The data presented in a ninety minute presentation by analysts of a pioneer in the real estate investment banking industry, Eastdil Secured, makes a sound argument that we can expect continued growth in 2017 and beyond. This growth is fueled by the strength of the US economy in relation to the world, and demand for U.S. assets.
Key Take-Aways:*Los Angeles only trails Manhattan as the leading foreign capital market in the US since 2013. China is the largest investor and we should also keep an eye on South Korea’s appetite for investment in the Southland.
*The nation’s Gross Domestic Product is now at 2.4%, the highest since 2011 and that trend is expected to continue.
*Even though Eastdil expects to see as many as seven increases to the interest rate in the next two years to thwart inflationary pressures, the Fed Funds rate probably will not go higher than 3%. The reason for this interest rate ceiling is that anything above 3% will cause economic hardship on corporations’ ability to service their ballooning debt which is larger than it has ever been before.
*We can expect home loan interest rates to rise 1-2% higher than today’s interest rates, which will definitely impact affordability and price appreciation.
As long as the LA economy stays strong, they expect continued market appreciation but not at the double-digit year over year growth we have seen the past six years.
Considering all the data points presented, if you look at this from a cyclical perspective, we are in a similar place to where we were in 2004. In 2007, we started facing issues that led to the downturn between 2008-2010. This infers we have about 24 months of growth left in this cycle.
Source: Meeting notes from Partners Trust Founder Nick Segal