Dormir Avec un lphant

By the time you read this, the coin toss of who will lead America out of its economic malaise – at least the next four years of it – will have been decided. It was interesting to watch, however, that although the economy was clearly the single most important issue in their campaigns, rhetoric about solutions to their housing and real estate woes was not a more visible pillar in the candidates’ stump speeches. Foreclosure signs hanging off the front of houses was the single most visible image of the crisis, and as Dave Liniger, co-founder and chairman of RE/MAX indicated in an open letter to Obama and Romney, “Over 3.5 million homes have been foreclosed on in the last four years, another three million are likely in the next four, one in 213 homes had a foreclosure filing in the third quarter, and over 10.8 million homes remain underwater with mortgages greater than their market value.”
But as depressing as that statistic is for homeowners and real estate professionals alike, “ market performance in recent months has everyone feeling a bit more optimistic,” said Liniger. That optimism is being seen in several reports that came out ahead of the election about America’s real estate recovery: in a nutshell, it is set to advance in 2013 as modest gains in leasing, rents, and pricing will extend across U.S. markets from coast-to-coast and improve prospects for all property sectors.
According to the findings of the Emerging Trends in Real Estate 2013 report, released by PwC US and the Urban Land Institute (ULI), despite a slower-than-normal real estate recovery track, U.S. property sectors and markets will register noticeably better prospects as compared with last year. Recent job creation should be enough to increase absorption and push down vacancy rates in the office, industrial, and retail sectors, helped by the limited new supply in commercial markets. Even the housing sector should make progress in most regions, and demand and interest in apartments in “American infill” locations remain attractive, leading to a boom in apartment development. Leading this cycle move is the echo boomer generation, which is delaying plans of home ownership.
“With the outlook for commercial real estate continuing to improve in 2013, investors are expected to allocate substantial sums of capital to the real estate asset class, according to our survey respondents” said Mitch Roschelle, partner, U.S. real estate advisory practice leader, PwC. “Positive underlying fundamentals continue to support all of the major commercial real estate sectors, but a slowdown in job creation and ongoing tight loan availability has tempered growth in some areas,” said National Association of Realtors chief economist Lawrence Yun, in their quarterly commercial real estate forecast. A healthy real estate industry has the ability to promote a stronger overall recovery. But it will take real political leadership in the White House and Congress to acknowledge this fact and take the appropriate steps, such as (according to RE/MAX) having the Debt Relief Act extended, reasonable lending standards established, housing-specific provisions of Dodd-Frank re-examined, and the mortgage interest deduction untouched, measures all intended to help the residential market, which is important because, as indicated in the ULI report, they provide better commercial real estate options because a housing sector recovery generates more jobs, and demand for vacant commercial real estate. At the same time, banks will free up funding and a multiplier effect ensues.
Nothing indicates a quick turnaround for American real estate, but it is improving. Stephen Blank, ULI’s senior resident fellow for real estate finance, noted that investors must keep in mind recent progress made in the industry as they prepare for a slow but steady recovery. “What these findings suggest is that, in general, the industry is moving forward bit by bit, [and] those who are patient and willing to rethink their expectations and adapt to market realities are the most likely to come out ahead next year.”
While watching the run for presidency this year was at turns entertaining and concerning (like most television), it would be a mistake to not realize the recovery road ahead for this elephant will have repercussions for us too. To paraphrase Pierre Trudeau’s famous address to the Press Club in Washington, D.C. in 1969, we are “affected by every twitch and grunt.”
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