Why the Fed’s growth forecast matters

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If you follow macro-economic news, today was a big day.

In addition to raising short-term interest rates, the Federal Reserve bumped up its estimate for economic growth in 2018, from 2.1% to 2.5%.

The question for LA landlords is whether this increased growth rate will result in additional jobs / wage growth.

Why should landlords care?

Employment growth is the single most important factor driving rents. It’s pretty obvious why… more people with jobs means more people looking for apartments. More people looking for apartments means more demand, and more demand without additional supply means higher prices (eg rents).

Wage growth is probably the second most important factor. Over the past several years, rent growth in core LA has outpaced wage growth by a pretty large margin… like 5-8% vs. 2%. To the extent that wage growth accelerates, landlords ought to be able to keep pushing up rents, too.

We have a bunch of smaller projects going into lease-up in January / February. Will be interesting to see what effect the “animal spirits” loose in the economy have on our lease ups.

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