News
The
Cal State Companies: Center for Real
Estate Studies ¨ Cal
State Properties ¨ Cal State Investment LTD Partnership
Real Estate Investment Outlook November 2019
We at the Center For Real Estate Studies continue to hold a
middle-of-the-road position for the real estate investment markets. There are
signs of softening in our economy and monetary policy. The Federal Chairman,
Jerome Powell, is
likely to evaluate economic data before additional rate cuts.
With strong private consumption and the strength of the
service sector, which accounts for more than three-fourths of our gross domestic
product (GDP), he may be forced to cut rates even further if a resolution of
the trade dispute between the US
and China
A recession is still highly unlikely, given strong domestic
economic factors such as private consumption and low and declining
unemployment. So far, the sluggishness in manufacturing has not spread into the
service industry, and we believe that the momentum of job creation could be
maintained in the service-producing economy. Although real estate valuations appear
somewhat stretched in some markets, the prospects of a solid economic cycle may
justify our current thinking. In addition, the real estate markets proved to be
resilient against rising volatility during the mayhem of 2011 and 2015.
Because of the sluggishness of our manufacturing,
the United States Dollar (USD) is appreciating against European Currency. In Europe ,
for instance, a lack of real alternatives for investors is proving to be the
main driver of USD strength. Elsewhere, the high level of uncertainty over the
US-China trade talks is exerting pressure on the Chinese Yuan, thus
strengthening the USD. The net upshot is less European and Chinese real estate
investment being made in our country.
One may argue that rate
cuts may weaken the USD; however, cuts have not been the straw that broke the
camel's back. They have lowered interest rates twice, and rate expectations
have swung around. For now, there seem to be other factors driving the USD. Coordinated
rate cuts created a friendly environment with depressed volatility, sustaining
demand for real estate investments. As long as rate cuts are followed by
other banks, this mechanism will stay in
place. As a result, Fed policy may influence the USD for a short time, but
other factors may be necessary to undermine USD strength in the long term. In
debt outstanding of more than 100% of US GDP, the funding requirements of the mounting
fiscal deficit and the negative international investment of around 10 trillion
USD are three factors that may be a burden on the USD over a longer period.
In preparing our quarterly report, MARKET CYCLES, we take
into account the input from Outlook, our monthly research source. At this
point, we still believe that with midsize apartments you still get the best
investment dollar for your buck. Midsize apartments generally outperform
equities because of its higher yields, greater price stability, and downside
protection even in a recession. When
stock markets are down (which we project will happen in 2020), they hold value
and produce a positive return. They are less prone to booms and busts. Midsize
apartments are now stronger than they have been in many years.
ABOUT THE AUTHOR: Eugene E. Vollucci, is considered to be one of the foremost
authorities on real estate taxation and investing and has authored books in these
fields published by John Wiley & Sons of New York. He is the Director of
the Center for RE Studies, an educational and research organization. To learn
more about the Center, please visit our web site at http://www.calstatecompanies.com
UTUBE: https://youtu.be/868wrjNPQFM
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