Another big year.
Chris Meyer, CEO of MagillaLoans, America’s anonymous search engine for loans says there was a steady increase in residential and commercial loan activity in the fourth quarter. The only reticence we saw was once the tax bill passed, we found commercial real estate stalling slightly as people, presumably, waited to close in the first part of 2018 for more favorable tax reasons. We anticipate the First Quarter to be even stronger because of the new tax laws, historically interest rates, and low unemployment.
Magilla is simple. It gives borrowers a survey of the lending climate in an instant. We are at the ground level of lending in America. We are not as granular as the commercial real estate brokers of the world; detailing the pros and cons of each specific silo of commercial real estate. We simply provide America with a snapshot of the residential and commercial real estate marketplace and, in layman’s terms, share exactly what we are seeing… in real time; no pretensions or agendas.
It will be another big year and, perhaps, even bigger than 2017. The only thing holding back a massive surge is the pricing for Class A property (sorry, the nice stuff with long term leases, yielding high returns) is already very high. This will push people to less premium properties with greater risk, but higher upside. Two of the most salient issues spurring that anticipated growth are: lenders are lending again (the strings have been loosened) and there is a massive, I mean massive, amount of money on the sidelines seeking higher yield now that fewer and fewer people believe the stock market will provide as glorious returns as 2017. It’s really that simple.
On the residential front, prices in most areas are very high; like, very high. Last quarter we told our readers how they need to do their homework and sharpen their pencils. These ridiculous banalities hold even far greater truth this coming year. The high incidence of employment in most areas will get some people feeling like there is no tomorrow and jump into an already engorged residential marketplace (they gonna party like it’s 1999); the prudent will store cash, rent or live with their parents longer. While I understand the inherent desire to own your own home, says Meyer, the new tax laws (property tax and mortgage deduction caps) to some may make renting a sexier, safer, and smarter option.
“We are going to have another good year all around in 2018, I am convinced of that. There is always the threat of geopolitical uncertainty (North Korea, terrorist threats) and natural disasters, but the resiliency of the economy for me is based on the high employment. In fact, there are already many areas of the country that labor shortages are precluding further growth… there is no one to build the homes, repair flood or fire-ravaged areas, or construct those new apartments. It is a very real problem.”
Even despite the shortages, 2018 will be big.
We spoke with a large real estate developer in California and they are equally optimistic. Their only concerns are how the federal tax reforms shake out in California’s Democratic-centric State government. The prudence of the property owners now experiencing “good times” is tempered with what lies ahead tax-wise. This developer indicates there are truly “more buyers than sellers” and denoted an interesting fact that could further push 2018 into becoming a banner year: the repatriation of corporate funds. “If enough companies opt for this one-time discount (as the Trump administration is hoping), this could cause a massive amount of corporate investment in America.” This could take the form of investment in real estate, technology, and, most certainly, equipment, if you factor in the more aggressive and favorable depreciation laws. This is what our government is counting on.
Meyer continues, there are simply too many tailwinds to help keep 2018 cruising on both residential and commercial real estate fronts. Of course, the cynics (and experience/history) have all taught us to look for the Black Swan, but things appear very favorable right now and we expect that to continue. Meyer’s main advice is to the first- time buyers and those stretching to gain access to their first home… tread lightly! Do not overextend yourself and keep it small and simple. The previous tax advantages of home ownership are being stripped away from the tax code: “slow and steady wins the race.”
That said, 2018 will be another good year.