The Economy Question

This week, the bottom fell out on Wall Street with the advent of the trade war that has been initiated by the administration in Washington, and the question on many people’s minds is, what impact will this have on Real Estate values both nationwide and locally?

I asked a client of mine who is a day trader to get a sense of how he sees the global markets right now, and he provided some insights that were surprisingly optimistic. In the footsteps of Warren Buffet, he is running toward the market as others are running away, and while he foresees a bumpy road in the short run, over time he is confident that the economy will ultimately recover.

With regard to real estate, he pointed out that as tariffs drive up inflation, housing prices tend to rise.  And he holds that if the country ends up in a recession, logically interest rates need to be brought down, which has the effect of stimulating real estate by expanding the purchasing power of buyers.

On the commercial front, it is unlikely that the new tariffs are going to stimulate manufacturing infrastructure, because the sudden and impulsive nature of the tariff policy leads many companies to doubt the long-range stability of these policies as the foundation for plans to produce their products locally over waiting out the policies of the current administration, which are subject to change at any time.

The recent budget cutbacks for various agencies and non-profits also hit close to home for me yesterday when a group providing vocational training for teens that was interested in a commercial building we currently have listed in Watsonville cancelled their plans to pursue purchasing the property, citing the loss of their funding as the reason. Their hope is that over time, private benefactors will help fill the gap left by the federal government, but in the short run, these types of organizations are going to have to put their plans on hold and the people who work there face the difficult decision of whether they can afford to continue living here.

Our property management division which handles over 280 doors countywide has seen vacancies rise and rents softening in the months since the election, particularly in the lower end, and it seems increasingly difficult to find reasonable labor of late, which makes me wonder if there has been a quiet exodus by undocumented members of the community in the face of the harder immigration policies of the incoming regime.

Nobody knows for certain how the tariff war and other extreme national policy measures will ultimately play out, but it seems sensible that we should avoid taking sudden action as we observe the impacts over time. In the short run, it has driven up inflation in the face of what has been deemed the largest peacetime tax hike in our country’s history. And for people who are uncomfortable with the unpredictability and wild swings of the national and international markets, the stability of holding real estate in a prime area like Santa Cruz County should continue to look appealing.