As we saw today, the Fed raised rates for the second time this year. CRE’s report said that increasing rates exacerbate the affordability crisis and has stakeholders concerned about a potential recession in 2019-2020, which would impact jobs.
“Rising rates can actually be good – and bad – for the economy,” Nahas told the audience. “They’re bad when they increase costs. They’re good when they monitor business activity and keep inflation in check. The thinking in today’s environment by the Fed is the latter, he said “It may be painful in the short run. We may have a slower number of new home purchases or resales, or higher mortgage rates but inflation won’t get out of control.”
2. Politics and political uncertainty
Nahas explained to attendees that the mid-term elections could change the balance of power and with it, policy. “The 2018 elections are going to be telling because they’re going to determine whether or not the policies of the current administration are going to be maintained,” he said.
3. Housing affordability
The group pointed to wage stagnation, gentrification and a low supply of affordable homes and apartments, plus two decades of housing underproduction that has dramatically impacted the residential housing market. “The local control of housing decisions is problematic,” Nahas told the audience. “Decision makers … are beholden to voters and not to the economics of the housing market and as a result, they don’t respond to what is necessary from the perspective of housing that would be affordable and demanded by families, etc.”
Nahas told the audience that the solution is quite simple. “It’s a supply and demand problem,” he said. “If we can increase the supply of housing, we can lower the pricing.” The problem, he added, is convincing local officials to expand density.
4. Generational change and demographics
The organization advised that for the first time in more than 50 years, there are four groups influencing both commercial and residential real estate: Millennials, Baby Boomers, Gen X and Gen Y.
On the rising tide of Millennial homeownership, Nahas said “We have more people today under 40 influencing real estate. That affect has not been fully felt yet. It’s going to take some time. It’s going to happen faster, because everything in this era happens faster.”
5. E-commerce and logistics
Technology is continuing to disrupt, and how we are buying things change, Nahas observed. The group said that there is concern of retail sector volatility, including the rise of e-commerce and logistics that support warehousing and delivery of goods.