The markets tanked losing almost 2% with some companies down almost 10% due to the selloff. What caused the selloff? What does this mean for real estate? What should you do? Is it time to panic? What is the silver lining?
The markets has in the past viewed the tariff / trade war threats as just “noise” and did not price this “risk” into the markets. As many tariffs look closer to reality, the market went into a panic as many U.S. companies/ industries could be severely impacted by the trade.
Harley Davidson announced that they are shifting some production out of the U.S. to Europe so that they do not have higher prices on metals due to the recent tariffs along with import tariffs into Europe. Look for other companies to further “optimize” their supply chains based on the prospective tariffs.
Businesses make long term plans on “durable items” like plants, machinery, etc… The recent tariffs cast considerable doubt on their long-term plans. For example, if a company has a large market in Europe, with the prospective tariffs instead of building a plant in Ohio, they might build one in Belgium or India. Businesses do not like uncertainty and many times they will curtail plans until they get further clarity on the long-term implications.
Regardless of whether there will or will not be a trade war, consumers get nervous when there are gyrations in the stock market and headlines everywhere talking about a “correction”. Consumer confidence will likely decrease and their purchase of durable goods (like a house) could also decrease.
Silver lining in rates
In times of turmoil, U.S. treasuries are seen as a safe haven. Investors will sell other assets to move into safer assets. In this case the purchases of U.S. treasuries will increase the cost of treasuries and decrease the yield (they move in inverse). So mortgage rates should decrease as the treasury increases which will help real estate.
What should you do?
NOTHING! Real Estate is a long term hold so short-term gyrations should not guide your real estate decisions. I don’t see any indication of a large-scale correction in most markets. In most markets, you will see prices level off as incomes “catch up” to prices.
What about long term rates?
With all the uncertainty in the markets I would not lock into a long-term rate since there is considerable downside risk to the economy. I would do a short-term lock and let the rate float until there is better clarity on the long-term direction of the economy.
Now is not the time to panic, but prudence is required. Although, there is allot of information that needs to be digested that could impact the economy, there is considerable downside risk in the markets. The markets have had quite a run since the last recession and the good times never last forever so ensure you are being cautious and your portfolio is positioned for whatever the next cycle brings.
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Written by Glen Weinberg, COO/ VP Fairview Commercial Lending. Glen has been published as an expert in hard money lending, real estate valuation, financing, and various other real estate topics in the Colorado Real Estate Journal, the CO Biz Magazine, The Denver Post, The Scotsman mortgage broker guide, Mortgage Professional America and various other national publications.
Fairview is a hard money lender specializing in private money loans / non-bank real estate 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. To get started on a loan all they need is their simple one page application (no upfront fees or other games).