We’re going out on a limb here and predict that Trump is going to win the election. This is probably not what any progressives reading this want to hear. However, in the closing days of this high stakes race he clearly has the ‘Big MO.’
The ‘Big MO’ is defined as behavior momentum that operates on a large scale. The concept originally applied to sporting events in the 1960s in the United States, as momentum appeared to have an effect on a team’s performance. Successful teams were said to have “The Big MO” on their side.
With national polls swinging from a toss up to now favoring Trump, momentum is in his favor. This is also reflected down ballot with many swing state races moving from ranked democrat to toss up. This could very well deliver republicans both the White House and a comfortable Senate majority.
If this proves to be the case, we believe the anxiety and paralysis affecting real estate markets could abate.
In terms of existing home sales, we have the worst market in 50 years. Quoting real estate tycoon Grant Cardone, “In this country, if you want to buy a house, you can’t. If you want to sell a house, you can’t. If you want to get a mortgage, you can’t afford it. There’s a massive problem today.”
This makes little sense in light of the fact that the U.S. economy continues to outstrip both Europe and Asia in terms of growth (WSJ 10/17/2024).
We believe a combination of forces are at work here: interest rates being the most conspicuous. However, they are beginning to trend down and may continue to do so in 2025. Therefore, this part of the real estate equation is improving.
We think the real culprit where market anxiety and paralysis are concerned is lack of ‘animal spirits.’
Animal spirits is a term that describes how human emotions and psychology influence economic decision making, especially during times of financial uncertainty. Ironically, the term was coined by British economist John Maynard Keynes a hero of the left in his 1936 book The General Theory of Employment, Interest and Money. It comes from the Latin phrase spriritos animalis, which means “the breath that awakens the human mind.”
Nearly 4-years of Biden-Harris regulatory over-reach (5x Obama) and corporate lawfare has nearly extinguished the animal spirits unleased by the largely pro-business, anti-regulatory Trump administration.
As a born salesman and marketer, a Trump Presidency is likely to reawaken those slumbering spirits.
Having made much of his fortune in real estate development, his bias for low interest rates is well known. The next president will appoint a new Fed Chairman in 2026. That individual’s rate preferences will likely be a significant factor in this decision.
There are other ways to influence interest rate policy as well. As Biden made his desire to see ex-president Trump prosecuted by the Justice Department clear, a Trump 47 can make his interest rate preferences clear as well.
The Federal Reserve system is designed to be independent of government, though not independent from government. Therefore, the chairman and all voting members are appointed by the president, subject to approval by the Senate Banking Committee and the broader Senate.
Anyone that thinks this is not a highly politicized institution is a fool. If republicans retake the Senate, a President Trump will likely have his way with the Fed.
Assuming this to be the case, lower rates, say around 4% combined with Trump’s schutzpah could very well break the current log jam in real estate transactions.
CRE investors should begin prepping for this now. If you wish to transition out of active management, do what needs to be done to your property to optimize it from a sales standpoint. If you procrastinate you run the risk of missing out when that window of opportunity opens.
It is also important to come up to speed regarding your exchange options. The CRE landscape is rapidly evolving. By the time you sell, what was ‘in’ may be ‘out.’ What was tangential may be mainstream.
Instead of remaining mired in the last four years and the fact you were better off then than now, be forward looking and anticipatory. The markets may be about to change.
