Economist's Outlook

Housing Equity 2013

With the end of 2013 closing in, it is time to take stock of the impact from the strong 2013 housing market. Home price growth was robust in 2013 compared to 2012 and is currently forecast by NAR Research to finish the year 11.3% stronger. This improvement is important for the market as it has created equity for homeowners, boosted buyer confidence, and pulled many underwater homeowners into positive equity positions.

A borrower who purchased a median priced home[1] in 2004 and held it for nine years, the current median tenure of a homeowner according to NAR’s annual Profile of HomeBuyers and Sellers, would have $28,114 in equity from the combined benefit of price appreciation and paying down the mortgage principle. A borrower who bought a median price home in 2012 would have more than $23,000 in equity.

It is important to note that borrowers who purchased in 2006 and 2007 at the peak of the market and thus those who experienced the sharpest price declines are now nearly in positive equity. A person who purchased in 2006 and owned through 2012 (not pictured) would have been underwater by roughly $28,200, but by 2013 this gap was down to $4,700. Continued price growth in 2014 will help to further ameliorate this gap. Homeowners who purchased since 2007 are in positive equity.

Even through the visitudes of the great recession, for most homeowners housing remains an effective vehicle for building equity and wealth.

[1] With a 10% downpayment at the prevailing average 30-year fixed mortgage rate

The Latest on Housing Starts

In each Economic Update, the Research staff analyzes recently released economic indicators and addresses what these indicators mean for REALTORS® and their clients. Today’s update discusses the latest on housing starts data.

  • Some relief to inventory shortage is in the offing.  New home construction rose sizably in the latest data.  More new supply is still needed, however.
  • Housing starts rose to 1.09 million units (annualized pace) in November, the strongest activity in nearly six years.  Single-family units are up 26 percent from one year ago while multifamily units are up by 39 percent.
  • There is pent-up household formation that is ready to burst out on a sustained basis, provided the economy continues to create jobs.  Both rental housing demand and owner-occupied housing demand will be rising in the upcoming years.  Based on past experience, about 1.5 million housing starts are needed each year.  So, today’s figure though encouraging is still insufficient.
  • Large publicly listed companies like Lennar and Toll Brothers are building after raising capital on Wall Street.  But many smaller mom-and-pop homebuilders are having difficulty obtaining construction loans from local banks because of increased financial regulatory burdens.  As a result the big guys are taking advantage of the fact that the smaller homebuilders cannot access capital.  An unintended consequence from the gigantic Dodd-Frank financial market reform?
  • Home prices have been rising too fast and are now beginning to hurt affordability.  One clear way to tame the home price growth is to have more supply, which in turn will help lead to a more sustained housing recovery.  A chance of an oversupply is virtually zero because shadow inventory has also been falling sharply.  The tapping of construction loans therefore is critical to bring additional new supply and help the local small-time homebuilders.

Latest Housing Affordability Data

At the national level, housing affordability is up slightly for the month but higher mortgage rates and home prices have pushed affordability lower from a year ago. What is affordability like in your market?

  • Housing affordability is up for the month of October in the U.S. and all 4 regions as prices increased slightly from September. The median single-family home price is up 12.7 % from last year as October marks the eleventh consecutive month of double-digit year-over-year price gains for single-family homes.
  • Nationally, affordability is down from 203.7 in October 2012 to 165.4 in October 2013.
  • Mortgage rates are down from last month and up 25.8% from a year ago. Lower rates help affordability but an increase in inventory will help ease the pressure on home prices.
  • By region, affordability is up from one month ago in all regions except the Northeast, where there was a 5.0% decrease in affordability. The Midwest had the biggest gain in affordability at 2.7%. From one year ago, affordability is down in all regions. The West has had the largest price gain at 16.7 % while the Northeast had the smallest at 7.4%.
  • For a look at how the housing market might respond to higher rates, I recommend this Stress Test by Chief Economist Lawrence Yun.
  • What does housing affordability look like in your market? View the full data release here.
  • The Housing Affordability Index calculation assumes a 20 percent down payment and a 25 percent qualifying ratio (principle and interest payment to income). See further details on the methodology and assumptions behind the calculation here.

Latest Consumer Price Inflation

In each Economic Update, the Research staff analyzes recently released economic indicators and addresses what these indicators mean for REALTORS® and their clients. Today’s update discusses the latest on industrial production data.

  • Homeowner equivalency rent is rising at its highest pace in 6 years. The latest rise of 2.4 percent in December from 12 months ago is a pace that has not been seen since the autumn of 2008. Moreover, the trend is accelerating such that an over 3 percent gain in this figure is likely by this time next year.
  • Apartment rents are also rising solidly with a 2.8 percent gain, which would be near a 6-year high. This is market exchange. The homeowner equivalency rent is not the market rate but imputed based on what homeowners would be able to charge if they were to rent out their home.
  • Medical services are rising at the slowest pace in about 40 years. It is unclear what is going on here or whether it will trend higher next year.
  • Gasoline prices were 6 percent lower than one year ago. Massive oil production from North Dakota and Texas has been contributing to added supply in the market.
  • Some prices are accelerating while others are holding steady or slipping. The broad overall consumer price inflation, for example, was minimal at 1.2 percent.
  • The Federal Reserve wants to see the inflation rate at around 2 percent. It considers the 3 percent inflation mark as the red line not to cross. However, the biggest weight on consumer price inflation is from rents. If the rising trend continues and if there is a reversal in energy prices then inflation will easily cross the red line by the end of next year. The Fed will have to be less accommodating in its monetary policy. In short, mortgage rates will be rising in upcoming years.
  • Expect a 5.2 to 5.5 percent mortgage rate on a 30-year fixed by the end 2014, and higher than 6 percent by the end of 2015.

The Latest on Industrial Production

In each Economic Update, the Research staff analyzes recently released economic indicators and addresses what these indicators mean for REALTORS® and their clients. Today’s update discusses the latest on industrial production data.

  • Manufacturing production set an all-time high in the past month.  This portends well for further employment gains in the broader economy, which will then support the real estate market.
  • The manufacturing sector plunged sharply a few years ago, with industrial production falling 18 percent in a short timeframe. Since then, slow but steady gains over the past four years have resulted in retouching the peak production activity.
  • Though nowhere near the prior peak, the production of construction-related supplies has risen by 23 percent from the low point of a few years ago.  Further increase is expected going into 2014 as housing starts will have to and will clearly improve because of the housing inventory shortage.
  • Even though manufacturing production is charting new highs, employment is not.  Manufacturing employment has only recovered only about a tenth of the job losses that occurred in the recession and further the total employment across all sectors is still below the level of five years ago.  Increased uses of automation and technology are leading to productivity gains, though at the expense of fewer workers getting hired.
  • The energy renaissance in North Dakota, Texas, and Louisiana, along with natural gas drilling in Ohio and Pennsylvania, are the principal sources of increase in industrial production.   Generally, oil is fungible and prices should equalize everywhere.  But due to too much production in the U.S. and due to an inability to export oil to foreign countries, U.S. oil prices are notably cheaper compared to the international oil price in the London exchanges.  Texas crude is $97 per barrel while London Brent crude is $111.
  • World events can move quite unexpectedly.  Whales were hunted down to near extinction during the time of Moby Dick.  After exhausting the Atlantic Ocean, whales from the south Pacific were hauled all the way to Nantucket, Massachusetts to extract whale oil, which was needed for lighting.  But the whaling industry and Nantucket soon crashed when oil was discovered in Pennsylvania.  What new energy source is around the corner in the future?

Latest on Unemployment Insurance Claims Filed in Week Ending Dec 7

In each Economic Update, the Research staff analyzes recently released economic indicators and addresses what these indicators mean for REALTORS® and their clients. Today’s update discusses the latest unemployment insurance claims.

  • Initial claims for unemployment insurance filed in the week ending December 7 spiked up to 368,000, an increase of 68,000 claims from the previous week. The increase is surprising, given the drop in the unemployment rate (to 7 percent) in November. One cannot read too much into this one data point, and for now, the long-term trend has been one where claims have been on a decline with the 4-month moving average level at 328,750, which is hovering at the 300,000 level that most analysts consider as normal.

  • On a related issue, there are 1,248,932 people who will be impacted by the removal of federally-funded unemployment insurance under the proposed budget that came out of the bicameral budget committee. The Emergency Unemployment Compensation (EUC) program provides additional weeks of federally-funded benefits for unemployed workers in states that have unemployment rates of 6 percent or higher [1]. Based on October 2013 data, 36 states and the District of Columbia have unemployment rates of at least 6 percent and would therefore be the most affected if this program is not funded.

[1] Tier 1: 14 weeks
Tier 2: 14 weeks if the state unemployment rate is 6% or higher
Tier 3: 9 weeks if the state unemployment rate is 7% or higher or if insured unemployment rate is 4% or higher
Tier 4: 10 weeks if the state unemployment rate is 9% or higher or 6% insured unemployment rate

Latest Mortgage Applications

In each Economic Update, the Research staff analyzes recently released economic indicators and addresses what these indicators mean for REALTORS® and their clients. Today’s update discusses the latest mortgage applications data.

  • Mortgage applications for both home purchase and refinances rose slightly in the past week. From one year ago, applications for home purchase are down by 10 percent while applications for refinances are lower by a whopping 68 percent. Refinance activity is already touching a decade low and is likely to fall even further next year as mortgage rates increase.
  • Mortgage rates will go from a 4 percent average in 2013 to about a 5 percent average in 2014, based on NAR projections.
  • Home buying has been completed not only using mortgages but also via all-cash. The cash transactions fortunately have been about one-third of the market in the current environment of extra underwriting stringency.
  • Going into 2014, lenders will lend more focus to home purchase applications since refi business will undoubtedly collapse. Banks have huge cash reserves. Mortgage default rates among recent home buyers of the past 3 years have been at historic lows. Market incentives are clearly there for more lending for home purchases.
  • The one big unknown, however, is coming from Washington in terms of new mortgage regulations and of the increased lawsuit risks from any small deviation from government directives. A right balance should be pursued to assure consumer protection and rein in the excesses of private sector risk taking. However, too much regulation and too many lawsuits also carry the risk of lessening lending.
  • It is worth noting that lenders are not the bad guys. They are channeling people’s savings into other people’s borrowing. A historical lesson is also worth remembering. To gain popular support and to show his distaste for lenders, the Roman Emperor Hadrian held a public bonfire. It was going to be the burning of all the loan documents. As a result all debtors were quickly relieved of their obligations. This action, however, marked the beginning of the end of the Roman Empire. No one in their right mind would further lend afterwards. Without lending, there is no innovation. The Dark Middle Ages, where life was short, brutish, and nasty, descended in Europe and was to last for about thousand years.

Latest Diffusion Index of Foot Traffic

For the third consecutive month, the diffusion index for foot traffic held roughly steady. This plateau follows a sharp mid-summer decline in the wake of a 1% increase in mortgage rates. Rates eased in October, but crept upward in late November, which could weigh on future trends.

Every month SentriLock, LLC. provides NAR Research with data on the number of properties shown by a REALTOR®. Foot traffic has a strong correlation with future contracts and home sales, so it can be viewed as a peek ahead at sales trends two to three months into the future. For the month of November, the diffusion index for foot traffic eased 2.5 points to 48.1.

Mortgage rates started the month low, but ticked upward in the later part of November on positive economic news and anticipation of a potential taper of asset purchases by the Federal Reserve. However, foot traffic held relatively steady for the 3rd consecutive month. Inventories remain tight in some markets like San Diego, which would constrain an increase in local foot traffic. But several markets across the Midwest have slowed relative to last year. Markets that continue to expand are doing so modestly.

The index eased just under the “50” mark in November which indicates that more than half of the markets in this panel had stronger foot traffic in November of 2013 than the same month a year earlier. This reading does not suggest how much of a decrease in traffic there was, just that the majority of markets experienced less foot traffic in November of 2013 compared to a year earlier.

The post-rate-spike recovery appears to have taken root. However, rates did ease in October and early November. Still, traffic remained strong despite the disruption of the government shutdown. Rates have since increased closer to 4.5% which could weigh on traffic in the coming months if the increases continue.

American Communities: Key People and Housing Availability

Summary of Recent REALTOR® University Presentation

In a Brown-Bag presentation to REALTOR® University, Lisa Sturtevant, Director of the Center for Housing Policy, discussed that the vitality of America’s communities depends on whether the people filling key roles can afford housing. She indicated that renting or buying a typical home in many U.S. metro areas may be a challenge for the police offices, nurses, teachers, janitors and others who provide much of the urban backbone.

Dr. Sturtevant discussed the “Paycheck to Paycheck” program, which analyses housing costs and affordability in terms for over 200 metro areas and 76 occupations. “Paycheck to Paycheck” is comprised of an online, interactive database and accompanying report prepared by the Center for Housing Policy – the nonprofit research affiliate of the National Housing Conference (NHC) – comparing wages for selected occupations with the income needed to buy or rent a home.

An accompanying report, Paycheck to Paycheck: Is Housing Affordable for Americans Getting Back to Work?, explores trends in housing affordability for workers in the five most common jobs in the industry sector doing the most hiring: accountants, groundskeepers, janitors, office clerks and security guards: See the data for 209 U.S. metro areas.

The report notes that over the past year, the income needed to buy a median-priced home dropped by at least three percent in more than half of the metro areas studied, due to a combination of low home prices and falling mortgage interest rates. Credit constraints, difficulty amassing down payments, market uncertainty and other concerns may keep low- and moderate-income workers from buying homes in otherwise affordable housing markets.

The REALTOR® University presentation is available at

REALTOR® University Brown-Bag presentations are open to the public. A schedule is available from Stephanie Davis (, (202) 383-1033.

Expected Price Growth Strongest in West and South Markets

REALTOR®  generally expect  a modest  increase in prices in the next 12 months , with the median expected price change at about 4 percent. This is based on responses gathered from the August-October 2013 REALTORS® Confidence Index Survey. About 3,000 REALTORS ® respondents answer the survey each month. See  the October report at

The graph below shows the median expected price change across the states which are grouped into those with “low”, “middle” and “high” price expectations[1].   States in the West and in the South expect the highest price increase in the range of about 4-8 percent. Tight inventory  continues to bolster prices in these areas.

[1] The median expected price increase at the state level is based on the last 3 surveys to increase the sample size for each state.

Latest Jobs Data

In each Economic Update, the Research staff analyzes recently released economic indicators and addresses what these indicators mean for REALTORS® and their clients. Today’s update discusses the latest data on job creations.

  • The jobs report for November is good, with 203,000 net new job creations, thereby portending good support for future home sales and for commercial real estate leasing.    Over the past 12 months, 2.3 million net new jobs have been added to the economy.
  • The unemployment rate fell to 7.0 percent, marking a continuing improvement from the 10 percent jobless rate four years ago.  But the employment rate – the share of adult population with jobs – continues to remain at cyclical low levels with only 58.6 percent of the adults working compared to the 62 to 63 percent range of a decade ago.   About 8,000 baby boomers reach the age of 65 every day and are ready to retire, which partly explains for the decline in the labor participation rate.  Still there are a substantial number of adults under the retirement age who are not working for a variety of reasons.
  • The number of people with jobs but working only part-time hours is double the more usual rate.
  • Construction jobs, however, are rising at a sluggish pace.  Only 178,000 new ones have been added in the past year to this sector, which includes general contractors.  An additional 2 million more construction jobs are needed to get back to the prior peak.  It is a reflection of slow growth in housing starts and new commercial construction.  The exceptionally difficult access to construction loans from new regulatory uncertainty and compliance costs are hindering more new activity.
  • The average hourly earnings rose by 2 percent from a year ago to now $24.15.  Sluggish wage growth combined with a double-digit rise in home prices will hold back some consumers from buying a home.
  • All in all, the labor market is improving.  That’s good news directional wise for the real estate market.  However, to truly get us back to ‘normal’ conditions, where recent college graduates are able to get meaningful employment and the level of welfare dependency declines to acceptable levels, an additional 8 million jobs are quickly needed.
  • Research shows that job satisfaction is directly related to life satisfaction.  For most working-age people, therefore, not having a job means unhappy conditions.  No doubt the genuine feeling of liberation comes from the ability to spend and save one’s own earned income without being dependent on others.  That is why job growth has to be one of the top priorities for the country.

Properties Reported Staying on the Market Longer in October

Properties are staying on the market longer, based on the days on market information reported by REALTORS® in the October REALTOR® Confidence Index Survey. The median days on the market was 54 days (50 days in September), up from its lowest point of 37 days in June 2013. Short sales were on the market the longest, at 93 days, compared to foreclosed properties (44 days) and non-distressed properties (53 days). Local conditions vary. [See full report]

REALTORS® indicated that properties have stayed on the market longer since mortgage rates increased in the middle of the year (albeit rates are still low by historical standards). The heightened economic uncertainty made more evident by the government shutdown, concerns about higher flood insurance rates in coastal states such as Florida and North Carolina, and the increase in home insurance premiums were also reported to be holding back buyers.

New Home Sales

In each Economic Update, the Research staff analyzes recently released economic indicators and addresses what these indicators mean for REALTORS® and their clients. Today’s update discusses new home sales.

  • Contracts for new home sales surged 25.4% from September to October to a seasonally adjusted annualized rate of 444,000. This sharp gain followed two months of significant downward revisions. However, this positive jump is likely transitory and reflects a temporary drop in mortgage rates.
  • Sales of new homes have been constrained by low inventories for several quarters, but inventories are on the rise and were at roughly their highest level in October, 183,000, since the spring of 2011. The months supply of new homes pushed up in August and September on slower sales and rising inventories, but that trend reversed in October with the jump in sales. As a result, the months supply eased from 6.4 in September to 4.9 in October.
  • Low inventory levels had pushed the median sale price for new homes up in recent months, but the two-month slowdown weighed on months supply and the median price, which eased 0.6% to $245,800 in October compared to the same month in 2012. The median existing home price was 23.2% lower at $ 199,500, nearly double the historical average spread of 12.3%, suggesting that existing homes are a bargain by historical standards.
  • While the October improvement in contracts for new home sales is positive for employment and the economy, it reflects a strong boost in demand driven by the sharp drop in mortgage rates in late September and early October following the Federal Reserve’s announcement that it would not taper purchases of Treasuries and MBS. While the government shutdown in early/mid October may have disrupted some sales, the shutdown was short lived and buyers were incented to move quickly to capture low rates. Rates have subsequently inched up 30-40 basis points, nearly the same level as before the Fed’s announcement. As a result, the October results are likely transitory and contracts for new home sales are likely to ease in November and December.

#2013HBS Twitter Chat Recap

On Tuesday, November 19, NAR Research held a Twitter Chat to discuss the highlights from the newly released 2013 Profile of Home Buyers and Sellers. Research’s Director of Member and Consumer Survey Research, Jessica Lautz, discussed the latest info and trends from this always popular annual report, responding to 140 character-or-less questions as they filtered in. The discussion was lively and informative, and thanks to all who participated. Even if you were unable to interact with us that day, the full recap of the #2013HBS hashtag recap can be found here, and the most popular tweets from the chat can be found after the jump:

39% of sellers who used a real estate agent found their agents through a referral, and 25% used the agent they worked with before #2013HBS

— NAR Research (@NAR_Research) November 19, 2013

Recent sellers typically sold their homes for 97% of the listing price—up from 95% last year. #2013HBS — NAR Research (@NAR_Research) November 19, 2013

88% percent of sellers were assisted by a real estate agent when selling their home. #2013HBS

— NAR Research (@NAR_Research) November 19, 2013

42% of buyers found their agent through a referral from a friend or family member &12% used an agent they had used before #2013HBS — NAR Research (@NAR_Research) November 19, 2013

45% of buyers used a mobile device during their home search-of those 22% found the home they ultimately purchased via mobile device #2013HBS

— NAR Research (@NAR_Research) November 19, 2013

The use of the Internet in the home search rose slightly to 92% #2013HBS — NAR Research (@NAR_Research) November 19, 2013

The typical FSBO home sold for $184,000 compared to $230,000 among agent-assisted home sales. #2013HBS

— NAR Research (@NAR_Research) November 19, 2013

The share of home sellers who sold their home without the assistance of a real estate agent was 9%–decline from 19% in 1991. #2013HBS — NAR Research (@NAR_Research) November 19, 2013

38% of recent home buyers were first-time buyers, which is still at a suppressed level of the historical norm of 40% #2013HBS

— NAR Research (@NAR_Research) November 19, 2013

Impact of the Government Shutdown

Twenty-nine percent of respondents to the October 2013 REALTOR® Confidence Index Survey reported that the government shutdown had a temporary effect on ongoing transactions. Other data indicated that the shutdown also apparently impacted buyer confidence to some degree for future transactions. Overall the impact was noticeable but somewhat lower than feared.

Of the respondents who experienced an impact, about 25 percent reported that the impact was caused by waiting on IRS income verification, 43 percent reported they could not access FHA/USDA financing, while 11 percent reported jobs loss, furlough, or a reduction in income. About 29 percent cited other factors that included factors not directly related to the shutdown. See the October REALTORS® Confidence Index Survey report.

Latest Consumer Preference Survey, from NAR’s Smart Growth Program

This is a guest blog post by Hugh Morris, NAR’s Manager of Smart Growth Programs.

On October 31st, NAR’s Smart Growth Program released the latest version of its Consumer Preference Survey, which aims to shed light on the characteristics that people desire in their neighborhood and the trade-offs folks are willing to make to live in that preferred setting. At its core, the survey pits a traditional suburban community with separated-land uses necessitating driving to destinations vs. a smart growth community with a mix of land uses where walking, biking, and transit are viable for most trips. We also asked a battery of questions on various transportation modes and the respondents’ use of these modes and inclination to fund various modes.

The lead story out of the survey: 60 percent of respondents favor a neighborhood with a mix of houses and stores and other businesses that are easy to walk to, rather than neighborhoods that require more driving between home, work and recreation.

Many Americans see the benefits of both a single-family detached house as well as a walkable neighborhood. There is a desire for the closeness and convenience that come from communities where walking is easy, and errand and commute times are short. On the other hand, Americans overwhelmingly prefer to live in single-family, detached homes – even if that means driving more and a longer commute to work. Specifically:

  • A majority of respondents prefer houses with small yards and easy walks to schools, stores and restaurants over houses with large yards where you have to drive to get to schools, stores and restaurants (55 percent to 40 percent).
  • An even larger majority prefers houses with smaller yards but a shorter commute to work over houses with larger yards but a longer commute to work (57 percent to 36 percent).
  • However, when given a choice between a detached, single-family house that requires driving to shops and a longer commute to work and an apartment or condominium with an easy walk to shops and a shorter commute to work, a strong majority prefer the single-family home even with the longer commute (57 percent to 39 percent).

With the scars of the recession still fresh, Americans place a higher priority on the availability of affordable housing than in our 2011 survey (+8 points, from 51 to 59 percent “high priority”) and housing opportunities for people with moderate and low incomes (+11 points, from 46 to 57 percent “high priority”).

The graphs below present other key findings; for the full report visit: Consumer Preference Survey

U.S. Census Homeownership Data

Did You Know: While US homeownership rates were down, Census data shows that homeownership rates were roughly unchanged in most small areas comparing 2007-2009 with 2010-2012.

  • On November 14, the Census Bureau released a review of homeownership rates and housing values based on data from the American Community Survey (ACS) 3-year estimates. These estimates are based on surveys of homeowners from a broad, 3-year period that enable researchers to examine trends in more localized areas, places with populations as small as 20,000. (The 1-year estimates from the ACS cover areas with populations of 65,000 or more.)
  • This period was a tumultuous one for the national economy and for many housing markets, but today’s data from the Census emphasizes the fact that real estate is local and that many smaller areas of the country handled the recession and housing crisis better than larger cities.
  • While the national homeownership rate measured by the ACS fell 1.7 percentage points from 66.4 in 2007-2009 to 64.7 in 2010-2012, nine states did not show a decline in ownership in the same period. These were Vermont, Hawaii, Alaska, Montana, Oklahoma, North Dakota, Arkansas, South Dakota, and Wyoming.
  • A look at data by county and metro area shows that most populous counties and metro areas were more likely to see declines in homeownership. 46 of the 50 most populous counties and 49 of the 50 most populous metropolitan statistical areas had lower home ownership rates in 2010-2012 than 2007-2009.
  • Take a look at the map of changes in home ownership to see that while some areas matched the national trend of decline in this period, most areas saw rough stability or some saw gains in home ownership in this period. This map shows that compared to home price changes, home ownership changes show a more varied regional distribution pattern. How did your market fare?
  • The ACS data is based on surveys of homeowners. The 2007-2009 estimates are based on surveys taken from January 2007 to December 2009. The 2010-2012 estimates are based on surveys taken from January 2010 to December 2012.

Construction Spending

In each Economic Update, the Research staff analyzes recently released economic indicators and addresses what these indicators mean for REALTORS® and their clients. Today’s update discusses construction spending.

  • Construction activity is making slow but steady improvements. The latest data shows a 5 percent gain over the past year in the overall value of newly completed construction. Private multifamily buildings are being completed at a faster pace than single-family buildings, in response to low apartment vacancy rates and a renewal of interest in condominiums.
  • Only slight gains are being observed in commercial real estate construction, such as new office, retail, and warehouse buildings. Still, elevated vacancy rates in the commercial sector and the difficulties of obtaining construction loans for projects are holding back recovery.
  • A steady recovery in construction has resulted in 400,000 net new construction jobs (including general contractors) over the past 3 years. There are 5.8 million workers in the construction sector today. However, the job recovery in this sector still has a long way to go. At the peak in 2007, there were 7.7 million workers.
  • A housing shortage, in regards to low apartment vacancy rates and low inventory of homes for-sale, can easily be relieved with increased construction. Further, many entrepreneurs could be thinking of renting out spaces in growth regions. But the extreme difficulty of obtaining construction loans, perhaps due to onerous new financial regulatory burdens and easy lawsuits against banks, is hindering not only the real estate market recovery but also the broader economy and jobs.

Commercial Fundamentals Notch Steady Gain In Third Quarter 2013

While we are still grappling with the delays from October’s government shutdown, the estimates for third quarter economic output show much of the same. Gross domestic product rose at an annual rate of 2.9 percent in the third quarter, on the heels of a 2.5 percent rise in the second quarter. While the acceleration in the economic pace is welcome, most of it was boosted by inventory adjustment.

All main GDP components—consumers, businesses, government and trade—were positive contributors to third quarter growth. Consumer spending gained 1.5 percent, driven by a 4.3 percent rise in consumption of goods. Businesses approached investments with a cautious outlook in the third quarter, as the specter of budget wrangling in Washington and the possibility of a government shutdown loomed large. Nonresidential fixed investments rose at an annual rate of 1.6 percent. Business spending on buildings jumped 12.3 percent in the third quarter, on the heels of a 17.6 percent gain during the second quarter. The noticeable advances point to a strengthening pipeline of commercial developments, as market fundamentals continue to improve.

The past few quarters have witnessed a broad slowdown in global economies’ rates of growth. Against this trend, the U.S. economy posted a positive trade balance in the third quarter. The increase in international trade provides for continued strengthening in industrial sector fundamentals, with warehouses seeing marked results.

Government spending posted a modest increase in the third quarter, as spending at state and local government levels rose after years of cutbacks. With stronger balance sheets, state and local governments increased their spending by an annual rate of 1.5 percent. Federal government spending continued declining, as the process of “sequestration” marched on, posting a 1.7 percent slide in the third quarter.

The outlook for the last quarter of 2013 does not bear much glee. With the knowledge of the government shutdown in the rearview mirror, and a retail season already eyeing steep discounts, the GDP outlook for all of 2013 projects an annual growth rate of only 1.7 percent.

Net absorption of office space is projected to total 32.2 million square feet by year end. Office vacancies are expected to decline to 15.7 percent by the end of 2013. The markets with the lowest forecasted office vacancy rates are Washington, D.C., New York and Little Rock, with availability rates of 9.8 percent, 9.9 percent and 12.0 percent, respectively. Rents for office properties are expected to increase 2.4 percent over the year.

Industrial markets contend with demand for warehouse space. Net absorption of industrial space is projected to total 97.0 million square feet by the end of 2013, driving vacancy rates to 9.3 percent. The metro areas with the lowest industrial vacancy rates are Orange County, at 3.9 percent, followed by Los Angeles with 4.0 percent, and Miami, at 6.0 percent. Rents for industrial buildings are expected to grow 2.4 percent this year.

Consumers opened their wallets in the third quarter, propping demand for retail spaces. Net absorption of retail buildings is expected to total 10.5 million square feet this year, accompanied by a vacancy rate of 10.5 percent by year-end. Markets with the lowest retail vacancy rates are led by Fairfield County, CT, at 3.9 percent. Rounding the top three are San Francisco, at 4.0 percent, and Long Island, NY, at 5.2 percent. Rent for retail properties are projected to increase 1.4 percent over the year.

The apartment market is on track to close the year on a strong note. Net absorption is expected to total 239,443 units this year. Against a supply of only 123,518 new units, vacancy rates are estimated to reach 4.1 percent by the end of 2013. Metro areas with the lowest vacancy rates are New Haven, CT, at 1.9 percent and Syracuse, NY, at 2.0 percent. Following closely behind are Minneapolis and San Diego, both at 2.1 percent. Apartment rents are projected to increase 4.0 percent in 2013.

For the full Commercial Real Estate Outlook report, visit

U.S. Census Data: Smaller City Home Prices

Did You Know: Census data on smaller cities show that home prices were roughly stable in middle America post-recession in spite of declines in larger cities.

  • In line with prices reported by the NAR Median sales price, the 3-year data from the Census, released November 14, shows that 2010-2012 prices were $17,300 lower than the three year period from 2007 to 2009. This is because, as shown in the graph above, home prices did not reach a trough until after the recession ended, and recovery began only modestly in 2012. In fact, most of the home price recovery experienced by the market occurred in late 2012 and 2013 and is not yet pictured on the annual graph above.
  • The chart below shows that in spite of the notable gains in 2013, national housing prices are not yet back to peak levels.

  • In addition to the data release, Census released a review of homeownership rates and housing values based on data from the American Community Survey (ACS) 3-year estimates. These estimates are based on surveys of homeowners from a broad, 3-year period that enable researchers to examine trends in more localized areas, places with populations as small as 20,000. (The 1-year estimates from the ACS cover areas with populations of 65,000 or more.)
  • The period was a tumultuous one for the national economy and for many housing markets, but this recent data from the Census emphasizes the fact that real estate is local.
  • Take a look at the map below of changes in home values to see that while some areas matched the national trend of decline in this period, other areas saw rough stability or even gains in home prices. This map shows that the most price stability was seen in the central part of the country or in less populated areas of coastal states while coastal and larger inland cities saw the largest price declines. How did your market fare?
  • The ACS data is based on surveys of homeowners and is meant to approximate the value of all homes in an area while the NAR Median Existing Home Sales price measures only homes that have transacted in a given period. In spite of the methodological differences, the two measures show similar trends, likely because homeowners responding to the survey are informed about market transaction prices thanks to the marketing efforts of real estate agents and through public goods like the NAR Median Home Price that is widely reported in the national media.