CURRENT EVENTS AND TRENDS
Are We on the Verge of Another Housing Crisis? The Facts
By: Elijah Levine
In the midst of a growing economy, rapidly shifting political landscape, and a plethora of other factors, many Americans are wondering if a repeat of 2008 is right around the corner. There may be some validity in these claims, but before delving too much into whether these claims are right or wrong, let’s get the facts.
What Factors Indicate a Market Crash Is Coming
The United States economy is one of, if not the most, complicated economies in the entire world. At any given point in time, 350 million people are working to navigate hundreds of thousands of market factors, whether they know it or not. But what factors indicate that the market might be on the verge of crashing? Gord Collins outlines 13 critical factors that tend to contribute to a crashing economy.
Excessively High Home Prices
Increasing Underwater Mortgages
Fast Rising Interest Mortgage Rates
Rapid Reduction of Government Spending
Slowing Economy/Sudden Rises in unemployment
Wage Growth not Keeping Up with Home Prices
Geopolitical Shifts Specifically Pertaining to Tax Changes
Trade Wars
Volatile Stock Market
High Levels of Consumer Debt
Rising Cost of Living
Risky Low Rate Mortgages
High Energy Prices (oil, gas, etc.)
What Does This Mean for Us?
It is obvious why many of these factors would contribute to a crashing market, however, these factors are not equal across the United States. Some cities are still experiencing dramatic consequences from the last recession, while others have bounced back but are now faced with a series of other ominous factors. So how can one tell if the economy is on the verge of a freefall?
The short answer: we can’t, nobody can. Whatever happens to the economy is not the result of one single factor across the entire country, it is a combination of factors that exist all across the country in different capacities and intensities. That being said, there are some critical factors affecting the economy as a whole right now that must be considered.
Currently, despite a very strong GDP and relatively stable real estate economic status, interest rates are rising fast… very fast. The Federal Reserve System (FED) is raising interest rates to as high as 70% in order to cool down our rapidly growing economy so that it doesn’t spiral out of control. President Trump is not happy about this, saying that this is a premature move as the economy will not reach critical limits for over a year. Experts agree, stating that every time the FED has raised interests rates this much this quickly, it has lead to a major recession. Experts state that raising rates kills off businesses and puts immense pressure on mortgage holders.
A major cause for the FED’s decision to raise the interest rate is arguably the most serious factor that indicates a crash is near: the current trade war with China. President Trump raised import tariffs from China from 10% to 25% at the start of 2019, and this is significantly affecting US businesses, in both good and bad ways. Importing businesses have been losing money as their costs have increased by 15%, while suppliers have gained business as purchasers may be actually saving money from buying domestically. Critics say that this is bad for our economy as it seems more businesses are hurt, rather than helped, however, others say that this is a step towards establishing a fair and mutually beneficial trade relationship with China. One thing is certain: if proper steps are not taken to ensure a mutually beneficial trade relationship, this trade war will only be detrimental to the United States economy and could pull other factors in the direction of a market freefall, something that nobody wants.
With all of this in consideration, 100 experts were polled on when they think the next recession is coming. The majority of them (22%) believe that the recession is coming in the first quarter of 2020. However, nobody can be quite sure, things can change. Trump may be able to figure out a proper trade deal, factors could not contribute as much as some people think, and the discrepancies between cities could shift. There are so many factors at play, but in looking at whether the housing market will crash or not, there is no definitive answer; only time will tell.
Blackstone's Maui Deal
By: Sara Michaels
It was recently reported that Blackstone is buying the Grand Wailea resort on Maui for 1.1 billion dollars. Blackstone is set to buy the hotel from GIC, which is Singapore’s sovereign wealth fund. The purchase of the property has yet to be made public, so much of the details of the detail are unannounced. However, if the deal goes through, it would be the second-largest hotel deal for a U.S property in history.
The Grand Wailea is a 40 acre and 780-room resort that is currently managed by Hilton. Located on Maui’s southwest shore, the hotel has three restaurants, a spa, nine pools, a 2,000-foot-long river, 11 tennis courts and more.
Along with purchasing the Grand Wailea resort, Blackstone is set to purchase the Turtle Bay resort on Oahu’s North Shore for $330 million. According to the Hotel Management magazine, these two new acquisitions would mark Blackstone’s return to the real estate market in Hawaii, which ended two years ago after the company sold the Hyatt Regency Waikiki Beach Resort.
How Blockchain Has Revolutionized Real Estate Investing
By: Leah Golubchik
Although the real estate industry has traditionally depended on face-to-face interactions, firms have been forced to reshape their structures due to the Covid-19 pandemic. As the real estate market continues to adapt to changes in response to the pandemic, the industry has become more reliant on technology in all sectors. One of the newest advancements to make its way into the field is blockchain, which has revolutionized the real estate market. This digital-asset craze has continued to skyrocket over the past few years, and has infiltrated both personal and commercial real estate investing.
Real estate investing has numerous drawbacks that prevent structured and accessible movement of transactions. For example, the industry has high barriers to entry due to extremely high capital requirements. Further, economies of scale play a part in real estate investing, as well-connected firms and individuals have access to greater opportunities, which can even include off-market transactions. Lastly, real estate is vastly illiquid, making it hard to divide and convert its value, therefore it is usually not owned in shares.
However, as this new technology penetrates the market, such disadvantages of personal and commercial real estate investing seem to shrink. Blockchain allows for a streamlined system of both information and value that anyone is able to obtain, as it is not possessed by a single entity. Furthermore, it eliminates the need for a middle man through smart contracts, which allow assets to be tokenized and be traded on the blockchain. This reduces the fees and commissions that these intermediaries charge, and makes the process much quicker. The decentralization of blockchain makes it highly transparent and immutable, which establishes that processing of financing and payments is more secure. The illiquidity issue is also solved with this technology, as tokens allow for real estate to be easily traded. This also opens up the opportunity for crowdfunding and fractional shares, as more investors will be able to participate in deals due to lower ownership liabilities and capital requirements. All of these advantages of blockchain lower the barriers to real estate investing and ensure the entire process of buying and selling these assets is dynamic and efficient.
The benefits of implementing blockchain into real estate investing are clear, but how have these developments emerged in the real world? Just earlier this year, the mayor of Miami suggested authorizing residents to pay property taxes or city fees with cryptocurrency. Soon after that, an anonymous buyer purchased a Miami penthouse paid fully in cryptocurrency for $28 million, which was declared “the most expensive known residential crypto real estate transaction in the U.S. to date.” In the commercial world, commercial real estate investor Aviva Sonenreich describes how online marketplaces are influencing this sphere, “For example, ATLANT is a platform that tokenizes properties; the trading can all be done online, and the tokens can be exchanged for fiat currency. From my perspective, understanding the value in tokenizing real estate is just the tip of the iceberg when it comes to the future of partnerships and investments on the blockchain.” New technological developments in the real estate industry are appearing everyday, and everyone is anticipating what the future of real estate transactions on the blockchain will look like.
Partial-Interest Sales
By: Paulina Ruta
Although not a new strategy to commercial real estate, partial sales have become increasingly popular for “large property deals,” billion dollar buildings for example. This is largely due to the mutual appeal to both the buyer and seller of the property. For the buyer, it has become increasing hard to finance such large purchases, and therefore buying in smaller chunks makes it feasible. In addition, foreign buyers get to have their investment tied to a local expert, decreasing their risk of entering an unfamiliar market. On the seller end, partial-interest sales allow them to hold onto a part of the property to continue benefitting from appreciation while moving onto other deals. As stated by Doug Harmon, chairman of Cushman’s capital markets group, these deal are a “marriage” between investor and owner and are the current trend.
Statistics Summarized:
2017: 83% of all deals on Manhattan office buildings were partial-interest sales Comparable to 2015, where 42% of such sales were minority-interest sales
2016-2017: minority-interest deals made up 17% of total sales dollars Comparable to 7.1% recorded during the previous 10-year period.
Article reference: https://www.wsj.com/articles/why-sell-a-billion-dollar-building-when-you-can-unload-a-piece-of-it-instead-1520776800