Are you optimistic about the economy in 2016? Why?
Overall, yes, although I disagree with prolonged reflationary policies by global central banks, I do think the trend higher continues. We got a whiff of how the markets react to the unintended consequences of government/central bank meddling with markets in the fall of 2015, so those bouts of uncertainty will pop up in 2016.
But overall, I expect markets and the U.S. economy to post stable growth. The reason continues to be due largely to the environment created by central banks, which encourage investors to chase for yield. High-risk asset classes will be volatile, but overall, the reflation will likely continue.
The housing market? Why?
This is a hyperlocal question, and the market my business operates in is Manhattan, so my answer should be split up. Manhattan experienced whopping price growth over the past five years, especially the luxury sector. That all came to an end in late 2014 and early 2015 for the high end. The severity of the softness was related to the price point; the lower the price point, the more insulated the slowdown.
For these reasons, I expect Manhattan to experience lagging sales softness as we enter 2016 and then bounce back as the calendar year moves on. For national markets, I expect the same general trend of a slight slowdown after a few years of reflation followed by a continuation of the uptrend over time. Multiple reasons, including local demographics and the millennials, as well as a continued rise in U.S. housing demand from overseas consumers and investors.
What are you worried about?
My main worries are volatile selloffs in equity and credit markets that can push buyers to the sidelines for extended periods. After a once-in-a-generation type of crash in 2008-2009, buyers are much more sensitive to waves of uncertainty and rising risk. Either they delay a purchase and go to the sidelines, or they adjust their bids downward, pricing in expected future asset price depreciation that may not have happened yet.
How much do you fret about global events?
Unfortunately, a lot. At the end of the day global uncertainties and risks impact credit markets, credit markets lead equity markets, and consumers and investors of housing react to equity markets. Follow the path, and you see why I keep track of global events where volatility is less easily managed.
Will mortgage rates go up or down next year?
Up. Deflationary pressures are not going away, but I do see some level of normalization in U.S. bond markets with the expectation that the Fed rate-hike campaign will go into effect in 2016. That’s the key word: expectation. All that matters is how bond markets perceive future interest rate policy.
The wild card is, of course, waves of volatility and sell-offs in equity markets that may carry over into economic numbers forcing the Fed to hold back or abandon any previously determined course of action. The great Ray Dalio is in this camp, and that is somewhat disturbing given his history and reputation in the hedge fund industry. Dalio expects more quantitative easing as opposed to rate hikes and thinks the next Fed move will be to accommodate. If things turn out that way, then my predictions of continued reflation in 2016 would prove way off. Good thing I’m not a betting man.
Which market are you in?
My business operates in the Manhattan marketplace as a real estate technology provider. We build analytical and collaboration tools for producers and consumers to navigate and transact in highly segmented hyperlocal markets.
Will unit sales go or up or down in your market?
I am going to bet up, only because I expect the last few months of 2015 to show slowing sales volume from the fall softness.
Will home prices appreciate in your market next year?
Hmm…tricky question because sales data is 60 days lagging and representative of “contracts signed” in the market three to five months prior, and the numbers I see now are sky-high from the peak earlier in 2015. Due to these sales data dynamics, I’m going to say that this time next year we are flat to slightly down compared to the latest September sales figures that just rolled in. The jury is out how slow new development sales may impact or cushion and median price pressures. So far that argument is carrying its weight as the gap between existing resale and new development continues to widen.
Will agents be more productive next year? Why? Or why not?
Yes. I think innovations in the real estate technology space will be huge throughout 2016. This is the space my company is in and I see what the industry is begging for. At the end of the day, new technologies will be aimed at increasing agent productivity by, connecting consumers with producers, enhancing that collaboration experiencing and expediting and multiplying the transaction.
Any tool that lets a professional manage more consumers using less time is invaluable in this industry. For professionals who embrace innovative technologies, the future looks very bright in this regard.