Dimon called the geopolitical outlook “unsettling” amid the Russia-Ukraine and Israel-Hamas conflicts, warned of “persistent” inflationary pressures, and said the full impact of the Fed’s tighter monetary policies have yet to be felt. But the CEO went even further in JPMorgan’s follow-up earnings call with analysts Friday morning. 

While most economists have abandoned their recession calls this year in favor of a rosier (but more inflationary) outlook for the U.S., Dimon said he’s far less optimistic and a “moderate recession” remains a possibility. “We’re okay right now. It does not mean we’re okay down the road,” he told analysts. “I’m just on the more cautious side …Everything is okay today, but you’ve got to be prepared for a range of outcomes, which we are.”

A recession would be terrible news for consumers, but Dimon went on to outline what he called the “worst-case” scenario for real estate—and maybe the entire economy—in response to a question from Bank of America Research analyst Ebrahim Poonawala, arguing stagflation could be on the way. It was a response that even recalled the dire period for the real estate industry after the Global Financial Crisis. 

Real estate’s stagflation nightmare

Stagflation, the portmanteau of low growth and high inflation that recalls the toxic economy of the 1970s, was one of the main fears of more pessimistic economists back in early 2023 and late 2022, when inflation was still near a 40-year high. Leading voices like Queens’ College, Cambridge president Mohamed El-Erian warned that inflation could become “sticky” at 3% to 4%, leading to either stagflation, or a recession if the Federal Reserve was forced to raise rates more than the economy could withstand.

That narrative faded as inflation cooled over the past 18 months or so. But now, after three hot inflation reports in a row, El-Erian’s sticky prediction looks credible, and stagflation fears are back. Rising oil prices, geopolitical tensions that are forcing supply chains to reroute, and record government spending are all driving prices higher, even after the Federal Reserve’s aggressive interest rate hikes in 2022 and 2023. 

While the real estate industry has struggled to cope with rising interest rates during this inflationary period, with the office sector facing particular pressure as a result of the hybrid-work trend, Dimon said that as long as rates don’t continue to rise, it should be fine. However, if rates do spike, or if economists’ recession forecasts prove too bullish and a recession hits, he warned the outlook won’t be so bright.

“They won’t muddle through under higher rates with the recession,” the CEO said. “That would be tougher for a lot of folks, and not just real estate if, in fact, that happens.”

But Dimon clarified that what really matters is why interest rates are rising. “If that happens because we have a strong economy, well, it’s not so bad for real estate, because people will be hiring,” he explained. “If that happens because we have stagflation, well, that’s the worst case.”

Every asset could be devalued by 20% from a two-percentage-point rise in the 10-year Treasury rate if interest rates rise because of persistent inflation, according to Dimon. “Obviously that creates a little bit of stress and strain, and people have to roll those over and finance it more,” he told analysts.

Like many in the industry, Dimon’s outlook for real estate also includes winners and losers. He noted that the region, building quality (A versus B class), and a number of other factors mean not every real estate company or lender is in a bad position. 

However, if stagflation hits, Dimon described what that dire scenario might look like for real estate—and it doesn’t sound great. “All of a sudden, you are going to have more vacancies, you are going to have more companies cutting back, you are going to have less leases,” he said. “It will affect [everything]—including multifamily—that will filter through the whole economy in a way that people haven’t really experienced since 2010.”