Recession watch for real estate investors: June 2019

Real estate investing recession watch 2019 June
by Team Stessa, posted in Newsletter

Of all the topics that pique the interest of real estate investors, recessions are certainly top of the list. Jeanna Smialek of The New York Times reported today that the Federal Reserve kept interest rates steady but, “indicated that it could soon cut them as economic risks mounted and inflation remained stuck below target.” 

CNN Business’s Matt Egan reported this week on the Duke University/CFO Global Business Outlook survey, which notes that 69% of Chief Financial Officers (CFOs) are bracing for a recession by the end of 2020. 48% of those are predicting the American economy will be in recession by mid-2020.

Frank Olito of Business Insider comes in with similar findings, this time from the Harvard Business School Online survey which found that 2 of 3 Americans say they are “not prepared” for the next recession. “There might be some apathy because the economy has been strong for so long but that’s precisely the reason people need to get prepared.”

So what can real estate investors do to prepare? Tactics to consider include making sure you are not overly leveraged, have sufficient reserve funds, refinance to lock in lower rates, have a robust network, and consider diversifying out of luxury markets.

Christina Jisa of Point2Homes points out that by the end Q1 2019, “around 5.2 million homeowners in the U.S. owed more on their home than what their property is actually worth.” This accounts for 9% of all properties mortgaged in the U.S. Despite this, this time around won’t be as bad as the credit crisis of 2008 according to Jisa. “Homeowners who refinance and who ensure they have at least six months emergency savings will be in a good position to withstand any upcoming recession and the effects it might have on the U.S. housing market.”

Data reports worth noting for real estate investors

As real estate investors we love data, which is why this past week was noteworthy, starting with Bobby Burch of Think Realtyreporting on an ATTOM Data Solutions Report on house flipping. The total dollar volume of homes flipped with financing reportedly reached $6.4 billion in 2019, a 12-year high, while the average flipping ROI has declined to an 8-year low. Overall, flipping profits have dropped by 12% since 2018.

Q1 2019 Flipping Rates data

Source: ATTOM Data Solutions

ATTOM Data Solutions also provided us with the top 10 house flipping markets in the U.S.:

Top 10 Markets in Q1 2019 for Flipping

Source: ATTOM Data Solutions

Elaine Misonzhnik of the National Real Estate Investor reported last week on the 2019 U.S. Real Estate Sector Report released by law firm Akerman LLP. Reportedly, 37% of real estate executives said their “outlook for the real estate market this year is marginally more optimistic than it was last year, and 33% said they were significantly more optimistic.”

Housing market optimism among real estate executives 2019

Source: National Real Estate Investor

#LocalNews: Rent control moves

Rent control is a hot topic these days, particularly in California and New York. Beginning in California, with Connect California reporting on Proposition 10 2.0, which is the latest incarnation of rent control legislation that was defeated in 2018. Michael Weinstein’s Rental Affordability Act is slotted to be back on the ballot in 2020. According to California’s Legislative Analyst’s Office (LAO), the bill will “likely drive rental units from the market, decrease apartment property values, and possibly diminish annual tax revenues by tens of millions of dollars or more.” The new bill would allow local governments to impose rent control on buildings 15 years and older.

The California Apartment Associated (CAA) chimed in last week, noting that “Weinstein’s measure would also once again allow local governments to apply vacancy controls, meaning rents would remain regulated in rent-controlled jurisdictions even after changes in tenancy.”

Landlords and industry associations are equally up in arms in NYC, with The Washington Post publishing headlines this week like Why rent control alone can’t solve the expensive-housing crisis, and The one issue all economists can agree is bad: Rent control, in relation to what is going on in NYC.

Specifically, CBS New York reported this week that New York legislators agreed last week to further tighten protections for renters and authorize local governments to craft their own rental control policies.

Governor Cuomo is expected to sign the legislation into effect this week according to NBC New York. “One of the most significant provisions in the proposal would allow elected officials in cities and towns to opt into the rent stabilization system if their communities have a tight housing market with few rental vacancies. Another would eliminate the ability of landlords to remove a unit from rent stabilization if the tenant’s income is $200,000 or higher.”

Finally, in Inglewood, CA, Jenna Chandler of Curbed LA reports that “the Inglewood City Council on Tuesday unanimously approved permanent rent control measures that will block property owners from increasing rents more than 5 percent annually, though there are exceptions, and the cap in some cases will be 8 percent.”