Against a backdrop of reduced values, resilient fundamentals, and the prospect of lower financing costs, potential opportunities are emerging across the U.S. real estate market. But given the uncertainties remaining, caution remains key.
Economy
- Recent data continues to support the “soft landing” narrative that once elicited skepticism. CPI inflation excluding food and energy grew by 3.3% year-over-year in June, the slowest pace of inflation since May 2021.
- The initial estimate of second quarter 2024 real GDP SAAR growth was reported at 2.8%—higher than the 1.4% rate of the first quarter. The underlying strength of the economy serves as a reminder not to take anything for granted regarding monetary policy.
- The fight against inflation is far from finished, not only because certain components of the price basket remain elevated, but because the potential policy implications of Trump’s vocal endorsement of tariffs, immigration restrictions, and corporate and household tax cuts are also likely to spur additional inflation if fully realized.
Property Market
- Preliminary transaction activity data shows that year-over-year sales volume has declined for eight consecutive quarters matching the period during and following the GFC. However, the cumulative decline of 44%, when considering the NFI-ODCE after the GFC, was far deeper than the more recent decline of 23% from the peak.
- As investors contemplate the price correction, the length of the current downturn, and the prospect of lower borrowing costs, many are positioning themselves to deploy capital.
- Distress levels continue to climb even as a recovery approaches. MSCI RCA estimated that cumulative real estate debt distress across major property types reached $94 billion as of the second quarter of this year. Office comprised the largest share of outstanding distress at $41 billion, however, distress is pending across other property sectors.
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