Economists now debate the extent of potential rate cuts, shifting from "if" to "how much." Some predict a half-point cut, while others consider a quarter-point move more likely. Investors are similarly split on the magnitude of cuts expected by year's end.
What Real Estate Investors Should Watch For in 2024
- Inflation Trends: Although inflation has eased, it remains above the Fed's 2% target. Investors should monitor how inflation data evolves, as further cooling could lead to rate cuts.
- Unemployment Rates: Unemployment has recently risen to 4.3%, a level not seen since late 2021. A weakening job market could prompt the Fed to cut rates, which might influence property values and financing options.
- Magnitude of Rate Cuts: Analysts are divided on whether the Fed will opt for a 25 or 50 basis point cut. The size of the cut will have direct implications on mortgage rates and investment yields in the real estate sector.
Deep Dive:
1. Has Inflation Been Curtailed?
The Federal Reserve's favored personal consumption expenditures (PCE) index and the consumer price index (CPI) have been curtailed significantly, but we are still above the ~2% target.
2. Where Does Unemployment Stand?
Unemployment has crossed the 4% mark to hit 4.3% in July 2024, a level not seen since Q3 of 2021 when the economy was still struggling to recover from the Pandemic.
While the current level is historically low, the rate of change has been rapid. For instance, last month's rise in the unemployment rate triggered the "Sahm rule," a well-known recession indicator. However, relying on one indicator can be misleading. When the Fed started raising interest rates, the job market was in an exceptionally strong position. Additionally, the U.S. economy has consistently defied economists' expectations, recovering more quickly than anticipated after the pandemic. This isn't the only traditional recession indicator that has been unreliable in the post-pandemic era. Another example is the U.S. economy contracting in the first two quarters of 2022, a common benchmark for identifying the start of a recession.
3. Fed Rate Cuts on the Horizon: Key Considerations
So, How Much Will The Fed Cut?
The exact rate cuts deeply depend on the latest inflation figures, unemployment numbers, and various other factors. After the July Jobs Report, according to CME’s FedWatch tool, almost 75% of analysts believe that the Fed might cut rates by 0.25%, while 25% are betting on a 0.5% rate cut. While the exact percentage may be unknown for now, it is very likely that the Federal Reserve will have at least one rate cut of 25 bps this year.
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About Ellie Perlman
At Blue Lake Capital, Ellie and her team work exclusively with family offices and accredited investors, offering carefully curated investment opportunities that emphasize long-term wealth creation, stability, and risk-adjusted returns. A defining aspect of Blue Lake’s investment strategy is its integration of advanced AI-driven analytics and data science into the entire lifecycle of acquisitions and asset management. By leveraging cutting-edge technology, the firm executes data-driven forecasting on market trends, asset performance, and tenant behavior, ensuring strategic decision-making and optimized returns.
In addition to leading Blue Lake Capital, Ellie is the original founder and host of "REady2Scale - Real Estate Investing" podcast, which provides insights into multifamily real estate, alternative investments, and finance.
Ellie began her career as a commercial real estate attorney, structuring and negotiating complex transactions for one of Israel’s leading development firms. She later transitioned into property management, overseeing over $100M in assets for Israel’s largest energy company.
Ellie holds a Master’s in Law from Bar-Ilan University in Israel and an MBA from MIT Sloan School of Management.
You can learn more about Blue Lake Capital and Ellie Perlman at www.bluelake-capital.com.
