While the country was celebrating Halloween in many U.S states, and some other countries, the economy should be center stage for all the major markets, especially with all the political and geopolitical events that have captured the attention of investors, owners, small businesses and borrowers alike since the beginning of 2018. This short piece is not about the desolation of the economy or political sensationalism, it is merely to accentuate on a couple of quick pointers about whether investors should put on their panic or relax hat on.
The post mid-term election on November 6th, 2018 will certainly impact some aspects of real estate, more specifically on the tax front, the lower and middle-class housing sector in tertiary and quaternary markets. In fact, the last couple of months the stock market has been shaky with swing in prices. This is an indication that real estate investment trusts (REITs) prices can be affected in an event of sudden economic shock or complete stock market collapse – thereby affecting the entire housing market, many households, and Washington, DC as well. According to the National Bureau of Economic Research (NBER), the U.S and global stock markets have fallen 6.1% before dividend over 12 months, and only up to 0.6% year-to-date (YTD), and down7.3% from the beginning of October 3rd peak. If the equity market continues at such a pace it will not only affect many businesses, but also the housing market in the notable sectors mentioned earlier.
In a recent tweet at www.twitter.com/refivet on October 15th, 2018, I stipulated that, “the economic expansion has reached 10 years, 2008 – 2018, and some real estate investors and operators may be worried about if there is a recession coming soon.” The bond market has always been a predictor for a recession and NBER data since mid-1950’s stated it best, “Counting from 2009 economic expansion has run for 112 months and from 130 from 2007 peak. If history servers us right, most indications and what many pundits have observed point to 2021, 3 years from now for a recession hit.” What does all this mean for the overall real estate market? Historically, no matter what happened or will take place, real estate will continue to be one of the most flexible and safe alternative investments for investors’ portfolio. It is traded like a bond, always rebound and many national, international investors will always have an appetite for sound investment grades, core assets in gateways cities. For the reason that interest rates keep increasing to higher level than 3.00% (U.S 10-years treasury as of 10/31/2018 at market close 3.149%, prime rate at 5.25%, 30-years fixed rate-jumbo 4.625%, and outpacing inflation 2.3%), providing funding to some real estate and business borrowers may slow down temporally due to more stringent regulations by the Federal Deposit Insurance Corporation (FDIC) or the Federal Reserve Board.
Ultimately, any volatile shifts in the market do not attribute to all borrowers been denied funding by banking institutions or non-banking financing firms – keep the relaxing hat on instead, at least until 3 years from now. Strong investment and capital will always be available in specific local and submarket with robust macro and micro economic factors.
By: Ibsen Alexandre
The opinions expressed herein are those of the author(s) and do not reflect the view of a firm, its clients, any respective affiliates nor any Media Platform. This article is for educational general purposes only and is not intended to be and should not be taken as solicitation for investments or lending.