January 9, 2015 ECONOMIC COMMENTARY Looking Back Next week we will spend some time sharing predictions for 2015. But first we want to take a look back and see what happened in 2014. We started the year with a severe winter and a slowdown within the economic sector. We ended the year on an upswing best exemplified by the recently revised estimate for economic growth in the third quarter. The five percent growth rate was the strongest in over a decade. Though we are not expecting that the number for the last quarter of the year will come in at that level, there is also no evidence of a sharp slowdown in the rate of growth for the last quarter of the year. Employment growth picked up nicely in 2014. Well over two million jobs were created last year and the unemployment rate dropped almost one percent to below six percent with Decembers numbers still to be released. Inflation stayed tame this year and wage growth did not pick up significantly -- thus all was not a bed of roses with regard to the employment sector. On the other hand, the low inflation rate enabled mortgage rates to stay low throughout 2014 and oil prices dropped significantly, especially in the second half of the year. Meanwhile, the growth in the real estate market slowed somewhat in 2014. The pace of real estate sales leveled off and price gains were more moderate that the previous two years. As we have emphasized, the adjustments in the real estate sector are mainly related to the drop in distressed sales, which is actually a sign of normalization. Finally, the stock market was volatile but marched upward for most of the year as the bull market continued. This years gains of over ten percent for the S&P Index has contributed to a gain of well over seventy percent during the past five years -- completing the stock recovery from the financial crisis lows of March of 2009. To illustrate, the Dow closed at a low of 6,547 in March of 2009 and finished 2014 close to 18,000, which now represents the fourth longest bull market in history. REAL ESTATE NEWS Landlords are quickly raising their rents as the national vacancy rate dips to the lowest level in two decades. Rents are rising at the fastest pace in six years, according to newly released data from the Bureau of Labor Statistics. The annual rent inflation reached 3.5 percent in November, the highest growth since November 2008, and up from 3.3 percent in October, according to the government’s report. “Rental vacancy rates have fallen to 20-year lows,” notes Ted Wiesman, an economist at Morgan Stanley. The vacancy rate plunged to 7.4 percent in the third quarter, the slimmest margin since early 1995, according to a U.S. Census Bureau report. Builders are increasing construction of apartments, but are still playing catch-up with regard to rising demand. The National Association of Realtors® recently forecast that 2015 will continue to be a “landlord’s market” as rent growth continues to run higher than overall inflation. However, NAR does project that rent growth will start to cool — though only slightly — next year: Rent growth is expected to reach 3.9 percent in 2015 compared with 4 percent this year. “Low housing inventory and the sizable demand for rentals will continue to spur multifamily construction as well as keep rents rising above inflation through next year,” Lawrence Yun, NAR’s chief economist, said in a recent statement. Vacancy rates for rental apartments are expected to remain low for at least two more years, NAR says. The vacancy rate for rental apartments in the fourth quarter is expected to be at 4 percent, and inch up to 4.1 percent in 2015 and 4.2 percent in 2016. Vacancy rates under 5 percent often are considered by housing analysts to be a “landlord’s market” and ripe conditions for landlords to continue upping rents. Source: MarketWatch The influence of Chinese investment in U.S. residential real estate could witness a dramatic expansion thanks to a little-publicized change in U.S. visa issuance rules. Under a visa deal signed recently during President Obama’s visit to the APEC conference in Beijing, student and exchange visas for Chinese nationals coming across the Pacific were extended from one year to five years, while short-term business and tourist visas were extended from one year to 10 years. Simon Henry, CEO of Juwai, a Shanghai-based company that facilitates Chinese inquiries into global real estate opportunities, predicted that the change in the visa rules would encourage Chinese purchases of U.S. housing. “The second biggest driver for Chinese investing in the U.S. is for property that the children can live in while studying in the U.S.,” said Henry in an interview with Forbes. “We forecast a rapid increase in the number of not just Chinese university students studying in the U.S., but also secondary and even primary school students. The new visa program will help propel this trend, which is already under way. One outcome will be increasing real estate investment by the parents involved.” According to data released in July by the National Association of Realtors (NAR), China is the largest source of foreign real estate transactions in the U.S., based on a dollar basis. Source: NMP Daily Annual effective apartment rent growth reached 4.7 percent in November, the strongest of 2014 to date and the highest since August 2011, reported Axiometrics, Dallas. The figure represents the seventh-highest rent growth since Axiometrics started reporting monthly in April 2008. “The rate of increase bucks usual fourth-quarter trends, when rent growth either decreases or increases only slightly, confirming the strength of the apartment market in 2014,” said Axiometrics Senior Vice President Jay Denton. Denton said annual effective rent growth between October and November decreased from 3.0 percent to 2.7 percent in 2013. November’s year-to-date effective rent growth of 5.0 percent keeps 2014 as the apartment markets strongest post-Great Recession year. Though the national occupancy rate continued its typical seasonal decline in November, it remained nearly 95 percent--the highest recorded in any November since Axiometrics began reporting monthly in 2008. Occupancy has now exceeded 94.0 percent for 31 straight months. Source: Mortgage Bankers Association
Posted on: Fri, 09 Jan 2015 01:20:24 +0000