The timing of the April 10, 2024, Walker Webcast was notable. It took place just hours after the Bureau of Labor Statistics released its Consumer Price Index Report. The CPI generated blaring headlines announcing that year-over-year inflation stood at 3.5%.

However, webcast host Willy Walker (Chairman & CEO of Walker & Dunlop) and his guest, noted economist Peter Linneman, sought to clarify the churning inflation waters and what the Federal Reserve might do in response.

For one thing, the CPI doesn’t tell the whole story. Yes, prices increased in the food and energy sectors by 0.2% and 0.1%, respectively, but Linneman’s and Walker’s concerns were that the Fed would focus on the largest increase, which was in the housing sector. Rental makes up 36% of the CPI index and increased by 5.7% for multifamily rentals and 5.9% for single-family rentals.

The issue, however, is that the data is somewhat flawed, at least on the single-housing end. “Fundamentally, two-thirds of all households own their homes,” Linneman commented. “If I ask a homeowner how much their rent went up last year, they’ll say zero.”

Furthermore, when discussing multifamily, “anybody in the business knows that rents aren’t rising,” Linneman pointed out. With these nuances in mind, Linneman considered that the overall inflationary increases, accounting for food, energy, communications services and medical expenses, are calculated closer to 1%. “If the Fed sees that 100% of the inflation identified is coming from one sector, that’s not inflation in the economy,” Linneman said. “That’s prices rising in one sector.”

Analyzing Real Estate

Speaking of housing and other real estate, Linneman anticipates that the remainder of 2024 will be challenging for the multifamily sector until supply normalizes and rents readjust. Housing will also remain challenging for the single-family sector, continuing the housing shortage. Linneman said that the sector will struggle to build much more than 1.1 million units a year, partially due to NIMBYism. As a result, “we’re in kind of a permanent position in that single-family home prices will go up notably faster than inflation, but we just don’t have enough housing units,” Linneman commented.

On the office side, the back-to-work movement continues sluggishly. Despite this, $80 billion is being funneled into new office buildings in the United States. Linneman explained that some of that money is being used for extensive build-outs. Other money is going to what Linneman called “the shiniest, newest thing” in hopes that tenants will migrate to it.

Meanwhile, “the number of properties being taken back by lenders is still quite low,” Linneman said. “They don’t want them. They have to put money into them.” He allowed that until more people returned to work on a more consistent basis, the office sector would continue to struggle.

Light at the End of the Tunnel?

Linneman and Walker also touched on the interesting news of Blackstone’s $10 billion acquisition of AIR Communities, the former’s most significant acquisition in the multifamily space.

Walker’s question was whether the Air acquisition could be considered the beginning of the end of CRE capital shortage. According to Linneman, the deal represents “the beginning of capital coming back to real estate in general, and maybe to public companies,” while some will head to more private groups. Furthermore, there continues to be plenty of dry powder out there.

“A lot of the major banks have their reserves,” Linneman said. “People are buying insurance policies, and that money has to be put to work by making loans. Capital has to be put to use, and real estate will be one of the places where it will be put to use.”

Looking into his crystal ball, Linneman held firm that the Fed would cut rates between 75 and 200 basis points in 2024. He also held firm in the outcome of this year’s presidential election. “Somebody will win,” he commented. And no matter who it is, a lot of people will be unhappy.”

On-demand replays of the April 10 Walker Webcast are available through the Walker Webcast channels on YouTube, Spotify and Apple. Subscribe to get invites, replays and articles for new Walker Webcast episodes every week.