Tuesday, May 28, 2019

     News
 The Cal State Companies:  Center for Real Estate Studies ¨ Cal State Properties ¨ Cal State Investment LTD Partnership
 Web page calstatecompanies.com ¨  E-Mail  calstatecompanie@aol.com

Media Contact: The Center for RE Studies                       For: Immediate Release
           
                                                                                             

 Real Estate Investments Outlook June 2019


          Los Angeles, CA. After being a stronghold of growth in 2018, our economy is expected to slow this year due to the vanishing of the fiscal stimulus and the delayed impact of prior rate hikes. How will this scenario influence the real estate investment markets?

          At the beginning of the year, growth was well above expectations. The labor market remains strong, with solid wage growth supporting consumer spending. Our economy has been driven by an obliging fiscal policy; its impact should increasingly erode this year, which may have an adverse effect on values of real estate investments.

           In the first quarter of 2019 growth was  3.2% . This was the third quarter our economy has grown at a rate above 3% in the last five quarters. Looking at the makeup of quarterly economic growth, domestic demand slowed sharply.  Economic growth is expected to decelerate to 2020, but at a very gradual pace.

          A recession is highly unlikely in 2019 and in 2020 (as household consumption should continue to benefit from higher disposable income). However, doubts may arise in the coming quarters from fiscal policy, domestic demand under pressure and mixed signals from hard data. We   must always keep in mind that lackluster growth could trigger a recession.


          Since the beginning of the year, we have observed a calm period in the interest rates, with volatility very subdued. The USD index only rose by 1.35%. The USD currently still has a lot going for it, does better on most growth, inflation, and yields than most other indexes. Its Achilles’ heel remains a squeamish Fed, which has the ability to adjust rates.

          A strong outlook on earnings growth, along with manageable wage inflation, would suggest that real estate investment values should remain intact, especially as our monetary policy maintains favorable financial conditions. However, with the renewed trade tensions, the real estate rental investment market could change. Although valuations of the real estate industry appear attractive, we feel that investing in “pockets of opportunity” locations as pointed out in our quarterly newsletter Market Cycles represents a well-balanced risk positioning. Should a proper trade deal between the US and China materializes in the weeks ahead, the prospects of adding potential value should increase.

          Another factor that has an impact on the real state investment industry is the price of oil. The rollercoaster has continued after OPEC cut production by 3 million barrels a day, the most significant cut since the Great Financial Crisis.  The surprise announcement by the US administration that the US is ending waivers allowing several countries to keep importing Iranian crude has pushed up oil prices to $75 per barrel.

          At the end of the day, with low inflation and subdued growth, the central bank has turned more wishy-washy and remains so. Monetary policy is likely to respond to enable economic growth to recover in the quarters ahead. We think the Federal Reserve could cut interest rates if the economy slows materially. Interest rates have a profound an effect on the value of real estate investments. Because their influence on investor’s ability to purchase real estate investment properties (by increasing or decreasing the cost of mortgage capital) is so profound, many investors know that this is one of the most important factors in real estate valuation.


ABOUT THE AUTHOR: Eugene E. Vollucci,  is considered to be one of the foremost authorities on real estate taxation and real estate investing and has authored books in these fields published by John Wiley & Sons of New York. He is the Director of the Center for Real Estate Studies, a real estate research organization. To learn more about the Center for Real Estate Studies, please visit our web site at http://www.calstatecompanies.com







Sunday, May 5, 2019

     News
 The Cal State Companies:  Center for Real Estate Studies ¨ Cal State Properties ¨ Cal State Investment LTD Partnership
 Web page calstatecompanies.com ¨  E-Mail  calstatecompanie@aol.com

Media Contact: The Center for RE Studies                       For: Immediate Release
           
                                                                                             

REAL ESTATE OUTLOOK MAY 2019


          Los Angeles, CA. Our economy is losing steam. Economic growth is expected to slow to the 2% to 2.5% range this year, from nearly 3% in 2018. Factors contributing to this include vanishing fiscal stimulus, the impact of tighter monetary policy  and the affects of trade with China  which could  result in a deceleration in  real estate values.

          Economic growth for the first quarter in particular will be weak due to the impact of the government shutdown at the beginning of the year. With the tight labor market and some tax refunds, private consumption should  remain the growth engine that will help real estate investments in the months ahead.

          Despite a relatively tight labor market, inflation pressures are projected to remain restrained. The current capacity utilization has reached 78%. It is around four percentage points below the long-term average. We now expect the fed funds rate to be maintained at  current level for the near future, thereby stabilizing the relatively high hurdles in the real estate investment markets.

          As we do not foresee a severe downturn or even a recession, we are keeping a middle-of-the-road provision to real estate investments. However, as we cannot rule out further political and economic setbacks, we are maintaining our preference for a more “hold” position based on our publication “Market Cycles”.

          However, on the question of which real estate investment offers the strongest potential, we continue to hold a small allowance to midsize apartment investments.  They appear not to be expensive, at least given the expectations of earnings growth of around 7%, according to the cyclically adjusted projected capitalization rates.

          On the other hand, as a further deceleration in the economic expansion cannot be ruled out, and due to the mix of concerns and uncertainties, we caution real estate investors to keep a very close look at all real estate markets.

          According to PwC Real Estate 2020: “Building the future”, looking forward to 2020 and beyond, the real estate investment industry will find itself at the centre of rapid economic and social change, which is transforming the built environment. While most of these trends are already evident, there is a natural tendency to underestimate their implications over the next six years and beyond. By 2020, real estate managers will have a broader range of opportunities, with greater risks and new value drivers. As real estate is a business with long development cycles – from planning to construction takes several years – now is the time to plan for these changes.
         
                   Finally, yet importantly, for coping with the bumpy road ahead, we believe that real estate invested in well-diversified regions will provide the best cushion.



ABOUT THE AUTHOR: Eugene E. Vollucci,  is considered to be one of the foremost authorities on real estate taxation and rental income investing and has authored four books in these fields. He is the Director of the Center for Real Estate Studies, a real estate research organization. To learn more about the Center for Real Estate Studies, please visit our web site at http://www.calstatecompanies.com