California Association of Realtors Deputy Chief Economist, Jordan Levine, joins Bob on this episode of Property Management Brainstorm to talk about the economic outlook for the California real estate market. Jordan’s work for C.A.R. uses data to understand the market throughout the state of California. He not only shares what he has seen so far in 2019 but what the current economic outlook for real estate means for those considering investing in property. If you are interested in real estate investing or simply want to know more about the California market, you don’t want to miss this episode! For more information about C.A.R., click on this link to the C.A.R. Website. This episode is always available for listening, sharing, or download at Property Management Brainstorm.
Outline of This Episode
- [2:10] Who Jordan is and what he does
- [5:55] An update on Q1 of 2019
- [8:10] How consumer confidence and the real estate market are connected
- [12:45] The market explained by generation
- [14:08] Metrics for tracking homes sold per year
- [18:34] An exodus from California
- [22:58] How an economic recession affects real estate investing
- [26:48] The rental market in California
An update on Q1 for 2019
Jordan shares that Q1 of 2019 has been a wild ride - statewide, nationally, and globally. The markets are all over the map. Because of this, consumer confidence is all over the map. Consumer spending has dropped as well as rates. Jordan is fairly confident that this volatility that has been seen so far in the year will stay for the remainder. The question of how long can the economy actually hold up is the main question underlying consumer skepticism. Historically, you don’t see extensions that last 10 years or more and the current expansion is very close to that 40 quarter limit. Be sure to take all of this into account as Jordan shares more on the California real estate market in this episode!
How consumer confidence, economic outlook, and real estate are connected
Consumer confidence plays a more specific role in the real estate sector. Buying a home is one of the biggest purchases a person may make, so when the public begins to fear that the economy may tank, they are more reluctant to make big-ticket purchases. Jordan shares that in his research 3 out of 4 people are saying now is not a good time to buy a home. With a lack of confidence in the current economy, the demand for real estate goes down. Currently, Jordan is seeing houses being discounted and days on the market rising. This points to fewer people buying. There is still psychological scar tissue from the last economic downturn, causing the market to slow.
Why a yield curve inversion is important to note
A yield curve is looking at yields on different government bonds on different levels of maturity. Buying a bond is loaning the US government money, and the return is a function of the inherent risk. To tie up money for 30 years with a 30-year bond is more risk, so there are higher interest rates on this longer-term borrowing. Because loaning the government money for longer gives you more exposure to their bad choices, there should be a higher return for the risk. On the shorter end of the yield curve is a short term bond. There are typically a lot fewer question marks about what the next 3 months look like. Because the risk is lower, there is less compensation. HOWEVER, when the yield curve inverts, it tells you what people are thinking about the current economy. Shorter bonds are giving higher returns because there are fears on the shorter term and underlying risks in the short run in the economy. Because of this, a yield curve inversion is a good way to predict future recessions.