Written by: Harrison LaHaie
What’s in the News
The United States and other G7 countries are looking for ways to reduce supply chain dependence on China. A recent intelligence leak exposed numerous documents from the U.S. government, likely from a brief. More than $300 billion in deposits left banks last month. Consumer and producer inflation both cooled in the past month. Junk-rated companies are likely to face a higher level of defaults as debt-servicing costs rise. Cities are now suing Kia and Hyundai for the surge in joyriding from the thefts of the cars.
What's Next for CRE
Interest rates continue to put pressure on commercial sales. A recent CoStar report noted that multifamily sales were down by 74% nationwide year-over-year in the first quarter of 2023, with the $14 billion in sales ranking as the lowest quarter since 2012 (excluding Q2 of 2020 when Covid first hit). The decrease in sales volume is likely not surprising to most, being that rates have risen by nearly 5% in just over a year. Banks have become more apprehensive about funding CRE purchases, and the result has been non-bank lenders stepping in. Until the Federal Reserve decides that it is time to change course, the interest rate environment will continue to be a challenge.
Looking Ahead
Headline inflation recently came down to 5%, but core inflation remained elevated at 5.4%. The reason that headline came in low was that energy prices dropped by 3.5%. Unfortunately, this is not enough for the Federal Reserve to pivot away from rate hikes. Until inflation comes down, including core inflation, the Fed will not ease monetary conditions. Furthermore, the recent bank stress caused by the collapse of SVB and Signature are making credit even more difficult to ascertain. The good news is that these conditions cannot last forever. With financial conditions this tight, there will eventually be a real economic slowdown. While that is not ideal for anyone, it will cause the Fed to loosen up. When that happens, credit will start flowing. Until then, we are forced to sit on our hands and wait.
Sources: Globe St, WSJ, First Trust, Federal Reserve.