The stock market believes in Santa Claus! Closing records have been falling lately. OK, maybe the market just caught the holiday spirit, or simply wants badly to believe in a bright new year. Kind of a New Year’s wish. No matter, it’s comforting to see that, as we are about to turn the last page of the 2013 calendar, optimism has conquered Wall Street. Next, Main Street. That’s the program for next year.
Big program indeed. How well real estate will fare all year will obviously depend on its accomplishment. Given the man-made political and economic hiccup (to be polite) and the challenges that lay ahead, it is not going to be that easy. It will take vision, resolve and muscles…And a lot of luck. Clear choices need to be made to keep the stock market as a believer and gain the confidence of both buyers and sellers.
Much has been written about the considerable impact the Fed has had over the so-called housing recovery. Nobody can dispute that the cheap & easy money policies have stabilized and eventually fueled such recovery. We should, however, remain aware that the single most important locomotive has been the investors, large and small. They started the razzia on distressed properties and were willing to gamble on price appreciation. They took a risk, they won, and so did the entire market. Question: are they going to still be active in 2014?
I, for one, believe that without the massive investment demand we have observed the last 2 years, we would not have enjoyed the housing recovery. And you know what? Without the housing recovery, I am not convinced we would have had an economic recovery to begin with. We are still fragile. The housing rally, as the Wall Street Journal wrote a week ago, is losing steam in some red-hot markets, while some other markets, not invited to the dance this year, are still struggling. I am not afraid of a bubble, I am more concerned about a possible slow-down when the Fed starts scaling back its bond-buying program.
Yes, clear choices will need to be made, not to please the crowds but to keep the housing momentum going. The danger on the horizon would be to approach economic challenges the European way; that is always looking for Big Daddy for answers and assistance. Well, Big Daddy is not feeling too good, and is not available at the moment. Sorry. It does not do any good to depend on the undependable.
One area that we will need to keep a close look at is the tax picture, a subject so loaded with partisan passion that it must be dealt with carefully. A reform is in the air. It will draw blood from somebody. Who is going to pay what? Who will foot the bill for the deficit that does not want to go away? Are the measures to be suggested susceptible of growing the economy or stalling it?
A few weeks ago, as I was enjoying a terrific meal in a fancy Hong Kong restaurant, a table neighbor, a well-to-do European lady who is panicky at the idea of paying a tax rate exceeding 80% (income tax + “wealth tax”), threw a bad joke at the assembly (except that she was not joking). She argued that it was stupid to over-tax the rich on the pretext that they have a lot more money, and that we would be better off taxing the poor since there is a lot more of them… So much for the holiday spirit!
We have another two weeks to reflect on 2013, a pretty good year for real estate everything considered, and speculate on what 2014 might be like. Meanwhile, let’s enjoy what matters most: family & friends. And let’s not forget those who are left behind and only can count on our help to stay warm. See you next week.