Real Money, Real Time

Written by: Peter Prudden

Good Morning,

I have not yet used this platform to pen a personal opinion, but times are changing, and the environment in-which our firm operates (real estate) is evolving. Over the previous two weeks the tenor of the tape (stock market) has gone from gradual grind of all time highs to a swift 19% drop and toeing the line of a bear market. We live in the information age and news is decimated faster than ever and that perpetuates fear, anxiety and an emotional reaction which in-turn creates velocity. The financial crisis played out over a matter of many months, but felt like we were dragged through the gutter for far longer. My point is that moves will happen much faster than ever before and historically speaking, periods of high volatility (regardless of asset class) create long term opportunity. In a blink we are hard pressed with a Virus we don’t yet fully comprehend or know how to curtail, coupled with a drastic collapse in crude oil. Yet there is a cross current thrown into the mix with the 10 year treasury yield also making a historical move, which is deflationary in nature, but there is a bright spot.

I have been speaking of this move in treasury yields since the start of 2020 and labeled it the Spring Switch, within the context of the real estate market. The Spring Switch is meant to highlight the housing market and how it will unfold during the coming selling season, within the context of the environment described above. From what our firm is seeing, there is a heavy bid from the first time homeowner market (renters) who are capitalizing on 30 year mortgage rates at 3%. They are largely unaffected by the stock market girations, due to a lack of savings, and therefore can operate freely. The market in-which we see turning heavily over the previous two weeks is in the $300,000 to $750,000 price point, both single family and condo.

the disconnect I perceive will be problematic lies within the luxury market, which by Minnesota standards, I classify being $1.5M and up. The stock market has already impacted the sector and is a common talking point with the buyers we are actively working with, in-terms of their buying power. Moreover, high net worth historically does not make large purchases during the election cycle. What I am closely monitoring are the sellers of the upper bracket of the before mentioned Spring Switch. Do they follow human nature and trade up to the $1M home? If so that should funnel it’s way through the entire system.

If you’re contemplating a sale, there is a window that is open, but we have been on one the longest bull runs in history, without a correction.