After the housing bubble burst in 2008, construction of new homes declined more than 50%, and residential investment pulled GDP growth down by 1% for three years.
With commercial real estate construction being roughly 75% the size of residential investment, and fewer skyscrapers and shopping malls being built, the bursting CRE bubble could be a drag on GDP growth of around 0.75% over the coming three years. This should be compared with a 2% potential growth rate for the US economy (according to the CBO).
In other words, with the commercial real estate bubble bursting, we are likely to enter three years with low growth, similar to what we saw after the housing bubble burst in 2008. Put differently, once the Fed starts cutting rates later this year, interest rates will likely stay low for several years, and QE is likely to come back in 2024.
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