2020 has been a frame-breaking year in many facets of life - the calamity of COVID-19, unprecedented turnout in the election cycle, a continual shift in global weather patterns - and as the end of the year approaches, we examine a variety of market dynamics to see how real estate might be impacted by these rapidly evolving shifts, blanketed as a "new normal." This month's theme is cycles, both macro and micro, to see what 2021 might have in store for real estate.
US economic activity has rebounded to the floor of the Great Recession
Unprecedented fiscal stimulus efforts have buoyed the economy from the depths of the Q2 shutdown; vaccine distribution makes the slope of the snapback uncertain.
Source: Bloomberg, Crescat Capital
If widespread vaccine distribution occurs in Q2 2021, economic activity may stabilize in January 2022
With short-term interest rates near zero and long-term rates on the rise since July, the Fed has a delicate task of encouraging spending while also preventing “stagflation.”
Source: Apollo Global Management
Vaccine news and election cycle certainty has tempered market volatility
In six of the last eight periods where the VIX has traded north of 20, the S&P 500 has also fallen - this current cycle breaks that trend, reflecting a tension between exuberance and pragmatism among investors.
Source: Google Finance
More economic stability and low rates continue to drive mortgage originations, with California markets leading the way
In some cases, banks are underwriting 15% down for purchases up to $2 million, driving robust origination on the higher end of the market.
Source: ATTOM Data Solutions
Despite robust mortgage origination volume, delinquency rates are on the rise
Statewide, 3.8% of all home loans are over 90 days delinquent - 6x higher than this time last year.
On the asset side, home equity growth in California is outpacing the rest of the country
The desirability of many California markets is not only resilient, but increasing as inventory scarcity continues to drive prices higher.
Home prices in California have reached a record breaking high
With the exception of San Francisco, every major California county has seen home prices rise, fueled by low rates, low inventory, and high demand.
One leading indicator: apparel stocks are on the rise
The improved performance of clothing retailers means people may be expecting to spend more time outside - particularly in the spring.
History repeats itself, until it doesn’t - will real estate in Q4 follow the same patterns as prior years? Check back in to next month’s edition of The 8 to find out.
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