Today’s Real Estate Economy


In it’s April economic report, Fannie Mae is predicting an over all 6% increase in home purchases for 2010. However, the expectation is housing prices will continue to decline this year in spite of recent increases. This is due to the fact that shadow inventory owned by lenders will continue to enter the market over the next several months.

The encouraging part is that in the coming week’s we will learn if the Obama administration efforts to stabilize the housing market will take hold. The FHA recently announced they will begin refinancing upside down mortgages and the Home Affordable Modification Program is moving to address the issue by reducing principles and working more closely with unemployed homeowners. If these programs prove effective, they will keep more people in their homes and reduce the shadow inventory of REO.

Unemployment will continue to be the single biggest factor in the economic recovery as well as the real estate market recovery. Both from the point of view that working people can pay their mortgages and as more people move from the unemployment line back to work, they’ll soon be able to purchase homes.

Due to the uncertainty in the economic recovery, you can see the real estate hedge bet in the commercial sector. Private equity money is moving into the commercial sector to take up the slack from the banks that are not making loans. Private equity funds are highly targeting multi-unit apartment buildings as a conservative move into the commercial real estate sector. Specifically, they are targeting apartments in urban settings with the belief that life styles are changing. Baby boomers are weary of two hour commutes and the price of gasoline. Also, as they begin retiring in large numbers, many are looking for the amenities of city living for entertainment in their later years. Additionally, the younger generations see city living as an opportunity to live greener by using mass transit and reducing their environmental impact by living in high rises.

With employment being the single biggest factor to the recovery, there are leading indicators pointing to improvement. March advanced monthly sales of retail and food services was up 1.6 % from February and 8.2% from a year ago. This draws down surplus inventory and leads to factories ramping up production and ultimately hiring.

Last week, the Department of Commerce revised the 2009 fourth quarter gross domestic product analysis. It shows a 5.6% growth over the third quarter of 2009. February exports of goods and services increased substantially by 14.3% from a year ago. Imports also increased 20.5%. This indicates that global trade is resuming. Overall, the numbers indicate that employment will soon turn north.

Specific to the real estate market, construction continues to be slow. March saw a 1.3% decrease from January and is off 14.4% from a year ago. That’s not necessarily bad news for real estate since there’s already a glut of property applying downward pressure on real estate values.

Private residence construction shows the beginning of a rebound according to permits issued in March. Permits saw a 7.5% increase over February and a 34.1% increase from a year ago. However, this is a mixed bag of news because housing completions are down 3.1% from February and down 21.2% from a year ago. The way to interrupt this data is that actual building of residential house continues to slow but the issuing of new permits indicates anticipation that building will resume later in 2010.

The high unemployment rate makes the daily news and reversing this is critical to the overall recovery of the economy. What to keep your eye on right now is that underlying economic indicators support that the economy is making a come back that can soon be expected to reverse the unemployment numbers.