Part 2— Policy Impacts on the Economy and Home Ownership
To understand what the real estate industry experts’ crystal ball for 2021 may predict, a strategy discussion was held with some of the most experienced and knowledgeable real estate experts. The cerebral panel covered topics such as capital markets, the economy, construction costs, development trends, effects of COVID, regulatory matters, and much more.
This article is the 2nd in a series of 7, broken into bite-size topics, related to the all-important question of … “given the current landscape and forecasted trends related to the economic, political, banking, healthcare, and real estate sectors, many real estate investor are asking the question should they be leaning into these headwinds, or should they be retreating to the sidelines?”
Part 1 of the Series suggests that now is the time to be bullish on real estate investing. But what are the fundamentals driving that conclusion? Keep reading the entire series to uncover these fundamentals.
Here is what the experts had to say regarding …
Policy Impacts on the Economy and Home Ownership — Sam Herskovits, Executive Vice President — Madison Commercial Real Estate Services
As we turned the page into 2020, the US economy and its fiscal and monetary policy decisions were all pointing to a robust, strong and record setting economy. However, COVID-19 was a game changer. When comparing the economic meltdown of 2008 with that of 2020, there are some emotional and economic burden similarities, yet the fundamentals are completely different. The 2008 economic crash was more of a “financial crisis,” yet 2020 can best be construed as a “service crisis.” The entire society was locked down and masked up. The ability to go to a restaurant, school, bar, grocery store, fitness center, hair salon, place of worship, etc. all became a challenge. Consumer confidence was shaken, and everyone was uncertain as there was no end in sight.
The government from both sides of the isle worked together to create policies which would help to stimulate the economy, and more importantly, help all Americans through a very tough economic situation. Stimulus dollars were funded to help keep the economy moving, yet everyone knew that at some point, these funds would run out. However, we as Americans, are extremely resilient and when we get knocked down, we bounce right back up to fight another day.
The economy remains steady being buoyed by a federal reserve which continues to pump capital into the economy, constraining interest rates to record lows and ensuring that the US does not experience run-away inflation. And the empirical data is showing that even after the stimulus dollars have been exhausted out of our bank accounts, Americans are still spending money, still investing in the equity markets and real estate, and still going about their every day lives. It is truly a testament to how amazing our society is, and will continue to be, in the future.
From a policy perspective, the most important issues affecting our near-term and long-term economy will be centered around substantial fiscal, tax or economic policy shifts of a new Biden administration, as well as the ability of the US Congress to pass another stimulus package. The outcome of the January 5th Senate run-off election in Georgia will be very impactful with either a consolidated government under a Democrat Party rule, or a balanced Congress with a divided House and Senate. In short, the outcome of this run off will create the blueprint for economic policy decisions for many years to come.
From a macro level, the largest single investment for most US citizens, will be their home. Consequently, many administrations have supported tax incentives for first-time home buyers to get Americans in the practice of building up equity in their homes. The Biden platform is no different, as it also involves limited tax credits for first time homebuyers.
However, given the current fundamentals in the marketplace, what a Biden Administration does or does not do will probably not be the deciding factor. The fundamentals involved in single family acquisitions are at their all time best. Interest Rates are at record lows and are not expected to rise any time soon. Inflation is at a stable rate and that is not expected to run away in the near term. Demand continues to rise for single family homes, and this trend is not expected to level off.
As previously stated, this current situation is more of a “service crisis,” as opposed to a “financial crisis.” Consequently, it appears that once the vaccine for COVID-19 is delivered, that we should have a robust and rapid recovery, and the economy will follow. This belief has been evidenced by accelerating single family closings, and this level of transactions is expected to continue in 2021 .. regardless of tax incentive for first time homebuyers.
Part 1— Should we be leaning into these headwinds, or should we retreat to the sidelines?
2020 has been an unforgettable year. Yes, all of us have other adjectives we can use to describe their own personal 2020 experience, but for purposes of this article … we will use the word “unforgettable!”
An economy that started the year at record-setting levels, and then saw some of the most violent shifts in unemployment, swings in revenues at both a corporate and personal level, and personal wealth. 401k’s which were tied to the US Stock market saw record highs, a rapid decline, and then one of the most dramatic recoveries ever witnessed in their lifetime.
And then, there was the 2020 election cycle from Hell that many would like to simply forget. An election which was filled with some of the most polarizing platforms, debates and campaign strategies which caused some interesting political debates at the office, around families and the never-ending news cycles of cable TV.
Well, everyone has cast their vote. All the votes have been counted. Election lawsuits are soon to be over. And just like that, the 2020 Presidential election is finally over. And with it, the unforgettable year of 2020 will be in the history books.
But what does a Biden — Harris Administration mean for the future of real estate development, construction, investing and ownership in the 4th largest city in the United States? What does a near-term roll out of a COVID-19 vaccine mean for our health, consumer confidence and ability to get back to the life that we once knew?
To understand what the industry experts’ crystal ball may predict, a strategy discussion was held with some of the most experienced and knowledgeable real estate experts in the world. The cerebral panel covered topics such as capital markets, the economy, construction costs, development trends, effects of COVID, regulatory matters, and much more.
This article is the first in a series of seven segments broken into bite-size topics and incorporate the insight of executives from MarketSpace Capital, the Structured Finance Group of Transwestern Real Estate Services, McVey & Associates and Madison Commercial Real Estate Services. In short, given the current landscape and forecasted trends related to the economic, political, banking, healthcare, and real estate sectors, many real estate investor are asking the question should they be leaning into these headwinds, or should they be retreating to the sidelines?
To find out the details, continue reading each of this 7-part series. However, here is a summary of what the experts had to say.
Should we lean in … or retreat? — The consensus of the Panel
No matter how divided a society may be, a balance of power in government generally indicates that future policy will remain in line with current policies, despite overtures of change. Furthermore, population counts continue to grow. And last time we checked, no one has made more land! So well-placed real estate, like gold, is in finite supply and always a great long-term investment.
We are at a point that a savvy investor could capitalize on all markets, especially when focusing on foreclosures with solid property fundamentals (hotel, office, retail — all opportunities with quality product). Yet, to summarize — real estate is always a good play despite the stock market, president, or parliament. We will feel pain in the short term due to the pandemic, that will translate through to Commercial Real Estate, but long-term fundamentals for core locations is sound. As an investor, this is the time to pounce. As a property owner, this is the time to hold. As a property owner on the edge — this is the time to refinance and benefit from some of the historical low cost of capital.
Panel of Experts
Sam Herskovits, Executive Vice President — Madison Commercial Real Estate Services
Honorable Marty McVey, McVey & Associates and Financial Advisor to Hwami Builders
Masaki Oishi, Co-founder and Chairman — MarketSpace Capital
Jan Sparks, Executive Managing Director Structured Finance, Transwestern Real Estate Services