In this special New Year’s edition of the Cervera Newsroom Market Snapshot, we’re taking a look back at 2016’s major market movements and what to expect in 2017. This, plus everything you need to know about last week: Jan. 2-9.
A YEAR IN REVIEW
Early on in 2016 the markets struggled as oil prices and China’s yuan crashed. The S&P followed the same tune by hitting its low on February 11. The year progressed, and so did the markets. Both the S&P and the price per barrel rebounded and began their rise.
By mid-year Brexit became a reality and the U.K. stunned the world by voting to leave the European Union. The pound plummeted 20%, the dollar surged, and the S&P fell again slightly.
November brought a new President-elect and market highs. The Dow, S&P and Nasdaq all reached closing highs. They called it the “trifecta.” Something which hadn’t happened since 1999. In December, Janet Yellen and the FOMC closed the year by raising interest rates by a quarter of one percent, the first increase all year.
WHAT TO EXPECT IN 2017
In a recent Fortune.com article 5 Trends that Will Shape the Housing Market in 2017, Chris Matthews wrote “If the U.S. economy is to hit escape velocity in 2017, you can expect the real estate sector to serve as rocket fuel.” Here are the five trends that Matthews believes will influence the residential real estate market in 2017, along with our perspective on the local impact to Miami’s real estate market:
1. Rising Interest Rates
In December the Fed raised interest rates by .25%, only the second time that has happened since 2006. Experts are forecasting 3 to 4 more increases in 2017. Should this forecast prove accurate mortgage rates will rise, increasing the monthly cost for prospective home buyers and those looking to refinance their existing mortgage. Rates have already started to increase slightly, but will likely only increase to about 4.5% on a 30 year fixed rate loan, according to Chris Matthews.
2. More Lenient Lending Guidelines
A possible bright spot on the lending front, while forecasts call for interest rates to rise, the ability to secure a mortgage may improve, says Matthews. Some think that the Federal Housing Administration may lower fees it charges first time homebuyers, a trend that began 2015. Further government-owned Fannie Mae and Freddie Mac will begin backing larger mortgages in 2017 for the first time in over 10 years, making it easier for buyers of high-end luxury homes to obtain a loan.
3. More New Homes
The annual rate of new homes reached 1.163 million as of December 2016. This figure reveals an increase of approximately 5% from 2015. Home builders expect this to continue in 2017, encouraged by an increase in employee income wages, relaxed credit requirements and continued strong demand from buyers.
4. Medium-sized Cities Continue to Rise
As property values increase in major cities due to the influx of new workers that move there, residential availability has greatly been effected and created upward pressure on the real estate values. As a result, buyers are increasingly considering up-and-coming cities such as Miami, which offer more affordable real estate. Some cities have seen building permits soar over the past several years as they attract younger members of the working class seeking less expensive rents and home purchase prices, says Matthews.
5. Foreign Buyers Aren't Going Away
“One trend that is helping drive prices beyond the realm of affordability in places like New York and Los Angeles is an influx of foreign buyers of U.S. real estate,” writes Matthews. “This has only increased of late, fueled in particular by buyers from China who are looking for safe places to store their wealth, away from the slowing economy of the homeland, where repressive financial policies make it difficult to earn decent returns on savings.”
"Latin Americans will always be attracted to Miami and continue to be a primary feeder marke. More and more we are seeing interest from Europe and other countries that have been experiencing internal turmoil, including Turkey. With hundreds of direct flights to countries across the globe, Miami is a very good and accessible destination for people that are looking for a getaway – or permanently relocate – from troubled spots. Given the strength of the U.S. dollar and the direction in which U.S. mortgage rates are heading, we expect to see an increase in local and U.S. buyers of Miami real estate. That said, we believe that Chinese buyers of U.S. real estate will become increasingly prevalent in Miami. Traditional gateway markets have become oversaturated, leaving Miami poised to emerge as the single-most attractive opportunity to Chinese buyers in 2017."
- Alicia Cervera Lamadrid, Managing Partner - Cervera Real Estate
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Week of January 2 – January 9
- Dow Jones: 19,963.80 (+1.02%)
- S&P 500: 2,276.98 (+1.7%)
- Nasdaq: 5,521.06 (+2.56%)
Stock Market Winners of 2016
- The award for best performer of the year goes to chipmaker Nvidia of the S&P 500. High expectations for artificial intelligence shot the stock up an astounding 238%.
The top 5 performers of the Dow in 2016, according to Jim Cramer:
- Caterpillar was up 36% last year, however Cramer fears that a strengthening dollar and China’s growth could hurt Caterpillar.
- UnitedHealth, up 35% last year. Cramer predicts President-elect Trump will call on UnitedHealth to assist in his healthcare reform, which could potentially be huge for the health insurance provider.
- The third was Goldman Sachs, which rallied 32%, and Cramer thinks the stock could do even better in 2017.
- JPMorgan up 30% and could benefit greatly from deregulation and the Fed’s expected multiple interest rate increases.
- Chevron soared 30% and is viewed as the most aggressive of the major oil companies since it cut back on spending and maintained its dividend.
Stock Market Losers of 2016:
- Prior to Trump’s win, the worst performers would have been a mix of retail, healthcare and energy stocks, however the “Trump Bump” pushed each company out of the lowest position on Fortune’s 2016 list of biggest stock market losers. Instead, hospitals stocks took last place.
Top 3 losers, according to Lucinda Shen in a recent “Market Intelligence” report for Fortune.com:
- Community Health Systems: -74.8%. The hospital operator shed $2.36 billion in market cap over the course of 2016.
- Hertz Global Holdings: -59%, primarily because more consumers are leaning towards ride-sharing companies like Uber and Lyft.
- Tenet Healthcare: -50%. The hospital operator missed earnings expectations in the past two quarters of the year.
Other Market News:
- S&P 500 is on track for biggest recovery since the Great Recession, according to Financial Times, who believes that Donald Trump’s pledge to fire up the US economy has changed investors’ psychology.
- Financial stocks were among the leaders after the presidential election. Look for this trend to continue in 2017, especially if regulatory burdens decrease in the banking sector.
- Small cap stocks performed well after the presidential election, however look for exchange traded funds (ETF) to become a riskier play in this sector in 2017.
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- As of the third quarter of 2016 there were more than 14,000 units proposed in the area, and more than 6,600 under construction in Downtown Miami and Brickell. The average condo-leasing price dropped 3.2% to $2,590 a month in the third quarter of 2016, from $2,677 in the first half of the year. Average condo leasing prices have largely been increasing since 2012, when the overall monthly rent for a two bedroom unit was $2,255.
- Esteban Santiago, the 26-year-old military veteran charged with killing and injuring nearly a dozen travelers with a handgun at Fort Lauderdale-Hollywood International Airport, was ordered detained before trial by a federal magistrate judge on Monday.
- The Miami Dolphins lost 30-12 to the Pittsburgh Steelers on Sunday in the first round of the 2017 playoffs. While the loss ends their season for the year, most fans are rejoicing in the fact that these Dolphins were fun to watch in 2016 and turned what started as a disappointing season into a playoff trip.
- An exciting time for Euro travel lovers- economists predict Euro-Dollar parity for 2017. While parity means less expenses for US travelers to Europe, it also means a potential surge in European investment in income producing commercial real estate.
- Russia’s Rouble outperforms major currencies- Rising oil prices and hopes of warmer relations with west boost currency against dollar.
- A cease fire agreement in Syria is keeping a tenuous hold, with sporadic fighting still taking place in Mosul, the last stronghold for ISIS in the country.
- Six steps to turn 2017 into a year of ongoing career success (Forbes)
- 2017 Golden Globes Awards Winners: The Complete List (The New York Times)
- Nvidia is working with Audi to get you a self-driving car by 2020 (The Verge)
- This $99 gadget gives your MacBook a touchscreen (The Verge)
- The first look at HBO’s Debbie Reynolds and Carrie Fisher documentary is bittersweet (Town and Country Magazine)
- Maybelline debuts its first-ever male ambassador, Manny Gutierrez (Elle)
- Apple sets new app store record with $3 billion in December sales (Buzzfeed)
QUOTE OF THE WEEK
"But as long as we remember our first principles and believe in ourselves, the future will always be ours.”
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All the opinions expressed by Ms. Perkins in this newsletter are solely her opinions. You should not treat any opinion expressed by her as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of her opinion.