At the time of writing our investigative report, we do not yet know the full extent of the trade tension between the United States and China. We still cannot 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 America.
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 de-escalation will likely only begin when there are visible signs of economic, market and / or political pain. So far, we view these trade tensions between the US and China as a significant risk to sustained coordinated growth in real estate markets.
Now we don’t see any real improvement for the rest of this year and indeed there is a risk that conditions will continue to deteriorate. Two key and modest positive economic assumptions are: 1) trade with China will be resolved; and 2) US growth will continue to be exceptional next year.
Due to the current state of the United States economy and strong economic predictions, we see no surprises from the feds. Rates will continue to rise in line with growth, employment and expected inflation. Whether there will be more rate hikes in 2018 will depend on external data. If there is another acceleration in economic activity and higher wage growth, the Fed will likely respond with tighter monetary policy.
Since the 2010s, the United States economy has expanded at an average rate of 2.2%. The next factor explains this growth. In the United States, monetary and fiscal policy began supporting the economy immediately to mitigate the impact of the housing and financial crisis on economic growth and employment in 2009.
Despite the Fed rate hikes, interest rates remain quite low and
they have been for several years. The feds are expected to keep raising interest rates. This is why real estate investors are concerned. 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 generally change due to negative imbalances affecting demand and / or supply drivers. Overbuilding, excess borrowing, and overselling are imbalances that have characterized past recessions; all seem unlikely under current conditions.