Inflation reached a new high in 2021 with labor shortages and hobbled supply chains. This caused an increase in product and services cost. Combined with the pandemic effect, the GDP was terribly impacted.
The U.S recently recovered in terms of GDP from the pandemic-induced slow down in 2020-21. Real estate recovers at a fast pace, with a few sectors recovering faster than the others. This pace of GDP growth is expected to slow in 2022 as compared to 2021. Along with low interest rates, strong economic growth also provides highly supportive conditions for commercial real estate. Society is learning to adapt to life with the virus and the ability to manage its effects has improved considerably.
However, the interest rates have been steadily increasing. With the rising costs of energy, food, and other staples, the Federal Reserve plans to temper inflation by raising interest rates. The central bank has boosted interest rates by 0.25% in March, and another 0.5% in May. While this increase in interest rates have raised a sense of concern among some real estate fund managers, there is really no need to worry.
Given the strong economic recovery and inflationary pressure, Fed is expected to amend its policies and increase the liquidity and improve market functioning until mid-2022. This helps in potential increase in the federal funds rate but not as sharp enough to disrupt property markets, with the 10-year Treasury yield expected to reach 2.3% (from 1.4% in early December) by the end of 2022.
Reasons why we think real estate would not be affected
- There is a continued spike in interest in real estate from both domestic and foreign investors
- Increasing robust demand in sectors such as housing and industrial ones
- Domestic and foreign investment interest in real estate nears record highs
- Investors continue to look for opportunities to deploy funds as an alternative to stocks and bonds.
- Real estate is viewed as a hedge against inflationary markets
- Fundraising efforts across the country have shown strong positive trends, despite the ongoing pandemic and geopolitical landscape.
- Infrastructure Investment and Jobs Act and the social spending proposals under consideration could add a push to the GDP and boost of Real Estate industry.
At 33 Holdings we have a team of dedicated experts who know how to make the most out of any economic climate in order to ensure steady returns for our investors.
If you want to learn how we can put your capital to work with one of our risk adjusted investment funds amidst the changing economy, connect with our team today.