The keys to the real estate market during economic uncertainty
Wednesday, September 21, 2022
3:00 PM EDT | 12:00 PM PDT
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The focus has narrowed to one overarching question: Is the U.S. going to have a recession? Growth has slowed and policy uncertainty has intensified. How will macro uncertainty impact real estate? Investors are faced with a changing real estate landscape amid an aggressive rate hike cycle. We explore the implications of higher financing costs, and potential new strategies to capture value and discuss the impact that rising rates are having on the housing market.
The topics covered will be:
- Sentiment is eroding and consumption is fading, despite a strong labor market.
- We expect inflation to remain elevated in Q3, creating tough choices for the Fed.
- Mortgage rates are rising significantly as the Fed acts aggressively to combat inflation. This follows a two-year period during which record-low rates helped drive annual CRE property price gains near 20%.
- Real estate fundamentals are solid, and we believe most sectors appear resilient even in the face of an economic deceleration.
- Higher financing costs act to shift income from property owners to lenders, altering the risk-return balance in favor of debt over equity, in our view.
- Higher residential mortgage rates have already slowed home sales and construction activity substantially. While home price growth is set to slow further, we see little evidence that the financial excesses of the last housing crisis are present today.
Chief U.S. Economist, Managing Director
Lara Rhame is a Managing Director in the Investment Research group and serves as Chief U.S. Economist at FS Investments, where she focuses on macroeconomic financial market analysis to inform and develop the company’s long-term views on the economy, investment trends and issues facing investors.
Prior to joining the firm, Ms. Rhame served as a Senior Economist at Credit Suisse, where she met with institutional and private clients around the globe to discuss market events and the global economy. She began her career at the Federal Reserve Bank of New York and has since worked at other Wall Street institutions, including Brown Brothers Harriman and Lehman Brothers. Her analysis has garnered attention across financial and economic news outlets, including Bloomberg News, The Wall Street Journal, CNBC and CNN.
Ms. Rhame holds a BA in Economics from Bates College and performed post-graduate macroeconomic studies at New York University. She has guest lectured at Columbia University, New York University and Long Island University.
Ms. Rhame serves on the boards of the Economy League of Greater Philadelphia, Hyperion Bank and Starr Garden Park, and is a former President of the Forecasters Club of New York. She is a member of the Forum of Executive Women and in 2018, received the Philadelphia Business Journal’s Women of Distinction Award and Money Management Executive’s Top Women in Asset Management Award.
Robert Hoffman, CFA
Head of Investment Research, Managing Director
Robert Hoffman is a Managing Director and head of the Investment Research group at FS Investments where he serves as a subject matter expert on the corporate credit markets and the firm’s alternative investment solutions. In this role, he develops key communications and resources to help educate on and position the firm’s products. He also serves on the investment committees for FS Global Credit Opportunities Fund and FS Credit Income Fund.
Mr. Hoffman has over 20 years of experience in the investment and financial services industry. Most recently, he was an Executive Director at Nomura Corporate Research and Asset Management, Inc., an asset management firm with approximately $20 billion in assets under management. At Nomura, he was responsible for loan portfolio management and trading, and he and his team managed nearly $3 billion in loan assets for retail and institutional clients. Prior to becoming a portfolio manager, he was a senior credit analyst focusing primarily on first- and second-lien corporate loan issues. He covered a range of sectors including energy and gas, utilities, health care, chemicals, technology, autos and industrials.
Mr. Hoffman is a Chartered Financial Analyst. He graduated from Columbia University with a BA in Political Science.
Director, Investment Research
Andrew is a director on the Investment Research team at FS Investments, where he leads research efforts on the energy sector and the U.S. commercial real estate market. He also assists in the development of the firm’s long-term views on the economy and the impacts on the investing environment. Andrew holds a BBA in Finance and Economics from Villanova University and has prior experience with structuring and pricing interest rate derivatives.