Mark Zandi, the chief economist of Moody’s Analytics and founder of Economy.com told more than 1,000 attendees of NAIOP’s CRE Converge conference taking place in Miami Beach, that while the pandemic is altering the U.S. economy, changes in store bode well for commercial real estate.
On the positive side, the economy has recovered 17 million of the 22 million jobs that were lost due to the pandemic. The policy response on the part of the Federal Reserve, Congress and the White House, including maintaining low short- and long-term interest rates, the CARES Act and the American Rescue Plan, have collectively kept the economy from failing.
“I’m assuming that the pandemic is going to continue to wind down, and that with each new wave the disruptions to the economy will be less significant. Over the course of the next 18-24 months, the pandemic doesn’t go away but it largely fades away in terms of what it means in terms of our work and lives,” Zandi said.
Zandi noted that however it shakes out, the infrastructure spending packages will also be beneficial to the economy. And he said that with respect to monetary policy, the Fed will slowly take its foot off the monetary accelerator – raising short term interest rates by spring of 2023 and tapering the quantitative easing of buying bonds.
The pandemic has not only accelerated certain trends, it is causing permanent shifts. These include remote work, less domestic travel generally, less business travel and an increasing net migration from urban cores.
Prior to the pandemic, a net of 275,000 people on average were leaving urban cores in the U.S. to live in other locales; during the pandemic, that number jumped to more than 600,000.
Zandi also identified the risks inherent in the post-pandemic economy:
- The Delta variant of COVID-19 has unnerved consumers and workers.
- Fiscal policy is at risk with Congress threatening to not fund the government’s fiscal year, which begins Oct 1.
- Housing prices are stretched and possibly primed for a correction as interest rates begin to increase.
- Maybe not today, but at some point down the road, government debt and deficits will become a problem.
- Supply chain shortages continue to make it difficult to obtain building supplies and consumer goods.
Meanwhile the pandemic has also fueled a significant rise in productivity.
“There are fundamental things going on in the economy that argue for stronger productivity growth. Businesses are investing in labor-saving software, baby boomers are retiring, and the workforce is becoming younger,” Zandi said. “That’s a big deal for the economy. It goes to profits, wages, and our ability to address our fiscal policies.”