Partners Trust CEO Nick Segal attended Eastdil Secured’s Capital Markets Outlook: 2017 & Beyond last week, an economic forum for presenting data, discussing trends and forecasting the economic climate of our country over the next 24 months.
Real Estate Market Outlook for 2017 & Beyond
While we can never predict the future of our markets, the data presented by Eastdil Secured’s analysts made a sound argument that we can expect continuous growth in 2017 and beyond, fueled by the strength of the US economy in relation to the world, and demand for our assets. Read below for a breakdown of these forecasts.
The US remains internationally acclaimed as a “transparent” economy which is attractive for foreign investors. Real Capital Analytics showed that, behind Manhattan, Los Angeles has been the leading market for foreign capital since 2013. And data on the volume of foreign investment into the US by country over the past few years notes that, while China is a major player, it’s not the only one to watch — South Korea’s appetite for US investment is growing consistently.
Foreign investment in the US touches and enhances all aspects of our economy which, in turn creates more jobs and investment in growth and thus, as reported by Bloomberg, our Gross Domestic Product (GDP) is now at 2.4 percent, the highest we’ve seen since 2011. That trend of growth is predicted to continue.
Corporate debt is larger than it has ever been before, which has tremendous impact on the future of interest rates. Eastdil analysts predict we will see as many as seven increases in the factor that has direct impact on our interest rates for homes during the next two years, intended to prevent overheating our economy.
The Federal Reserve would prefer our GDP not exceed 2 percent, as anything higher indicates that we’re heading into an inflationary trend. However, it was presented that the short terms, Fed Funds interest rate probably will not go higher than 3 percent and currently, that rate is less than 2 percent. The reason for this interest rate ceiling is in direct correlation with the servicing of corporate debt. If this interest rate factor goes above 3 percent, it will cause economic hardship on corporations’ ability to service their ballooning debt and that could cause a substantial recessionary environment.
We can expect home loan interest rates to rise 1-2 percent higher than today’s rates, which will have impact on affordability. The offset ideally is that consumers will have jobs and the incomes to afford these new rates.
Cyclical Predictions & Preparation
The current state of our market, with all of these stats taken into consideration, indicates that we are in a similar place to where we were in 2004. In 2007, we started facing strong headwinds that ultimately became the debacle of 2008 – 2010, inferring that we’ve got about 24 months of growth left in this cycle. As keynote speaker Scott Minerd, Global Chief Investment Officer for Guggenheim Investments stated, “If you’re investing in this market, you’re not early.” But the analyses that followed show there is still some runway left and yet, we may have a positive economic climate before us.
Of course, these observations are subject to unforeseen events, including impetuous expressions in 144 characters from our President, that can potentially impact our world. Optimism is key, but it’s imperative we remain nimble for whatever lies before us.