Could There Be Clouds On The Horizon
George Ratiu, Managing Director of Housing & Commercial Research, NAR
We are headed into the final stretch of 2018 with an economy poised to register the highest annual rate of growth post-Great Recession. Fueled by unprecedented monetary policy and the recent tax reform, economic activity accelerated this year. Employment gains have pushed the unemployment rate below 4.0 percent and boosted real wages. Consumer optimism has reached levels not seen since the early 2000s, which has spurred broad-based spending on houses, cars, furniture and appliances, recreation, and travel. In turn, rising employment and consumer spending have driven demand for commercial real estate, leading to solid fundamentals and rising cash flows.
However, clouds are gathering on the horizon as we approach the 10-year anniversary of the economic expansion. The Federal Reserve is engaged in the third year of monetary tightening, having raised short-term rates eight times. As short-term rates continue upward, long-term interest rates will mirror the trend, increasing borrowing costs for both consumers and businesses. In addition, the strong demand for housing has elevated prices, which coupled with a significant supply shortage, has decreased affordability to levels last seen in 2007 and early 2008. Also casting a long shadow over the economy is the current trade war and the NAFTA renegotiations, which are adding upward pressures on consumer prices. While the outlook for 2019 retains a sunny disposition, we can expect it to be partly cloudy in parts of the year.
Investor Hesitancy Fades As Fears Emerge Over Price Growth
Jim Costello, Senior Vice President, Real Capital Analytics
The headline figures for commercial property sales activity through July are up 4% relative to the same period a year earlier. Some of the growth was due to one-time platform plays, but even the sale of individual assets is growing.