Tuesday, November 12, 2013
Blog 2: Real Estate Investment in 2014
Real Estate Investment in 2014
After years of depressing news, real estate market predictions for 2014 call for a continuation of a slow and steady recovery. A slowly improving economy along with a steady increase in employment is eliminating uncertainty and raising confidence in the real estate market. The real estate market should continue on its steady road back to health over the next three years.
Real Estate transaction volume in 2014 should reach $340 billion, up from $290 billion in 2012, an increase of over 17%. Mortgage backed securities are expected to double from $48 billion in 2012 to $80 billion in 2014. Total returns from investments in apartments and from retail, industrial and office real estate are forecast to be 9.5% this year and to fall to 9% in 2014.
Reassuring news for rental property owners is that the apartment sector is providing the biggest investment return in 2013 with a projected 10%. Though a slight decline is expected next year, that sector should still top the real estate investment list. By mid-2014, prices are expected to climb back 7% from 2010. The leading housing markets are the state of Washington, Oregon, Michigan, Napa region of California, Nevada, Florida, Arizona, New Mexico, Wyoming and Alaska.
Existing, new home sales, and housing starts are all up significantly this year as compared to the low activity of the past four years. The forecast for 2014 is for 1.13 million housing starts, up from 776K in 2012. There are predictions that 2014 will be the last year that low inventory will aid property prices. Distressed inventory is drying up and sellers are looking at better profits than they have in years. Apartment construction will be uneven. With rapidly rising demand for apartments during the recession, boosted by increased demand from homeowners-turned-renters, multi-family building surged. But that's likely to quiet down in 2014, as supply and demand have swapped places, and there may actually have been too much multi-family building in 2013. There are some things that could diminish the real estate market next year as well, including restrictions on availability of mortgage credit or any further “fiscal cliff” type disruptions at the federal level. Inflation will likely be on the rise as a result of pressure from the increasing federal deficit, rising rents, adding cash to the money supply, and a national debt of 10% of gross domestic product. Home prices are also expected to rise 5-6% next year.
After more than a half-decade of bad news, the real estate market is slowly returning to health. Real estate developers are interested once again in a “smile investment philosophy.” According to the philosophy, developers and investors start looking at cities in the Northeast and moving south to cities along the Sun Belt, which includes Florida, Texas, and Arizona. Then coming back up to the Northwest, Northern California, Oregon and Washington State.
The recovery in the condo market hasn't matched that of the single-family market, and developers aren't willing to take the risk on putting up new condo buildings. Instead, builders and developers are taking a dual-track option: They build a rental apartment building with an eye on switching it to condos in 12 to 16 months, depending on market conditions. High-end apartment buildings are also proving problematic for developers, as the interest from well-heeled potential renters simply hasn't been consistently strong.
I am excited that the real estate market is finally turning for the better, but wish I could have afforded to purchase a home while everything was still cheap. Speaking with several real estate investors they have said that while the market getting better is great, but because it is getting better it is bringing in more competition and making purchasing real estate more difficult. I am excited for the new year and to see everything turn for the better.
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"Real Estate Market Predictions For 2014." CaliforSalecom RSS. N.p., n.d. Web. 10 Nov. 2013. <http://califorsale.com/real-estate-market-predictions-for-2014/>.
"USA." Global Property Guide. N.p., n.d. Web. 10 Nov. 2013. <http://www.globalpropertyguide.com/North-America/United-States>.