Carpe Diem
The movements of the stock market can be hard to fathom. The recent swoon in market value, triggered at the New Year by no apparent event, has accelerated into correction territory as pundits try to rationalize after the fact: oil, China, ISIL, refugees, Greek debt – any one could be driving the market down. Or not. These market fluctuations tend to assume a life of their own, as program traders, pension funds, and anxious individuals short stocks or keep pushing the “Sell” button. Real estate both is and is not impacted by this ebb and flow.
Like major art and jewelry, real estate tends to be both an emotional purchase and an investment. The savvy buyer recognizes opportunity in a turbulent market and capitalizes on it. At the same time, the emotional buyer frequently panics when the stock market seems to be faltering and decides not to pull the trigger on an otherwise well priced real estate purchase. The problem of course lies in the fact that the savvy investor and the emotional buyer are frequently housed in the same individual!
Don’t get me wrong; there can be compelling reasons to re-evaluate a purchase in the light of a major stock market drop, chief among them the need to raise a down payment from the sale of depreciated assets. But beyond that, economic fundamentals remain the key to assessing whether to buy or fold. And to me these fundamentals still look quite good for the American economy. These underlying strengths, however, can be masked by the smoke screen of stock market activity. Since the world is now replete with people who check their portfolios online every half hour, the concept of longer term investing to which I adhere has lost its luster. When you are glued to every quiver in your portfolio, it’s easy to overreact. Hence the volatility of the last few weeks.
At Warburg we have seen this play out in two different ways over the past couple of weeks. On the one hand one buyer is committing to purchase an apartment in the mid-$4 million range because it is just the size and location he wants and he has recently received his bonus for last year. He does not seem overly concerned about timing the market or waiting to see if the market is up or down tomorrow. He has confidence that this purchase makes sense for both IQ and EQ reasons.
Conversely, we saw another buyer withdraw today on a larger purchase because stock market terror set in. Never mind that the property had the potential to be an excellent buy and possesses a number of hard-to-duplicate features. The leap of faith simply became too great for this buyer to attempt.
It’s hard to feel confident when other people are scared. And this jumpy stock market is still a new phenomenon. But environments like this, with a roller-coaster ride above but a relatively stable economic base below, can present genuine opportunity to the smart buyers who can conquer their fear.