NEW ORLEANS—Real estate economist Mark Dotzour didn't vote for either of the main presidential candidates last year. “I voted for Gary somebody,” he joked during a presentation he made to an audience last week. On top of that, he has little faith in Congress to adequately support President Trump's proposal to invest billions in the nation's infrastructure, which has been one of the main hopes of the commercial real estate industry.
For that Dotzour, who was the chief economist of the Real Estate Center at Texas A&M University in College Station for 18 years and now advises the private sector, is thankful. If Washington DC could get it together to give Trump what he is asking for, it would add too much juice to the economy, he told attendees at The Society of Industrial and Office Realtors' 2017 Spring World Conference, held in New Orleans last week. Should that happen, it could usher in a period of high or even runaway inflation.
Other than that scenario, he is very enthusiastic about the commercial real estate's near and longer term future. Still.
“I will be bullish on real estate until there is something better” in which to invest, he says.
Dotzour's message about the economy and the real estate cycle could not be more different from the one he had last year when he told SIOR attendees that a recession was coming. (Another Dotzourism worth mentioning here, “I am an economist, which means there is only a 50% chance I am right”).
Now he says that a recession is still coming in that recessions always come, but US economic and political conditions have shifted to create almost the perfect environment for real estate investing.
“Who Will Build All Those Bridges?”
The job market is close to full employment with wage increases starting to manifest. That should mean higher inflation. But—lucky for us—the strong US dollar will keep inflation at bay.
The one development that could override that circuit breaker of sorts—the strong US dollar—would be Congress funding the wall that President Trump wants to build between Mexico and the US and/or funding his $1 trillion dollar infrastructure plan.
“Who would build all those bridges?” he said. “Who will build the wall? We don't have enough workers as it is.” The answer would be higher and higher wages to entice more workers to enter the construction industry — and that would lead to higher inflation. Much higher. This, in turn, would lead Fed Chair Janet Yellen to raise the federal funds rate at a faster clip and to a higher rate.
There is one area in which Trump is moving forward and the Republican-led Congress is happy to step aside or assist in any way: the scaling back of regulations. This is the last piece underlying the current strong conditions that Dotzour says will be the hallmark of real estate markets for the next few years.
Surging Enthusiasm
Trump's promise to lift regulations is one reason why business enthusiasm surged after he was elected, Dotzour says. Companies were also joyful because of his promise to reform taxes and pass other business-friendly legislation. In those early days of November and December 2016, business people, it is now clear, completely forgot about the different factions in Congress and within the Republican party that could stymie legislation. That bit of fantasy — that Congress and the White House would work hand-in-glove together — has evaporated now, but there is still genuine excitement about the regulations, Dotzour says.
Today, his projection for the economy is that the current cycle still has more room to run, about two to three years.
“The government can't create jobs — it can only create an environment that encourages companies to hire. Trump has done that whether you like him or not.”
NEW ORLEANS—Real estate economist Mark Dotzour didn't vote for either of the main presidential candidates last year. “I voted for Gary somebody,” he joked during a presentation he made to an audience last week. On top of that, he has little faith in Congress to adequately support President Trump's proposal to invest billions in the nation's infrastructure, which has been one of the main hopes of the commercial real estate industry.
For that Dotzour, who was the chief economist of the Real Estate Center at Texas A&M University in College Station for 18 years and now advises the private sector, is thankful. If Washington DC could get it together to give Trump what he is asking for, it would add too much juice to the economy, he told attendees at The Society of Industrial and Office Realtors' 2017 Spring World Conference, held in New Orleans last week. Should that happen, it could usher in a period of high or even runaway inflation.
Other than that scenario, he is very enthusiastic about the commercial real estate's near and longer term future. Still.
“I will be bullish on real estate until there is something better” in which to invest, he says.
Dotzour's message about the economy and the real estate cycle could not be more different from the one he had last year when he told SIOR attendees that a recession was coming. (Another Dotzourism worth mentioning here, “I am an economist, which means there is only a 50% chance I am right”).
Now he says that a recession is still coming in that recessions always come, but US economic and political conditions have shifted to create almost the perfect environment for real estate investing.
“Who Will Build All Those Bridges?”
The job market is close to full employment with wage increases starting to manifest. That should mean higher inflation. But—lucky for us—the strong US dollar will keep inflation at bay.
The one development that could override that circuit breaker of sorts—the strong US dollar—would be Congress funding the wall that President Trump wants to build between Mexico and the US and/or funding his $1 trillion dollar infrastructure plan.
“Who would build all those bridges?” he said. “Who will build the wall? We don't have enough workers as it is.” The answer would be higher and higher wages to entice more workers to enter the construction industry — and that would lead to higher inflation. Much higher. This, in turn, would lead Fed Chair Janet Yellen to raise the federal funds rate at a faster clip and to a higher rate.
There is one area in which Trump is moving forward and the Republican-led Congress is happy to step aside or assist in any way: the scaling back of regulations. This is the last piece underlying the current strong conditions that Dotzour says will be the hallmark of real estate markets for the next few years.
Surging Enthusiasm
Trump's promise to lift regulations is one reason why business enthusiasm surged after he was elected, Dotzour says. Companies were also joyful because of his promise to reform taxes and pass other business-friendly legislation. In those early days of November and December 2016, business people, it is now clear, completely forgot about the different factions in Congress and within the Republican party that could stymie legislation. That bit of fantasy — that Congress and the White House would work hand-in-glove together — has evaporated now, but there is still genuine excitement about the regulations, Dotzour says.
Today, his projection for the economy is that the current cycle still has more room to run, about two to three years.
“The government can't create jobs — it can only create an environment that encourages companies to hire. Trump has done that whether you like him or not.”
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Erika Morphy
Erika Morphy has been writing about commercial real estate at GlobeSt.com for more than ten years, covering the capital markets, the Mid-Atlantic region and national topics. She's a nerd so favorite examples of the former include accounting standards, Basel III and what Congress is brewing.
