in the next iteration in May.

Outdated Cruise Ships Could be Turned into Inexpensive Housing

With housing prices skyrocketing and record low inventory, innovators are coming up with new ways to develop affordable housing. In last weeks newsletter I discussed micro units and their benefit to the lack of affordable housing. Another recent idea was to convert outdated cruise ships into affordable housing!

Due to the pandemic, just about all cruise operations came to an abrupt halt. Thankfully, the industry is back up and running and booming, but one difficulty that has yet to be resolved is the growing number of ships that have been decommissioned. In September, 2020 alone, Carnival Cruise Line wanted to sell at least 18 of its less efficient cruise ships. The business of cruise ship dismantling was up 30% in 2020 as companies were taking heavy losses tearing apart the ships to scrap metal to cash in. 

However, CallisonRTKL, a Washington-based architecture firm may have found a way to turn these ships into affordable housing. CallisonRTKL found a perfect opportunity to impact the housing market as well as the cruise industry in positive ways. They did a study of 362 Miami residents of which 88% said they would be open to living in a coastal housing scenario. They would build each unit to be fit for one person with a total of 900 units costing just $1,250 per month! They also have plans to combine units for families. This idea could also be used for housing workers working abroad or on islands. They could dock the boat up for the length of the job and the workers would have affordable housing for as long as they would need for the job to be finished. 

Nothing is set in stone at the moment and it is more of a research study for the moment. However, it is refreshing to see innovators and architects coming together to solve important issues that the city of Miami and many other cities in the US face. “As we move closer to environmental decay and climate change, cities like Miami need to start coming up with solutions that are atypical and so I think taking decommissioned ships and not just using them for hospitality is something that should be happening now,” Desooky added.