Yikes! If you’ve been watching the stock market over the
past two weeks, you may have heard reports that the financial markets had their
worst start to the year ever in 2016. While that might be a gloomy headline when it
comes to forecasting for the rest of the year, Real Estate investments are
shaping up to be shelter from the storm.
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| Tough final quarters in 2015 |
Market
woes in the begging of the year have much to do with performance in the 3rd
and 4th quarters of 2015 respectively. CNBC
called the 3rd quarter of 2015 the worst in 4 years, while lower
than expected holiday sales hampered recovery the last quarter of the year.
The Fed Hike didn’t help. While many are discussing the
ramifications for 2016 after the 25 basis points rise, the speculation prior to
the hike held markets down in the 3rd and 4th quarters
and the result of this is being felt now. The upside to this is that markets became
somewhat ‘pre-conditioned’ to the rate hikes and although the numbers where
held down in previous quarters, they won’t be driven down as the short term
credit market adapts to the changes in the 1st quarter of this year.
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| Cameron seeking UK Exit from EU |
While
data was weak, another significant factor was the effect of international
terrorism on consumer confidence. Blackstone
said after the attacks in Paris on November 13th that there would be
long term effects on consumer purchasing and this prediction may be reflected
in holiday sales numbers. To put it another way, no one in Paris was heading to
Louis Vuitton to buy a new hand bag on November 14th. While European
markets see the results of terrorism first hand, confidence there is also being
weighed on by the UK’s looming referendum about its future in the EU.
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| US crude enters already overloaded market |
The OMNIBUS bill, pushed through at the end of 2015 lifted
the 40 year ban on crude-oil exports, adding to an already inflated market. As
of the 2nd full week of 2016, crude is floating just above a
startling $30 a barrel. The internal oil situation, although holding many economies back,
should have some effect on stimulating emerging markets. Of
course the biggest elephant in the room is China, again. Shanghai begin the
year with a new ‘circuit breaker’ policy that would halt trading should indices move radically up or
down. As common sense might have suggested the ‘circuit breaker’ policy did
little to help a tumbling markets and in fact created an even bigger mess by
not allowing markets to naturally re-balance themselves.
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| Low inventories in hot markets |
The economic forecast for the year is not looking so bright
with all things considered, but investors are noting some consistency that they
can be excited about. Real Estate is traditionally a more stable market as it
is tied to longer term credit that will be relativity unaffected by the
quarter-percent Fed Hike. It is also a more localized market with holdings
retaining value based on communities that they exist in. Because
Real Estate values are relative to their surroundings, the shrinking inventories
around the country will drive property values up, spurring activity as buyers,
sellers and investors enter the spring market.
For the average home owner or aspiring home-buyer what does
this all mean? 2016 will still be a good year to buy, as interest rates will
see only a minor increase from the Fed hike, if at all. It will be an even
better year to sell. Inventories across the country are low, meaning cash
offers will remain supreme and home sellers can be discerning. While this is
not the news that Millennials are hoping for, (if they are thinking about it at
all…) home buying opportunities for this generation of first time purchasers
will slowly begin to increase with the spring market, but are unlikely to burst
any bubbles. Inan interview with Reuters, chief economist for Zillow, Svenja Gudell, cautioned
buyer optimism saying, predictions for 2015 had suggested an up-tick in
first-time-purchases, which failed to occur.
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| Foreign investors love the coastal cities |
In coastal hubs like San-Francisco, Los Angeles and New
York, global investors are driving up prices as they sink huge sums into real
property and investment trusts.The reality is that
many investors are turning to Real Estate for stability in uncertain times. Forbes
quoted over half of investors surveyed as saying they will increase their Real
Estate holdings in 2016. Real Capital Analytics saw $625 billion Real Estate
investments worldwide. A marked increase of 11% year-over-year compared to
2014.
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| Housing Price Balance? |
With
all this interest in buying, markets across the nation are looking at smaller
and smaller inventory. For many this can be inhibiting, as cash always beats
out a financed offer; sellers remain better positioned to negotiate their
price. The trend can only go on for so long though. With prices being driven
higher and higher eventually the equilibrium tips and buyers will become
overwhelmed with sellers eager shed their property while prices are high. The
inevitable flooding of the seller market will be balanced against the same
fearful consumer sentiment discussed that plagued 2015. Although increased
investment will have the trickle-down effect of shifting the market to the
buyer’s advantage, if global market conditions remain unsteady, investors will
continue to put money into Real Estate and other securities, perhaps creating
an equalizing factor.
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