The Cal State Companies: Center for Real Estate Studies ¨ Cal State Properties ¨ Cal State Investment LTD Partnership
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Real Estate Investment Outlook April 2019
2 ½% in 2019. With the waning of fiscal stimulus and the impact of trade tensions, it appears that real estate investments could take a hit.
It is estimated by the International Monetary Fund that the impact of fiscal stimulus in the
on GDP growth is shrinking from approximately 0.8% in the first quarter 2019 to
0.1% in the fourth quarter of this year. According to the US Bureau of Economic
manufacturing started to decline in late 2018 and continued to weaken at the
beginning of 2019.
The benchmark of stable inflation is the
US non-accelerating inflation rate
of unemployment. Should the unemployment rate fall below this rate, inflation
is expected to rise. In the US,
this rate is estimated to stand at 4.5%, according to the Federal Reserve Bank,
thereby possibly causing an adverse effect on real estate values. This rate
exceeds the current unemployment rate by around 0.5 percentage points. Whether
this gap is strong enough to cause wages to rise significantly and pass through
to price inflation is an open question.
US economic recovery start to come
to a standstill, the Feds may be inclined to stop the tightening of bank
liquidity. As long as inflation remains below the policy target of 2%, it is
expected to maintain the current policy stance. Investment conclusions and
implications for real estate investments are influenced by the outcome of inflations
policy target and trade negotiations. Although there is uncertainty about the
outcome of trade negotiations between China
and the US,
we expect that real estate investment values will change very little.
Deloitte reports that multifamily apartments continue to be a preferred property type for investors with a steady outlook for fundamentals and cap rates. Annual effective rent growth is forecast to inch up slightly to 3.1% in the second quarter of 2019 and then start to gradually decline to 2.1% by 2Q 2021, according to RealPage.
Despite what could be a peak year for completions, the outlook for the apartment market appears to be steady in the short term. The new supply of apartment units has increased every year since 2011 with an estimated 314,747 new units expected to come online in 2019, according to RealPage.
Potential challenges ahead could include the steady pipeline of new development. So far, demand has remained strong. However, if demand does shift with more renters moving into homeownership, it could have a major negative impact on the sector.
As reported by Dane Bowler, 2nd Market Capital Advisory specialist, the multifamily sector looks good structurally and fundamentally. It has been boosted in recent years by the shadow supply reduction of Airbnb. We see the primary risks being economic downturn and some sort of regulatory legislative crackdown on Airbnb. Most investors are aware of the implications of Airbnb on hotels so that sector would react immediately to big news, but I think the ties to apartments are less well known so there could be an opportunity to get out after the news, but before the price reaction.
ABOUT THE AUTHOR: Eugene E. Vollucci, is considered to be one of the foremost authorities on real estate taxation and rental income investing and has authored four books in these fields. He is the Director of the Center for Real Estate Studies, a real estate research organization. To learn more about the Center for Real Estate Studies, please visit our web site at http://www.calstatecompanies.com
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