Economists' Outlook

Housing stats and analysis from NAR's research experts.

Economic activity continued on an upward trend in the last quarter of 2016, but at a slower pace, as the first estimate of real gross domestic product (GDP) from the Bureau of Economic Analysis documented. Preliminary figures indicated that GDP rose at an annual rate of 1.9 percent, on par with the average 1.9 percent typical of fourth-quarter GDP growth over the 2000-15 period.

The pace of employment growth remained positive, but softened slightly in the fourth quarter. Payroll employment advanced by 495,000 net new jobs during the fourth quarter, closing 2016 with a net total of 2.2 million new employees, according to the Bureau of Labor Statistics. Private service-providing industries continued as the growth engine during the quarter, with 455,000 net new jobs.

The unemployment rate declined from 4.9 percent in the third quarter to 4.7 percent in the last one, based on data from the Bureau of Labor Statistics. The average duration of unemployment also declined from 27 weeks in the third quarter to 26 weeks by the end of the year.

The labor force participation (LFP) rate declined slightly, moving from 62.8 percent in the third quarter to 62.7 percent in the last quarter. In comparison, before the Great Recession the LFP rate was 65.9 percent.

Disposable personal income—adjusted for inflation—rose 1.5 percent in the fourth quarter, according to the Bureau of Economic Analysis. The personal saving rate was 5.6 percent in the fourth quarter, slightly lower from the previous quarter.

Following gains in employment, consumer confidence picked up. The Conference Board’s Consumer Confidence index advanced 12.3 percent year-over-year, to 107.8, the highest value since the first quarter of 2007. The value for December 2016 was 113.3, indicating growing optimism about the outlook. Separately, the Consumer sentiment index compiled by the University of Michigan also advanced in the fourth quarter of the year to 93.1, compared with the 91.3 value from the fourth quarter of 2015.

With improving employment prospects and a return to labor markets, household formation has rebounded in 2016, returning toward its long-term trend. Historically, household formation averaged 1.3 million every year over the 1958-2007 period. Between 2008 and 2013, the average number of new households dropped to 579,000 per year, underscoring the severity of the Great Recession and ensuing slow recovery. During 2015, household formation advanced at a pace of 704,000 new households.

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With steady economic growth and rising household formation, demand for multifamily properties remained solid in the last quarter of 2016. Net absorption of multifamily units advanced 4.9 percent on a yearly basis, to a total of 201,000 units for 2016, according to CBRE. Development of multifamily properties outpaced demand, as 243,000 units were delivered during the year. The national vacancy rate averaged 4.9 percent during the fourth quarter, 30 basis points higher from the same period in 2015. With increasing supply and rising vacancies, rent growth moderated, posting a yearly advance of 0.2 percent.



Commercial fundamentals in smaller markets strengthened during the fourth quarter of 2016. Leasing volume advanced 2.5 percent from the prior quarter, as leasing rates rose by 3.1 percent. Vacancy rates continued declining, ranging from a low of 7.2 percent for apartments to a high of 14.6 percent for office properties. Industrial availability witnessed a yearly decrease of 80 basis points—to 10.6 percent. Lease terms remained steady, with 36-month and 60-month leases capturing 59.0 percent of the market. One-year and two-year leases made up 26.0 percent of total.

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