Last week I had the privilege of listening to K.C. Conway the CCIM (Certified Commercial Investment Member) economic person. He gave the second-quarter economic outlook, which was largely positive. The first thing he mentioned was that the economy will get help with the vaccines, which will lead to a better second quarter than the first quarter of the year. K.C. also said you need to look at earnings reports over the last few quarters. The third quarter of last year’s earnings was down 30%, but by December, they were up 8% year over year. But be watchful for increasing inflation numbers. The Feds are saying that there is no inflation, but we all know that food is up 4.8%, automobiles are up 9%, homes are up 15%, steel is up 100%, and wood is up 118%. Tech companies have been hit the hardest.
Everyone has been spending a lot on groceries and home improvements so all of these companies are doing great. With the vaccines coming out, K.C. feels like everyone is stir crazy. The food delivery, grocery stores, and home improvement stores will see less business, and we will start traveling. The travel sectors hospitality, hotels, vacation spots will see a rise. In the second quarter, the office will see the hardest hit. Especially in urban areas. Now that people can work from home, offices are leaving overpriced urban areas and moving to less costly suburban areas.
Another thing to pay attention to is where the national debt goes. Debt is up to $7 trillion, K.C. says it is not going to go below 5 trillion any time soon. We just need to see where that goes in the second quarter. He touched a little bit on how the Fed kept the economy going by buying mortgages back. Before the pandemic, the feds had about $7 billion in mortgages and now they have about $2 trillion. This is what kept the economy going over the last year and kept people from losing all their houses. Last year the Feds were telling backs to grow and hold reserves. Now, the Fed is asking banks to reduce bank reserves through increased lending. I had a client tell me that he was quoted 3.6% amortized over 25 years. WOW!, I have never seen a 25 amortized commercial loan. Lastly, the people who are buying here right now are Canadians and South Korea. South Korea is expanding here, they are into hospitality and resorts.
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