The Worst Is Over, But the Best Is Nowhere Near

The country isn’t likely to fall into a repeat recession, NAR chief economist Lawrence Yun told real estate management professionals meeting in Washington, D.C., last week. But that’s hardly cause for celebration among economists.

On the plus side, the country has added nearly 8 million jobs, replacing all those lost during the downturn, Yun said. Growth in consumer spending and high household net worth also bode well for the economy.

However, Yun was quick to stress, the economy is not thriving by any means. Business spending is growing at the slow, steady rate of 2 percent, he said, rather than a sustained 5 percent to 10 percent rate that would suggest real economic growth. Yun said businesses are “flush with cash.” While corporations typically leverage funding to outspend profit levels, recent data shows business spending and profits to be nearly equal, as executives are leery of overspending. This has resulted in improved balance sheets for most organizations, including banks.

Diving into real estate industry data, Yun said commercial real estate is slowly recovering from 2009, when transactions declined by 90 percent. Multifamily has steadily outshined the other sectors, partly because of the inability of many renters to convert to home ownership.

Another factor contributing to the strong performance of multifamily real estate is the lack of supply. “New construction in all sectors has yet to recover in any meaningful way,” Yun said. Housing construction, in particular, would need to rise by more than 50 percent to be restored to previous levels. This persistent underproduction of single-family and multifamily housing will continue to lead to low vacancy rates and rising rents for this sector, Yun said.

If you like what you see and think this post would be of interest to someone, please share