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IRVINE, CA—The overall slight dip for Ten-X's May All Property Nowcast and the very mixed movements across the property segments suggest that higher rates and significant policy uncertainty continue to buffet the market, the firm's chief economist Peter Muoio tells GlobeSt.com. As we recently reported, the Nowcast revealed that prices declined by 0.1% in May after an encouraging 2% gain in April. The reversal marks a return to the flattening of pricing growth that the market saw in the months following the presidential election in November 2016.
We spoke with Muoio about the flattening trend and if it is expected to continue.
GlobeSt.com: Do we expect this flattening trend to continue?
Muoio: We really don't know. When the Nowcasts jumped across the board in April, we thought perhaps the market was re-emerging from its post-election reset. But the overall slight dip for the All Property Nowcast and the very mixed movements across the property segments suggests that higher rates and significant policy uncertainty continue to buffet the market.
GlobeSt.com: How much more can we expect prices to contract before they reverse course?
Muoio: That really depends on what happens with interest rates and the economy. The prospect of higher rates definitely puts downward pressure on prices, especially now that cap-rate spreads have compressed so much in the face of the pop in rates in November. However, if rates are rising because the economy is strengthening, then that should help drive NOI growth and buttress property valuations. I believe the real issue is that investors are bifurcated between those that think the economy is about to gain steam and those that worry that after such a long cycle we are nearing its end. This push-pull is currently resulting in property prices drifting.
GlobeSt.com: Which political policies might affect this trend and how?
Muoio: There are so many things in play, and indeed, we believe the very multitude of potential policy outcomes is generating a lot of uncertainty, which is itself a drag on growth and investment. There are many key policy areas that are in play and could create significant risks and opportunities for CRE investors in various property segments and geographic markets. These include healthcare, taxes, immigration, infrastructure spending and relaxed regulation—both financial and other—and travel restrictions.
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Carrie Rossenfeld
Carrie Rossenfeld is a reporter for the San Diego and Orange County markets on GlobeSt.com and a contributor to Real Estate Forum. She was a trade-magazine and newsletter editor in New York City before moving to Southern California to become a freelance writer and editor for magazines, books and websites. Rossenfeld has written extensively on topics including commercial real estate, running a medical practice, intellectual-property licensing and giftware. She has edited books about profiting from real estate and has ghostwritten a book about starting a home-based business.
