Real Estate Investments-A Year Ahead

Real Estate Investments-A Year Ahead

As we move into the year ahead, there is a general acceptance that we are at a point where long-term economic growth in the real estate industry will be slower, but sustainable.
The word is that the year ahead is ideal for real estate investments because many investors are searching for safe havens for their capital. Real estate offers stable returns compared to other investments making it the “right” choice. However, there are several areas to watch as we approach the New Year. It is important to remember to diversify your real estate investments when navigating both certain and uncertain times. The Center for Real Estate Studies and Calstatecompanies can help you do that with our monthly research reports and quarterly research report MARKET CYCLES.

The past year has been filled with various forms of uncertainty. The one thing that seems certain is that companies are less likely to make growth plans and 

capital investments in the face of such uncertainty. With presidential elections in 2020 and banks willing to accommodate, we expect a softening of economic activity.

The driving force remains domestic demand, especially private consumption, based on our strong labor market, which is operating close to full employment. The path for economic activity and risks has become unusually dependent on the ability of our administration to avoid an outright trade war with China. We believe the bank’s easing of interest rates will be strong enough to avert a slowdown in economic growth, prolonging the current economic expansion and supporting earnings growth 

The U.S. economy is doing quite well right now, but it could falter over the next couple of years as the stimulus fades away, said Paul Ashworth, chief U.S. economist for Capital Economics, and the winner of the Forecaster of the Month award for March.
“We’ve been optimistic,” Ashworth said in a telephone interview. He and his colleagues had long assumed that the united Republican government in Washington would deliver a “sizable fiscal stimulus” and they were right. The tax cuts and the end of spending restraints should give the economy a nice boost this year and into next. Nevertheless, what happens next? “We are concerned with fiscal stimulus wearing off,” Ashworth said. He expects a “weaker” 2019 and 2020. Indeed, Capital Economics expects the Federal Reserve to be cutting rates in 2020.

“The Fed’s economic projections, which envisage the economy growing above trend all the way out to 2020, strike us as far too upbeat,” wrote senior U.S. economist Michael Pearce in a recent note to clients. “The fiscal stimulus will provide a one-off boost to incomes and spending, but unless it expands the supply capacity of the economy, growth will inevitably fall back.”

The economists expect only “a modest downturn that’s quickly reversed” in 2020, but of course the expansion has to end sometime. By then, it will be the longest expansion in U.S. history. “We stress to clients that they should think of the next downturn,” Ashworth said. “We expect it to be short-lived, with less permanent scarring” than from the Great Recession of 2008-09.

We believe that the best way to hedge against the uncertainty in the year ahead is to invest in midsize apartments in “Pockets of Opportunity’ as reported in our quarterly research report Market Cycles.

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