Real Estate Market Update 12/10/2019

Are we headed to a recession?

While we survived the year of RECESSION OBSESSION without a recession, it appears we came rather close to a recession in 2019, hence the Fed’s actions to prevent one: Jerome Powell engineered an about-face in U.S. interest-rate policy in 2019, steering a group of reluctant colleagues at the Federal Reserve toward rate cuts to ensure a cooling U.S. economy didn’t slip into recession. Rate cuts are a primary tool to fend of recessions or recover from one. (WSJ)

Mortgage Markets

Fannie and Freddie recently tightened their requirements around backing mortgages to borrowers with just 3% down payments as they cut back on the proportion of loans they back to borrowers with small down payments, for example, and mortgages to deeply indebted borrowers. Previously, borrowers whose income was as high as the area median could qualify for Fannie- and Freddie-eligible loans. This summer, Fannie and Freddie said borrowers can’t have an income of more than 80% of the median. (WSJ)

Goldman Sachs market predictions

Here is a brief summary of Goldman Sach’s 2020 market predictions:
* Global growth will increase from 3.1% in 2019 to 3.4% in 2020.
* A 2020 recession is unlikely. Corrections are more likely.
* Most advanced economies will see improving labor markets.
* Wage growth and trade tariffs will nudge inflation higher,
               but it is unlikely to change the Fed’s policies.
* Chronic uncertainty surrounds Brexit and trade:
                these will subside in 2020 and be replaced by election risk.
* Equities appear mostly fully valued.
* Default risk in 2020 is relatively limited as debt-to-earnings and -assets remain stable.
* Average volatility should remain relatively stable,
             though uncertainty from trade, tweets, and US elections may
             lead to episodic flare-ups.

Millenials

Millennial counties (geographic areas where at least 25% of the population consists of this demographic group) account for 62% of the entire U.S. population, but they account for just 59% of single-family homebuilding, according to the National Association of Home Builders’ Home Building Geography Index. Millennial counties are in big markets like Seattle, Boston, Portland, Oregon, and Washington, D.C., but also in rural parts of Ohio, Kansas, and Missouri. (CNBC)

Startups and attracting talent

A new wave of startups that lease high-end furniture and furnishings are catering to young, mobile professionals in creative-class capitals like New York, Chicago, and Los Angeles: Feather, Inhabitr, Fernish, and CasaOne, among them. Monthly payments can go toward owning. A recent JLL report found that 70% of millennials and Gen Z-ers are willing to partake in the sharing economy. (NY POST)

Sotheby’s

Sotheby’s is the 5th largest real estate franchisor with around $100 billion in annual sales. A franchisor is a company that owns trademarks, products, intellectual property, and business systems and then licenses them as a package to an organization to operate as a franchisee in a certain predetermined location for agreed-upon fees. The franchise agreement between these two parties also outlines branding, co-marketing as well as franchisee obligations. Franchisors, however, are not legally or financially responsible for their franchisees. (Swanepoel)

Brokerage growth

Most large real estate brokerage growth has been fueled by mergers and acquisitions: Berkshire Hathaway bought Prudential and Houlihan Lawrence. Douglas Elliman (Vector Group) purchased Teles in 2017 – adding 630 agents, $4 billion in sales and 20 offices – as well as Scott Gordon and Martha Gottfried in Palm Beach and Otis & Ahearn in Boston. Brown Harris Stevens (Terra Holdings) bought Halstead in 2001, Zilbert in 2015, Manatee Cove in 2016 and Avatar in 2017. In 2002 Louise Sunshine – grand-daughter of Barney Pressman, the founder of Barney’s – sold her new development marketing firm THE SUNSHINE GROUP to NRT (part of Realogy) as a merger with the Corcoran Group…..now known as Corcoran-Sunshine.