Saying that interest rates will start “coming down hard in nine months,” and not to listen to Wall Street predictions that rates will remain “high forever,” Spencer Levy, global client strategist and senior economic advisor for CBRE, told an audience of real estate professionals that now is the best time to buy and invest in properties while so many others are scared of getting into the market.
Speaking at NAIOP NJ’s Annual Meeting and CRE Outlook, held last Thursday at the Hilton Short Hills, Spencer said that the Federal Reserve is putting out “a lot of scary words.”
“Every time the stock market goes up, someone from the fed says something mean and the market goes down. ‘Is the fed lying?’” Levy asks. “Not exactly, but they have two tools at their disposal: raising interest rates and the power of the pulpit. … They scare you into not spending so they don’t have to raise interest rates. They are not lying, per say, but they are stretching the truth.”
Levy said he is waiting for a move from a “pity party to a pivot party” when the Federal Reserve flattens rate increases and there is evidence that rates will go down. That has not happened yet as the Federal Reserve today raised interest rates by .25 basis points, creating a target range of 4.5%-4.7%.
“Most of my clients have dropped their pencils on their desks, but I’m here to advise you that now may be the best time to buy while so many other people are scared of getting into the market,” Levy said.
He said that while the fundamentals of various real estate markets are good, Levy said the capital markets are “horrendous” and holding investors back.
On a possible recession this year, Levy sides with University of Chicago economist Richard Thaler and said that “there is no mathematical way we can enter into a recession.” He explained that the nation never went into a recession with such low unemployment and with nominal GDP growth (GDP before inflation) growing like gangbusters. “The underlying growth of the economy is incredibly strong, but we are trying to squash it because real GDP … is not incredibly strong due to inflation being so high,” he said.
He said inflation will soon drop like a rock and that the fed is trying to get the inflation rate down to 2.5%. Meanwhile, the consumer price index, hitting a high of 8.1% last year, will be 5.9% this year and 4.2% next year.
Discussing market conditions for certain real estate sectors, Levy said that the industrial market is in “great shape” with the northern and central New Jersey markets ranking as the best in the nation.
As for the office market battling the work-from-home dilemma, Levy said this is a labor vs. management issue. “The power struggle has changed, until we see a shift back, we will continue to see below-peak occupancies,” he said.
The only business sector in which the office market is doing well is life sciences, especially near universities and research hospitals. “This is driving the office market,” Levy said.
Multifamily housing is still an ideal investment since there is still a high demand with rents going up, he added.
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