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Follow on Google News | Real Estate Outlook For June 2018LOS ANGELES, CA. Trade tensions are not good for the real estate industry. The US administration unveiled the final list of Chinese goods that will be subject to 25% tariffs, complete with specific implementation dates (around USD 50 billion)
By: Center For Real Estate Studies This development has its risk. Higher and rising tariffs often mean higher import prices, leading to higher consumer prices. This reduces domestic demand by slowing consumption growth and demand for foreign goods, in turn, depressing the real estate markets. Lower demand implies a deceleration in corporate earnings growth, resulting in a reevaluating of the real estate prices. Furthermore, firms start to adjust and may stop future investment projects. The probability that this may materialize has increased significantly over recent weeks. With rising uncertainty about the future economic outlook, and hence future corporate earnings, we are reducing our allocation to real estate investments, as the world economy remains able to cope with the current impact of these tariffs on global trade and global economic growth. As a ballpark estimate, every USD 100 billion of imports affected equates to approximately 0.5% of global trade and accounts for 0.1% of global GDP. With USD 230 billion of US and Chinese imports currently affected, global trade may fall about 1 percentage point short and reduce global GDP growth by around 0.25 percentage points. In addition, a negotiated settlement between the US and China is still on the table and cannot be ruled out. However, trade tensions may have to get worse before they get better: ending the "war" might require evidence that trade actions and rhetoric have costs, i.e. evidence of pain in the markets and the economy, before the two sides are incentivized to change tactics. It therefore appears wise and prudent to reduce risks. Some of the drags are likely to be temporary, such as the payback from unusually fast growth in the second half of 2017, when the economy in the US economy rose by more than 3%. The adverse weather impacts across the US have taken their temporary toll on economic momentum, but should spur economic growth in the second quarter due to strong pent-up demand. While the positive effects of the US tax reform should ramp up over the course of this year, clouded business sentiment should prevail due to trade tensions which may prove hard to resolve as well as some tightening in financial conditions. We have started to see the effects of this trade "War". The U.S. apartment market's performance stumbled during the first quarter of 2018. Occupancy backtracked to 94.5 percent in March, down from 95 percent a year earlier, according to real estate technology and analytics firm RealPage, Inc. (https://www.realpage.com/ "While some loss of apartment market performance momentum is normal when cold weather in much of the country discourages household mobility, the occupancy downturn in early 2018 is pronounced," End
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