Think U.S. cities Q4 2019 outlook
The U.S. economy is entering its 11th year of expansion, the longest since 1854. During Q2 2019, the U.S. economy grew at an annualized rate of 2.1% and is on track to grow around 1.8% in Q3 2019.1 Strong employment and solid household income growth should support consumer spending during the next two quarters of 2019. We expect the U.S. economy to grow between 2.0% and 2.5% in 2019.
During the July 2019 Federal Open Market Committee (FOMC) meeting, the Federal Reserve lowered the target range for federal funds rate to 2.0 – 2.25%. Should the U.S. economy enter a recession, the Federal Reserve will have little room to cut the federal funds rate significantly. The federal fund futures market is pricing in a 95.8% chance that the FOMC will continue to cut rates by the end of 2019, the consensus likelihood of a recession this year remains at 31%.2
In our view, the key risks to U.S. economic growth and, by extension the U.S. real estate market, are the U.S-China trade war and slowing global economic growth. To-date the trade war has minimally affected U.S. economic growth but an increase in the amount of tariffs would hurt U.S. consumer spending and would hurt businesses that rely on trade and global supply chains to generate revenue.
U.S. real estate prices rose 1.8% in the 12 months ending July 2019, a modest increase relative to the past several years.3 The NFI-ODCE saw a total return of 5.46% net of fees for the year ending Q2 2019. NOI grew 4.8% during this time period.4 Given the maturity of this real estate cycle, we expect NOI growth to generate the majority of U.S. real estate total returns in 2019.
2CME FedWatch Tool, August 2019
3Green Street Advisors, Q2 2019
4NCREIF, Q2 2019
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A word on risk
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