CORFAC International, a global network of privately held entrepreneurial firms with specialized expertise in commercial real estate, hosted a 2023 Economic and CRE Market Outlook presentation by the esteemed Dr. Peter Linneman. MDL Group is the Southern Nevada affiliate for CORFAC International.
Overall, Dr. Linneman is bullish on the US economy, outlining some reasons that led to the current situation and the path ahead.
Here are 5 takeaways:
- Main Street is doing quite well. A steady 250K+ monthly positions filled across many sectors and wages that have largely caught up with inflation, means people have employment options. Combined with the elevated prices in the housing market and rising interest rates, Main Street’s seeing a net benefit from current conditions. People are at all-time high levels of wealth and sitting on cash, with low debt. He believes the pause in home buying was foreseeable and only temporary as the demand-side heats up again in the coming months – even if rates fail to drop. People will adjust.
- Wall Street got blindsided. Relying on the Federal Reserve’s public position over the last year, that advertised a gradual interest rate hike on the horizon, the financial sector suddenly found themselves with overpriced inventory when the Fed abruptly changed course. This promised to diminish 2022 profits and threatened bonuses. Resultantly, in self-preservation, Wall Street has come to a virtual stand-still, aiming to off-load losses next year, after budgets are reworked.
- Don’t dampen demand. In most sectors, even around the world, demand has recovered faster than supply – but is still underheated. The Fed’s strategy in addressing inflation goes about things the wrong way, attempting to slow demand and allow supply to catch up. He says, “The biggest danger to the economy is the Fed believes we need 2% more people unemployed.” Fortunately, the blow from the impact of their actions has been softened due to pent up demand in sectors like housing, automobile, and travel, as effects of the lockdowns.
- Spur supply instead. Dr. Linneman poses the opposite approach is necessary; we need policies that encourage supply. We want to see more people working, producing, and earning. Student loan forgiveness doesn’t really give people a reason to go work. Instead, a good idea is tax credits for taking a new job or those opening/expanding small businesses.
- Recession is unlikely. From the perspective that we’re sitting on inflation as a result of an overall supply-side shortfall rather than monetary expansion, Dr. Linneman sees the years ahead free of recession as workers continue to return to the office, travel picks up, and rents level. He shares some missed opportunities he would like a crack at again, urging listeners not to repeat his missteps, and to capitalize from the current environment that’s ripe for the taking. He says even if a deal doesn’t pencil, do the deal. Stressing, “Find equity, get equity, do equity.”
A refreshing departure from the pessimism-peddling pundits, Dr. Linneman supports his speculation with rational logic, deep industry knowledge, and extensive experience. Whatever your thoughts on the matter, his talk is sure worth a listen.
