The year of normalization: Dr. Peter Linneman predicts the return to office, recovering labor markets, economic growth, and more

On the latest Walker Webcast, we were joined by renowned economist, Dr. Peter Linneman for another hour of insight. He and Willy discussed his views on pandemic recovery, predicting that 2022 will be the year of normalization in terms of health, the return to office, and labor markets. They also discussed inflation, cap rates, economic growth, and much more. 

Willy kicks off this quarterly discussion by bringing up Linneman’s insights and predictions from one year ago – some of which he got really right, and others close to the mark. They recount hot issues, including the Biden administration, unemployment, commercial real estate, construction caps, the flight of a butterfly, and riots. Dr. Linneman’s predictions proved to be incredibly insightful to the economic activity that has been seen. 

They transition to discuss some concrete predictions for next year. Linneman discusses his thoughts on the DOW, federal rates, house and senate majorities, and a number of economic indicators. Willy asks for insight on consumer confidence and why there seems to be such a focus on negativity. They discuss the important influence price controls have and why the signal they send in the economy is necessary. Ultimately though, he believes price controls could have devastating effects. 

Linneman mentions the workforce and what it will take to get the labor markets back in full effect. What will normalization look like? They also talk about how banks have been affected by the high levels of deposits. With unprecedented pricing, what can banks really lend given regulations and stress tests? 

Linneman discusses the pandemic effect on brick-and-mortar retail. He believes that the pandemic simply weeded out bad retailers that were likely to go out of business anyway, it just sped up the process. The great supply and demand imbalance of oil has driven prices up, but what is the projection moving forward? Linneman discusses the volatility of this asset, and why time and opportunity for innovation are absolutely crucial before forcing artificial decisions into place. 

Willy and Linneman then address the alpha-beta analysis of economic growth as tied to the broader economy. Our economy secured a new baseline as a result of the pandemic, which has proven to be a positive thing. Willy and Linneman discuss the shortfalls in the housing market and predictions surrounding retail and office. The Linneman Letter does not predict these rentals going down any time soon—despite the inconvenience that driving to work might be. 

As the conversation draws to a close, Willy asks where the smart money will be going now. Where are the investments, and what assets will the money be chasing? What will the year 2022 be marked by? Dr. Linneman leaves listeners with the hopeful idea that the year 2022 will be one of normalization.