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👋👋 Good morning real estate watchers! Today, we are going to talk about...

1. Ray Dalio says the U.S. economy is like a heart attack waiting to happen. And honestly, that checks out. We've got record debt, skyrocketing mortgage rates, and a stock market that reacts to news like an over-caffeinated squirrel. At this point, the only thing keeping the economy alive is sheer denial and a defibrillator made of printed money.

2. BlackRock’s spent $22.8B for key ports along the Panama Canal; because nothing screams "free market" quite like a financial behemoth buying strategic global infrastructure with a little nudge from the U.S. government.

3. Absorption rates for new apartments have plummeted faster than a real estate agent's enthusiasm at an open house with no buyers. Turns out, building a record number of units doesn’t help if people can’t afford to live in them—shocking, I know.

Let’s go!

PS - Do you enjoy Briefcase? We’re not asking you to sell your soul—just to do the bare minimum of clicking ‘forward’ and sharing Briefcase with one friend who also enjoys real estate, market chaos, and mildly unhinged economic commentary.

TOP STORY

WARNING SIGNS

On a quiet street in Phoenix, Arizona, a ‘For Sale’ sign has been sitting in the front yard of a modest three-bedroom home for nearly six months. This same house would have been snapped up a year ago in days. But mortgage rates have more than doubled since 2022, and buyers are balking.

This isn’t just a story about one house or city—it's a signal of something larger brewing in the economy. And if some of the biggest names in finance are right, the U.S. may be in for some tough economic times.

Ignoring economic warning signs is like ignoring a check engine light—sure, you can keep driving, but at some point, you're either calling a tow truck or learning how to rollerblade to work

Debt, Deficits, and Dalio’s Dire Predictions

Billionaire hedge fund manager Ray Dalio has been sounding the alarm. In a recent Bloomberg interview, Dalio warned that the U.S. is on the brink of an “economic heart attack” within the next three years. “When debts rise relative to the incomes that are needed to service the debt, it's like plaque building up in the circulatory system,” Dalio said.

The numbers back him up. The U.S. national debt has skyrocketed to $36.2 trillion, tripling since 2000. In fiscal year 2024 alone, the federal deficit reached $1.8 trillion, making up about 7.5% of GDP. And as interest rates remain elevated, the cost of servicing that debt is squeezing out other government spending, putting further pressure on the economy.

The stock market is also currently agreeing with Dalio.

Meanwhile, consumer confidence is taking a hit. The latest consumer sentiment index dropped to its lowest level in four years, reflecting growing anxiety about inflation, rising costs, and job security.

A Recession on the Horizon?

John P. Hussman, an economist who correctly predicted the 2008 financial crisis, believes a recession could hit by mid-2025. “Nobody should be surprised if the U.S. economy is in recession by mid-year,” Hussman recently wrote. His reasoning? A growing mismatch between what the economy is producing and what consumers actually demand.

Signs of economic weakness are already surfacing. The Atlanta Federal Reserve’s GDPNow model predicts a 2.8% contraction in the first quarter 2025. Manufacturing orders are declining, while inflation remains stubbornly high.

At the same time, tariffs and trade restrictions add new pressures, prompting some to label the looming downturn as a potential "Trumpcession." Which sounds less like an economic downturn and more like an overpriced steak at Mar-a-Lago—costs too much, leaves a bad taste, and somehow comes with extra tariffs.

The Housing Market as a Bellwether

A few sectors reflect economic instability, such as housing. Mortgage rates remain above 7%, pricing out buyers and slowing transactions. According to Redfin, home sales are down 20% year-over-year. Meanwhile, delinquencies on commercial real estate loans are rising, a worrying sign for banks that hold billions in property-backed debt.

Daryl Fairweather, chief economist at Redfin, warns that if rates stay high and affordability worsens, “businesses that rely on imported goods will suffer and could even shutter. People will lose their jobs as a result.”

The Fed’s Dilemma

The Federal Reserve is in a tight spot. It has kept interest rates elevated to combat inflation, but doing so risks slowing economic growth even further. If inflation remains sticky while GDP contracts, the U.S. could enter a dreaded stagflationary environment.

Goldman Sachs CEO David Solomon remains cautiously optimistic, arguing that “the probability of a U.S. recession remains very small.” However, the American Association of Individual Investors recently found that over 60% of investors are bearish on the economy—the highest level in two years.

What’s Next?

If history has taught us anything, it’s that predicting economic downturns is tricky business. Dalio has warned of debt crises before, sometimes inaccurately. Other economists, like J.P. Morgan’s Joe Seydl, put the chance of a recession at just 20%.

Yet, as housing slows, debt piles up, and consumer confidence wanes, the warning signs are hard to ignore. Whether this is just a market correction or the beginning of something much worse remains to be seen. But the next few years could be a bumpy ride for homeowners struggling to sell, businesses watching costs rise, and investors nervously eyeing economic indicators.

SNIPPETS

1️⃣ Port Folio: With Global Infrastructure Partners and Terminal Investment Limited, BlackRock has struck a $22.8 billion deal to acquire control of key ports along the Panama Canal from Hong Kong-based CK Hutchison Holdings. The move follows U.S. pressure to curb Chinese influence over the strategic shipping route, with President Trump touting it as a national security victory. The deal grants the consortium control over 43 ports in 23 countries, including Panama’s Balboa and Cristobal ports. The acquisition comes after U.S. officials, including Secretary of State Marco Rubio, warned Panama of potential consequences for maintaining ties with China, leading the country to exit China’s Belt and Road Initiative. (CBS)

2️⃣ Housing Hangover: The three-month absorption rate for new apartments has dramatically dropped from 75% in Q3 2021 to just 50% in Q3 2024, coinciding with record-high completions of 143,600 units - a nearly 70% increase from the previous year. The 12-month absorption rate has also dipped to 90%, meaning 10% of Q4 2023's 90,630 completed apartments remain unoccupied. Notably, the Northeast is experiencing the most significant vacancy challenges, with nearly 23% of its new units unoccupied, compared to other regions like the West (5%) and Midwest (7%). Condominium and cooperative unit markets are experiencing similar trends, with absorption rates falling to 63% and total completions declining from previous peaks. (NAHB)

3️⃣ Housing Hoo-Ha: Nationally, home prices are expected to appreciate modestly at 2.8% in 2025, down from 5.1% in 2024, with a projected slow start of just 1.3% growth by April. Large metropolitan areas like Boston (6.3% annual gain), Chicago (6.6%), and New York (7.2%) are outperforming, while Southeastern markets, particularly Tampa, are cooling. Notably, home prices remain 75% higher than the 2006 peak, though inflation-adjusted gains are more modest. Investors should watch for opportunities in markets with tight inventories like Boston and Chicago, be cautious of markets with rising homeownership costs like Tampa, and anticipate a cautious spring buying season characterized by buyer hesitancy due to high mortgage rates and economic uncertainty. (CoreLogic)

4️⃣ Just the Beginning? Pending home sales dropped 4.6% in January, with contract signings down 5.2% compared to last year, primarily driven by near-7% mortgage rates and persistently high home prices. The new home sales sector sharply declined, dropping 10.5% month-over-month and 1.1% year-over-year. Regionally, the South experienced the most significant contraction, with a 9.2% monthly decline and an 8.8% annual drop, while other regions also saw reduced activity. The ongoing issues of limited housing inventory, elevated mortgage rates, and stubborn inflation continue to create barriers for potential buyers, suggesting that the market may remain cool in the coming months. (Realtor.com)

5️⃣ Urban Boomerang: New reports suggest a decade-high 16% of people moving to cities, and BrightMLS finds that 20.6% of potential buyers want urban living. The shift is driven by three key factors: vibrant cultural experiences, proximity to work (especially with hybrid work models), and unparalleled convenience of city amenities. Financially, the Federal Housing Finance Agency data shows home values have surged 57.4% in the last five years, creating significant equity opportunities for suburban homeowners looking to sell and transition to urban properties. This trend suggests cities are not just recovering from pandemic-era declines but are experiencing a robust renaissance, presenting attractive opportunities for real estate investors to capitalize on renewed urban demand, compact living spaces, and the evolving preferences of today's homebuyers. (KCM)

6️⃣ Inflation Schmation: The Fed's preferred inflation measure, the Personal Consumption Expenditures (PCE) index, hit 2.6% annually, which is close to the central bank's 2% target. While this suggests potential stability, the report showed nuanced economic dynamics - personal income unexpectedly rose 0.9%, but consumer spending actually decreased 0.2%. The personal savings rate jumped to 4.6%, and market futures responded positively. Notably, futures traders now estimate over 70% probability of a rate cut in June, with expectations of two rate reductions by year-end. These factors could signal a cautiously optimistic environment for real estate investors, suggesting potential opportunities for strategic investments as the Federal Reserve continues to navigate monetary policy. (CNBC)