The Azucena Take: Investment Real Estate in the Current Economic Climate
The prosperity of the investment real estate market is always tied to the overall performance of the economy. While other factors may be at play, the state of the economy has a significant impact on the investment real estate market. Therefore, it is important to have a good understanding of the current economic climate.
Let's take a look at how the current economic climate is performing, what economists think about it, and what it means for the investment real estate market.
Economic Sentiments
Despite the noise, confidence in the economy is growing. According to the Blue Chip Economic Indicators, the consensus economic forecast has increased, from 0.5% in January to 0.7% in February. Furthermore, only two economists are forecasting negative growth for 2023, compared to 13 in December 2022.
In January 2022, the consensus was that there would be +2.6% growth in 2023. However, it declined as the months went by, hitting a low of 0.2% in October, but it has since continued to rise going into 2023.
Does this mean that a recession is unlikely? Not necessarily. While there is still a possibility of a mild recession in the future, it may not be as severe as the 2008 crash. Essentially, most people anticipate a soft landing.
Other Economic Factors
Soft-Landing Indicators
While the overall economic climate determines how the investment real estate market prospers, other factors are also important to consider. These factors include population, demographics, and changing behavior.
While we often hear the term "soft landing," what does it really mean? The indicators that would define a soft landing are moderate economic growth, declining inflation and Federal Reserve does not raise rates too aggressively.
Impact on Investment Real Estate
Currently, property investors are not concerned about a recession, but rather, they are worried about inflation and interest rates. A strong economy could prolong the inflation problem. If that is the case, many investors fear that the Federal Reserve might adopt a more hawkish policy regarding interest rates.
Analysts are concerned that a growing economy might fuel inflation and influence the Federal Reserve's decision on raising interest rates. Many investors are preparing for a 25 basis point hike in the future, but a 50 basis point hike would be a shock to the economy.
What it Means for Investors
Investors need to have a good understanding of the economic climate in order to make informed decisions about their investments. It's important to rely on reputable sources of economic information and to be able to discern between noise and valuable insights. The economic climate can be complex and subject to change, so it's important to stay up-to-date and adjust investment strategies accordingly.
It's also important to reach out to an expert who understands the market and could advise you regarding your current investment holdings.
The Azucena Take provides an inside look into the investment real estate market using the research done and data collected by Marcus & Millichap