The partial government shutdown is now in its fourth week, the longest shutdown in history, and several voices are beginning to rise up in alarm that the shutdown could have drastic consequences for the economy. They could be right in the long term, but for now, indicators seem to be that the real estate sector is doing fine.
Kevin Hassett, chairman of the Council of Economic Advisors, estimates that quarterly economic growth is reduced by 0.13% for each week the shutdown lasts. Still, that’s less than 1% to date. In short, economic fundamentals are still strong, and I’m not the only one saying this. A former Wells Fargo CEO said it two weeks ago, and a UBS Investor Watch Pulse Poll shows that 78% of long-term investors believe it too.
Economic Fundamentals Indicate a Strong Economy
While unemployment numbers for January 2019 have not been released yet (they’re due out in February), in December 2018, the unemployment rate was 3.9%. It has been in steady decline since September 2016 when it was at 5.0%.
Another indicator of a strong economy is the inflation rate. In December, it fell to below 2% for the first time since August 2017. Real Gross Domestic Product (GDP) is still on the rise. In the third quarter of last year, it rose 3.4%. That’s not as good as the 4.2% we saw in the second quarter, but it’s still not bad. There aren’t any signs that GDP will decline in the near future. GDP for real estate and rental and leasing increased by 5.3% in the second quarter of 2018. It went up by 2.7% in the quarter before that. Again, no signs of a turnaround any time soon.
Why We Should Be Optimistic About the Real Estate Sector in 2019
There are lots of reasons to be optimistic. Should the government shutdown last through April, we will likely have cause for concern, but as long as we’re seeing positive growth numbers in the fundamental economic indicators, we can maintain optimism in the housing market, new development sector, rental and leasing, and marketplace lending.
CoreLogic reported the overall mortgage delinquency rate hit an 11-year low in the second quarter last year. It ticked up slightly in the third quarter and again in the fourth. Still, at 5.17%, that’s hardly anything to be alarmed about. It was close to 30% at the height of the Great Recession in mid-2008, according to the Federal Reserve.
Existing home sales numbers for December 2018 have not been released yet, but in November, they increased from the previous month. First-time homebuyers are buying up real estate in droves. Since 2008, the single-family rental market has boomed. The current market is looking good for sales and rentals, commercial and residential, and the signs seem to indicate a steady pace for the foreseeable future.
That doesn’t mean there aren’t legitimate concerns regarding the real estate markets. Rising interest rates could put a hamper on mortgages. If so, that will only mean a stronger rental market. Millennials and young adults could continue to buy more homes, especially starter homes. If so, new developments and existing home sales will remain strong. As long as GDP and manufacturing continue to rise, commercial real estate should be a strong sector, as well.
What Does This Mean For Marketplace Lending?
Like most real estate sectors, marketplace lending should remain strong, but investors should look at where the market has been and where it is headed. If rentals remain strong, you’ll see more opportunities in equity markets. If new development and housing starts continue to do well, you’ll see more debt opportunities. In a transitional market, conditions can favor buyers or sellers, lenders or borrowers. The key is to know the market and to have a clear vision about your own goals. Opportunities are there, but investors and developers must perform their due diligence and think harder about how market forces are affecting their individual businesses.
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