Insights with Willy Walker

This episode of the Walker Webcast featured my opening remarks from the Walker & Dunlop Summer Conference in Sun Valley. My talk touched on several topics, from housing prices to the impacts of AI and global leadership.

The state of the market

Last year, during the Walker & Dunlop Summer Conference, the macroeconomic environment was much different than it is this year. Since then, luckily enough, we haven’t seen any more interest rate hikes, the stock market has surged to all-time highs off the back of the AI boom, and we’re now patiently waiting for rate cuts to begin.  

However, from a surface level, the world still seems to be very precariously perched on the edge of a cliff.  There’s a tremendous amount of political uncertainty and ongoing wars, and on top of that, the average person has been battered by inflation over the past couple of years.  

Although the times that we’re going through may seem scary, with some believing that what we’re living through are some of the worst times in history, it’s important to remember that we, as a country, have gone through much more turbulent times. At the end of the day, we’re not  fighting any major wars and hyperinflation hasn’t happened.

Optimism for the US economy

Despite all of the current challenges we’re facing, the U.S. is largely winning. Our economy is doing tremendously well, outpacing all of the other G7 nations in terms of GDP growth in 2023 (and projected to outpace them in 2024).  Although we have a much larger economy than all of the other G7 nations, we’re still growing the fastest, which is a huge win for the people and the businesses that call the U.S. home. On top of that, the United States scores higher than almost every other major economy in terms of economic welfare and income per capita.  

Why are people still pessimistic about the future?

However, despite all of the economic data that points to us living during one of the best times to be alive, in one of the best countries to live in, people still remain pessimistic about the future.  However, this pessimism isn’t showing itself in the numbers. Consumer confidence, while not at an all time high, is certainly not low either. We’re currently seeing levels of consumer confidence similar to what we saw prior to the Great Financial Crisis.  

I believe that part of what is driving the pessimism is that a considerable amount of our GDP isn’t coming from U.S. businesses. Instead, over 40 percent of the U.S. GDP is comprised of spending from federal, state, and local governments. Generally speaking, people don’t like this, as over 80 percent of people disapprove of the way Congress is handling its job right now.

Inflation, Fed action, and CPI movement

We’ve found out the hard way that the Fed is incredibly focused on backward-looking data and paying no attention at all to forward-looking data. The Fed began raising interest rates way too late. Now, looking at inflation data, it would seem that the Fed is late to the party again. Over the past few months, inflation has flattened out considerably, with a tremendous amount of readings in the 2-3 percent range.  

Despite all the good data that we’re seeing (that’s fundamentally flawed and likely overstating inflation figures), the Fed is not yet cutting rates. This flawed inflation data has killed the chance of a rate cut over the past few months, which has wreaked havoc on the real estate market.  

Interesting housing developments

There is a considerable amount of debt that has been maturing lately or will mature in the very near future. While some people have locked in fixed interest rates for the next few years and are sitting pretty right now, others have some tough decisions to make. Many people are faced with refinancing now at much higher rates and lower valuations, which leaves them with the tough decision of whether they should do a cash-in refinance, or liquidate the asset, take their profits, and move on.  

Unfortunately, selling off assets isn’t as easy as it was just a couple of years ago. Just a few years ago, there were lots of big check writers out there, so you could command a premium for a portfolio of properties. Now, the sovereign wealth funds and Blackstones of the world aren’t willing to write those big checks, meaning it’s often best to break up a portfolio and sell it off piecemeal, if you choose to sell.

The AI framework: Shapers, makers, and takers

It’s no secret that artificial intelligence is going to change the world in a huge way. The direction and extent of that change may be unclear, but it is clear that there are going to be three buckets of people that will shape the world with AI: shapers, makers, and takers.  

The makers are the people who will venture out and develop artificial intelligence. These are going to be companies like OpenAI, Anthropic, Perplexity, and Microsoft that are responsible for innovating and developing the space.  

The shapers are big enough and have enough dry powder to make huge AI investments.  The “shaper” companies are going to be companies like Salesforce, Amazon, JPMorgan, and other large/megacap companies that can afford to make these large-scale investments.

Lastly, the takers are the rest of us—the people who take what is developed by the makers and the shapers and leverage it in our own businesses and lives. The takers in the AI space are going to be the everyday users, from the gas station on the corner using AI to implement intraday price management to multibillion dollar manufacturers leveraging AI to make their production lines more efficient.

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