MID-JULY ECONOMIC UPDATE
Written by: Cade Polter
What’s in the News
Inflation has reached its lowest point in over two years nearing three percent, but the fight on inflation is not over. Approaching the Fed’s two percent target will be continually difficult as the market is tight and not much else to do without the economy slowing down. Average hourly earnings are up, leading people to spend more confidently, which makes it challenging to decrease inflation.
What's Next for CRE
Currently, certain areas are undergoing extreme downfalls in CRE value. Multiple commercial buildings in San Francisco have been sold off for less than half of their previous values. San Francisco is not an indicator for all cities in the United States though as Fort Worth nears over $2 billion dollars of construction projects. Housing near college campuses is another bright spot of commercial real estate.
A recent study by McKinsey Global predicts that by 2030 office value could lose near 800 billion dollars across nine major cities worldwide. This valuation continues to come from the ability to easily work from home or in hybrid roles and keep similar production. The key to the future for commercial real estate is finding the up-and-coming cities that are continuing to grow, as well as adapting buildings to the needs of buyers.
The term, soft landing, has become popular when thinking about the future of the United States’ economy. A soft landing aims to ease inflation, while not completely tanking the market and pushing the country into a recession. The economy has been pointing to a recession for a while, but we are beginning to have hope of avoiding the recession that once seemed inevitable. Fed officials will meet July 25-26 to discuss interest rates. They are expected to raise rates once again, bringing them to a 22-year high. Housing prices seem ready to settle and may even begin to decrease after a nearly 14% increase seen since the pandemic.
Sources: Globe St, WSJ, First Trust, Federal Reserve.