Barry Sternlicht, who runs the real estate-focused private equity firm Starwood Capital Group, predicts that inflation is about to “drop hard” and the U.S. is headed for a serious recession thanks to falling rent and housing prices.
But falling rents won’t show up in inflation data until later this year Sternlicht predicted.
Sternlicht has a net worth of $4.6 billion, and Starwood Capital has $120 billion of assets under management, making it one of the world’s top real estate investors. He started the W hotel chain and Starwood Property Trust, one of the biggest mortgage REITs, Forbes reported.
A vocal critic of the Federal Reserve’s rate-hiking policies to fight inflation, Sternlicht said in late 2022 that “the economy is slowing on its own.” He described the Fed’s rate hikes “self-inflicted suicide” and told Fortune that Fed Chair Jerome Powell and “his merry band of lunatics” are destroying faith in capitalism, and it will lead to “social unrest.”
Housing is a third of the consumer price index, Sternlicht said during an April 4 CNBC interview. He has berated the Fed’s use of “old data” that he said is behind its aggressive rate hikes. He previously claimed, “inflation is coming down hard…and it is coming down a lot faster than I think people thought.”
The consumer price index is used by the U.S. Bureau of Labor Statistics to measure the average change over time in the prices of consumer goods and services such as housing paid by urban consumers.
While the CPI indicates that rents appear to be going up, “actual rents” are going down, Sternlicht told CNBC. “There’s a lag in the way the government reports rental data.”
If you correct for the lag, it will bring headline inflation down and you’ll likely see that happen in the late summer and early fall, Sternlight predicted. “So all else being equal, inflation is going down.”
Housing prices often lag behind the official statistics by around 18 months, Business Insider reported.
While shelter inflation in the Consumer Price Index report jumped 8.1 percent year-over-year in February, more current measures of housing inflation, like rent prices, are tanking. In the last quarter, effective rent — the average rental lease rate — in multifamily units dropped in 76 percent of housing markets, and effective rent fell about 1 percent nationwide, according to a recent report from Moody’s Analytics.
A severe economic downturn is inevitable, Sternlicht claims.
Sternlicht said he disagrees with JPMorgan Chase CEO Jamie Dimon, who wrote in his annual shareholders’ letter that the U.S. might be able to get around a recession despite the banking crisis — which Dimon said is not over and will cause “repercussions for years to come.”
Predicting a serious recession, Sternlicht blamed the government for creating a huge deficit problem and he said interest rates will go up because of it.
The “deficit will grow, we’ll have to print more paper, that should force rates up, which would make the economy weaken further,” Sternlicht said. “The credit markets are smart. They know that this cannot last and we have the very low consumer confidence, very low savings rates, very low CEO confidence, and a series of layoffs coming through the service industries.”
Not everyone agrees. Some economic commentators warn that inflation could persist long term unless the Fed keeps interest rates high. Central bankers have raised rates more than 1,700 percent in the last year in an effort to lower prices and get to the Fed’s 2 percent inflation target.
Photos: Barry Sternlicht, March 18, 2016 By Cmichel67, https://commons.wikimedia.org/wiki/User:Cmichel67
https://creativecommons.org/licenses/by-sa/4.0/deed.en
Apartment building, May 15, 2008, by Matthew Hurst, https://www.flickr.com/photos/skewgee/
