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Impact of Wall Street’s merge with Main Street?

The merging of Wall Street and Main Street is mostly an untold story in 2022. Yet the aggressive acquisition of residential real estate by Wall Street investment funds along with a massive influx of foreign capital into Main Street are a large part of today’s shifting dynamics.

Since early 2020, as the COVID crisis unfolded, I’ve been watching and analyzing the real estate market with a laser focus. It was clear to me that we are in unprecedented times, with influences on Main Street outside of normal real estate fluctuations. While focusing on the effects of COVID on home buying patterns, emergence of new wealth including crypto real estate, there are key dynamics that remain mostly unexplored.

Market Complexities – multiple realities true at the same time

With a large dose of humor, I’ve used references to quantum physics to portray the fact we have been observing multiple realities within our markets, simultaneously.

Yes values are strong. And yes we have economic risks, extreme gaps of affordability, foreclosures with equity going to auction and higher rents. Add to that staggering inflation, mobile lifestyles and the largest wealth gap we’ve seen in 100 years. No sound bite tells the story of today’s real estate market.

Real Estate News as Quantum Physics? – Blog 7.11.2022

“Never have I seen a real estate market with so many different versions of reality, and layers of data that can be counter-intuitive when it comes to analyzing trends, values and potential risks. Our normal statistics such as absorption rate, months of inventory, median closed sales prices and days on market aren’t effective.”

“It’s not 2008 AND we have low inventory”

Comparing our current market to 2008 in order to address concerns about bubbles, crashes, foreclosures isn’t relevant to today’s market. It’s not 2008 – it’s 2022! We have different dynamics at play, different buying patterns and different players. During the past two years, most leading news sources have been focused on two things;

  • “It’s not 2008” – concluding there’s no risk of foreclosure, market bubbles or recessions. In fact, we have a different risk of foreclosure, driven by the inability of home owners to refi or modify their loans coming out of forbearance. In 2008 we had an equity crisis, in 2022 we have an economic crisis.
  • Low Inventory – traditionally a solid measure of market absorption, and a good base for predictive analysis. However, not effective in our current market dynamics. We have declining values, increasing days on markets AND low inventory in many areas. Cross-currents in an ocean tide that’s hard to read!

Understanding Main Street from a Wall Street perspective

This week’s interview by Inman News with Redfin CEO, Glenn Kelman, spotlighted keen insights into the effect of Wall Street’s investment into Main Street.

Glenn Kelman

“Whatever correction we’re in,” Kelman continued, “is going to happen faster than it has in the past, and it’s already been sharper than most people realize.” Kelman said the housing market is becoming more volatile. That’s happening in part due to the flood of well-funded institutions, which respond to market changes more quickly than individual buyers and treat housing more like shares in a corporation.

I just think as Wall Street owns more of Main Street,” Kelman said, “the housing market will look more like the stock market, which is extremely volatile.”

Inman News

Personally, it was validating to hear his quotes regarding the effect of Wall Street on Main Street as at times I have felt like a lone voice on a milk crate with my megaphone during the past year.

Discussions about foreclosure risks and dangerous market vulnerabilities in the midst of our recent spikes in values were largely dismissed, discounted and ignored in favor of focusing on multiple offers, high values and low inventory.

Where can you learn about real estate market trends?

Unfortunately, most real estate leaders, franchise owners and coaches have been echoing the “it’s not 2008” sentiment, ignoring other dynamics which have been like dangerous undertows in what seems like a calm ocean.

If you follow my blog and market updates, you’ve heard that ocean analogy before!

My first husband was a big wave surfer and we spent a lot of our lives at the beach. I learned from him the importance of analyzing the waves. In fact, while living on Kauai, I always suggested to tourists to talk to the surfers, typically lined up by their trucks in the early morning, to find out what’s going on with the currents today. Surfing starts with analysis, not waxing the board.

Trying to understand the misinformation in the news it’s as if reporters are looking at the ocean from a helicopter or a bluff far above the water’s edge – no idea what’s just under the surface. You have to be IN the water to know and feel the currents. That’s why I spend so much time networking with real estate professionals nationally and internationally.

Who should we listen to?

Although I’ve been aware of the undercurrents and impacts of Wall Street and foreign capital investments, I realize my usual resources for market analysis fall short.

Click for Replay of LIVE Discussion

With Wall Street’s strong presence as owners of Main Street, we need to think like a fund manager in addition to being a real estate advisor. Personally, I lean on sources like the CFO Journal from as well as other financial news in addition to my real estate networking nationally and internationally;

  • Investors brace for more volatility as earnings estimates slump – 8.7.2022
    “Corporate-earnings expectations are falling. That means the stock market is again at risk of appearing expensive, even after this year’s tumble. This week, investors await reports on consumer and producer prices for the latest reading on inflation.”
  • Annual Foreign Investment in US Real Estate up 8.5% to $59B – 7.18.2022
    In recent Clubhouse discussions, a corporate real estate investor commented his foreign clients are moving money into US real estate to secure a RETURN OF MONEY (aka, security) vs. a return ON money. Buyers and investors are competing against institutional buyers using a completely different perspective on valuation, equity and return on investment.

Confusing? It can’t get much more conflicting than this…

Why Real Estate Is To Blame for America’s Spiking Inflation—and How It May Be the Key to Taming It

“Inflation, it has become exceedingly clear, is one of those things that everyone knows, most people fear, but few people truly understand. Even fewer are aware of the outsize role the housing market plays in driving it up. And how, in order to tame it, the Fed will first have to get the runaway prices in the housing market under control-even if it means making things a whole lot worse before they get better.

Confused? You’re not alone. but here’s a simple fact: The Fed’s attempts to wrangle inflation are expected to make the cost of buying or renting a home more expensive for now. That’s expected to push the inflation the Fed is fighting even higher.”

Be sure to follow my social media links for future market updates, and I hope you’ll join me every Monday for a weekly Clubhouse discussion on market insights. #MarketMonday at 5pm EST.

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Susanna Kunkel

Susanna Kunkel brings her skills from a career in the executive offices of major corporations to her real estate business - treating each client like a VIP. With 18 years of experience as a real estate advisor, you can be confident in knowledgeable, personalized, confidential service. Hear what her clients say -

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