The pic above has nothing to do with the election, but this bear was about 10 feet from me when I was doing a zoom call on the back deck. I didn’t notice him until the meeting participants eyes got big as he walked up behind me. Talk about an interesting coworker coming to visit 🙂 As I’m writing this, there is currently no clear winner for the president and it could be several days or longer before we know the outcome. It does appear that the Democrats will take the house and the Republicans will hold the senate. The stock market is all over the place. What does this mean for real estate?
Based on what I know as of this morning, there will be five impacts to real estate
- Mortgage rates stay low: Mortgage rates are going to continue to stay low on both long- and short-term securities along with mortgages for the next several years. Regardless of the president, the federal reserve will do everything in its power to keep money cheap to stimulate the economy. This will help the residential market keep on moving up.
- No huge stimulus: With a mixed chamber, there likely will not be a huge stimulus bill, the stimulus bill will land somewhere in between the two parties. There will likely be a considerable number of evictions and foreclosures sometimes next year as the stimulus is not enough to make all that lost their jobs whole. In most markets, there will be ample capacity to absorb the foreclosures without much impact on prices
- Stalemate on large proposals: elimination of the 1031, capital gains, etc… There were a number of proposals to eliminate the 1031 exchange, raise income taxes, increase capital gains, etc… Look for most of these proposals to be seriously watered down as the republicans will try to block any large tax measures. This should help especially commercial real estate stay afloat.
- Consumer confidence falls: I suspect with all this uncertainty on the president elect, there will be a short term hit to consumer confidence, I’m not sure if this will flow through to housing, but it could signal a slight slowdown in the final quarter of the year.
- Commercial real estate will be rough: Regardless of the president, commercial real estate is poised for a challenging quarter and tough 2021. There are fundamental structural changes occurring in the economy from lack of business travel, to offices, to hospitality, to restaurants that will take time to flow through. There will be considerable casualties in many commercial sectors.
One interesting item to watch depending on the president is the fate of Fannie and Freddie, the two government sponsored finance intermediaries that handle the vast majority of residential loans. If Trump wins, I think there will be a push to move them back to private companies. A Biden win would keep them under governmental control indefinitely. Their fate could have huge implications on the buying, selling, and pricing of 30 year mortgages.
Although we don’t know the presidential pick at this point, it appears the Senate and house will be controlled by two different parties which will help “moderate” both parties’ platforms. The residential market will continue higher due to low rates, albeit at a slower pace, and should have plenty of capacity in the majority of markets to absorb the impending number of foreclosures. On the commercial side, the waters will remain rough in most sectors including office and retail. Fortunately, it will be unlikely that the 1031 exchange will be eliminated which should help keep liquidity on the commercial side. Unfortunately, we all have to sit tight a bit longer while the presidential race is decided to see what other impacts there will or will not be on residential and commercial real estate.
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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 Bloomberg, Businessweek ,the Colorado Real Estate Journal, National Association of Realtors Magazine, The Real Deal real estate news, the CO Biz Magazine, The Denver Post, The Scotsman mortgage broker guide, Mortgage Professional America and various other national publications.
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