What will 2016 be for the New York City RE market?
It is the year in which the current real estate cycle, and stock market, reaches its 7th year.
It is also our Presidential election year.
And yes, coming off of Father’s Day, I can tell you that my own 7-year-old is pretty amazing, but many of you out there are questioning
whether this stock market cycle can even make it to 7 years.
The main theories of what is driving the current Real Estate market are:
1) The Fed will continue a low rate environment until the presidential election is within striking distance (The Inflation Hedge Theory)
2) The US Real Estate Market is a safe haven compared to the rest of the world, at almost any price (aka The Parking Lot Theory)
3) The stock market simply can’t maintain beyond seven years.
If the stock market tanks, the real estate market is safer (The Joseph Theory)
Absent a less risky return in the stock market, Real Estate and its slow and steady returns, and the fact that it is a real asset,
is attractive to investors around the world.
Should it become time for rates to rise, and inflation kicks in more seriously, investors believe that real estate will provide a hedge – that is, its value will keep up.
We’re seeing a continued push into the RE sector by professional investors, looking to unlock value in long-held real estate.
Real Estate has seen quite a shift away from the Mom & Pop type of real estate investing in the US, where initially smaller consolidators bought out some of the small, local players, creating decent-size portfolios of houses, apartment buildings, what have you.
Since, bigger players have come in and bought out these consolidators.
Ultimately, these bigger fish have turned into REIT’s, and allowed investors to achieve consistent, albeit lower, returns with a bit more confidence than in other sectors of the stock market.
As as the players get bigger, the acceptable returns for investors have compressed, as people feel inflation nears reality.
as long as the money is relatively safe, there is the potential for capital appreciation, and the downside for loss is much lower.
Perhaps that goes without saying, but investors in NYC real estate feel able to sleep at night knowing that their money will achieve small but safe returns.
As Chinese investors see their indexes seesaw, many savvy investors are
moving money out of that volatile market and into NYC Real Estate.
See the European markets, and emerging markets as well.
assume that foreign investors simply want their money in the US, where there is rule of law, no fear of having property confiscated, and, in a city like NYC, the safety of real estate being as liquid a market as one can find in the city, should an investor need access to that capital.
Direct investment for foreign investors continues to be preferred, and these buyers are willing to accept quite smaller returns for the safety of the US market.
Conversely, US investors are buying Real Estate assets domestically.
The broad idea is that the US market remains the safest haven right now, for domestic and foreigners alike.
Now it may not all be in NYC, but it is likely to be in the US.
We’ll see how low capitalization rates can go for single apartments.
Certainly, the concern with this theory is that a reduction in liquidity (either a slower sales market or lack of lending capability) could slow down sales in New York or make selling a challenge – it would then be a situation where well-capitalized investors can wait out any slowdown and take no
action on any paper losses in their real estate portfolio.
But I believe this would impact primary home buyers more than investors.
And yet, all good things must come to an end.
These two sentences can coexist.
shifted, for good.
The means of analyzing RE deals have become more efficient, more digitized, and more professional, both on the brokerage and investment side.
be hardly surprised to see the residential RE market remain far stronger than the broader economy, or for a longer time horizon, especially as renting grows as the first choice for millenials.