🥐 Au Revoir Croissants – February 10 2020

TOGETHER WITH

Good Monday Morning. We hope you’re recovered from all weekend spent watching the new XFL football league. Congrats to the Houston Roughnecks (real name) for their first win. Pretty soon they’ll be a household name next to the St. Louis BattleHawks

In today’s news letter:

You’re not going to believe what Antartica is cooking

No wonder we can’t build apartment complexes fast enough

What happens when Amazon moves in next door

INTEREST RATES

I was on a plane this weekend and everyone was wearing a mask

Fears over coronavirus are now striking at the heart of the housing market. Chinese buyers had already been cutting back thanks to the trade war. But now real estate agents are seeing a significant slowdown from their normally hungry Eastern buying pool.

American buyers In the multifamily space had been pulling back thanks to low cap rates. But that hadn’t stopped Chinese buyers from gobbling up larger commercial properties trading at 2% returns and lower.

The reason?

U.S. real estate, despite lower returns in the larger multifamily space, is seen as a safe place to park investment cash. Anxiety over the virus has Chinese investors pulling back the throttle.

The virus and mortgage rates

Meanwhile the coronavirus drove investors further into bonds late last week as a safe haven. When investors shift to bonds mortgage rates plummet. This weekend marked the lowest mortgage rates in 3 years as 11.3 million refinance applications hit the desks of lenders. No XFL games for those guys they are up to their eyeballs in paper.

Can I get the number of a good contractor?

If you build multi-families they will come. The problem is there’s not enough people to build them.

Across the nation deliveries of new multifamily buildings have slowed thanks to a continued labor shortage. Home builders can’t keep up with demand.

Federal Reserve Governor Michelle Bowman spoke about the shortage in a speech last month. “The ratio of job vacancies to unemployment in the construction industry – a measure of labor market strength – shot up to historic highs at the end of 2018, and it has remained near those levels,” Bowman said. “These indicators confirm what I have been hearing from construction industry employers during my visits to different parts of the country – it’s extremely difficult to find and hire workers, skilled or otherwise.”

Driving the shortage is a healthy job market and economic growth. As soon as buildings are finished they’re filled with tenants.

Multi-family isn’t alone. Single-family starts will total 1 million in 2020, the highest since 2007.

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Parents don’t let their kids grow up to be appraisers

Appraisers are set to be wiped out by computers. The writing has been on the wall for years. But now it’s been underlined and highlighted in red ink. HouseCanary just raised $65 million to continue automating real estate appraisals using wicked fast computer algorithms.

The new Series C funding round equaled their last rodeo which also raked in $65 million. If you’re keeping track at home that’s $130 million to date.

A market ripe for disruption.

Just like a GhostBusters sequel, the death of the boots on the ground appraiser has been a longtime coming. Older appraisers are retiring, young people aren’t getting licensed and lenders didn’t like how long it takes to wait. Start writing the eulogy.

Enter HouseCanary which was founded in 2013 and claims it has the “most accurate residential real estate valuations” available. The company has also doubled its revenue in each of the last two years showing a big appetite for software driven appraisals.

“Reliably automating home valuations replaces a two-to three-week human appraisal process with instant, actionable valuations at a fraction of the price,” HouseCanary CoFounder and CEO Jeremy Sicklick said.

Now we’ll have a computer to yell at if our investments don’t appraise.

Won’t you be my neighbor?

Having a tech company like Amazon, Apple and Google move into your neighborhood is both a blessing and a curse. The blessing: an influx of steady, well paying jobs and gentrified restaurants. The curse: the demand on housing and the imbalance of buying power between tech employees and the teachers, fire fighters, and other non-tech-related professionals that were there first.

Even the suggestion of a tech company moving into a market can cause real estate to surge. Just ask Long Island City, New York. Amazon announced plans to build a second headquarters but pulled the plug on the idea shortly after when it could not get along with local lawmakers. Just the announcement of the headquarters caused real estate to surge before even a single brick had been laid on the building. Fortunately, that surge of enthusiasm stuck around long enough to create lasting demand in that urban area. But it could easily have gone the other way towards an implosion and clearly other market forces are at work.

Concentrations of educated and well-paid tech employees does create an imbalance of buying power that tech companies cannot quite reconcile. Now Amazon is moving forward with plans for headquarters in Northern Virginia and has agreed to contribute $20 million toward affordable housing in the area to help with what they anticipate will be an impending imbalance.

Does this mean you should rush to invest in any town a tech giant announces a presence? Clearly not if Amazon’s Long Island City just-kidding news teaches us anything. But I won’t pretend that we don’t watch these markets closely. I like to see established job centers rather than nascent ones. I like to invest in towns with distribution centers where more steady jobs exist, less prone to bubbles and income spikes. One could say I like the boring stuff over the flashy stuff.  But that’s not to say I don’t partake of gentrification by way of the great new restaurants that always follow when Google, Apple, Amazon and the likes move in!

News By The Numbers

200,000. That’s the number of cafes across France in the year 1960. But you’d better hurry up and grab your croissants because these iconic French cafes are dying out. Now there are fewer than 35,000. You can blame factory closings for the decline in small village cafes as workers headed to city centers.

65 Degrees Fahrenheit. That’s the temperature Antarctica reached this weekend. Making it the hottest day ever recorded. Start looking for AirBnB space.

3.3 million. That’s number of people that watched Vince McMahon’s XFL football network debute game this weekend between the D.C. Defenders and Seattle Dragons. Last year the AAF drew 2.9 million for its first game but then saw ratings plummet and shut down before the season ended.

$1.2 Million. That’s the cost of a Las Vegas home that was robbed over the weekend during an open house. Yes the realtor was there the whole time. Four kids cased the joint earlier in the day asking strange questions about the house like “what’s the pool made of?” They should’ve asked if there was a Ring Doorbell because they were caught on video camera stealing a Gucci Purse and a Prada Purse. Police are still looking for the future home appraisers.

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