Economic growth felt by multiple industries in the U.S. continue to bring about nationwide economic expansion. This expansion is expected to go on and influence the real estate industry for the next three years. Most branches of real estate industry are predicted to experience economic growth with the exception of single-family housing.
The Urban Land Institute (ULI) conducted a survey among respondents consisting of 43 analysts and economists from top real estate organizations and firms in the country. ULI published the findings through a semi-annual report for the real estate industry last April 8. For the years 2015 and 2016, all real estate indicators except single-family housing point to economic growth in the said industry.
William Maher, director of North American strategy for LaSalle Investment Management, analyzed the ULI forecast and lauded the consideration of economic and property market fundamentals in determining growth of the real estate industry. The said expert anticipates pleased real estate participants if the forecast unfolds as expected.
Commercial property transactions are one of the positive real estate growth indicators based on the survey. From 2016, a boost in transactions amounting up to $500 billion is expected in 2017. The ULI forecast is similar to the forecast of Moody’s/RCA Index. The latter claims that from the long-term average of 5.3%, the prices of commercial properties will soar to an average of 7.6% annually through 2017. The price appreciation is considered firm.
Financial institutions play a role in the increase of commercial property transactions. This is because they are expected to grant more and better mortgage loans for commercial property buyers. Mortgage-backed securities are presumed to improve gradually from $115 billion in 2015, $133 billion in 2016 to $150 billion in 2017.
Economic fundamentals such as Gross Domestic Product (GDP) growth and employment growth leave positive impact for the real estate industry as well. The years 2015 and 2016 are expected to witness a 3% increase in GDP. However, this rate will drop to 2.8% in 2017. Meanwhile, employment is expected to grow from an average of 1.2 million to 2.9 million annually.
Unlike the other aforementioned indicators, single-family housing transactions are assumed to grow slower in three years regardless of the anticipated increase of single-family housing from 647,400 units in 2014 to 900,000 units in 2017. The expected increase is still considered lower than the current average.
Maher added a few notes regarding ULI’s forecast. Some external and internal economic factors are not considered in the forecast which could affect the real estate industry. These factors include foreign crises and surplus of properties with low demand. There is also the possibility of high capitalization rates. This is due to offers of high short-term rates that could lead to a quick upsurge of investment returns.