Alain Pinel, General Manager of Intero Prestigio international, Intero Real Estate Services, Inc.
Let’s talk economy and real estate, shall we? The Past, we know. We’ve been there. The Future, long term, we kind of know or want to believe we do, but if we don’t that’s OK because we are not there yet. Now, what about the Present and the weeks ahead? Tough read or guess. The picture looks better than in years past for the economy in general and real estate in particular, but (there is always a “but” it seems like these days), we have a hard time figuring out where we really are. Too hazy out there; too many question marks and conflicting signals.
Part of the uncertainty has to do with the season. We are still dozing from the summer heat and the vacation fever. We can’t wait to reach September, with what it traditionally means in terms of rebounding business activity. However, this year, we are slowly sliding into the fall market the way bathers get into the water, one toe at a time and with apprehension. Don’t get me wrong, the real estate activity, hot over the first 5 months of the year, is still pretty good , but (here we are again!) we have the feeling that the speed of the recovery is stuck in 3rd gear while we expected to be in 4th. What’s between the foot and the accelerator pedal?
I can think of 3 main reasons. Here they are:
- The Fed’s song & dance on whether and when to start scaling back the stimulus is creating more confusion than good. Many buyers and sellers are frozen in place until they know what comes next. The easy money policies which have pumped billions into the economy have produced new records on Wall Street and propelled real estate out of the crisis and into new historical highs. That was yesterday. We know that the money faucet is going to be turned down in a few days or weeks. The mere mention of this inevitability has already caused the cost of mortgage money to go up 30% or so. It’s not going to get any better. Rates are still amazingly low however and seeing so many would-be sellers today dangerously waiting on the sideline rather than putting their home on the market to meet the pent-up demand, is at best mind boggling. Can you hear me screaming from where you stand?
- Investors, large or small, domestic or foreign, are largely gone. Their shopping spree has been huge, while it lasted. Taking advantage of cheap financing or the power of cash from 2009 to 2011, at a time when prices were at or close to bottom levels, small investors have been gobbling up millions of distressed properties throughout the US. During the same time, the big guys, institutional investors, put their name on some of the crown jewels in both commercial & residential properties with a big price tag. No more. With a better than double digit price appreciation last year and again so far this year, real estate in the most desirable regions is now out of reach or no longer attractive to speculators. Cannot count on foreign investors to make up the loss. In addition to the price hike, unfavorable exchange rates and weakening economies have severely reduced purchases. That’s especially the case for Indian’ buyers from the old country, a group which has had a huge impact on sales in California & New York over the last few years. With the rupee’s on-going fall against the dollar, these providential prospects have lost their buying power. Even the Canadians, who account for nearly a quarter of the international sales in the US, are now slowing their purchasing appetite, with a 9% decline y/y.
- Lack of clarity in terms of economic priorities. In a dream world, most everyone has a job and wages go up nicely and faster than the cost of living. We are not there. How do we get there or at least steer in the right direction? What comes first? The jobs? The wages? How? When? It takes money to buy real estate. It takes jobs to make money. It takes growth to create jobs. The results, so far, have been sweet & sour. Economic growth has been steady but far from inclusive. Jobs have multiplied but most of them are precarious and low-pay. The prospect of a “part-time economy” is hardly motivating & mobilizing at a time when we need people to commit to long term goals, like buying a home and raising a family.
It will take a little bit more time to switch to high gear and foster significant & sustainable growth for businesses and individuals. The 4th Quarter is going to be the test. It should be a good one in our industry after a long summer transition. It’s a new market, with plenty of good opportunities and plenty of good reasons to take advantage of them. Time for action. If you are looking to sell your home or buy one, waiting is not an option.