Catastrophic Natural Disasters
First, prayers to all the people which have perished, lost their homes, had their properties swept away, and to all the people suffering through these catastrophic natural disasters.
In the Southeast, Hurricane Helene ravaged through FL, GA, SC, and the western NC / East TN state-line with most of the images coming from Asheville. *According to Accuweather, Helene dropped enough rain in 48 hours to fill up Lake Tahoe (the largest lake in California). Citizens are still searching for missing people, without electricity or potable water.
Less than two-weeks from Helene, and another category 5 Hurricane (Milton) has hit landfall as I write this update.
What is the Economic Impact?
- There will be a surge in remediation, renovation, and construction work for a couple of years.
- Property materials will be allocated to the most impacted regions causing strains on the supply chain nationwide. Suppliers will not keep up with the demand resulting in higher prices along with material shortages.
- Insurance Claims and Premiums will increase. Insurers will pay out the claims on existing policies, increase premiums or cancel upon renewal, and many carriers will leave the higher claim markets all together.
The economic impact is inflationary in nature since the cost of most items and payrolls in these regions will increase.
The Port Strikes
The East Coast and Southeast Port strike reached a tentative agreement within one day of the strike until the beginning of January 2025 at which point another longer strike could ensue.
The Port Strike can be summed up in two phrases, wage increases and automation.
Long-Shoremen want higher pay like what their West Coast counterparts received a few years ago. The increases in wages will be passed down from the distributors to the consumer resulting in higher prices of goods.
Major ports around the world have automated their shipping and distribution using less human capital which has resulted in price stabilization or even lower costs of distribution. The Long-Shoremen will not move forward without a “No Automation Clause” meaning they cannot be replaced by automation. Automation is inevitable, although it will put a clog in the system as they transition from human capital to automated equipment.
What is the Economic Impact of the Port Strikes?
- Increased Wages will result in higher prices of goods and distribution which will be paid by the consumer.
- Delays in Negotiations will cause a delay in products being imported and exported resulting in high demand, low supply, and higher costs. These goods will need to be delivered from our Western port cities.
- Automation will result in higher unemployment, distribution clog until they implement automation resulting in a spike of prices however the end result may be lower cost of distribution.
Jobs Report Stronger than Expected (Non-Farm)
What is the Economic Impact?
- A stronger employment sector means more people are earning income which will then circulate into the market through increased spending.
- More people working and spending is a good thing however it’s inflationary in nature.
The Impact on Interest Rates & CRE
The news of the catastrophic hurricanes, Port Strikes, and Jobs Report came out after I’d released my previous newsletter about interest rates.
It’s a great reminder of how quickly economic news can change and impact interest rates. Many borrowers that didn’t have their rates locked last week are paying higher interest rates this week.
I thought interest rates were going down. Remember, the Fed’s Fund Rate is different than the treasury and bonds which determine mortgage rates.
At the time of our last newsletter, the 10-Year Treasury was at 3.47% which resulted in +/- 5.5% mortgage rate. The 10-Yr Treasury as of 10/9 is 4.07%, that’s how quickly markets can shift.
Inflationary news equals higher mortgage rates for longer. The recent developing news is inflationary in nature and although the FED has indicated that their FED’s rate will decrease, expect mortgage rates to remain the same or increase if the data continues to suggest ongoing inflation within the markets.
The FED is in a conundrum because they’d like to spark economic activity, however the data suggests that inflation is still very much an issue. I anticipate that the FED will hold their rate through the end of the year meanwhile mortgage rates will see a slight uptick depending on the economic and geopolitical news.
Written by Adrian Del Rio
We Sell Commercial Properties. I buy them too!
