Global Stocks tumble to worst start since 2000 , what about real estate?
Anyone with stocks has seen the headlines and their stock portfolio plummet the last several days (here is an interesting article from bloomberg on what happens after a 5% drop historically). So what does this all mean for real estate?
As a result of the recent global selloff, there will be major impacts for real estate. Will prices go up or down? Will certain sectors be hit harder than others? What three major changes will occur as a result?
Three major impacts will likely occur as a result of the recent sell off.
First, as a result of the tumultuous global markets, the feds pace has already been slowed substantially. Although they did raise rates at the last meeting, the feds pace for rate increases will be very measured due to the recent global selloffs and also the rapid decline in commodity prices (oil has dropped from 100 a barrel to around 30 a barrel) which has kept inflation at bay. Rate increases the rest of this year will be nominal due to the global uncertainty
Second, related to the delayed fed moves bond prices will increase (bond prices move in inverse to interest rates), many long term rates (think long term mortgages move in step with the 10 year treasury. As prices increase the rates will decrease. This will be further amplified as people move from riskier asset classes (like stocks) into safer assets like treasuries. There is a “flight to quality occurring” The continued low rates (and possibly declining rates on longer term mortgages) should continue to help the real estate market. If you have watched mortgage rates, the 30 year fixed has dropped this week (even though the federal reserve had raised rates). Here is an interesting article on bankrate.com (http://www.bankrate.com/finance/mortgages/mortgage-analysis-010716.aspx). Look for long term rates to stay low for a little while longer.
Third, as stocks are perceived as “riskier” there will be a continued push into assets perceived as more stable like real estate with longer term credit tenants (like a Walgreens). I think with the recent market bumpiness this flight to quality will continue. Unfortunately this continued flight to quality could lead to “bubbles” in certain sectors; see a recent article I wrote for the Colorado Biz Magazine: Has real estate lost its mojo?
In summary, in the short term the recent downturn will likely help real estate in general by keeping rates low and demand high. Long term if the market continues into a free fall all bets could be off as consumer confidence fades and we have another “party” in real estate like 2007 that many of us wish we were never invited to. 🙂
Written by Glen Weinberg, COO/ VP Fairview Commercial Lending. Fairview is a hard money lender specializing in private money loans in Georgia, Colorado, Illinois, and Florida. They are recognized in the industry as the leader in hard money lending with no upfront fees or any other games. Learn more about Hard Money Lending through our free Hard Money Guide