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April 22, 2021

What causes the price of a stock to go up or down – corporate profits, Federal Reserve policy, China trade, elections, pandemic, oil prices, unemployment numbers, retail sales?

These types of headlines affect fear and greed, but the actual answer is essentially the same for every item purchased or sold in a [relatively] free market – supply & demand. Are there more buyers (demand) or more sellers (supply)? When the collective market is fearful of the future, sellers take over increasing the supply of stock to be sold causing prices and markets to fall. When more positive news prevails, greed takes over causing investors to buy, increasing demand, and causing stocks and markets to rise. Every price along the way is a point where supply and demand meet or find equilibrium.

A few weeks ago Ellen Coleman, a real estate agent outside of Washington D.C., got a new listing to sell a house on Fleetwood Terrace in Silver Spring, Maryland. The modest home was built in the 1940s and has been in the same family for the last few decades. The kitchen retained its original gold pattern (asbestos laden) linoleum floor and each of the two bathrooms still had the colorful (one pink the other green) glossy 4×4 tiles with coordinating sink, toilet, and tub.1

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The house needed some serious repairs and updating and had been sitting empty for over a year. These facts in conjunction with the appraisal, lead to a listing price of $275,000. Within seconds of the listing going live, it began. Ms. Coleman’s phone and email exploded with offers, 88 of them in just a few minutes, 76 were all-cash. The property sold for $460,000, almost 70% above asking price.

Admittedly, I do not know anything about the real estate market in D.C. suburbs, but I do know there is significantly more demand for detached residential housing than there is supply…prices go up.

The market price of everything is the point at which a willing buyer and seller meet. It is true of real estate, tomatoes, iPhones, or a publicly traded stock. This is what our due diligence process is based upon to ensure each individual project is properly positioned in an area with high demand and low supply- ensuring the success of the project and protecting our investors.

While stock markets can react to sudden and startling news in real-time, private real estate investing insulates our clients from experiencing fluctuations in asset values and protects them from making emotional, irrational decisions that could ultimately jeopardize their financial stability.

While no one knows exactly what the future holds, there is a person who sits at the intersection of an enormous amount of information on factors affecting near-term conditions. On April 7, 2021, Scott Pelley of 60 Minutes sat down with him, Federal Reserve Chairman Jerome Powell, to get his perspective on our economic future.

Powell admitted there was an enormous amount of uncertainty around the effects of the virus on our population and economy a year ago but painted a much more optimistic picture from this point:2

  • Expects 6% to 7% growth in 2021, which would be the highest level in 30 years.
  • Unemployment dropping to somewhere between 4% and 5%.
  • Will not raise rates until the US economy is back to maximum employment.
  • Would not expect to see a Fed rate increase until mid to late 2022 after inflation is above 2%.
  • Vaccinations and fiscal stimulus amid reopening drive a strong economic expansion.
  • Sees an exceptionally low chance of recession for the foreseeable future

Just as Chairman Powell has been looking forward to economic recovery so has the investing public, driving us to or near all-time stock market highs. There will almost certainly be some unforeseen events or shortfalls in expectations that will result in short-term volatility. With low interest rates continuing, economic expansion progressing, and overall growth improving it sets the stage for people looking for consistent passive income and consistent investment returns. This is why we’re focused on private real estate and specifically self storage at the moment. When people have money they buy more “stuff”. Then they need a place to store their “stuff”. We like to be on the receiving end of this trend to capitalize on the increasing demand associated with the trends above, while avoiding the uncertainty of where equity markets are headed.

Please call with any questions about these topics or anything else on your mind.

-DC


1The Silver Spring House. Sourced form – https://www.washingtonian.com/2021/04/01/this-silver-spring-house-got-a-whopping-88-offers/
2Fed Chairman Jerome Powell: The 2021 60 Minutes Interview. Sourced from – https://www.cbsnews.com/video/jerome-powell-federal-reserve-economy-update-60-minutes-2021-04-11/