Fall Markets: Real Estate and Equities show impact from rates

As families end their summer and hybrid work kicks in for the fall, markets across the board are navigating distinct changes.  In 2 weeks, the Federal Reserve will likely raise rates.  Jerome Powell and the board of governors are set to curb the speed of inflation nationally, and by association, internationally.   With higher rates, the Fed makes a few things possible depending on the market being considered.

Real Estate:

First, home buyers and sellers are now back to those who want and need a new home.  Family formation, job stability, and hybrid work lifestyles ensure that residential real estate values remain firm for the foreseeable future.   Those who must sell are also in the market.  Those who were testing the market because “if I get it I will sell” reasoning are out of the market mostly.

Second, mortgage applications have drastically fallen because of the higher rates.   Companies like Wells Fargo have opted to leave the mortgage lending space altogether while independent and national lenders have shrunk their staff to accommodate the almost 100% increase in prime and hence 30-year mortgage rate available to residential borrowers.   Because historic rate lows are now an afterthought, the borrower has to more aggressively choose.   Does it make sense to rent or buy a primary, secondary, or investment property compared to 6 months or a year ago?   The Federal Reserve’s actions have indeed been effective – but not destructive.

Homeowners who refinanced into a 30-year mortgage at all-time lows are not going to sell their property anytime soon.   At least for 2 or 3 years from their original refinance – if at all.    Supply remains sticky – especially in desirable neighborhoods.  Since home builders and remodelers take time to bring on new supply, any increase in supply that would force a 2008 bust, just is not on the horizon.  An immediate example would be Zillow’s 2021 announcement that they were out of the home purchase and flipping market.   Their approximate 10000 units nationally (400 units/state if spread across 25 states) barely moved the needle on the housing market.   They were quickly absorbed – even if Zillow existed unprofitably.

Upward pricing power has indeed slowed from excessive to normal price increases.  In fact, homebuilders, faced with increased costs and a continued low supply of skilled labor have argued to the public that a housing recession is indeed already in place.  6 months has turned the headlines from boom to bust.   Headlines though are not accurate to the facts on the ground locally.

To know your actual market, ensure that you consult with a local expert – typically those who have the national designation as Realtor®.

Equity Markets:

The Nasdaq, Dow, and S&P are now hovering on their 200-day moving average lows.   This is a direct effect of the Federal Reserves’ actions.  Pricking the speculation out of unprofitable companies is one of the desired effects of the Fed on the equity markets.   By having falling prices, the larger impact of equity deflation tempers investors’ desire for unreasonable risks.   Caution slows the larger economy simply because of risk-off investment objectives.

The counteraction that the Fed continues to measure is the stimulus programs set in motion by the current administration’s Fiscal policies.   Politically motivated, the Biden Administration and the majority in congress have opted to increase domestic and international spending.   Debt continues to increase and, if not used visibly and productively, will be harmful to America’s ability to lead the global economy.  With higher rates, the US Dollar maintains its preference as a reserve currency for the world in the short term.

American political actions are not alone though.  European central banks have equally raised rates while European Union policies attempt to counter the immediate impacts on Europe due to the ongoing Russian invasion of Ukraine.  American leadership globally is being tested and with the increase in rates, American equities and those investments requiring dollars take on a unique significance beyond the local markets.  Political stability tends to garner more investment not less in a country that rewards foreign investment and investors.   The American equity markets are typically the safe haven when the rest of the world is in disarray.   While comforting, American markets remain choppy and uncertain until the Fed makes another move officially.

Author: Mason Hayutin

Founder, Editor and contributing writer, Mr. Mason Hayutin is recognized for his depth of experience and knowledge in technology, energy economics, real estate and the arts (fine and visual). Having worked with recognized world-class artists and their estates since 1997, Mason brings a wealth of practical experiences from installations, marketing, and private sales. An active business advocate, he successfully released the fine art documentary film LUBIE LOVE in 2009 ahead of the global auto crisis - in addition to maintaining his tenure at GALLERY M INC. Hayutin holds a degree in Economics from Washington University in St. Louis. He is the founder of MASONmodern, a boutique real estate firm based in Denver, CO. You can read his insight here at The Art Quarterly as well as in regional and national publications.

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