Real Estate in Brief: Tariffs hit remodeling, explaining REOs and more

by Andrew Morrell

Tariffs cause growing concern in remodeling industry

The escalating trade dispute between the U.S. and China continues to make headlines. While the actual effects of the new tariffs introduced by both countries are myriad, they are having a discernible impact in at least one corner of the residential real estate market. Home renovations are getting more expensive because the materials that go into a home remodel are often imported from China and thus subject to new tariffs.

In a recent video, The Wall Street Journal took a look at the effects of these tariffs on business owners in the home remodeling industry. In it, the operations manager of a tile and flooring retailer in San Diego said the rollout of tariffs on many Chinese goods that began last year led to an almost immediate 30 percent drop in revenue. That’s because the products her store sells are primarily made in China but cater to price-conscious consumers.

Similar effects could be seen at the high end of the market, too. The Journal also spoke with a kitchen remodeling contractor in San Diego working on a project with a $75,000 budget. He estimated that the client will end up paying about $6,000 more than they would have a year ago, simply because of the tariffs. Even the already pricier American-made products he uses in his kitchen remodels have increased in cost because they are made from Chinese-sourced raw materials.

Economists fear that, rather than stomach these increased costs or find ways around them, consumers will simply delay renovation plans altogether. That could squeeze many remodeling companies into bankruptcy and have knock-on effects throughout the housing market. Homebuilders have also struggled with increased costs due to tariffs — a recent report from the U.S. Bureau of Labor Statistics found prices for construction materials have risen faster in the first four months of 2019 than the same period last year. Pending any new developments in the trade dispute, tariffs on some $200 billion of Chinese imports will increase once again next month.

Beyond the Oreo: Carson testimony highlights FHA issues

Ben Carson, the Secretary of Housing and Urban Development (HUD), was roundly lambasted for remarks made in a May 21 congressional testimony in which he appeared to mistake the common real estate term REO (real estate owned) for Oreo, the Nabisco cookie.

However, news coverage of the gaffe overshadowed the point Rep. Katie Porter (D-Calif.) was attempting to make: that foreclosed homes owned by FHA (which is administered by HUD) tend to remain vacant longer than foreclosures handled by other federal agencies like Fannie Mae and Freddie Mac. This introduces a host of economic and social problems because long-vacant homes are a significant contributor to urban blight and tend to negatively affect surrounding homes and homeowners. A 2018 study by The Urban Institute(which Rep. Porter encouraged Carson to review) found multiple problems in the FHA’s foreclosure processes that resulted in unnecessary expenses incurred by taxpayers as well as a complex, slow-moving system that only increases the time that these REO properties remain vacant.

“The FHA’s foreclosure timeline and property conveyance processes result in avoidable delays, costs, and losses for HUD and servicers,” the Urban Institute study concluded. “These costs are eventually passed on to neighborhoods and consumers in the form of slow property resolution, depressed property values and reduced access to credit for future borrowers.”

DOJ requests MLS data from CoreLogic related to commissions

Rob Hahn, an industry commentator and management consultant specializing in real estate operations, reported on his blog that the U.S. Department of Justice issued a formal demand for information from CoreLogic related to data on buy-side broker commissions. Following up on Hahn’s report, Inman confirmed with CoreLogic that it was cooperating in a federal probe, but was not the target of the investigation itself.

All things considered, sources who spoke to Inman about the story said they suspect the DOJ’s order is related to the ongoing class-action lawsuits against the National Association of Realtors, as well as some of the largest MLS operators and real estate brokerages in the U.S. While the DOJ declined to comment on the Inman story or Hahn’s claims, it could mark a new development in the saga related to these significant lawsuits

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