Marketing commentator Barry Habib discusses margin compression, the coming 2020 recession, why he is bullish on real estate even if a recession hits, and why Chinese buyers influence California real estate so much.
MARGIN COMPRESSION
This is a phrase we hear constantly now in the mortgage industry, and it simply means there is more price competition.
With refi’s down almost 30%, inventory down year over year, and online lenders taking more and more market share, there are way too many mortgage lenders for the market to support.
As a result, everyone competes with rates. Margin compression will end, according to Mr. Habib, when a recession comes and rates decrease, and refi’s return to the fold.
How does this affect Realtors? There is a huge online lender that competes only with low rates, and their online reviews are stunningly horrible!
The primary reason is that their loan officers only know how to quote low rates, and they know nothing about executing smooth purchase transactions.
We of course self-servingly recommend that Realtors show their clients these reviews and then redirect their clients to us :).
Anyway – margin compression affects Realtors by encouraging buyers to focus too much on rates instead of on knowhow.
RECESSION IN 2020 – WHY?
Mr. Habib agrees with other prognosticators I have cited in previous blogs and illuminates two reasons why a recession is likely in 2020:
- Short terms rates are almost the same as long term rates. I won’t explain the economics, but I will say we are at this stage in the interest rate cycle now; and
- Unemployment has likely bottomed out and will only increase at this point.
BULLISH ON REAL ESTATE EVEN IN RECESSION
Mr. Habib remains very bullish on real estate – even if a recession hits. He thinks a 10% correction is very unlikely for several reasons:
- It is different this time for reasons we have explained in previous blogs – tighter lending guidelines, more structural housing demand, etc.
- Rates come down during recessions and that props up real estate prices; and
- According to Mr. Habib, if you look at data from the last six recessions (other than the 2008 meltdown) you will see that real estate prices usually do not decrease significantly.
CA PRICES HURT BY CHINESE BUYERS PULLING OUT
15% of the money spent on real estate transactions in California is from China. But b/c China’s currency is now so much weaker than it was relative to the U.S. dollar, Chinese buyers are now sitting on the sidelines.
This drop off in demand is already affecting prices, particularly on the high end. But, according to Mr. Habib, this too will end and Chinese demand will return.
Jay Voorhees at (925) 855-4491
Real Estate Broker, CA Department of Real Estate, DRE# 01524255, NMLS# 335646
