The focus has narrowed to one overarching question: Is the U.S. going to have a recession? Growth has slowed and policy uncertainty has intensified. How will macro uncertainty impact real estate? Investors are faced with a changing real estate landscape amid an aggressive rate hike cycle. We explore the implications of higher financing costs, and potential new strategies to capture value and discuss the impact that rising rates are having on the housing market.
The topics covered will be:
- Sentiment is eroding and consumption is fading, despite a strong labor market.
- We expect inflation to remain elevated in Q3, creating tough choices for the Fed.
- Mortgage rates are rising significantly as the Fed acts aggressively to combat inflation. This follows a two-year period during which record-low rates helped drive annual CRE property price gains near 20%.
- Real estate fundamentals are solid, and we believe most sectors appear resilient even in the face of an economic deceleration.
- Higher financing costs act to shift income from property owners to lenders, altering the risk-return balance in favor of debt over equity, in our view.
- Higher residential mortgage rates have already slowed home sales and construction activity substantially. While home price growth is set to slow further, we see little evidence that the financial excesses of the last housing crisis are present today.
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