How Do Mixed Economic Signals of a Growing Economy Amidst Inflation Impact Real Estate?

The Weekly Recap

Good morning! Wednesday CPI numbers came in hotter than expected again for third month in a row, throwing the hopes of a June rate cut for a loop while Fed minutes showed almost all participants supported cuts “at some point this year”. Manhattan rents have taken a bit of a breather, Jamie Dimon released his annual letter to JP Morgan shareholders which is like the State of the Union in the financial services world, Blackstone continues its real estate absorption with a $10B purchase of Apartment Income REIT and since last weeks newsletter we’ve survived an earthquake and a solar eclipse so, congratulations everyone.

How Do Mixed Economic Signals of a Growing Economy Amidst Inflation Impact Real Estate?

After seeing the new CPI and PPI numbers this week, it’s challenging to wrap your head around the idea that inflation is heading in the wrong direction yet the economy keeps on trucking along and hiring occurring at a rapid pace. The March jobs number was 303,000, way above the expected number. So, how does an economy keep churning the way it has been and how does it impact real estate?

Inflation has had rollercoaster movement since we entered Covid. Over the last two years, we saw that inflation decelerated dramatically from 9% to 3% between June of 2022 and June of 2023. Since then, the annual growth rate of inflation has remained effectively flat, ranging from 3.1% to 3.7% and averaging about 3.3%. The markets reaction to the March CPI number of 3.5% is right in that range but what was surprising was the significant adverse reaction seen by the drop in the Dow post-announcement.

Although the trend in the inflation data has remained relatively flat for the past year, the narrative of rate cuts has seem to become less clear and brings into focus some of the unrealized expectations of a recession from a year ago. Inflation is sticky on the downside but parenthetically that’s normal and what we’ve seen in previous economic cycles. The last mile of inflation has become a slower slog than anticipated.

Where the markets have accelerated is in the strength of a US Economy that is characterized by strong consumer demand and confidence, increased levels of business investment and a robust jobs market that is keeping unemployment low.

That economic strength might put us in position where rates are higher for longer, giving people looking to transact real estate some pause in their searches. As a buyer, you are always better off buying in a higher rate environment with lower pricing than in a lower rate market with higher pricing. It’s never a bad time to own.

Market Performance

Here are how some other indexes and asset classes have performed as of this mornings opening bell.

NYC Market Update

Here is a view of new inventory that has come onto the NYC market over the past week as well as newly signed contracts in Manhattan.

Mortgage Rate Update

Mortgage rates have been drifting ever so slightly higher due to sustained inflation and the reevaluation of the Federal Reserve’s monetary policy path. Although remaining relatively flat week over week, concern is that rates will continue to stay higher for longer, creating affordability issues for some buyers.

News You Can Use

• Consumer Prices Rose 3.5% From a Year Ago in March, More Than Expected CNBC

• Hot Inflation Report Derails Case for Fed June Rate Cuts Wall Street Journal

• Manhattan Apartment Rents Dip in Sign Market is Stabilizing Bloomberg

• Fed Prepares Slower Pace of Runoff for $7.4 Trillion Portfolio ‘Fairly Soon’ Wall Street Journal

• Jamie Dimon Likens AI’s Transformational Impact to Steam Engine Bloomberg

• New York City Braces for Congestion Pricing Axios

• NYC Return to Office Rate Hits Nearly 80%, Driven By Wall Street and Banks Bloomberg

• Labor Market is Still Hot Adding 303,000 Jobs in March Yahoo Finance

• Blackstone $10 Billion Deal is Latest Bet Property Near Lows Bloomberg

• The Solar Eclipse Could Deliver a $6 Billion Economic Boom CBS News

• Costco Selling as Much as $200 Million in Gold Bars Monthly CNBC

The Deep Insight

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