Real Estate Investment Outlook April 2019


Posted April 1, 2019 by restudies

Los Angeles, CA. Economic growth in the US is expected to decline to around 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 US 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 Analysis, US 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.

Should the 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 home ownership, 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
-- END ---
Share Facebook Twitter
Print Friendly and PDF DisclaimerReport Abuse
Contact Email [email protected]
Issued By CENTER FOR REAL ESTATE STUDIES
Phone 424-552-6194
Business Address PO BOX 3155 TORRANCE CA 90503
Country United States
Categories Affiliate Program
Tags real estate investments , eugene vollucci , rental investments
Last Updated April 1, 2019