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Dow Shudders as New York Faces Ticking Real Estate Bomb

Last Updated September 23, 2020 2:19 PM
Ben Brown
Last Updated September 23, 2020 2:19 PM
  • The Dow Jones Industrial Average (DJIA) struggled on Thursday.
  • Manhattan real estate posts its biggest ever fall in rent costs – a crisis in motion?
  • Gold regains its shine with analysts predicting $3,000 in the coming year.

After a big rally yesterday, the Dow Jones Industrial Average (DJIA) entered Thursday’s trading session nervously.

New York traders woke up to a looming crisis in their city’s real estate market . Data this morning shows that rent prices are down 10% year-on-year – the worst fall since records began in 2011.

New York real estate rents
New York real estate rents fell by 10% year-on-year. Source: Bloomberg

As we know from the 2008 collapse, any weakness in the housing market can quickly spill over into equities in a domino fashion.

Dow gets off to a nervous start Thursday

The Dow Jones is effectively flat today after yet another storming session on Wednesday.

As of 9:56 am ET, the Dow had lost 27.27 points or 0.1% to edge down to 27,949.57.

dow jones today
The Dow has been riding an August rally, but the uptrend stalled today. Source: Yahoo Finance

The S&P 500 traded flat too after barely missing out on setting a new record high yesterday. The index is currently up 0.11% at 3,383.9.

The Nasdaq was the only one of Wall Street’s major indices with any sort of momentum. The tech-heavy benchmark jumped 0.59% to 11,077.1.

New York real estate crisis?

The financial capital of the world has seen a mass exodus since March, with many fleeing the city to escape the coronavirus crisis. And they may not come back. Remote working has become commonplace, and many more simply don’t have a job to come back to. Jonathan Miller, president of Miller Samuel explains:

[New York] is experiencing increased competition from the outer boroughs and the suburbs.

As a result, vacancy rates soared to 4.33%, triggering the biggest rise in apartment listings since records began in 2006.

There are more warning signs in the housing market globally. In the UK this morning, the Royal Institution of Chartered Surveyors (RICS) warned that a recent “mini boom” in house pricing could turn into a bust  when the country’s stimulus measures run out next year.

Significantly, some contributors are now even referencing the possibility of a boom followed by a bust.

Gold regains its shine

As nerves kick in over capital assets, gold has begun to recover from its ‘flash crash’ on Tuesday. After briefly plunging below $1,900, gold is now trading at $1,929 this morning. As Bloomberg’s Krystal Chia explains, the crash was likely triggered by profit-taking, and all the fundamental drivers still remain.

Video: Gold recover after Tuesday’s crash

Many of the reasons for owning gold actually haven’t changed much. Real rates are historically low, the dollar remains weak, and investors are worried about rising Covid-19 cases.

Some analysts have price targets of $3,000 for the safe haven asset.

Dow Jones spotlight today

All eyes are on Thursday morning’s initial jobless claims once again. New claims beat estimates, falling to 963,000  versus expectations of 1.1 million.

It was the first time initial filings had come in below 1 million since March 14. It marks a welcome slowdown, but the figure is still higher than any point before the crisis began.

Democrats and Republicans remain locked in a battle over the next stimulus package. Speaker of the House of Representatives Nancy Pelosi said they were still “miles apart” on an agreement .

Lastly, there’s concern that China is falling way behind on its ‘phase one’ trade deal commitment . The Chinese government has agreed to purchase $200 billion of U.S. goods and services in a two-year period. Halfway through 2020, and China has bought less than a quarter of that. The deal isn’t likely to break down, but it could add more strain to the ongoing tensions.