As U.S. equity markets spiral after the fall of 512 points on the Dow, the presumed causes of the market’s volatility shifted to concerns about the U.S. economy. The bad news is that the U.S. economy grew at an annual rate of only 0.4 percent in the first quarter of this year with manufacturing for July at the slowest pace since 2009. 

The better news is that the unemployment rate declined to 9.1 percent, based on the Labor Department’s most recent job report, which showed the adding of 117,000 jobs in July. This figure was the strongest since April—a sign of improvement in the economy.  

The effects of the debt crisis and of the declines in foreign equity markets re-affirmed that the U.S. is the world’s best safe haven for investments. This was put in evidence by the post-debt crisis rise in the value of the U.S. dollar and the Swiss Franc, now seen as the prime safe haven currencies. It is doubtful that this slight rise in the value of the dollar will discourage foreign investments in the U.S. It should do the opposite, encouraging foreign direct investments in the U.S. safe haven, including in U.S. real estate. In addition, fallout from the debt crisis was beneficial to U.S. interest rates and offset any damaging effects from Standard & Poor’s cutting its rating of long-term federal debt to AA+, one notch below the top grade of AAA. 

The yield on the 10-year Treasury note has fallen to 2.334 percent, the lowest since October 2009. The 10-year Treasury note is used as a benchmark for many other interest rates, and a drop in its yield usually precedes a drop in consumer loan and mortgage rates. Consequently, mortgage rates should not be expected to rise, and may actually decline which is great news for real estate investors! Cash has become so plentiful as a result of the debt crisis that Bank of New York Mellon Corp. will charge certain of its large clients a fee to hold cash—essentially, negative interest. The last time a situation like this occurred with a major bank was years ago when Switzerland, besieged by cash deposits, also charged negative interest. 

The Bank of New York Mellon Corp. took this step, because, with the volatility caused by the debt crisis, cash could flow out of the bank as quickly as it flowed in, giving the bank no time to safely invest the funds. Cash looking for a home—what a great situation for real estate investors! The outcome of the debt crisis bodes very well for real estate investors, and for all categories of real estate, in general. 

The significant and encouraging growth in the multi-family market over the past six months to a year should continue—thanks to the continued low cost of borrowing. The shift by many Americans away from individual home ownership should result in an increase in the attractiveness of the multi-family real estate market in Manhattan and the Bronx. 

The United States has been fortunate to have relied on the relatively stable value of the dollar and low interest rates over the past three years. Even during the Great Depression, the United States still managed to pay on its loans. 

For generations, investors worldwide have relied on the U.S. as a safe haven. For foreign investors, there is no safer place to park funds than in U.S. Treasury notes. This is true even with Standard & Poor’s lowering its rating on U.S. federal debt to AA+, a step not taken by Moody’s and Fitch. This positive position for U.S. debt in general, and mortgage rates in particular should continue, at least over the medium term of several years. 

The only cloud on the horizon is that of U.S. job loss and unemployment. This is a problem for which the U.S government has not found a solution. Most government stimulus has been on the supply side, by attempting to create jobs through stimulating production capacity. Unfortunately, this has not worked. Solving the unemployment problem by stimulating the demand side is a far more difficult proposition. 

The U.S. economy and the real estate industry depend mainly on the U.S. consumer, and particularly on the employed consumer. Fortunately, the U.S. is now able to focus on job creation, which will be the next step to a robust U.S. economy.