Real Estate Forecast

The top 12 trends in this month’s Barometer highlight a wavering economy, more down than up signals in the capital markets, mixed directions in property fundamentals, and a housing market that remains on a low simmer. Still, 76 percent of the key indicators in the Barometer are better than a year ago, 1 percent remain the same, and only 23 percent are worse. (For annual projections of key Barometer indicators, see the new ULI Real Estate Consensus Forecast).

Note: More commentary and data can be found throughout the tabs and in the accompanying tables.

In those top 12 monthly trends:

  • Employment growth in May was a discouraging 69,000 jobs, the lowest monthly gain in 12 months. At May’s pace, it would take six years to regain the 5 million jobs lost in the past four and a half years. The unemployment rate, which had reached a three-year low in April, inched up again in May.
  • GDP growth in the first quarter of 2012, already estimated to be lower than the fourth-quarter figure, was revised further downward. GDP growth is now substantially below its 40-year quarterly average.
  • Consumer confidence fell and growth in retail sales was weak, even when adjusted for the decline in gasoline prices. Both monthly and year-over-year S&P 500 returns were negative.
  • Private construction was the only slightly bright spot in the economy, as it continued to inch up. Still, total construction is off by one-third from its pre-recession high. Investment-grade property prices were unchanged in March or declined slightly, as indicated by two repeat-sales indices; general-grade prices were close to flat. All prices remain substantially off from their pre-recession high.
  • REIT returns were negative in all sectors in May, and year-over-year returns are low.
  • Commercial property transaction volumes fell in April, continuing the zigzag pattern of the past year and a half.
  • CMBS issuance activity stepped up to the highest volume in 15 months, and CMBS delinquency rates rose to a record high.
  • Office vacancy and retail availability in the first quarter were unchanged from the fourth quarter, while industrial availability and apartment vacancy improved slightly. All sectors, including hotels, improved compared with a year ago except for the retail sector, which remains at the same high level.
  • Apartment rents and hotel revenue per available room (RevPAR) show continued strong growth, with apartment rents now surpassing their pre-recession high. Rents in the industrial and office sectors are slowly inching up; retail rents are still declining.
  • The multifamily housing construction industry maintained its momentum with permits and starts at three-and-a-half-year highs, although these current levels are only about 60 percent of their long-term monthly averages (since 1970).
  • In the single-family housing construction industry, permits are near a two-year high, though starts declined for the second-straight month; both figures are only approaching 50 percent of their long-term monthly averages (since 1970). Sales of new single-family homes increased but are still near 50-year lows, and prices declined.
  • Total foreclosure filings were down in April to their lowest monthly level in almost five years.