Alan Goldstein of Bloomberg reports on potential recession indicators, highlighting that Goldman Sachs reduced the probability of one in the next year to 20% from 25%. This was following stronger-than-expected retail sales and jobless claims data. The bank’s economists indicated that if the upcoming August jobs report is favorable, they may lower the recession risk to 15%. They also expressed increased confidence that the Federal Reserve will cut interest rates by 25 basis points in September, though a weaker jobs report could prompt a larger 50 basis point cut.
Conversely, J.P. Morgan increased the probability of a recession before the end of 2024 to 35%, citing weakening labor demand and global manufacturing slowdowns. However, the likelihood of a recession by the end of 2025 remains at 45%. With inflation easing, J.P. Morgan now sees only a 30% chance of the Federal Reserve maintaining high interest rates, down from 50% two months ago. Despite these risks, the U.S. economy’s strong service sector and the absence of significant financial shocks have kept recession concerns relatively moderate. The Fed is expected to lower rates by at least 100 basis points by year-end.
Bruce Kasman, Chief Global Economist at J.P. Morgan, comments:
“The modest increase in our assessment of recession risk contrasts with a more substantial reassessment we are making to the interest rate outlook. This is driven by the correlated shifts in growth and inflation risk that are shaking the gradualism narrative in current central bank rate guidance…Specifically, there has been a material positive shift in the risk profile on U.S. inflation as strong supply-side performance combines with moderating labor demand to ease labor market pressure.”
Courtenay Brown and Sam Baker of Axios report on this topic, noting that economic forecasts have been volatile, with predictions of a recession fluctuating amid conflicting data. The data suggests non-recessionary conditions, but the inconsistency in economic indicators makes reliable forecasting difficult. Pessimistic signs include rising credit card delinquencies and an increase in the unemployment rate to 4.3% in July, which typically signals recession risk. However, optimism stems from a reversal in jobless claims, strong consumer spending in July, and signs that inflation may be over.
Source: Fidelity (August 2024)
Laura Metthews of Reuters reports on recession indicators, highlighting that the U.S. dollar weakened against the yen and other currencies as traders took profits amid fading recession worries. Disappointing U.S. housing data also pressured the dollar, offsetting gains from earlier positive inflation and consumer resilience reports. Despite its recent strength, the yen was set for its most significant weekly drop since June due to easing recession fears and expectations of gradual Fed rate cuts.
Rob Wile and Melissa Repko of CNBC report that retail sales data from Walmart indicate strong consumer spending. Walmart remains cautious about the financial health of its shoppers but doesn’t foresee a full-blown downturn. Nationwide retail sales unexpectedly increased in July, supporting this stability. While consumers are still focused on essentials and hunting for discounts, Rainey emphasized that spending hasn’t seen a significant downturn. Walmart’s revenue grew nearly 5%, driven by higher sales volumes rather than price increases, as the company offered more discounts to attract budget-conscious shoppers.
Rent price software
In a press release, San Francisco Board of Supervisors President Aaron Peskin said: “Banning automated price-fixing will allow the market to work and bring down rents in San Francisco…We want to put more units on the market. Let’s be clear: RealPage has exacerbated our rent crisis and empowered corporate landlords to intentionally keep units vacant. So we’re taking action locally to ensure our working renters can afford to live here.”
Stephen Council of SF Gate reports that the San Francisco Board of Supervisors unanimously approved an ordinance banning software that suggests rent prices and occupancy levels, aiming to reduce the city’s high rental costs. Introduced by board president Aaron Peskin, the ordinance targets algorithmic tools like those provided by RealPage, a Texas-based company known for helping landlords optimize rents. If Mayor London Breed signs, the ordinance will take effect in 30 days, allowing tenants and the city to sue landlords and software providers using such tools.
Kris Sanchez of the Bay City News reports on the ordinance, highlighting the concerns that this software could ostensibly facilitate collusion among landlords, leading to increased rent, vacancy, and eviction rates. While RealPage argued that only a small percentage of San Francisco rental units use their software, making collusion unlikely, critics like Peskin see the ban as necessary to protect renters and prevent market manipulation. The ban’s final approval will be decided after the board returns from its August recess.
Allie Rasmus of KTVU FOX 2 reports that up to 70% of large property owners in San Francisco use this software. Under the new law, landlords using such software could face fines of up to $1,000 per violation. Peskin introduced the ban to lower rents and increase apartment availability.
Mary Salmonsen of Multifamily Dive highlights that San Francisco’s recent ordinance banning revenue management software could set a precedent for similar legislation in other locations. This move follows a broader trend of legal actions against revenue management software providers, including pending lawsuits and investigations by the Justice Department. Similar bills were introduced but did not pass in Colorado and New York, suggesting that San Francisco’s ordinance might inspire renewed efforts in those regions to regulate or ban such software in the housing market.
Luxury real estate
Mark Worley of Redfin reports on luxury real estate, noting that in Q2 2024, prices for this asset class surged by 8.8% annually to a record high of $1.18 million. This outpaced the 3.8% increase in non-luxury home prices. Luxury home sales remained stable, growing by 0.2%, while non-luxury home sales dropped 3.4% to their lowest level in a decade. The luxury market’s resilience is attributed to the prevalence of all-cash buyers and the strong stock market despite high mortgage rates. Luxury home inventory also grew by 9.7%, the highest in three years, indicating a more balanced market, though overall inventory remains below pre-pandemic levels.
Source: Redfin (August 2024)
Redfin Senior Economist Sheharyar Bokhari comments:
“The luxury market has withstood the havoc wreaked by high mortgage rates this year, thanks to an abundance of all-cash buyers…Now that sales are stabilizing and more homes are being listed for sale, it’s unlikely that luxury prices will continue to grow at quite as high a rate.”
Lillian Dickerson of Inman reports that a record 8.5% of U.S. homes are now valued at $1 million or more, up from 7.6% last year and just 4% before the pandemic. This increase reflects the ongoing rise in home prices, with the median sale price reaching $442,525 in June 2024. While this surge benefits homeowners by boosting equity, it exacerbates affordability challenges for buyers, particularly first-time homebuyers. Despite softened demand due to high mortgage rates, low inventory drives competition, keeping prices high.
Omar Faridi of Crowdfunding Insider reports on the topic, highlighting Zillow data that supports the above assessment. Luxury real estate values are now rising faster than typical homes for the first time in years, with a 3.9% year-over-year increase, surpassing the 3.2% growth of the overall market. This shift is attributed to the resilience of luxury buyers, who are less affected by higher mortgage rates and often pay in cash. Despite this growth, luxury home inventory remains 46.9% below pre-pandemic levels, contributing to the continued price increases.
Chad Roffers, also of Inman, comments on the high-end market, reporting that luxury brands are increasingly expanding into real estate to extend their influence and cater to their upscale clientele. This trend, which began in the early 2000s, allows brands like Armani, Versace, and Bentley to integrate their exclusive aesthetics and quality into luxury living spaces, offering a complete lifestyle experience. Miami has become a key hub for these ventures, with iconic projects like the Fendi Château Residences and Bentley Residences showcasing how these brands bring their signature style to real estate, blending fashion, design, and premium services into residential developments.
