Economy Set for Soft Landing

摘要

The U.S. economy has slowed down somewhat, but is fairly on par with consensus expectations. Despite some uncertainty and continued concern over inflation, the economy appears headed for a soft landing with the most likely near-term scenario being moderate increases in interest rates, inflation, and growth. The housing market is one of the wildcards but not in terms of whether it will correct, but how long and how deep the downturn will be on the heels of the record bull run it had enjoyed. The capital markets remain favorably disposed toward real estate, a situation that has held for the past several years and is unlikely to reverse over the near term. As in the case of the housing market, however, the good times are likely to come to an end at some point, with the timing the unknown. Clearly, the pent-up demand for commercial real estate and the relative absence of realized losses will help avoid any near-term correction, suggesting record prices will continue to hold. The improvement in real estate fundamentals has provided some welcome relief to investors absorbing low current yields, although the increase in construction activity combined with moderating economic growth could take some of the momentum out of the market. Even if this unfolds, strong capital flows coupled with the fact that current pricing has been somewhat institutionalized is likely to propel the sector along and allow it to forestall its day of reckoning.