After years of dismal news, real estate market predictions for 2014 call for a continuation of a slow and steady recovery.
A slowly improving economy along with a steady increase in employment is eliminating uncertainty and raising confidence in the real estate market. According to a survey from the Urban Land Institute, the real estate market should continue on its steady road back to health over the next three years.
Real Estate transaction volume in 2014 should reach $340 billion, up from $290 billion in 2012, an increase of over 17%. Mortgage backed securities, a major funding source for commercial real estate, is expected to almost double from $48 billion in 2012 to $80 billion in 2014. The forecast on real estate investments is also strong even though REIT (Real Estate Investment Trusts) returns are expected to be 12% this year and fall to 10% in 2014. Total returns from investments in apartments and from retail, industrial and office real estate are forecast to be 9.5% this year and to fall to 9% in 2014. That’s less than 2012 but very much in line with historical trends.
Particularly encouraging for rental property owners is that the apartment sector is providing the biggest investment return in 2013 with a projected 10%. Though a slight decline is expected next year, that sector should still top the real estate investment list.
Residential Market Growth
The news is also good for the residential housing market, according to MSN Real Estate. By mid-2014 prices are expected to climb back 7% from 2010. The leading housing markets are the state of Washington, Oregon, Michigan, Napa region of California, Nevada, Florida, Arizona, New Mexico, Wyoming and Alaska.
The real estate market clearly turned the corner in 2012. Existing and new home sales and housing starts are all up significantly this year as compared to the low activity of the past four years. The forecast for 2014 is for 1.13 million housing starts, up from 776K in 2012. Apartment construction will be uneven, concentrating in about 15 submarkets.
There are some things that could dampen the real estate market next year, including restrictions on availability of mortgage credit or any further “fiscal cliff” type disruptions at the federal level. That said, inflation will likely be on the rise as a result of pressure from the increasing federal deficit, rising rents, quantitative easing by the fed (adding cash to the money supply), and a national debt of 10% of gross domestic product. With home prices expected to rise by 5-6% in 2014, that once again makes real estate a solid hedge against inflation.
After more than a half-decade of bad news, the real estate market is slowly returning to health.