CHICAGO—The news about an economic slowdown in China sent a few jitters around the world this year, but the actual impact on the US real estate market probably won't match anyone's worst fears. That's one of the most important conclusions reached by Cornerstone Realty Advisers' recently published Global Listed Property Review. But that does not mean that the matter is of no concern.
"It's true that the slowdown has little day-to-day direct impact on the US economy, certainly not US real estate," Dave Wharmby, a managing director of Cornerstone, tells GlobeSt.com, since very little of the economy depends on trade with China. However, "it can cause a sentiment-driven contagion by having an impact on business owners' psyches. Many could decide to start putting off certain purchases," and therefore, set up a drag on the US economy.
And even though German exports to China don't amount to anything truly significant, it's also possible that this contagion could have a greater impact on the European economy. "The recovery in continental Europe is more nascent and fragile," Wharmby says, "and they don't need to scare the little green shoots that they're seeing back into the ground."
Still, Chinese growth remains relatively strong, he adds, at least when compared with rates seen in the developed world. And even though it probably won't return to the spectacular levels of growth reached over the last decade, the central government recently eased monetary and housing policy to give the economy a boost. "China has a lot of policy levers that it can pull," and recent statements by China's leaders has assured many that they will use those tools to at least maintain growth near the present level between 6% and 7%.
But the underlying strength of the US real estate market should protect it from the tremors in China. In some ways, the US benefits from the uncertainty abroad, as overseas investors have increasingly decided that it provides a safe haven for their capital. "From a real estate perspective, you're certainly seeing capital flow into what are perceived as pockets of strength; London and much of the US in particular," Wharmby says.
"To thrive, real estate needs reasonable levels of supply and demand," and that is the current trajectory for the US. Wharmby agrees with most forecasters that its economy will experience slow and steady growth next year, and perhaps longer, but not enough to cause too much exuberance.
But he is not completely comfortable with the baseball game analogy commonly used these days to calibrate where the economy stands. For example, some may say we are in the fourth or fifth inning of the present upward cycle. But Wharmby says it "feels like this may be a longer game than we've ever had in the past," perhaps one with more than nine innings.
"It's true that the US expansion has lasted for a very long time, but we are coming out of an extraordinary period following the financial collapse." It has taken this long to regain the number of jobs lost in the downturn, and "we haven''t yet gotten the productivity gains and the housing expansion you would expect by now. There is an argument that we're just beginning the real economic expansion."
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Brian J. Rogal
Brian J. Rogal is a Chicago-based freelance writer with years of experience as an investigative reporter and editor, most notably at The Chicago Reporter, where he concentrated on housing issues. He also has written extensively on alternative energy and the payments card industry for national trade publications.
