Archives for September 2014

Presentation by Dr. Calvin Schnure, National Association of Real Estate Investment Trusts, at the REALTOR® University Lecture Series
Summary by Jed Smith, Managing Director, Quantitative Research

The REALTOR® University Brown Bag monthly lecture series features presentations by leading economists, analysts, and social scientists on evolving national and regional issues of interest to REALTORS®. The presentation by Dr. Calvin Schnure focused on the economic outlook and its implications for real estate:
Dr. Schnure first discussed the mixed economic recovery: problems with GDP growth and the job market on the negative side; consumer deleveraging, housing market recovery, and reduced drag in government spending on the positive side. Overall, he concluded that the impact of the economy on commercial real estate appeared positive:
Commercial vacancy rates high, but trending down.
Rent growth rising.
Commercial property prices recovering.
Commercial sales activity raising concerns about the supply of space overblown.
As a Vice President of NAREIT he provided extensive information on the Real Estate Investment Trust (REIT) industry, including types of REITS, operating attributes of listed REITS, Investment Attributes, investment performance, and diversification correlations between REITS and other financial investments.
By: Jed Smith (Economist’s Outlook)
Click here to view source article.

Rio Rancho was named among the 50 Best Cities to Live as number 38.
Americans take into account different factors when choosing where to live. For some, the quality of schools is important. For others, the strength of the local economy or personal safety takes priority.
To determine America’s best cities to live in, 24/7 Wall St. reviewed data on the 550 cities with populations of 65,000 or more as measured by the U.S. Census Bureau. Based on a range of variables, including crime rates, employment growth, educational attainment, and housing affordability, 24/7 Wall St. identified America’s 50 Best Cities to Live.
Click here to see America’s Best Cities to Live.
Click here to read our methodology.
Because of its importance, the labor market was one of the key measures we used to identify the best cities. In order to be considered, a city needed positive employment growth between 2011 and 2013. Seventy cities did not meet this standard. Cities scored well if employment growth was high. Olathe, Kansas, one of the best cities to live in, received considerable marks because it had 14.4% employment growth — one of the best during that time.
In the U.S., the national unemployment rate was 7.4% in 2013, high by historical standards. And in many cities it was much worse. Because unemployment is such an important factor, we also eliminated cities from consideration if their unemployment rates were more than 33% above the 2013 national rate — our cutoff rate was 9.8%. This alone excluded more than 100 cities from consideration.
Of course, the availability of jobs is not enough to make a city worth moving to. For many Americans, safety is also important. According to Federal Bureau of Investigation (FBI) data, violent crime rates were far higher in metropolitan areas — where the vast majority of Americans live — than in smaller cities and other parts of the country. Roughly half of all cities were excluded because they reported property or violent crime rates that were at least 25% higher than the 2012 national rates.
The vast majority of the nation’s best cities to live in had especially low violent crime rates. In fact, the violent crime rate in 35 of the 50 cities was less than half the national rate of 387 incidents per 100,000 residents in 2012.
For parents, a strong school system also influences the decision of where to live. According to Daren Blomquist, vice president of RealtyTrac, a housing market data site, “quality of education is the number one issue home buyers ask about most.”
In order to compare educational outcomes in each city, we ranked math, language arts and science scores tabulated by Homefacts, a RealtyTrac subsidiary. Seven of the top 10 cities on our list were among the top 10% of large cities nationwide for math achievement and eight were among the top 10% for language arts.
We also measured the availability of amenities, such as restaurants, theaters and fitness clubs. While such factors might seem like an afterthought, Americans spend an average of more than five hours each day on leisure activities, according to the Census Bureau.
“There is still romance in buying a house,” said Blomquist. Features such as access to outdoor activities, beautiful parks and gyms “are the type of amenities that often will set apart certain communities from others.”
By: Robert Serenbetz, Alexander Kent, Ashley C. Allen, Alexander E.M. Hess, and Thomas C. Frohlich (24/7 Wall Street)
Click here to read source article.
 

At the LIN September Meeting on September 17, nine excellent properties were presented. Thank you for presenting properties and attending the meeting! Thank you to our host, 101-C Sun Ave NE.
View September LIN properties here.
View PowerPoint presentation from the September LIN meeting here.

Incoming fresh economic data point to continued GDP expansion at a near 3 percent growth rate and about 2.5 million net new jobs over the next 12 months. Inflation remains tame – so far. But upward pressure will build with rent growth pushing up the overall CPI. The Fed will have no choice but to raise the fed funds rates by the spring of next year. Mortgage rates will move up even before the official Fed policy change since the longer-date bonds will rise in anticipation. Homes will become less affordable for those taking out a mortgage. However, when all is said and done, home sales will have notched up 5 to 10 percent in 2015. Real estate brokerage revenue will rise by even more (10 to 15 percent) because of the added boost from rising home values.
Let’s review each of the economic data separately:
GDP = C + I + G + NX. The equation is always a good starting point to see where economic growth will come from. Consumer spending (C) has been growing roughly at 2 percent for the past three years. A better figure of 2.5 percent was recorded in the most recent quarter. This component will continue to expand for the simple reason that consumers have more income. Americans simply do not chuck away a large portion for savings and the total personal income has been growing at 2.5 percent after inflation on a year-over-year basis. Not only that but the composition of personal income has turned for the better. Non-farm entrepreneurial income is up 5 percent on nominal terms from a year ago while income from unemployment benefits is down 43 percent. Rental income is up 7 percent. Bulk wages and salaries are up 5 percent, the result of job creation. On top of this, the stock market continues to make gains. The market capitalization of S&P 500 companies rose by more than $3 trillion. Such euphoria always leads to greater consumer spending, not less.
Investment spending (I) can be divided into two parts: business and housing. Business spending on factories, equipment, software and the like rose solidly by 8 percent in the second quarter, though after no gain in the prior quarter. This component tends to be volatile because some of the purchases are bulky and big growth in one quarter can be followed by soft growth in the next. Over the past 3 years, the growth rate averaged a decent 6 percent. Given massive corporate profits, there are plenty of financial resources to be spent by businesses. Aside from corporations, the optimism expressed by small business owners reached the highest since 2007, according to the National Federation of Independent Business. On the housing side, the recovery has been subdued, but the potential for a future ramp-up is strong. Existing home sales are modestly lower from one year ago and housing starts are trying to breakout cleanly above the one million mark. In July, housing starts hit 1.1 million. Given that the normal figure should be closer to 1.5 million, there is ample room for further growth. In other words, investment spending will be solidly positive going forward.
Government spending (G) will have hardly grown and will likely remain at the zero growth line for awhile. State and local governments have started to boost spending as tax revenues have come in nicely, but the federal government, particularly in regards to national defense, will still have to deal with further cuts. In the most recent quarter federal spending was down 1 percent while state and local government spending was up 3 percent. This component will neither add nor subtract to economic growth in any measurable sense.
Net exports (NX), like government spending, will be neutral. Whatever growth in exports will be negated by the growth in imports. In the second quarter exports grew by 10 percent while imports grew by 11 percent. Given the generally weaker conditions in European economies, export growth may get shaved somewhat compared to the recent path. The mighty German economy is also slowing to a no growth zone. Meanwhile, the Ukraine has no money to buy. Russia is sanctioned and cannot buy. The overall net export was $463 billion in the red in the second quarter (with imports exceeding exports by that amount). Figures in the upcoming quarters will be roughly the same. That means, the net export picture is neither improving nor deteriorating in any measurable way.
Adding up each of the components implies GDP growing at around 3 percent. That is enough to generate 2.5 million net new jobs. More jobs mean more income. More income means more consumer spending. Businesses then will ramp up their spending to produce more. That, in turn, means more GDP and jobs. The economy appears to be entering a steady-state virtuous cycle in the immediate future.
One external shock to the system is a sudden and fast rise in interest rates. Consumers and businesses could pull back as a result and put GDP growth at risk. But the expected rise in interest rates will be very manageable. The fed funds rate will go from currently zero to 1 percent by the end of 2015. That is still low given that the 20-year average fed funds rate is 2.9 percent, which includes the past 6 years of a zero interest rate policy.
The one variable that deserves careful monitoring is CPI inflation. As long as inflation is contained or not busting out then interest rate increases can be modest. Through the middle of 2014, inflation was showing at 2 percent. But one component of inflation that is not yet contained is rent growth. Rents have been rising and rising and are higher by 3.3 percent in July, the highest in 6 years. Falling apartment vacancy rates imply continued rent gains. Because rent and homeowner equivalency rent (which follows the apartment rent trend) comprise the largest weight to the overall CPI, the growth in rents will inevitably force up CPI. There has been a nice recovery in multifamily housing starts, averaging 360,000 year-to-date and 437,000 in July on an annualized rate – the rise in rental population has quickly soaked up any new supply. Moreover, there appears to be a greater number of single-family homes that are now rentals. So the increased supply may tame rent growth. On the other hand, the overall supply of new homes has been well below the historic norm of 1.5 million for eight straight years, signaling housing shortage conditions that will persist for a while. Rents could then approach a 4 percent growth rate. CPI inflation could get out of hand. The Fed may then be forced to sharply raise interest rates. An unlikely scenario, but it is a scenario worth a close watch.

By: Lawrence Yun, Ph.D. (Economist’s Outlook)
Click here to view source article.