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ECONOMY

2020 U.S. Real Estate Market Outlook
November 19, 2019
 

RESILIENCE DESPITE HEADWINDS

The U.S. economy enters 2020 in relatively good condition, but waning fiscal stimulus and slowing global growth complicated by an on-going U.S.-China trade conflict are clouding the outlook. Nevertheless, CBRE sees property market resilience through 2020. Expectations of growth are underpinned by lower-than-expected interest rates and conditions supporting consumer spending.

BELOW TREND GROWTH ON THE HORIZON

Economic growth likely will slow in 2020. Factors weighing on growth include lower capital expenditures by corporations amid heightened uncertainty in 2019, slowing global growth compounded by on-going trade tensions and waning effects of fiscal stimulus.

CBRE forecasts growth below the estimated long-term trend—near 2.0%—with U.S. GDP growth between 1.5% and 2% for 2020. Importantly, a recession will be avoided, absent unforeseen shocks, primarily due to monetary stimulus and healthy consumer sentiment.

FIGURE 1: KEY ECONOMIC METRICS

2020-Market-Outlook-Economy-FIG01-01

Source: CBRE Research, Q3 2019.

FED TO THE RESCUE

The rapid shift in global monetary policy from tightening to stimulus has caused CBRE to revise its outlook for 2020. The Federal Reserve cut interest rates three times in 2019 and, due to expected slower economic growth, likely will make two more cuts in 2020, lowering the federal funds rate to a range of 1.0% to 1.25%. In addition to rate cuts, various other measures—such as expanding the Fed’s balance sheet by purchasing securities—likely will support the economy via financial channels. This shift in policy will provide enough stimulus to prevent a recession, even as growth slows. 

FIGURE 2: FEDERAL FUNDS RATE

2020-Market-Outlook-Economy-FIG02-01

Source: Federal Reserve Bank of St. Louis, CBRE Research, Q3 2019.

SHOPPERS DO THE HEAVY LIFTING

Consumer spending accounts for approximately two-thirds of U.S. economic activity. Low inflation, low interest rates, healthy wage gains supported by a 50-year low unemployment rate and strong consumer sentiment provide a reasonably good outlook for consumer spending in 2020. Given macro-economic uncertainties—particularly associated with U.S. tariffs on consumer goods—CBRE sees consumer spending slowing from 2.4% in 2019 to just under 2.0% in 2020. Nevertheless, spending at this level should propel economic activity and support enough job growth to absorb new entrants into the labor market, as well as some workers who voluntarily left the labor force and are now re-entering the job market.

Slowing economic activity and consumer spending likely will limit inflationary pressure. The absence of price pressures will allow monetary authorities to respond to evolving economic conditions. As measured by the Consumer Price Index, CBRE expects inflation to hold steady at 1.7% in 2020. 

FIGURE 3: CONSUMER SPENDING VS. GDP

2020-Market-Outlook-Economy-FIG03-01

Source: CBRE Research, Q3 2019.

LOWER GROWTH PRESENTS RISK

Some degree of risk in 2020 comes from slower growth, which makes the economy more vulnerable to unexpected shocks such as geopolitical conflict that could cause a broader disruption of commerce. Though we will not speculate on the probability of such scenarios, examples of this include a halt in shipments of goods and commodities through key waterways or an escalation in the U.S.-China trade conflict that disrupts global industries, such as technology.

Due to this level of uncertainty, businesses will generally remain defensive throughout 2020, particularly for industries that are vulnerable to any policy changes after the 2020 election. Additionally, a relatively stable U.S. economy amid a weaker global environment creates conditions for a stronger U.S. dollar. Should the dollar appreciate rapidly, dollar-denominated debt defaults could spike—particularly in emerging markets—creating instability in the global financial system.

CRE REMAINS A GOOD BET

A higher degree of policy uncertainty—be it from monetary authorities, national security or questions surrounding industry-specific proposals—will be front and center in 2020 as the November elections approach. Amid this backdrop, CBRE expects slowing but sufficient growth that will generally support strong property market fundamentals. A combination of resilient economic activity, strong property fundamentals, low interest rates and the relative attractiveness of real estate as an asset class are the primary factors supporting our view that 2020 will be a good year for real estate.

FIGURE 4: BUSINESS CONFIDENCE VS. CONSUMER CONFIDENCE

2020-Market-Outlook-Economy-FIG04-01

Note: Circle highlights precipitous drop in business sentiment.
Source: Federal Reserve Bank of St. Louis, Business Roundtable, University of Michigan and CBRE Research, August 2019.

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Contributors

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Richard Barkham, Ph.D.
Global Chief Economist & Head of Americas Research
+1 617 912 5215
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Spencer Levy
Chairman, Americas Research & Senior Economic Advisor
+1 617 9125236
Darin Mellott, Director of Research and Analysis, Southwest Region
Darin Mellott
Director of Research, Americas
+1 801 869 8014
+1 801 869 8080