Real Estate Investment Outlook September 2019



    LOS ANGELES, CA.Economic growth in the second quarter was slightly better than expected. The economy expanded at a pace of 2.1%, while the growth rate for the first quarter was downgraded from 3.2% to 2.7%, showing that our economy has been losing steam since mid-2018.

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    If employment remains stable with future job creation, household consumption will continue to support economic growth, while the deterioration in business will damage the upturn of real estate. Another force of growth incentive in 2019 and the following two years will be an increase in government spending, as Congress and the president have announced a plan to raise spending caps for fiscal years 2020 and 2021. Trade will continue to make a negative contribution to growth despite the protectionism of the administration. Against the backdrop of high employment and stable domestic demand, the probability that our economy will fall into a recession remains moderate for now.


    Wage pressure is rising only slowly. Thus, inflation rates are well below the target rate of 2%, at around 1.6%. Banks can therefore adjust their policies to reflect the blurring outlook for the economy. The banks have already reacted to the unexpectedly low inflation and the risks inherent in Trump’s trade policy. The Fed already stopped cutting interest rates. Therefore, they have taken a wait-and-see stance, given the trade tensions between the US and China.


    We now expect that the Fed will adjust its stance, given the trade tensions between the US and China, to alleviate the negative impact of declining trade growth on the economy. Given the rise of our corporate advantage by approximately 48%, according to the US Flow of Fund statistics, since the end of the Great Recession, lower interest rates may help to better mitigate lower revenues in case of slowing demand, and may help to stabilize employment growth, disposable income and the real estate industry.

    In spite all of this tension, however, it is not inconceivable that deals could be done and real estate investors could relax once more. However, the uncertainty persists for now and the longer these concerns affect real estate investments, the longer plans could be held back. Nevertheless, many parts of our economy are holding up well, in particular the service sector on the supply side. On the demand side, consumer spending should save the current economic expansion given the level of employment and steady wage growth.

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