‘Economy Grows Either Way’: Peter Linneman On The Election, Interest Rate Cuts

With only one month until the presidential election, one issue remains top of mind for voters across the country: the economy. 

Nearly 81% of voters have said the economy will have a significant impact on how they cast their vote in November, largely due to a lingering sentiment of negativity and concern that prices of food, consumer goods and housing will keep rising.  

But as Willy Walker, CEO of Walker & Dunlop, pointed out in this week’s Walker Webcast with economist and former Wharton School of the University of Pennsylvania professor Peter Linneman, there is a stark difference between public perception that the economy is in the pits and what the data is telling us. 

“When you look at the actual numbers, you can make your own political decision about whether you want to listen to ‘this is disastrous and terrible’ or whether you want to look at the actual numbers, but we're going to go to the actual facts in this conversation,” he said. 

Walker began the episode by reading from the most recent Linneman Letter, a quarterly publication. 

The letter detailed how the nation added 2.4 million jobs and brought 709,000 people into the labor force over the 12 months ending in August. Retail spending increased 2%, and mortgage applications were up by 25%. Unemployment was recorded at 3.9%, and debt service remained low since about 70% of homeowners are paying 4% interest or lower on their mortgage. 

Suggesting that these seem like positive indicators, Walker then posed the question, “What's happening to reality versus perception?” 

Linneman said there is somewhat of a blame game going on, with both sides of the political spectrum insinuating that the other is at fault when a downturn occurs. He said solid employment growth and decreasing inflation are results of the economy starting to normalize after a period of turbulence, not solely due to the actions or policies of an individual politician.

“It's not like this one [candidate] has perfect policies and that one has horrible,” he said. “They're both a mixture of politically viable, compromised policies that are not very good in a pure sense. The economy grows either way.”

Walker said that although the underlying economic data looks to be strong, consumer confidence is still below prepandemic levels. While he said he thought this was mainly because former President Donald Trump was seen more favorably on economic issues compared to President Joe Biden, Linneman said an increased regulatory burden under this administration has weighed on small businesses — ultimately resulting in lackluster consumer confidence. 

“I'm not suggesting all regulations are wrong,” Linneman said. “But I do always find it interesting that when we pass a regulation and all the politicians stand up and say, ‘This is the greatest ever, it's going to save the consumer,’ and then nine months later, they're back with a new savior.” 

America’s $35T national debt has a lot of people concerned about the country’s deficit spending and the overall amount of federal debt, Walker said.

Linneman suggested that people need not worry. He said this debt is no match for the size and scale of the U.S. housing market, with household wealth far exceeding any debt obligations the country needs to fulfill.

Per capita household net worth was up 12.7% from its prepandemic best, according to Linneman’s most recent economic analysis. This can be attributed to a rise in the median home price of about 55% from prepandemic levels. Homeowners are very excited about this, but this fact is seldom spoken about, Walker said. 

“We could pay off all our debt and still have $155T [in] household wealth. That’s staggering,” Linneman responded. “By the way, we should never pay off the foreign part of that debt, right? It's our free option to stiff them, and you would never want to give up that option.”

The conversation ended with a discussion of interest rates. Linneman still predicts the Federal Reserve will make a total of three cuts this year. 

With one cut down and only three months to spare, Walker was reluctant to make the same statement. He told Linneman that if he is correct, Walker would travel to Philadelphia for their next webcast in January to thank Linneman in person.

Linneman urged listeners to remain vigilant about how cuts might impact their bottom lines. 

“As the rate comes down, make sure that the combination of your treasurer, or whoever is calculating the interest, and lender are actually lowering your payment,” Linneman said. “[Make sure] it's not just on cruise control, where you're sending in the same amount as last month, right? Hopefully, it's not an issue, but just make sure the interest rate comes down appropriately.”

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This article was produced in collaboration between Walker & Dunlop and Studio B. Bisnow news staff was not involved in the production of this content.

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