The second half of 2024 is rolling along. Knowing and certainty are the best things for markets and yet many would argue that we have less certainty and knowledge than ever. But that may not be the full story....
Looking back on the first half of 2024, there are many, many things we can see that are data-based reality and are probably the things we can focus on for several years to come. Obsessing about quarters and halves is fine, but obsessing about the next 5-10 years is more substantive and is bound to deliver bigger, better results, and maybe keep us all a bit less anxious. So these are some things we DO know that I think impact real estate for the longer term:
1. High Inflation: the narrative of the past 18 months is waning notably. Knowing how slow the FED is at measuring stuff, it looks like it's under 3% or lower. BUT: inflation is different in different parts of the US and that won't go away for some time. Higher Inflation on luxury in the luxury sector on many luxury goods may wane but is certain to return soon. Record corporate profits often achieved by raising prices well above rising costs may dissipate as consumer revolt has already begun.
2. High Wealth: the wealthy are wealthier than ever via real estate and stock market gains. This too is spotty and varies, but this wealth will spread as the aging population passes down Trillions and continues to do so for the next two decades. Will we see a market correction? Very possibly. Will it be deep and extended? That seems unlikely with so much capital on standby waiting for buying opportunities.
3. Inventory: yes inventory is rising in areas, but only after hitting extreme lows, and in most parts remains well below 'normal'. We continue to underbuild, especially more affordable home options.
4. Insurance: rates have soared over the past few years as labor and materials costs soared, combined with increasing damage from storms and fraudulent claims. The more people self-insure, the higher rates could go for those who buy insurance.
5. Borrowing Costs: these have come down already off their high's. Will rates be 2% again? That would be Extremely unlikely. Will they come down further? Very possible. Higher rates have triggered a housing recession, not on price, but on volume of sales.
6. Commercial Real Estate: The clean-up continues. Conversions will accelerate. Re-financing as rates come down will emerge soon. So too will more defaults and discounting. This is a slow-moving process and many landlords have lots of patience and can afford to weather long storms.
Where will we be 6 months from now? Who knows? Chances are the election will be a distraction with media entities desperately vying for our undivided attention. Regardless of political outcomes, if we look back over the past decades, we are increasingly seeing how commerce is not nearly as reliant on politicians and political ideology as many would like us to believe. The US economy (and debt) has grown almost every year for the past 20 years, regardless of the politicians with only a notable dip in 2009 and 2020 with speedy recoveries. The economy is over twice the size of what it was 20 years ago. And roughly 35% larger than just 5 years ago.
Put together: normalizing inflation + under-building + lower rates + economic growth + growing and spreading wealth, a bright future is ahead and yes, that includes sunshine and lightning! Almost everything experiences a bumpy ride these days. 6 Months from now?
Not so sure.....3 years from now? AMAZING!
