Cycles

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.

1

US economic activity has rebounded to the floor of the Great Recession

The gap graph

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

2

If widespread vaccine distribution occurs in Q2 2021, economic activity may stabilize in January 2022

National Association of Home Builders Market Index

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

3

Vaccine news and election cycle certainty has tempered market volatility

Demand for larger homes combined with price appreciation is pushing up the luxury segment of the market

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

4

More economic stability and low rates continue to drive mortgage originations, with California markets leading the way

With online sales flat in SF, signs point to a decline in occupancy. Meanwhile, LA spending has jumped 31%.

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

5

Despite robust mortgage origination volume, delinquency rates are on the rise

Year-over-year active listings (7 day rolling average)

Statewide, 3.8% of all home loans are over 90 days delinquent - 6x higher than this time last year.

Source: Corelogic

6

On the asset side, home equity growth in California is outpacing the rest of the country

Year-over-year pending sales decline (7 day rolling average) by number of days since >5% decline

The desirability of many California markets is not only resilient, but increasing as inventory scarcity continues to drive prices higher.

Source: Zillow

7

Home prices in California have reached a record breaking high

Rental Market in both cities

With the exception of San Francisco, every major California county has seen home prices rise, fueled by low rates, low inventory, and high demand.

Source: CAR

8

One leading indicator: apparel stocks are on the rise

1

The improved performance of clothing retailers means people may be expecting to spend more time outside - particularly in the spring.

Source: Bloomberg


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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