A macro look at the U.S. and global economies indicates the US real estate markets are remaining stable and should do the same for at least six months to two years. Or until an unforeseen major economic event occurs. It can be a challenge just keeping track of emerging changes in a single market such as real estate. Still, it’s good to periodically look at the whole picture to see how it is likely to affect individual investment decisions.
Stable and normal doesn’t mean it’s good for everyone or every geographical location. But it does show some predictability. Top tier markets such as Manhattan and San Francisco have reached a pinnacle causing a slowing in investment because of diminishing returns. This causes a shift of big money into smaller markets. Smaller investors will do well to seek out these tier 2 markets to follow the money.
Global economic and political uncertainty continues driving capital to the United States. Specifically into U.S. real estate. Higher relative yields, price appreciation potential, and transaction transparency make it the logical and easy investment choice. However, slowing growth in China and much of Europe could further dampened currencies and incomes there. Still, ample non-U.S. capital is seeking investment with a very strong demand for U.S. assets. The Association of Foreign Investors in Real Estate (AFIRE) expects China, Canada, Norway, and Singapore to ride the U.S. real estate investment wave.
Changes in the Foreign Investment in Real Property Tax Act (FIRPTA) now allows foreign investors to be treated in a fashion similar to their U.S. counterparts. This will likely lead to an increase in foreign investment in the U.S. real estate market as well.
The new normal includes slow new construction. Modest supply growth will occur in a few sectors. Primarily multifamily, student and senior housing, and single-tenant industrial (regional distribution centers). Other growth will come from repurposing out dated and vacant structures such as suburban malls. Lending sources will remain extremely skeptical about funding new construction – particularly hotel and hospitality.
To learn more about the current state of the US real estate market contact 9 Core Realty today!