Economic Outlook and Predictions by the WEF for 2024
As a real estate investor, I try and keep an eye on economic forecasts and policy shifts that could impact the market. Although I am a few months behind on this one, the World Economic Forum (WEF) published their “Chief Economist’s Outlook “ in May 2024. In doing so, they offered a detailed analysis of our current economic trends and gave us, the RE investor a glimpse at what is coming for the upcoming year. So with their insights what is on the horizon and how does this shape our real estate strategies?
Economic Shifts — is shifting sand or Solid foundation
The WEF’s paper reveals some optimistic changes. In January, you might have been reading and hearing a lot of doom and gloom. In fact over half of the economists predicted a weak global economy, but now that number has plummeted to just 17%. The US economy is expected to stay strong, while the European Union (EU) might face some hurdles. Interestingly, the WEF forecasts that the European Central Bank (ECB) might lower interest rates, contrasting with the steady rates anticipated from the US Federal Reserve with now only x1 likely cut to be issued.
For US real estate investors, this signals a potential window of opportunity. A robust US economy combined with steady interest rates can stabilize borrowing costs and foster growth in property values. However, this year still will have a high likelihood of expensive debt with very little in sight of rate cuts from the Fed, as discussed above.
Energy Policies and Economic Growth
One of the key themes noted by the WEF is the link between GDP and energy production. The WEF asserts that their energy policies will spur economic growth, despite skepticism from some corners. I wonder if this will be a component of discussion within the presidential debates… keystone pipeline vs international sanctions…per se. They also highlight how geopolitical tensions could influence global inflation and economic stability.
From an investment standpoint, these energy policies could affect operating costs for properties, particularly those relying heavily on utilities. Understanding these dynamics allows us to anticipate changes in overheads and adjust our investment strategies accordingly. With this in mind, consider the OpEx of carrying utilities on your project may go higher. Certainly we are already seeing this, but you need to make further considerations in making your calculations. JD Power and Associates report price increases by as much as 27% in the first half of 2023. We recommend that you account for as much as 25% price increases for any long term holds, ie Short term rentals, where you are carrying the utilities.
Navigating Uncertainty — What should we all be scared about?
The global environment is fraught with complexity influenced by international conflicts, domestic issues, and high interest rates. Uncertainty remains the main concern for us as investors. Do we stack up cash and hold for the next 2008 financial crisis…OR…do we keep on buying, flipping and expecting that home prices to go up, as their prices will ultimately be reflective of the inflationary pressures that are underway?
Well…
Here is what is making it challenging to strategize and plan effectively. The WEF economists note a growing divergence between official economic data and public sentiment, attributing this gap to inequality and uncertainty. For real estate investors, this uncertainty requires us to be agile and informed. Keeping a pulse on both macroeconomic trends and local market conditions can help mitigate risks and uncover hidden opportunities.
Decision Making with Economic Policies in Mind
When it comes to business strategies, the WEF economists believe that geopolitical factors will play a significant role in decision-making. However, this perspective seems more applicable to multinational corporations than smaller businesses. How does it play out for the “small local guy”? Inflation and labor costs, for us, are more immediate concerns. We are the ones hiring the contractor to do the tape and bed/painting, and man are their prices going up. Interestingly, the report mentions that labor is seen as one of the least important factors in business decisions…
REALLY?
This seems like an observation that feels out of touch with the realities on the ground. Our labor costs directly affect purchase prices we can obtain the property, property management rates, renovations costs/expenses, and the rent rate at which we can bring the property to market. Keeping an eye on labor market trends is proving to be an important insight for predicting future cost structures and has helped us budget more effectively.
So What is Long-Term Economic Trend?
Looking ahead, the WEF acknowledges a slowing in global growth — a trend that has persisted since the early 2000s. They worry that the world may not return to pre-pandemic growth rates, partly due to technological advancements like AI not delivering the expected economic benefits.
For my investment strategies, slower growth means we need to be more strategic. While technology offers tools for better property management and market analysis, the human element — understanding community needs and fostering local relationships — remains crucial. I can’t expect my computer AI system to close the wholesale deal for me. You need to get your nose our of your computer, NOW, and go talk to real people!
Policy Recommendations — What Is The Real Estate Impact?
To ensure sustainable economic growth, the WEF recommends focusing on education, infrastructure, access to finance, and institutional improvements. They argue that misallocated capital has hindered growth, and better policies could rectify this.
As the RE investor sees it, these recommendations are a mixed bag of bull$h@t…
For the most part.
On one hand, improved infrastructure and access to finance can drive property values and facilitate investment. On the other, increased centralization and policy shifts could introduce new regulatory challenges, as is widely seen with the policies in California creating high costs of living, low housing inventory, and significant challenges for the low income housing market…We just can’t build em like we used to…Navigating these changes is key, and I recommend that you keep informed, pay attention to your political leader’s stance on RE, low income housing, and housing regulations. I don’t believe the regulations imposed on wholesalers is creating the impact that is needed.
In Illinois, for example, individuals must possess a broker or salesperson license to lawfully engage in the buying and selling of real estate, reflecting a significant barrier for some properties as many of these are low priced dumps, hence “we buy ugly houses” company slogan. This in turn really prevents many of these properties from easily getting moved through the market…it is hard to do work as a realtor, especially if the property is a wreck and the clients are what they are…sometimes challenging.
In conclusion, he WEF’s report offers a cautiously optimistic outlook, tempered by significant risks and uncertainties more specifically for non US markets. For real estate investors, these insights highlight the importance of agility and foresight. By staying informed about economic policies and geopolitical trends, we can better position ourselves to capitalize on opportunities and mitigate risks. As always, the goal is to not only generate wealth but also to contribute to the community’s growth and well-being through thoughtful and strategic property investments.
Alternate Door — Changing Doors | Changing lives
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