Housing could become more affordable, but buyers might stay out of market
NEWPORT BEACH, Calif. (Business Wire) If a U.S.-led invasion of Iraq turns into a protracted conflict, consumer confidence could plunge and stock prices could fall, tipping the U.S. economy into a recession and sending commercial-property markets into a deeper slump.
History could repeat itself, warned Stuart Gabriel, Ph.D., director of the USC Lusk Center for Real Estatecolor>. He noted that consumer confidence plunged at the start of the Gulf War a decade ago, sending the economy into a prolonged recession. Gabriel made his remarks at an executive briefing held yesterday afternoon for Orange County business and real estate leaders
Further weakening in economic activity would exacerbate the slump in the nations commercial property markets, he said.
Gabriel noted that demand for office space, already weakened by the loss of 2.4 million jobs nationally over the past two years, would fall further, and rents could soften. Consumer confidence and spending would fall and retail sales would slow, reducing demand for retail space. Businesses would spend less on plants and equipment, dampening the need for industrial space. And the hotel market, which has finally begun to recover from 9/11, could relapse. Housing markets would benefit from continuing low interest rates, but buyers might decide to postpone purchases.
The cloud of uncertainty over the U.S. economy could be removed if the U.S. avoids war or carries out a quick invasion with minimal loss of life and minimal damage to Iraqs oil fields. But if the war drags on, and Iraqs oilfields are severely damaged, oil prices could spike and inflation could heat up, and consumer confidence could fall, Gabriel explained.
Over roughly the past year, consumer spending has accounted for about 80 percent of GDP vs. a traditional 65 percent. Investor confidence is equally important. Right now theres a lot of money on the sidelines, he said. Investors are nervous.
Despite the current uncertainty, the economy could still improve in 2003, Gabriel said. GDP growth could increase to 3.5 percent in 2003 compared with an estimated 2.8 percent annual rate in 2002 and only 1 percent in the fourth quarter of last year. But this depends on a confluence of events,he noted. The war would have to be avoided or quickly ended, consumer spending would have to be moderately strong, business confidence pick up, hiring recover and business capital spending pick up. Stock prices would also have to improve, he added.