things that real estate investors must know This is what’s going to drive real estate economics

Buy2Greece – ( HouseGreekHouse member )

7) Housing

Kelly thinks that the housing market is in recovery mode, but he acknowledges home ownership continues to lag. While Case Schiller reports home prices rising by about 13% over last year, not all areas of the U.S. experience encouraging price increases. Despite moderate growth in the economy, U.S. Census data reflects the lowest rate of home ownership since 1995.

Credit is again tight, but as the job market improves, home purchases are expected to increase. The multifamily sector may feel downward pressure caused by transition from renting to buying — at the same time an avalanche of new multifamily units is becoming available as a result of boom development in that sector over the past few years.

6) Capital Markets

Kelly thinks that the enticement of riding a high-yield wave is luring capital back into real estate, with investment in a wide variety of choices, from agricultural land to commercial mortgage backed securities.

Action by the Federal Reserve will affect the market as investors await extraction of Quantitative Easing, scheduled to be completed before year end. The question is whether or not we are headed for another “bubble.”

5) Water

The U.S. will likely experience serious water shortages as well, Kelly says. Aging water infrastructure, droughts (particularly in the southwest) and reduced water deliveries to agriculture have the potential to cause water-related economic problems. A number of states face severe water challenges; Las Vegas’ Lake Meade, which supplies 100% of the city’s water needs, is projected to have a 50% chance of drying out by 2025.

A 2013 U.S. government report showed that groundwater depletion in the U.S. for the years 2000 to 2008 was nearly three times greater than the average rate of depletion for the preceding 108 years — from 1900 to 2008. Some future projections project 1.8 billion people living in regions with confirmed water scarcity by the year 2025.

The implications for real estate are enormous – affecting land value, community desirability, future viability and investment. Consider also that China is home to 20% of the world’s population, but only 7% of its fresh water. Water may become a political issue as well as a health issue in a relatively short timeframe.

4) Healthcare

Considerable consolidation of hospital and healthcare organizations is underway, with an enormous impact on real estate – mergers and acquisitions create both excess properties and an increased demand for updated facilities. These new entities are building satellite healthcare centers, urgent care and diagnostic facilities. Pharmacy chains are installing wellness clinics in stores and some large employers are building health clinics within their companies. All of these factors will spur development of different forms of housing.

3) The Millennials

The Millennial generation, born after 1980, represents 27% of the U.S. adult population–and their influence is far-reaching. This group is the first to fully embrace new technology, including the Internet, eCommerce, mobile communications and social media. Their practices are poised to change the way society interacts, receives information, shops and lives. Millennials show a strong preference for urban living and working, value mass transit and “work, live, play” communities where residents of all ages, ethnicities, and income brackets live side by side. They carry high levels of student loan debt, drive fewer cars, marry later, and often choose smaller living spaces than the typical homes in the suburbs that appealed to their parents a generation ago. Their preferences are already having an effect on both city and suburban residential, multifamily, office and retail sectors.

2) Jobs

The economy has now replaced all of the jobs lost during the Great Recession, Kelly claims, although they are much lower wage jobs. He says the real estate industry must adapt to those changes.

“We need to find ways where a … first job is not a dead-end job,” Kelly said.

If the U.S. economy grows by the forecasted 2.8%, the number of new jobs likely to be added will continue to number 200,000 to 250,000 per month. Strong job creation is expected to have a positive impact on the residential and multifamily sectors. The types of jobs being offered should move up the quality scale, raising average wages and boosting purchasing power for consumers as well as the ability of landlords to extract rents.

Job reductions, however, in retail and branch banking, largely due to changes in consumer behavior and online technology, will take a toll on housing, may benefit the apartment sector and could negatively impact commercial real estate. Service sector jobs may absorb some of those displaced. Communities and neighborhoods that once valued big-box stores may be well served by courting schools, physical therapy services and even independent and assisted living facilities for senior citizens drawn to a retail/lifestyle/entertainment environment.

1) Energy

“Energy independence is here, and it a game changer for the economy,” Kelly said. “We’re going to need more and more energy if we’re going to grow. Our question is will we create enough?”

The impact of energy production changes varies by state and community depending on access to resources, regulatory trends and other factors; however, many communities involved in increased energy production are experiencing a jobs boom with related housing and services growth for workers. Uncertainty in the energy sector created by dueling reports from environmentalists and the oil and chemical companies provide investors with opportunities. The potential for relatively low natural gas prices (now one-fifth the cost of Europe and Asia) in combination with other factors has improved the outlook for manufacturing and could significantly advance the expansion of rail, shipbuilding and related industries should gas exports increase.

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