Change in the monetary policy stance in 2019 has been dramatic. The Feds have moved from a wait-and-see attitude in early 2019 back to a let-up mode. The Fed cut rates by 50 basis points in 2019. Against the backdrop of threats and a slowing due to trade tensions, this seems to make sense.
Our economic expansion is established and is now officially the longest on record. While business cycles do not last forever, we should recognize that the longer an expansion lasts, the more likely it is to stagger. Another sign suggesting that our economy is in the later stages of the business cycle is the extremely low unemployment rate. The yield curve shows signs of inverting from time to time, such inversions are not a guarantee that a recession is coming. They tend, however, to coincide with an increased risk of an economic downturn six months to two years into the future.
We feel a recession is unlikely thanks to strong household income growth. Consumer spending is likely to remain solid, but trade uncertainty will be an ongoing drag on real estate investments. Tariffs themselves are harmful to grow. The larger impact occurs because of the rising uncertainty, which brings caution.
Tariffs make investors unsure to what may be in the future. Many investors are waiting for greater clarity. We have already seen a significant decline in activity, and more weakness in sentiment indicators is likely in the coming months.
Despite the slowdown in investment, we feel that consumer spending growth is likely to remain solid, supported by continued improvement in the labor market. Job gains appear to be moderating, but this is being partly offset by a faster pace of wage growth. Overall, labor income has slowed modestly, but growth is still near its post-crisis trend. The unemployment rate has declined to multi-decade lows.
ApartmentData.com reports that currently, the residential real estate marketplace is slowing down. This specifically means that single-family homes are becoming scarce. This is likely to drive up prices in areas that are experiencing limited supply and high demand. Core Logic recently published a survey indicating that home prices are expected to increase by more than five percent by May 2020. Scarcity of affordable homes leads directly to increased demand for rental and lease properties
ABOUT THE AUTHOR: Eugene E. Vollucci, is considered to be one of the foremost authorities on real estate taxation and investing and has authored books in these fields published by John Wiley & Sons of New York. He is the Director of the Center for RE Studies, an educational and research organization. To learn more about the Center, please visit our web site at http://www.calstatecompanies.com