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In the Jan. 18, 2023 Walker Webcast, real estate economist Peter Linneman said the Federal Reserve's policy on rates been a mistake

Walker Webcast: Peter Linneman Thinks the Fed Has It Wrong 

In Peter Linneman’s view, the Federal Reserve’s policy on raising the federal funds rate has been an ongoing mistake. “They screwed up by being too late on raising rates and then they over-raised them,” the Linneman Associates founder said Wednesday on the Walker Webcast.  

The real estate economist, whose quarterly appearance on the webcast coincides with the release of his quarterly Linneman Letter, was incredulous over the Fed’s apparent intention to continue raising rates into 2023. He cited the dramatic slowdown in inflation lately—a slowdown he thinks probably happened too quickly to have resulted from the Fed’s actions—and the fact that the U.S. economy still needs to add 1.5 million to two million new jobs. That’s roughly the number of existing jobs the Fed wants to see go away, he said. 

Walker & Dunlop CEO Willy Walker, host of the weekly series since it began nearly three years ago, pointed out that in early 2021 Linneman had taken the Fed’s word that there wouldn’t be any rate increases for the foreseeable future. “I believed the Fed,” Linneman said Wednesday. ‘Shame on me.” 

Paraphrasing Sam Zell’s famous maxim of the early-1990s downturn–”stay alive until ‘95”–Linneman said investors will have to figure out how to hang in there for the next two years. At that point, rates will be low again. 

In his latest quarterly newsletter, Linneman wrote, “The problem continues to be underheated supply and not overheated demand.” On Wednesday’s webcast he debunked the “Phillips curve” economic theory, which holds that a stable tradeoff exists between inflation and unemployment. Linneman said numerous studies have shown that there is no statistically stable tradeoff between the two. 

The Fed’s actions notwithstanding, Linneman expects we’ll see 3% growth in GDP this year. He also was upbeat on this week’s webcast about the prospects for each of the major property sectors, with a few caveats.  

He doesn’t know why developers are currently spending $73 billion to construct new office buildings—nearly twice the current spend on retail properties and four times the amount in the hospitality pipeline. But he expressed confidence that offices will eventually be occupied again, although the U.S. appears to be lagging other regions in returning to the workplace. 

As for industrial, Linneman noted that it “kept chugging along” with demand even after Amazon announced last year that it would shrink its warehouse footprint. So long as e-commerce continues growing, so will the need for industrial space, provided online merchants don’t decide to sell only what they can make money on, he said. 

Multifamily remains a sure bet, but Linneman was concerned about overbuilding in some markets—not a decade’s worth of oversupply, but a couple years’ worth. He said the issue with fast-growing markets such as Dallas is that apartment supply grows at the same rate, meaning that in five years, product that’s only a few years old will be eclipsed by even newer properties. 

The second quarter of 2022 saw online retail sales reach $262 billion. In that same quarter, brick-and-mortar retailers sold $1.5 trillion worth of goods, thus giving the lie to predictions about the impending demise of physical stores. “I feel better than I have in probably 12 years about retail,” Linneman said. 

Looking ahead to the end of 2023, along with 3% GDP growth, Linneman forecasted 7% growth in the Dow Jones Industrial Average. The 10-year Treasury yield, currently at 3.42%, will range between 3.25% and 3.50% by December, he said. WTI crude, currently at $81.70 per barrel, will hit $70 to $80 by year’s end, a time period that Linneman said will unfortunately see the war in Ukraine continuing to grind on. 

Asked to predict the front runners after the Iowa caucuses in February 2024, Linneman projected Ron DeSantis on the Republican side and Joe Biden among Democrats, with a caveat about the latter’s age.


Inside The Story

Walker & Dunlop’s WalkerLinneman Associates’ Linneman

About Paul Bubny

Paul Bubny serves as Senior Content Director for Connect Commercial Real Estate, a role to which he brings 13-plus years’ experience covering the commercial real estate industry and 30-plus years in business-to-business journalism. In this capacity, he oversees daily operations while also reporting on both local/regional markets and national trends, covering individual transactions across all property types, as well as delving into broader subject matter. He produces 15-20 daily news stories per day and works with the Connect team and clients to develop longer-form content, ranging from Q&As to thought-leadership pieces. Prior to joining Connect, Paul was Managing Editor for both Real Estate Forum and at American Lawyer Media, where he oversaw operations at both publications while also producing daily news and feature-length articles. His tenure in B2B publishing stretches back into the print era, and he has served as Editor in Chief on four national trade publications. Since 1999, Paul has volunteered as the newsletter editor of passenger rail advocacy groups (one national, one local).

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