The Most Insightful Hour in CRE with Dr. Peter Linneman, Founding Principal of Linneman Associates
Oct 12, 2023
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Acclaimed economist Dr. Peter Linneman discusses the housing market, state of CRE asset classes, global tensions' impact on economy, Fed's next move, public vs. private markets, and more in this insightful podcast.
Consumer debt remains manageable with credit card defaults below average, indicating an optimistic economic outlook.
Private real estate is thriving with increased activity and investment, driven by strong capital flows and lower cap rates compared to the public market.
Interest rates are expected to decrease, creating a favorable environment for borrowers and making real estate investments more attractive.
Deep dives
Consumer confidence remains high despite debt concerns
Despite concerns about consumer debt reaching a trillion dollars, credit card defaults remain below the long-term average. Consumer confidence has dipped slightly but remains above average, with strong indicators such as job growth, increased household wealth, and higher real income. Additionally, consumers hold a significant amount of cash and have locked in low mortgage rates. These factors contribute to an optimistic outlook for the economy.
Private real estate market outperforms public market
In the real estate market, there is a divergence between the private and public sectors. Private real estate has seen increased activity and investment, with strong capital flows and lower cap rates compared to the public market. The financial crisis and heightened preference for non-marked-to-market assets have driven more capital into private markets, driving up valuations. This trend is expected to continue, with investors favoring private real estate investments.
The future of interest rates
Looking ahead, interest rates are expected to decrease in both the short and long term. The Federal Reserve is anticipated to cut rates in the coming year, while inflation and long-term treasury yields are projected to decrease. This could lead to a more favorable interest rate environment for borrowers, increasing the attractiveness of real estate investments.
Normalization of yield curve
There is a possibility of a normalized yield curve in the future. While the current spread between private and public cap rates is wide, there is potential for a convergence as interest rates decrease. The private market has lower transaction volume, which affects cap rate estimates. However, as the market stabilizes and transaction activity picks up, cap rates may align more closely with public market valuations.
Political influences on the economy
While political factors play a role in shaping the economy, their overall impact is limited. The government does have an effect through spending and policy decisions, but economic growth is driven by a variety of factors, including consumer behavior, job growth, and overall market conditions. Political events and policies may pose short-term challenges, but long-term economic growth remains resilient.
Acclaimed economist Dr. Peter Linneman joined Willy once again for the Most Insightful Hour in CRE, Live from the New York Stock Exchange – and you won’t want to miss his hot takes on today’s most pressing issues.
They covered topics from the Linneman Letter including the housing market, how the major economies across the U.S. are performing, the state of the CRE asset classes, the longstanding impact of global tensions on the economy, the Fed’s next move, the public vs. private markets, and much more.
Watch or listen to the replay.
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