The Walker Webcast — Dr. Peter Linneman, Leading Economist, Professor Emeritus, The Wharton School of Business (Part 24)

Date: January 29, 2026
Host: Willy Walker (WW), Chairman & CEO of Walker & Dunlop
Guest: Dr. Peter Linneman (PL), Leading Economist, Professor Emeritus at the Wharton School

Overview

In this insightful quarterly exchange, Willy Walker and Dr. Peter Linneman dissect the 2026 economic outlook, reflecting on the accuracy of prior forecasts while tackling real estate, interest rates, AI, and broader macroeconomic complexities. The episode’s tone is candid and occasionally playful, laced with familiar banter and seasoned with memorable predictions—many of which have proven remarkably accurate.

Key Discussion Points & Insights

1. Review of Previous Predictions

• Linneman's Track Record: Notably accurate Fed rate cut predictions for both 2024 and 2025, despite industry skepticism ([04:00]).
  • Memorable moment: Willy recounts losing a bet and buying Peter custom “3x25” New Balance shoes ([03:44]).
• Market Calls (2025):
  • S&P forecasted +7-9% (actual: +18%)
  • Oil projected to drop to $68-70/barrel (actual: $58-60/barrel)
  • Anticipated 3% GDP growth, which aligned with data
  • “Stay rich: multifamily, get rich: office, get poor: data centers” quote ([06:30])

2. State of the Economy Entering 2026

• Improved Clarity: Data became “clearer, not clear, but clearer” in December, aided by a strong retail holiday season ([07:59]).
• Labor Market:
  • Job growth has stalled but is not contracting.
  • Main factors: reduced immigration, employer uncertainty, not technological disruption yet ([08:44])
  • “The beatings will continue until morale improves operating model... works for a little bit.” – PL ([09:56])
• Outlook: Anticipates improving employment without a major influx of immigrants, notes zero net immigration last year as a drag on growth ([10:45]).

3. Interest Rates & Fed Direction

• Forecast for 2026:
  • Expects “much bigger cuts than people think” – projects 75–100 bps, possibly “back-end loaded” ([10:55]).
  • Predicts new Fed appointees will lean towards cutting rates.
• Rationale:
  • Real interest rates have been too high relative to inflation (ex-shelter) ([12:32]).
  • Believes the Fed “will overcut this year” – effective rates should move closer to neutrality ([13:00]).

4. Faulty CPI & Rent Data

• Mismatch:
  • Official CPI reports ~3.3% rent growth, but “Ask any owner... you’ll find about two of them.” – PL ([13:32])
  • Data lag and sample selection problems make government numbers unreliable.
• Quote: “I really, really can't figure it out… it's not a data lag” – PL ([14:14])

5. Disconnect Between Macro Strength & Real Estate Struggles

• Big Question: With GDP and jobs solid, why are all commercial real estate sectors (office, multifamily, retail, hospitality) off 20-30% in value?
• Diagnosis: “Supply is the problem... it takes those spurts of supply a while to burn off.” – PL ([16:33])
• Multifamily/Concessions:
  • Concessions depress rent growth—these will vanish quickly when occupancy tightens ([18:00]).
• Office Supply:
  • “Norm is 50 million [sq. feet/year]; next two years, nine total.” Supply drought will restore health faster than expected ([17:15]).

6. Demand, AI, and Job Formation

• Multifamily Demand Dipped:
  • Demand fell in late 2025, stalling rent growth ([19:30]).
• AI & Layoffs:
  • “AI is not wiping out jobs. We are not adding jobs, but we’re not losing jobs.” – PL ([21:56])
  • Suggests job formation slump is more about immigration policy and economic hesitancy.
• Overbuilding Risk in Data Centers:
  • “If you can get the money, it almost guarantees you’ve got a problem out there… not 2026, not 2027.” ([23:13])

7. Technology & Productivity: Skeptical Optimism

• AI’s Real Impact:
  • CBO projections: only 15 bps productivity boost from AI; PL remains in “show me state” at 1.5%—“created by electricity, the Internet… airplanes, you know what we got? 1.5% a year, more or less.” ([27:34])
• Human Behavior Limits Tech Gains:
  • Time to find a job is still 10 weeks (unchanged from 2004–2007 to 2023–2025), despite job apps and tech ([25:00]-[29:22]).
  • Marriage rate trends: technology hasn’t made people couple faster ([30:19]).

8. Housing Shortage—Fact or Fiction?

• Walker Challenges Linneman:
  • Builders aren’t acting as if there’s a shortage; both SFR and multifamily show oversupply.
• Linneman Responds:
  • Sustained price increases, even with steady income growth, prove shortage exists ([33:04]):
    • “If the price of something just sort of constantly goes up... you got a shortage problem...”
  • Restrictive zoning, long approvals, high development risk keep supply below latent demand.
  • “We have the affordability problem because we have a shortage.” ([34:29])

9. Canaries in the Coal Mine: Market Risk Warning Signs

• Quarterly Risk List:
  • Out of 55 tracked “canaries,” 12 “dead” this quarter, up from just one two years ago ([36:09]).
• Top Risks:
  • Stupid tariffs, still “a problem” both for cost and for market uncertainty ([37:48]).
  • Other flagged concerns: speculative data center building, record buyouts, ongoing misguided Fed policy.

10. Contradictory Economic Signals

• Examples:
  • Consumer confidence at post-pandemic lows, yet spending at all-time highs ([39:38]).
  • Gold at record highs (risk-off) alongside equity markets at record highs (risk-on).
  • Tariffs haven’t materially moved construction costs ([39:38]).
• Interpretation:
  • Despite contradictory signals, “There’s enough data that I can anchor on. We are moving forward.” – PL ([41:06])

11. National Debt & U.S. Treasury Demand

• Wealth & Deficits:
  • $175 trillion in national net wealth allows for $2T annual deficits while still gaining net wealth ([43:13]).
• Treasury Demand:
  • Most treasuries purchased by US entities; foreign purchases as % of debt and GDP have declined.
  • “Where else are you going to get that opportunity?” referencing stagnant growth in UK and Germany ([45:10]-[47:22]).

12. Asset Class Outlooks & Investment Strategy

A. Equities/REITs

• REITs Trading Below Private Values:
  • Public multifamily cap rates ~6%, privates ~5–5.1% ([49:30])
  • “It is a good place to invest… you get a bit higher yield... only if the discount closes during the period you own it.” – PL ([51:26])
  • But lack of leverage and slow closing of public–private gap makes this a nuanced opportunity.

B. Office

• From Pariah to Prize:
  • “Employment growth and no new supply... you don’t have to grow a lot of demand to absorb 9 million feet.” ([53:13])
  • Predicts a rising number of MSAs will be “in balance” by 2027.

C. Industrial

• Detroit, Cleveland, and NJ Shine:
  • Growth + minimal supply = strong outlook ([54:10]).

D. Multifamily

• Slower to Recover:
  • Only 5/40 MSAs now in balance, just 13 by 2027 ([55:35])
  • Fastest growing (Phoenix, etc.) markets not best: supply glut is key.

E. Retail

• Poised for Renaissance:
  • Little-to-no new speculative building, continued economic growth, means stronger performance ([56:26]).
  • “How many shopping centers have you seen cranes at?”

F. Hospitality

• Supply Dominates Outlook:
  • “Foreign thaw” expected; World Cup and cold winters could boost overseas tourism ([58:35]).

13. Quickfire 2026 Projections

| Topic | Linneman’s View | Timestamps | |----------------------------------|-----------------------------------------|----------------------| | Fed Rate Cuts | 75–100 bps (not 125) | [59:38] | | S&P 500 (2026) | +2–3%, could be 0% but not a crash | [59:53] | | Oil Price | $64–65/bbl | [60:30] | | Supreme Court Halts Exec Tariffs| “Better stock market... shitstorm for lawyers... help economy” | [60:42] | | 2026 Election Prediction | House Democratic, Senate toss-up | [61:13] | | Most Surprising 2025 Fact | 9% drop in federal employment (largest in career) | [61:53] |

Notable Quotes

• On data lags in government rent stats:
  “I really, really can't figure it out… it's not a data lag.” – Peter Linneman ([14:14])

• On the supply-side cure for CRE markets post-pandemic:
  “Supply is the problem. It takes those spurts of supply a while to burn off.” – PL ([16:33])

• On AI, employment, and overbuilding risk:
  “Anytime I’ve seen huge margins in an area, it gets overbuilt, it gets oversupplied. …it almost guarantees you’ve got a problem out there and is out there 20, 30. I don’t know, it’s not 2026 and it’s not 2027.” – PL ([23:13])

• On sustained housing shortages:
  “If the price of something just sort of constantly goes up... you got a shortage problem, right.” – PL ([33:04])

• On U.S. capital markets’ resilience:
  “Where else are you going to get that opportunity?” – PL ([47:29])

• On the most surprising 2025 economic fact:
  "Federal government employment is 9% lower... I don't know anybody, including either of us, who would have said 9% shrinkage." – PL ([61:19])

Memorable Moments

• Shoe Bet & Harvard/Wharton Banter:
  Walker recounts owing Dr. Linneman a new pair of shoes for his accurate Fed predictions, with the tongue-in-cheek jab about Wharton being #1 in the rankings and Harvard having the wealthiest alumni ([03:44]).

• Productivity Reality Check:
  Discussion on technological advances not speeding up job finding or marriage rates—despite “perfect matching” via apps ([25:00]-[31:14]).

• Libertarian Punchline:
  Linneman’s closing: “Every person who gets hired in the private sector… gets a new job description. Create growth and stop redistributing. …It's like the greatest unpredicted phenomena economically, maybe in my career.” ([62:20]-[64:03])

Timestamps for Key Segments

| Segment | Timestamp | |--------------------------------------------------------------------|------------| | Linneman’s prediction accuracy review, shoe bet, school rivalry | 03:44 | | 2026 market clarity, labor/immigration issues, attitudes | 07:59 | | Interest Rates: 2026 Forecast, Policy Philosophy | 10:55 | | CPI/rent data inaccuracy explained | 13:32 | | CRE values down, macro/CRE disconnect explained | 15:22 | | Multifamily supply/demand, AI impact, data center building risks | 19:30 | | AI, productivity, tech's human limitations | 25:00 | | U.S. housing shortage debate, price mechanisms | 32:47 | | “Canaries in the coal mine” risk signals | 36:09 | | Contradictory economic signals—confidence, gold, stocks, tariffs | 39:38 | | National wealth supports deficits & treasury demand | 43:13 | | Asset class breakdown (office, multi, retail, hospitality) | 51:26 | | 2026 predictions: rates, S&P, oil, tariffs, election | 59:38 | | Federal employment shock drop; libertarian coda | 61:19 |

Conclusion

This episode showcases Dr. Linneman’s no-nonsense, data-driven approach elaborated with lively personality and sharp skepticism of market hype. Despite complexity and confusion in economic signals, he remains broadly optimistic about U.S. economic fundamentals, pragmatic about structural challenges, and continues to challenge both conventional wisdom and government statistics. For commercial real estate, the coming years look like a classic cyclical recovery, with supply as the pivot lever and macro trends as a muted but positive backdrop.