At the time of writing this research report, we still do not know the full extent of the trade tension between the US and China. We cannot yet estimate the exchange rate in the markets. We don’t even know yet if the cost of real estate would be lower or higher in the United States.
Now the rhetoric remains strong on both sides and is leading to a showdown. It is not yet clear how far it could go, and the de-escalation will probably only begin when there are visible signs of economic, political or market pain. So far, we view these US-China trade tensions as a significant risk to sustained coordinated growth in real estate markets.
We now see no real improvement for the rest of this year and indeed there is a risk that conditions will continue to deteriorate. Two key modest positive economic assumptions are: 1) trade with China will be resolved; and 2) US growth remains exceptional next year.
Due to the current state of the US economy and strong economic predictions, we see no surprises from the feds. They will continue to raise rates in line with expected growth, employment and inflation. Whether there will be more rate hikes in 2018 will depend on external data. Should there be another acceleration in economic activity and higher wage growth, the Fed will likely respond with a tighter monetary policy stance.
Since the 2010s, the US economy has expanded at an average rate of 2.2%. The following factor explains this growth. In the United States, monetary and fiscal policy began to support the economy immediately to mitigate the impact of the housing and financial crisis on economic growth and employment in 2009.
Despite the Fed’s rate hikes, interest rates remain fairly low and
They have been for several years. The Fed is expected to continue raising interest rates. This is why real estate investors are worried. Their fears are rooted in the perception that rising interest rates will weaken property values. However, historical data shows that higher interest rates have not necessarily affected total returns.
While the outlook for residential rental income properties may still be pending, it is important to recognize that the economic and financial markets are still concerned about market volatility. This can be challenging as real estate cycles often change due to negative imbalances affecting demand and/or supply drivers. Overbuilding, overlending, overbuying are imbalances that have characterized past downturns; all seem unlikely under current conditions.