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Archives for July 2021

Housing Market Research Brief | July 2021

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Rise in New-Home Listings Does Little to Relieve the Supply-Demand Imbalance

  • Listings of newly built homes prop up for-sale inventory. The number of single-family houses available for purchase grew by 3.8 percent from May to June, a change of tides after listings steadily declined during the pandemic.
  • Luxury rentals offer a more affordable alternative to ownership. The increase in houses for-sale is not affecting rental demand, with the multifamily sector just registering its largest quarterly absorption total since at least 1993.
  • Apartments attracting more investors. Investor confidence in multifamily is strengthening after the record-setting second quarter performance and an outlook that is bolstered by a lack of moderately priced homes available for purchase.

Developing Trends

  • Development pace will retreat. Single-family starts were up 28.5 percent year over year in June, but construction permits fell to the lowest level in 10 months.
  • Aging millennials to exacerbate supply shortage. Household formation in the U.S. in 2021 is expected to be at its fastest annual pace in more than a decade and remain historically high in the coming years.

*Through June
Sources: Marcus & Millichap Research Services; Capital Economics; Freddie Mac; Moody’s Analytics; Mortgage Bankers Association; National Association of Home Builders; National Association of Realtors; RealPage, Inc.; U.S. Census Bureau; Wells Fargo

Click Here to View the Housing Market Research Brief

 

MIDYEAR 2021 OUTLOOK: MULTIFAMILY | Hiring Momentum Fuels Household Creation; Luxury Apartments Energized 2Q Performance

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Record Demand Emanates From Economic Momentum; Urban Core Recovery in Motion

  • Apartment absorption jumped to a historic level as job gains unleashed pent-up demand, contracting the vacancy rate despite elevated inventory growth.
  • Urban core and upper-tier fundamentals strengthened, which is poised to continue in the second half.
  • Competition for assets is building after metrics improved across segments, and barriers to homeownership underpin a strong rental demand outlook.

Report Includes:

  • The shifting balance between urban and suburban demand
  • Performance metrics for different apartment tiers and market types
  • Insight into investment trends and buyer preferences

Click Here to View the 2H21 National Multifamily Outlook Report

*Forecast | Sources: Marcus & Millichap Research Services; CoStar Group, Inc.; Real Capital Analytics, Capital Economics; Freddie Mac; Moody’s Analytics;
Mortgage Bankers Association; National Association of Realtors; National Association of Home Builders; BLS; Federal Reserve; RealPage, Inc.; U.S. Census Bureau; Wells Fargo

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Is the U.S. Housing Shortage Poised to Get Worse?

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What Is Driving Record Home Price Growth?

  • Median single-family home price grew an astronomical 24.4% nationally over the last 12 months
  • Even the slowest metro price growth was still 13.3% Y-O-Y
  • COVID-19 had an impact, but served more as a catalyst to the underlying demographic and supply trends

Demographic Trends Will Sustain Housing Demand

  • Over next 5 years, nearly 5 million Millennials will turn 33 each year, the median age of first-time home buyers
  • Some young adults forced back home due to the pandemic will move out and create new households
  • Housing construction is elevated, but rising costs and material shortages likely to keep supply short of demand

Strong Apartment Outlook Drawing Investor Interest

  • Looming wave of demand is motivating investors to engage in aggressive bidding for Apartments
  • Bid climate is driving up prices and may put downward pressure on cap rates

* Through June
Sources: Marcus & Millichap Research Services, National Association of Realtors

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Is Rising Inflation a Growing Concern for CRE Investors?

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Headline inflation reached 5.4% in June, its highest level since 2008; well above Fed target of 2%

  • Fed believes inflation is transitory, driven up by short-term logistical bottlenecks and surge in consumption
  • Likely trying to keep interest rates low and money flowing

What are the Factors Driving Inflation?

  • Some inflation drivers are transitory, like commodity prices
  • But other strong drivers, such as rising wages and housing costs, tend to remain in place longer
  • If the inflation risks remain, Fed may be forced to take action earlier than expected and raise interest rates

Why Commercial Real Estate Investors are Well Positioned

  • Apartment, Industrial and Self-Storage saw strong Y-O-Y rent growth in 2Q, underscoring CRE’s inflation resistance
  • Low interest rates and high liquidity create great buying conditions, but future rise in rates may limit this window
  • High buyer demand also provides a prime opportunity for sellers that want to cash out or switch property types

* Through June
Sources: Marcus & Millichap Research Services, BLS

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Return to the Office Could have Major Implications for CRE

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One of the Most Significant Factors Affecting CRE in 2021

  • As COVID-19 cases decline and vaccinations rise, restrictions against working in office are being lifted
  • Disconnect exists; many companies are pushing for full return to the office, many employees want more flexibility
  • Outcome will shape where people work, live and shop

Ramifications Likely to Play Out Over Multiple Years

  • As company procedures take effect, some workers may return to offices in major urban hubs, full- or part-time
  • Others may either work remotely or quit, and relocate
  • First signs of the decisions should start to appear in next few months; full impact could take years to unfold

How the Return to Work Could Play Out for CRE

  • If workers return to offices, hard-hit urban Office and other downtown properties would begin path to recovery
  • Even partial work in office could aid the recovery
  • Sustained work-from home would boost Apartment, Retail, and Industrial demand in smaller cities and suburbs

*As of April 2021
Sources: Marcus & Millichap Research Services, Digital.com

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Will a Surge in Summer Travel Bolster Commercial Real Estate Performance?

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Summer Travel Might Provide Additional Economic Boost

  • Vaccination rates and lifted restrictions could bring a wave of pent-up summer travel and spending
  • Daily air travel in June is already 3 times higher than it was in the same period last year; only 24% below 2019 peak
  • Increased travel would benefit hard-hit cities and property types that rely on tourism

Travel and Tourism are Major Economic Drivers

  • Nearly 16 million jobs were supported by travel industry in 2019; pandemic layoffs severely impacted travel industry
  • Employers are aggressively hiring to meet summer demand, will boost household formation and spending

Hotels and Retail Biggest Winners, But All Sectors Benefit

  • Hotel occupancy levels in June were only 10% below same period in 2019, summer could further narrow gap
  • Increased summer spending not only supports travel and entertainment, but also Retail and Industrial properties
  • The job recovery will support the creation of new households, benefiting Apartment demand

*Through June 29, Trailing 7-day Average
Sources: Marcus & Millichap Research Services, Transportation Security Administration

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