Aside from not predicting that a riot would occur at the Capitol Building as he and Walker & Dunlop CEO Willy Walker spoke during the Jan. 6, 2021 edition of the Walker Webcast, Peter Linneman has been proven startlingly “prescient” in the forecasts he provided that day, Walker noted at the start of this week’s webcast. That was in keeping with the track record of Linneman’s predictions since the first of what has become a quarterly appearance in the webcast series. 

Looking ahead into 2022 and beyond, Linneman offered what Walker called a “bullish” outlook for economic growth generally and commercial real estate in particular. Both in his conversation with Walker and in the latest edition of his quarterly Linneman Letter, the real estate economist and Linneman Associates founder projected 4.5% GDP growth for 2022. 

The math on that projection is simple, Linneman explained. The economy contracted about 4% due to the pandemic, and so Linneman sees that shortfall being closed in 2022 and 2023 at about 2% per year on top of a typical 2.5% baseline. 

Prompted by Walker, Linneman forecast some numbers as 2022 comes to a close. He predicted the Dow will be up 39 points from where it is today; 10-year Treasury yields will be in the 2.5% to 2.6% range; the federal funds rate will be 75 basis points higher, based on three 25-bp increases throughout the year; and Republicans will be in control of both houses of Congress. 

In his current newsletter, Linneman doesn’t raise many red flags over possible obstacles to growth—or, as he puts it, not many factors that warrant multiple canaries in the coalmine. In fact, the only multiple-canary scenario he sees is economic growth being knocked off track by the latest COVID surge, and he told Walker that a month from now, he’d probably lower the risk rating from three dead canaries (out of a possible five) to two. 

One factor not included in the new Linneman Letter does give Linneman pause: the possibility of price controls being implemented. A year ago, he said, he wouldn’t have foreseen such controls ever being implemented as a means of taming inflation; now, he said Wednesday, “I hope there’s not a high chance of price controls.” He recalled that in the 1970s, the price controls implemented under Republican presidents Nixon and Ford were “a disaster.” 

Regardless, Linneman expect that we’ll see even more capital coming into commercial real estate a year from now, and that cap rates will have compressed further. Cap rates, he pointed out, are driven not by inflation or by interest rates, but by the weight of money.  

For the yield-starved investor, Linneman said, real estate provides “a fighting chance” of getting a return, and may be the only vehicle at present that does so. 

On-demand replays of the Jan. 12 webcast are available by clicking here and through Walker & Dunlop’s Driven by Insight podcast series.