Economic insights: November/December 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. U.S. election
Following the recent U.S. presidential election of Donald Trump, the stock market experienced a significant rally, as markets generally favor certainty. This rally was the largest ever seen post-election, but it was accompanied by a decline in the bond market.
The stock market’s response suggests optimism about future corporate profits from President-elect Trump’s promised deregulation and tax cuts.
Conversely, the bond market’s reaction, with mortgage rates rising to just under 7 percent, indicates expectations of rising inflation. President-elect Trump’s anticipated tariffs are expected to increase prices, contributing to inflationary pressures.
Despite proposed cuts in government spending, mandatory expenditures on programs like Social Security and Medicare limit the feasibility of significant reductions, leading to higher budget deficits and increased interest rates on government debt.
2. Inflation and Federal Reserve cuts
The Federal Reserve has recently cut rates, responding to current economic conditions.
The economy is currently stable with steady growth, strong labor markets and inflation at the Fed’s target of 2 percent.
Financial markets were almost certain of a December rate cut, but this probability has decreased to 60 percent post-election. The Fed’s actions reflect a balance between addressing current economic conditions and reading future market signals.
3. Housing market
The housing market faces challenges from tariffs on imported materials and the deportation of undocumented workers, many of whom are employed in construction. These factors could further limit housing inventory.
If mortgage rates remain high, the “lock-in” effect, where homeowners are reluctant to sell due to low fixed rates compared to higher market rates, may re-emerge.
However, markets can adapt to higher rates over time. If high mortgage rates become the norm, the market will return to fundamentals, with more cash sales and fewer buyers waiting for rates to drop.
4. Europe
Reports indicate that industrial output in Europe is on the decline, and the increase of tariffs under the new U.S. administration will further strain these economies. The impact of U.S. tariffs will particularly negatively affect trade dependent countries like France and Germany.
Europe’s current issues extend beyond trade, with aging populations and structural problems. The region’s economic challenges will be compounded by tariffs and the additional economic pressures they bring.
5. APAC region
The APAC region is generally experiencing notable economic activity.
Japan is seeing a slight uptick in consumer consumption, although growth remains modest, at around 1 percent, due to demographic constraints.
Cross-border property investments in the APAC region have shown a significant 15.7 percent annual increase. Additionally, advancements in artificial intelligence are helping to mitigate labor shortages in the region.
China continues to face economic challenges, and the impact of future U.S. tariffs, which could range from 10 to 60 percent, remains uncertain. These tariffs are likely to rearrange economic activity and supply chains, benefiting countries like Vietnam and India.
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.