2010 Real Estate Investment Outlook and Perspective
What’s next for real estate?
For most people, real estate remains a basic part of personal net worth. Despite the stock market’s recovery, the average net worth of an American family is down about 25% because of tumbles in real estate values and investment assets.
Overview of Market Trends – Focus on Boston
While nevertheless experiencing because of continued turmoil in the keep up in a place employment areas of Financial sets, Insurance, Real Estate (FIRE), there have been signs of stability in and near major metropolitan areas like Boston. Although the employment picture remains bleak, the Boston metropolitan statistical area (MSA) showed the strongest gains in character values during 2009 according to a recently released report by Zillow Real Estate Market Reports.
already with the strong gains helped along by the federal government’s first time home buyer credit and continued low mortgage interest rates, there keep nearly 25% of homes that are “upside down” on their noticeable mortgages.
High unemployment persists as companies continue to announce layoffs or delay hiring. And given the expected wave of creative mortgage products like Alt-A loans, interest-only loans and “pick-a-payment” adjustable rate mortgages resetting to higher rates putting pressure on homeowners who are unable to refinance because of without of jobs or without of value, there will likely be an increase in the number of foreclosures.
According to research reported by HousingPredictor.com, the major metropolitan areas in the US will likely not see a expansion in real estate until after 2020. With more than 7 million people unemployed and another 20 million listed as underemployed, it may be 2017 or 2020 when these workers are absorbed. And real estate sales depend on those who have jobs.
Real estate booms have typically run in seven to 10 year cycles with some outside cause precipitating a crisis that popped the bubble. The current situation is doubtful to be different.
Implications for Investors
Apartment vacancy rates are expected to rise by 2010 to about 7% to 10%. The continued collapse in confidence about jobs hampers household formation as individuals may delay marriage or move back in with parents or relatives or double up with friends.
As foreclosures rise, there will likely be greater need for substitute housing so vacancy rates may fall. And as workers try to keep their options open to adjust to moving for job opportunities, need for rentals will likely increase in addition. The caveat is that there will also likely be a range of supply options that will put pressure on rents. And as a consequence of continued poor economic conditions, landlords can expect that credit quality of tenants will erode.
Apartments will have to compete with an increasing supply of single-family homes. Currently, the single-family homes obtainable for rent has ballooned to nearly 10% compared to the long-term average of 4.5%. And a change of policy by mortgage servicer Fannie Mae will allow renters living in homes or apartments where the landlords have been foreclosed on to no longer be evicted. This will likely average that largest landlord of single-family rentals in the US will be a quasi-governmental entity.
The quantity of sales in the multi-family market is way off and likely to continue. possible buyers continue to wait for prices to stabilize. There will continue to be an upward shift in cap rates by 1% to 2% approaching the cap rates of 2002 (8.2%) which will directly contribute to downward pressure on prices in the range of another 10% to 20%.
And given the more stringent underwriting criteria like higher down payment requirements, the number of investors capable of acquiring a character will likely be limited. But there will be opportunities for those investors with the capital and credit to buy when prices stabilize.