Economic Insights Report — December 2022

Dr. Marci Rossell is the chief economist for Cervera Real Estate’s global affiliate network Leading Real Estate Companies of the World.® In this video, Dr. Rossell delivers her economic insights report for December 2022.

Marci's Top 5 Economic Insights for the Month

1— Inflation

The Producer Price Index released at the beginning of December shows producer prices are at 7.4% year over year. Nonetheless, in June of this year PPI inflation was running 11%, meaning we have seen a dramatic 400 basis point decline in PPI inflation over the past five months. If the current trend continues, which Dr. Rossell believes is a real possibility, by April of next year inflation will be back down to a 3% inflation rate.

2— Consumer Sentiment

While consumer economic sentiment remains low, Dr. Rossell cautions us to remember that inflation and recession are not the same thing. She equates current conditions to an “emotional recession” rather than one reflected in economic numbers. Over all, consumer spending, retail sales, and personal income are all up for the year, and jobs are being created at a rate of over 250,000 per month.

3— Federal Reserve Activity

Dr. Rossell expects the Federal Reserve to pull back from the “jumbo” rate hike approach of recent months to a more conservative 50 basis point raise in both December and January. This will take the Fed fund target to a terminal rate to 4.75 or 5% in the first month of the year, prompting an end to rate hikes for the foreseeable future. If inflation stays on its current downward trajectory with a 3% inflationary rate by Q2 of 2023, we will likely see the Feds begin lowering rates in the second half of next year.

4— U.S. Housing Market

While housing affordability challenges are being felt by consumers across the country, affordability indices vary widely by geographic region. Dr. Rossell anticipates that in 2023 the most significant downward price adjustments will be experienced in areas where prices rose the most during the 2020-2021 boom – particularly sunbelt cities and certain regions across the Western and Southern states. In addition, as mortgage rates continue their current decline, affordability concerns will continue to ease throughout 2023. As consumers explore all financing options, adjustable-rate products are on the rise, with many ARM consumers anticipating refinancing opportunities as rates continue to ease during 2023. Given current trends, and with foreclosures still at historic lows, Dr. Rossell does not anticipate a housing foreclosure crisis is likely in the coming year.

5— European Energy Outlook

Governments across Europe, particularly in Great Britain and Germany, continue to implement subsidies and other interventions to shield their citizens from high energy prices through the winter. While these efforts are likely to put increased pressures on energy supply, Dr. Rossell believes that a supply crisis will be tempered by the reserves that European powers have built up in anticipation of winter energy demands. Dr. Rossell anticipates that overall, rather than a severe recession in the near future, Europe is more likely to experience a mild flattening over the winter. Nonetheless, if the war
in Ukraine continues unabated through the middle of next year, the likelihood of a significant European recession will be greatly increased, particularly as the continent adjusts to permanently weaning itself off Russian oil.