Walker Webcast: Willy Walker Hosts Economist Peter Linneman for the 20th Time
The Jan. 15, 2025, Walker Webcast, which took place live in Philadelphia, observed a couple of milestones. The event was the 20th time Walker & Dunlop President and CEO Willy Walker hosted economist and author Peter Linneman, Principal and Founder of Linneman Associates.
The webcast also celebrated the 25th anniversary of the Linneman Letter, a well-thought-out economic newsletter. Walker and Linneman touched on multiple topics mentioned in the newsletter, including a review of the past quarter century, what’s going on now, and a 2025 forecast.
Can Calamities Generate Positives?
One topic discussed was disasters, specifically the Russia-Ukraine War and, more recently, the Southern California wildfires.
On the Ukraine war situation, Linneman said that as horrific as the actions have been, the scenario has benefitted the U.S. economy. “The U.S. is the largest oil producer in the world and the largest gas producer in the world,” he explained. As Ukraine and Russia were cut off from exports, “our exports went up substantially,” he added. The same was valid for agricultural and weapons systems exports. “Back of the envelope, my math comes out somewhere from 20 to 60 basis points (bps) added to the GDP from those three things,” Linneman said.
Meanwhile, in California, wildfires continue to rage. However, “I’d say there is a bizarre chance that what is horrifically happening in California may actually be good for the state,” Linneman observed. “It will trigger a lot of ‘what the hell happened.’” He added that through the process, there could be positive movement to prevent the situation from hopefully occurring again.
Tariffs and Inflation
The duo also touched on how President-Elect Donald Trump’s proposed tariffs might impact inflation, which currently stands at 2.9%.
Linneman assured Walker and the audience of two things. First, Trump will probably back away from some of the tariffs he mentioned. Second, enacted tariffs will likely not significantly impact inflation because “we’re not a huge import country,” Linneman explained. Finally, history points out that tariff increases have had little impact on inflation.
Linneman pointed out that tariffs increased under the first Trump administration and Biden’s recent administration but didn’t directly lead to inflation. While inflation increased under Biden’s watch, “no one has said that the increase in inflation was due to his keeping the tariffs high,” Linneman said.
Interest Rates, Cap Rates and Seabeds
Then, there are interest rates relative to cap rates. Cap rates are coming down; Linneman predicted a 5% cap rate within the next 12 to 24 months and a capital flow increase.
“If you look back in history, in the periods of super-low interest rates, no one would lend,” he said. “At the least opportune moment, you had to move from relatively cheap debt to loads of equity at a time when equity was demanding a premium and cap rates went up.”
He used an analogy of the ocean to explain in more detail. There is a seabed and water on top of it. The seabed has some influence on the amount of water involved; if sediment builds up, there is less water. If it declines, there is more water. However, the fundamental influences on the ocean include issues like rain and wind.
Linneman likened the seabed to interest rates, while rains and winds are the capital flows. “The interest rates are down there; they’re changing the seabed, but it’s trivial as to how much it’s changing it,” he said. He said that the bottom won’t change much. But investment has been at low tide for the past couple of years. “I believe that instead of being at low tide, we’re moving to high tide,” he said. “We know there’s money out there, and the tides will flow.”
The Crystal Ball
When asked to make predictions for 2025, Linneman said that the GDP could grow between 2.7% and 2.9%, depending on what happens in Ukraine. S&P 500 growth could increase between 7% and 9%, with crude oil at $68 to $70 a barrel. Linneman forecasts a 100 bps drop in the Effective Federal Fund Rate.
In commercial real estate, he said that the “stay rich” money might be multifamily, while the “get rich” money could focus on office. “I think office has NOI problems and it has ‘capital-doesn’t-want-to-be-there’ issues,” Linneman explained. “But I think the NOI problems on some properties will resolve with time and I think capital will come back, though maybe not to where it was.”
He added that the “get poor” money will end up in data centers. The reason? A risk of overbuilding. “No matter how good the fundamentals seem, it can be overbuilt,” he said. “We can overbuild stuff even when there’s massive demand.”
On-demand replays of the January 15 Walker Webcast are available through the Walker Webcast channels on YouTube, Spotify and Apple. Subscribe to get invites, replays and articles for new Walker Webcast episodes every week.
