END OF MAY ECONOMIC UPDATE
Written by: Cade Polter
What’s in the News
President Joe Biden and House Speaker Kevin McCarthy reached a debt ceiling deal over Memorial Weekend. The House of Representatives voted the Fiscal Responsibility Act through, but it needs to be Senate approved by the June 5th deadline to avoid defaulting. The debt ceiling deal would extend the debt limit for two year and implicate spending cuts. The U.S. economy reported growth at a 1.3% annual rate from January through March, beating the estimate of 1.1%. Large companies like IBM, Microsoft, and Morgan Stanley are admitting to over- hiring during the pandemic and have been forced into laying off workers. Around the world, Germany is currently enduring a recession that came along during the first three months of the year and may prompt Central Bankers to be more cautious.
What's Next for CRE
In the continued response to the end of the pandemic, many employers are now requesting employees come back to the office full-time. This could give a positive outlook towards a full-strength return for commercial real estate. A suburban mall in Northern California has been purchased and will be transitioned into a life science campus and affordable housing. Innovation and flexibility will be a key to the future of CRE.
But not everything is positive right now, paired with inflation, corporate debt maturity is one issue looming over CRE. During the record low interest rates of the pandemic, real estate properties were flying off the market. Now in 2023 and 2024, the mortgage debt from the largest amount of real estate backed mortgage is set to mature. With such financial uncertainty, transaction rates have fallen as investors are being more cautious.
Currently, economic forecasts are disjointed regarding the future of our economy. Most economists don’t expect interest rates to fall until at least 2024. The United States leadership found common ground on the debt ceiling deal, but now we await the Senate vote. The Fiscal Responsibility Act found more support from Democrats in the House, so with a Democratic majority in the Senate the bill is expected to pass. The current idea of the Fed is to lead the U.S. to a soft landing, which is stunting growth in order to control inflation without causing a full-blown recession.
Sources: Globe St, WSJ, First Trust, Federal Reserve.