Researching market dynamics and trends is a way to calculate risk and save money in the long run when it comes to investments.
Because of COVID and the drastic market changes we’ve experienced in the past two years, it’s now more important than ever to study the market so you understand what trends to expect. Inflation is a hot topic when it comes to the market and will only continue to impact market trends in years to come. When the feds increased rates, it changed the trajectory of our market. The good news is that we have already treaded over peak CPI (consumer price index) inflation numbers. So, what can we expect in years to come?
During the peak of COVID, people spent more time at home which caused an increase in spending on household items. From painting decks to redoing floors to redecorating rooms, there was an influx of money spent on these products. This caused a boost in companies such as Lowe’s and Home Depot’s stocks and bolstered the market dynamics. This dynamic has begun to settle over time as people aren’t spending as much time at home and investing in household projects. This can be seen in shipping–from railways to ports–and things are starting to normalize and settle down again. Additionally, as fear of recession and government money has decreased, that has also caused residential spending to decrease. This has caused additional volatility in the market overall.
With shutdowns in China and political unrest in Russia and Ukraine, these dynamics may cause additional volatility in the market. While not everything is baked out, it’s important to note that each of these dynamics will have unique impacts on different parts of the market.
Project Cancellations and Decline in Demand
I spoke with one of my contractors who had almost $100 million in projects scheduled for this next year but has already seen about 70% of those projects canceled. Supply chain issues and increased interest rates are causing this trend that many contractors and investors are seeing. 70% of the future demand that was expected in product orders and projects will disappear. This is only expected to have an impact on labor costs and product pricing. The data supports a decline in future demand. Inflation is dependent on demand staying constant, but that is starting to die down.
Right now, China has a unique response to the current market. It is pumping money into development because they know that as long as people are kept gainfully employed, they won’t revolt. This is causing them to build empty cities just to build them, which in turn is boosting their GDP. However, now, there is a decrease in many macro-elements and I believe that the impacts of that will show up in the numbers next quarter. The estimations for the numbers will be higher than they actually are. This will reverse a lot of what the feds have estimated, and by the end of the summer, there will be talks about redoing stimulus. Ultimately, this will all cause a decline in two-quarters of the GDP, causing a recession.
In the coming months and years, real estate is going to be a good play. If a bunch of projects don’t come in next year as expected and interest rates go up, people will not invest because they think the future is worse. This will create an undersupply of residential real estate, especially with birth and immigration trends. From the statistical standpoint, there will be a recession and not many people will want to invest, creating space for some solid deals.
Watch my latest video for more on the current market and future trends we can expect to see here.
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