How Long Will Real Estate Be Recession-Proof?
For those concerned about the possibility of a recession, Kevin Thorpe, global chief economist at Cushman & Wakefield, had comforting words to share in a recent interview with Inman:
“This is going to be the longest economic expansion in the post-WWII era.”
There are many factors that contribute to keeping a recession at bay, and most signs currently point toward economic expansion.
An Economy in Balance
Thorpe asserted that economic imbalances need to be visible for a recession to occur. Fortunately for the U.S., this doesn’t look to be the current case. There are many factors indicative of a balanced, strong economy that will continue to remain so in the near future.
- Equity markets are rising. Just this week, Reuters reported that the dollar reached its highest point in two months.
- Oil prices are wavering, but it may be due to wonky algorithms and automated trading, according to a Wall Street Journal report. Oil prices were on the rise in June, only to dip over the Fourth of July holiday.
- Chair Janet Yellen just noted last week that interest rates are once again imminent. This is the mark of a confident Federal Reserve.
- Even more encouraging? The U.S. Gross Domestic Product (GDP). It’s been growing steadily at about 2 percent for the past eight years. In addition, the Commerce Department recently revised its readings for Q1 2017. Due to consumer spending, the GDP increased at a 1.4 percent annual rate instead of the initial 1.2 percent.
Consumer Confidence Returns
There is good news, particularly in real estate: Global consumer confidence is on the rise. In fact, Reuters says consumer spending currently accounts for more than two-thirds of economic activity.
And according to Thorpe, “A lot of this was a long time coming. It’s the result of trillions of dollars of global stimulus and people and businesses working really hard to clean up their balance sheets.”
This kind of consumer confidence typically reflects job growth and rising wages – both of which inevitably benefit the real estate industry.
A Growing Labor Shortage
Also noteworthy is the current labor shortage. The number of employers unable to fill open positions is approaching an all-time high. This may cause the demand for property market space to slow. In the meantime, the commercial real estate industry is continuing to build office space, and demand for space is expected to fall short of supply.
Economic Effects of the New Administration
Not all influences are unquestionably positive. The Trump administration may be “the biggest wild card” when it comes to economic growth. However, the economist is optimistic, saying growth prospects still remain favorable based on proposed policies. There’s a move toward corporate and individual tax reforms and increases in government spending.
“Trump’s policies should result in stronger economic growth in the near term. Most of us… have upwardly revised our GDP forecast.”
Real Estate Appears Recession-Proof For Foreseeable Future
With all these factors in play, the global economist predicts we are years away from another major recession. The next one is likely to be a more “traditional” recession with a few quarters of job loss. Events like the Great Recession of 2008 seem to only occur once a century, which certainly offers a collective sigh of relief. In all, most signs are currently pointing to economic expansion – potentially the longest “since WWII” – which is good news for real estate buyers and investors.