What future for real estate?
For most people, real estate remains an essential component of personal net worth. Despite the stock market rally, the average net worth of an American family is down about 25% due to falling real estate values and investment assets.
Market Trend Snapshot – Focus on Boston
Although still suffering due to continued turmoil in the flagship financial services, insurance and real estate (FIRE) job fields, there have been signs of stability in and around major regions metropolitan areas like Boston. Although the job situation remains grim, the Boston Metropolitan Statistical Area (MSA) posted the strongest increases in property values in 2009, according to a report recently released by Zillow Real Estate Market Reports.
Even with the big gains aided by the federal government’s First Home Buyer’s Credit and still-low mortgage interest rates, nearly 25% of homes are still “upside down” on their mortgages. In progress.
High unemployment persists as companies continue to announce layoffs or delay hiring. And given the expected wave of creative mortgage products such as Alt-A loans, interest-only loans and “à la carte” variable rate mortgages, which reset at higher rates, this exerts a pressure on homeowners unable to refinance due to lack of jobs or lack of value, there will likely be an increase in foreclosures.
According to a study reported by HousingPredictor.com, major metropolitan areas across the United States are unlikely to experience a housing boom until 2020. With over 7 million people unemployed and another 20 million listed as underemployed, that could be 2017. or 2020. when these workers are absorbed. And real estate sales depend on those who have a job.
Housing booms typically occur in cycles of seven to ten years, with some external trigger precipitating a crisis that burst the bubble. The current situation is unlikely to be different.
Implications for investors
Apartment vacancy rates are expected to increase through 2010 to around 7-10%. The continued collapse of job confidence hampers household formation, as individuals may delay marriage or return to live with relatives or relatives or double up with friends.
As foreclosures increase, there will likely be greater demand for replacement housing, so vacancy rates could drop. And as workers try to keep their options open to adjust to moving for job opportunities, rental demand will likely increase as well. The caveat is that there will also likely be a range of supply options that will put pressure on rents. And due to continued poor economic conditions, landlords can expect the credit quality of tenants to erode.
Apartments will have to compete with a growing supply of single-family homes. Currently, single-family homes available for rent have ballooned nearly 10% from the long-term average of 4.5%. And a policy change by mortgage service Fannie Mae will allow tenants living in homes or apartments where owners have been foreclosed to no longer be evicted. This will likely mean that the largest owner of single-family rentals in the United States will be a quasi-governmental entity.
The volume of sales in the multifamily market is far and should continue. Potential buyers continue to wait for prices to stabilize. There will continue to be an increase in cap rates of 1% to 2% approaching 2002 cap rates (8.2%), which will directly contribute to downward pressure on order prices 10% to 20% more.
And given tighter underwriting criteria like higher down payment requirements, the number of investors able to buy a property is likely to be limited. But there will be opportunities for investors with the capital and credit to buy when prices stabilize.