The Bender Commercial team was one of the first groups to hear Ted C. Jones’ take on the 2018 economy and what it means for the future of commercial real estate. Below are four takeaways from our nearly two-hour discussion:
Stewart Title’s Chief Economist, Ted C. Jones, Ph.D, opened his presentation to the Bender Commercial team by showing a string of signs by various small businesses that followed a certain trend:
Gluten free haircuts.
Gluten free antiques.
Gluten free tires.
Gluten free sheet metal.
His point? Sometimes people attempt to capitalize on a trend that isn’t connected to them just for the sake of being part of it.
Below are a few of the many takeaways from Jones:
Jobs Are the Key Indicator for Real Estate Demand
Jones paralleled the businesses that otherwise should never be connected to gluten to economists insisting on pessimism when assessing the U.S. real estate economy. Contrary to the consistent negative news, demand for real estate was strong in 2018 largely due to job creation, Jones summarized. With more people in well-paying jobs, more will buy homes or choose to live in a little better apartment. As long as the U.S. economy continues to support job creation, real estate demand should remain steady if not increase.
Class B and C Apartments Should Continue to be a Jewel in Real Estate Investing
Rising construction costs across the country combined with a shortage of Class A apartments have made it near impossible for the financial numbers to support building new Class B or Class C apartments. Without new Class B and C apartments being built, existing properties, most of which are thirty years old or more, have increased in value at a rate exceeding many other asset classes. As long as the demand for Class B and C apartments remains strong, which Jones predicts will be the case for quite some time, their value should remain high.
Stock Market Struggles Support Real Estate Sales
When the stock market is strong, investing capital into real estate typically takes a backseat in investors’ portfolios. For investors who have spent a majority of the long-running bull market in stocks, last year’s unsettled markets caused that flip. Jones stated that investors likely saw declines in annual returns making real estate an attractive alternative. This was the case as real estate sales ticked up in 2018.
South Dakota’s Economy is One of the Strongest in the U.S. Thanks to Jobs, Taxes
When considering the overall tax environment, South Dakota sits in the top five for tax friendliest states when ranking for corporate tax, income tax, sales tax, and property tax. Combined with our state’s strong 1.5% job growth despite a turbulent ag economy, South Dakota fosters one of the healthiest business climates for companies to operate in.
Ted Jones is the Chief Economist – Senior Vice President for Stewart Title Guaranty Company. Previously, he served as the director of investor relations for Stewart Information Services Corporation for 17 years. Jones also served as chief economist at Texas A&M University’s Real Estate Center as well as teaching valuation, property management, and appraisal at Lincoln College, University of Canterbury, New Zealand.