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The Cal State Companies: Center for Real Estate Studies ¨ Cal
State Properties ¨ Cal State Investment LTD Partnership
Media Contact:
The Center for RE Studies For:
Immediate Release
Real
Estate Investments Outlook June 2019
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
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
UTUBE: https://youtu.be/868wrjNPQFM
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