Who's Skinny Dipping In This Market?
A couple of weeks ago I attended the Milken Conference in Singapore where I heard the foremost experts and thought leaders share their thoughts on the economy. I will share a few common themes as they pertain to real estate focusing on Howard Marks, one of my favorite financiers.
Howard started his talk by stealing a quote from Warren Buffet: “When the tide goes out, we find out who’s been swimming without a bathing suit.” How many skinny dippers will emerge in the market and how many buyers will take advantage of their “exposure”?
Howard highlights going against the crowd mentality can often lead to success when you are making informed decisions. Howard laid out the following: weak economy → rate cuts → economic stimulus → stronger GDP → higher corporate profits → higher stock prices. But how, exactly, do low rates contribute to wealth creation?
Leveraging debt to make a profit is not rocket science. The low-interest rates allow average investors to get in the game.
Low rates reduce the discount factor used in calculating the net present value of future cash flows. Thus, all else being equal, there’s a direct connection between declining interest rates and rising asset prices.
Finally, rate cuts are taken as a predictor of further rate cuts, implying more of all the above. When they’re moving in a positive direction, the things described above contribute to the appearance of a vicious (instead of virtuous) circle.
I left the conference feeling the need to educate my buyers to take advantage of this market and grow their wealth. In my view, this is why it is a good time to buy:
The uncertainty of the market is allowing buyers to purchase homes often viewed as unattainable. Credit is available and very CHEAP!
We are experiencing a pack mentality with buyers fearing the market is not “at the bottom”. If we back up and look at the numbers it is clear to me we are well into the cycle of a down market.
The real estate market started to slow down in 2015 due to high supply and foreign capital not coming into NYC.
The market slow down was highlighted in 2018 by the tax reform.
You cannot time the market. The soft market is not new. This is an incredible time to buy if you can get past the fear. In NY there is always capital to deploy. In 2009, where one could argue we were at the very bottom of the market, there were 9,000 real estate transactions in Manhattan.
In my opinion, this is a long cycle that we are well into. Please reach out if you want to take advantage of the “skinny dipping” happening now in the market.