In the latest edition of “Fundamentally Speaking,” Calvin Schnure, NAREIT’s vice president of research and industry information, reviewed a recent flurry of positive economic data and looked ahead to 2014.
Schnure observed that one of the most important economic reports released lately has shown that job growth has firmed, with payroll employment rising by 203,000 in November.
The economy overall grew much faster in the third quarter than observers had expected, according to Schnure, with GDP growth of 3.6 percent. Part of that boost came from inventories, Schnure said, which has raised some concerns that a similar inventory contribution will not be seen in the fourth quarter.
However, Schnure noted that even excluding inventories, private sales were up almost 2 percent in the third quarter. “This is good, solid baseline growth,” he said.
Other economic reports have also been positive. Auto sales totaled around 16 million vehicles in November. Schnure pointed out that auto sales stood at that level about 10 years ago before dropping off, and as a result, there are now a lot of old cars on the road that need replacing.
“The fact that we’re seeing sales back to 16 million says they (consumers) have the money and the confidence. That’s solid for the consumer going forward,” Schnure said.
Meanwhile, Schnure mentioned that the budget deal just reached by Congress removes the uncertainty that plagued the economy last year. In addition, “by reversing some of the sequester cuts, it means the government is not going to be throttling back the economy this year,” he said.
Looking ahead to 2014, Schnure noted that economic fundamentals appear to be strengthening. “It looks to me like 2014 could be the first year that feels like a real recovery,” Schnure said.
In particular, the housing market could have a fairly solid year in 2014, Schnure noted. The median time that homes spend on the market has dropped to around two-and-a-half months from five to six months, Schnure said.
“Builders are selling homes almost as fast as they can put them up. That says that there’s strong demand from potential homeowners and we’re going to see more construction, and that’s going to have a lot of feeder effects into appliances, durable goods, et cetera,” Schnure said.
A stronger economy will help all real estate sectors, Schnure predicted. The office market will see recovery spreading from central business districts out to suburban and tertiary markets, he said. Also, the retail sector will benefit from stronger consumers, according to Schnure, while strengthened demand in the multifamily sector will help absorb new supply coming online.
“Overall, it looks to be a fairly good year for commercial real estate,” Schnure concluded.