What Inflation, Rates and Recession Mean for US Real Estate: Goldman Sachs

  • Real estate is often touted as a reliable hedge against high inflation, but that could change.
  • Soaring prices, rising interest rates and a potential recession are reshaping American industry.
  • Two Goldman Sachs real estate experts revealed where they see the benefits for investors, in a recent podcast.

Real estate is often touted as a reliable hedge against inflation, as landlords can raise rents and property values ​​tend to rise along with other prices.

Two of Goldman Sachs’ industry experts, Jeff Fine and Nora Creedon, explained why that’s not necessarily true on a recent episode of the Exchanges at Goldman Sachs podcast. They detailed how inflation, rising interest rates and a potential recession are transforming the real estate industry, and revealed where they see opportunities for investors.

Here are Fine and Creedon’s 8 best quotes, slightly edited for length and clarity:

1. Nora Credon: “Real estate tends to be less correlated to other investments you have. It tends to be less volatile than many other investments. It tends to have income aspects. part of everyone’s wallet.”

2. Jeff Fine: “Because there is so much capital looking for investment, we have yet to see a hard reset in asset pricing. We believe that will come over time.” (He was responding to Creedon by saying that Federal Reserve interest rate hikes would reduce the availability of credit, reducing market liquidity and property values.)

3. NC: “Focus on properties that have pricing power. Assets with very high demand from people who can afford those assets. That means they can afford the rents to be in that multi-family community, or be in this hotel, or being in this big office building at Main & Main.”

“Also, the type of real estate that‘s not facing significant new supply. The intersection of that high demand and limited supply is really where you’re going to see the pricing power that can offset inflation. “

4. NC: “There really has never been a period in history when you could have inflation like this and not have much tighter financial conditions, whether in the form of higher rates or a less availability of capital. This is generally not favorable to real estate.” (She added that long-term leases could limit immediate price increases and pointed to the “compensation costs” of charging higher prices, such as having to pay higher salaries for facility staff. hotel.)

5. NC: “The last few months we’ve had a huge spike in mortgage rates to buy a home. And that’s caused a real affordability crisis in the housing market.” (She noted that higher monthly mortgage costs have helped homeowners raise rents as the alternative option of owning a home has become less attractive or even unfeasible for some people.)

6. NC: “We certainly find residential areas, including residential niches like student housing and senior and age-restricted housing, where we think there’s huge capacity to increase rents over time. . And those are places we want to be in the next five and 10 years.”

7.JF: “Our belief is that people are going back to work. There may be changes in work patterns. There may be more built-in flexibility. There may be certain industries that care a lot less about the person, in the office. But overall, we still believe in the office tenant market.”

8.JF: “It’s a really interesting time we’re going into. We don’t like them given the destruction, sometimes, it can cause the whole market. We’ve talked about a recession. We’ve talked about rising rates. But as an investor, these are the times you wait for. This is where inefficiency creates opportunity.”

Read more: 6 reasons the US housing market is well positioned to absorb a series of corrections as prices fall rapidly

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