Real estate investment outlook

2019-04-09 Real Estate No comment

Although it seems that mainly technical factors have triggered the adjustment of the stock market, inflation concerns are the main reason for the stock market price collapse. We have outlined inflation and its impact on real estate investment.

In fact, the difference between current and trending economic growth is close to zero, and the increase in labor demand is putting upward pressure on wages and salaries, but it is still far from the strong acceleration of inflation. At the same time, the US Department of Commerce's proposal to limit aluminum and steel imports on the grounds of national security in the survey reminds people that the risk of escalating trade tensions has a major impact on real estate investment.

Given these events, we have not suggested that the possibility of risk has risen sharply. However, we believe that higher volatility and uncertainty about the uncertain future of US trade policy are not an environment in which we should take all risks in one effort, but seek opportunities to seek returns in the real estate market.

Unreasonable price appreciation will be corrected more naturally over time. Some observers believe that rising inflation may play a prominent role in the recent stock market sell-off. However, higher inflation points to an overheated economy and rising wages may reduce profit margins. Neither of these situations applies to the current situation. However, historical evidence suggests that periods of rising inflation tend to cause fluctuations in the real estate market, and on average, returns are meager. Last but not least, if real estate prices reflect an increase in risk, then higher interest rates may hit them. If the growth rate is higher, then higher interest rates should be less important.

Currently, we expect the impact of rising interest rates on the real estate outlook to be limited. However, the continued significant decline in real estate prices may be related to a slowdown in growth, either because the economy is expected to slow down, or because the recession itself will curb economic growth.

The impact of rising interest rates on economic growth also depends on factors that drive up interest rates. The rise in interest rates may be the result of strong growth momentum, in which case the economic consequences can be understood as limited. However, if higher interest rates reflect an increase in risk, then growth may be more affected. The financial situation is still very loose and the interest rate is relatively low. This should continue to support economic growth.

Therefore, we maintain the trend of sustained economic growth: [1] increased world economic activity, [2] increased fixed capital formation, and [3] gradual adjustment of US monetary policy. We recognize the risks of higher protectionism, as recent announcements have reminded people that trade frictions could escalate dramatically. At this point, what action the United States will take and how other countries respond will remain to be seen.

Since the beginning of the Great Depression in 2008, most people have avoided the spectre of deflation by deploying traditional – and even more important – unconventional monetary policy measures. The inflation rate in the United States averages around 1.5%, and the difference in the middle of 2009 was -2%, which was around 3.8% at the end of 2011. Currently, the US consumer price inflation rate is 2.1%.

In the United States, the government is embarking on a fiscal stimulus, and more trade tariffs and trade frictions may push up inflation. However, several factors have hampered the current inflationary pressures involved, including the still cautious wage negotiations of the family, the pricing of firms, and changes in the composition of the labor market. In addition, recent data may have exaggerated current price trends [unexpected inflationary weakness in 2017]. Outside the US, wage and price trends have not changed much in recent months.

In this context, we do not expect any surprises during 2018. The Fed is expected to raise interest rates cautiously based on the tension in the US labor market, the acceleration of wage dynamics and the potential impact of financial market upgrades. The volatility of economic growth.

In addition, a tax policy that promotes the competitiveness of US companies and attracts foreign direct investment, which will help increase the potential growth rate of the United States, should also support the US dollar. At the same time, there are many factors pointing to the brilliant future of the real estate market.

According to data from the Federal Reserve Bank of New York, the current probability of a US recession is about 4%, reaching about 10% by the end of 2018. We believe that monetary policy is gradually tightening, inflation expectations are limited and cautious investment demand will keep the real interest rate relatively low. Therefore, we are more inclined to real estate investment in 2018.

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