Roll the dice on inflation

Has your appraisal volume spigot turned off? A hard stop?

What about your personal stock investments? Tanked? Own any crypto? Oof.

Who really understands the impact of inflation and interest rates on real estate? Appraisers do, but what about investment alternatives?

Inflation and real estate alternatives

The following are some thoughts from my financial planner. I like him a lot since he doesn’t pretend to know all the answers but takes a measured approach to risk. He changes the investment buckets on an “as needed” basis after risk discussions with his clients.

“Recently two important events occurred, the national mid-term elections and the latest Consumer Price Index report (which reports the inflation rates). While both are important, one can tell by the market response that, by far, the more important metric is the inflation report.”

“Inflation: CPI (Inflation) came in marginally lower than expected and the US market indexes (SP500/DOW/NASDAQ) responded with 2.6% to 5.5% spikes up within the first hour and half of the market open. Only time will tell what happens next in the markets, but it illustrates how impactful the expectation of future changes to interest rates really is.”

Pure conjecture

“Many ask how/when I think the markets will recover, are we at a market bottom, etc. My answer is, I have no idea (it’s the future – all is just conjecture). But here’s three guesses on some of the macro events driving inflation upward:”

• “I don’t see the Ukraine War lasting for years. My guess is when the war reaches some type of reasonable conclusion (cease-fire/withdrawal/whatever). We will see a huge positive response by the markets with an expectation that energy and agriculture prices might begin to normalize/come down. These two pieces of the economy are key drivers to inflation results.

• China is still in “Zero COVID” mode which has resulted in much of its factory/productivity activity being severely reduced, thereby reducing the supply of lots of stuff the world needs. I don’t see how this situation can hold for years since it would literally cripple the Chinese economy. Once China starts “re-opening” more of its factories should help the supply/demand in-balance that can contribute to rising prices.

• Interest rate increases generally take about nine months to “show up” in economic activity. We have had six rate increases this year and it is likely that we are just now/recently starting to see the results of those increases. No promises obviously but I’m of the belief that sometime by Q2 2023 we will see the rate of interest rate increases decline. Any reduction in the rate of interest rate increases should be well received by the markets.”

More guesses

“Comments about the mid-term election and impact on portfolios:”

“Inflation will be a much bigger driver to the markets than the political landscape. That being said, LPL financial recently came out with a study that indicates the 12 months after mid-term elections, where there is a Democratic president with a Republican or split congress, the SP500 has had double digit positive returns.”

The future (maybe)

“Hey, I don’t know – it’s the future! But my guess is we’ll have a very volatile market environment over the next several quarters but I personally don’t see a multi-year super high interest rate environment.”

How’s your CRE investment appetite? Stocks any better? I believe YOU are the best investment you can ever make.

Invest in your team

Abraham Lincoln says it best, “The most reliable way to predict the future is to create it.” Create productivity for your appraisal department and commercial firm with YouConnect and DataComp Suite (as marketing guy, you know I had to mention products😊).

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