Economic insights: March/April 2024

In the real estate industry, it is crucial to stay on top of market trends, of course, but also those of the global economy, which affects not only real estate, but most aspects of daily life.

Keep up to date with Luxury Portfolio International here, where Dr. Marci Rossell, chief economist for Leading Real Estate Companies of the World, shares her top five insights from the past month.

1. Inflation

Inflation rates for the month of February came in just slightly higher than expected, with the Personal Consumption Expenditure measure climbing 2.5 percent year-over-year.

Despite inflation rates remaining higher than the Federal Reserve’s target of 2 percent, Dr. Rossell believes that rates will continue to trend in the right direction and, accordingly, that we may very well be seeing the first Fed rates cut in June.

2. Growth and jobs

Growth year to date has outpaced expectations, with end-of-Q1 growth at around 2.5 percent, compared to the forecasted 1 percent.

In addition, 275,000 jobs were created in the month of February, and unemployment rates, while up slightly month-over-month, are still trending below average at 3.9 percent.

With both income and job security in their pockets, we can anticipate that prospective homebuyers will be engaging with the housing market with increasing frequency throughout the remainder of the year.

3. Mortgage rates

As of late March, mortgage rates continue to hover just under 7 percent for a 30-year fixed product.

As inflation continues its downward trend toward the Feds’ 2 percent target, Dr. Rossell anticipates that mortgage rates will follow suit, coming to rest by year’s end at a more comfortable 5.5 to 6 percent range.

4. Inventory

The U.S. housing market continues to be constrained by low inventory, falling short of annual consumer needs by approximately 4 million homes.

Dr. Rossell anticipates ongoing sluggishness in new construction, in part due to restrictive local zoning ordinances. Nonetheless, some relief can be anticipated in the second half of the year, as declining mortgage rates assuage the “locked in” effect created during the pandemic era’s historically low mortgage run.

5. Commercial

In the commercial real estate space, warehouse, distribution and medical properties are expected to show ongoing resiliency throughout the year. Investors are also expected to refocus on the hotel industry in 2024.

Office space remains the sector’s sore spot, with vacancies expected to reach record highs in 2024.

Nonetheless, Dr. Rossell feels that “doom” scenarios around office space’s impact on the overall economy are being overplayed. For perspective, Dr. Rossell points out that office space in the U.S. represents approximately $4 trillion of the current economy. In other words, the sector would have to lose 100 percent of its value to reach even a quarter of the $16 trillion decline we felt during the 2007 to 2008 recession.

As LeadingRE’s chief economist, Dr. Marci Rossell explores how global economies, policies and politics affect the real estate industry and our everyday lives, either directly or indirectly. Dr. Rossell has a proven track record for analyzing the economic market as the former chief economist at CNBC and corporate economist at OppenheimerFunds.