According to information from industry professionals, Americans age 65 and older are thought to be major drivers of the commercial real estate industry, particularly in the medical sector. With the baby boomer generation advancing in age and reaching their retirement years, the need for senior-related services has grown. It makes sense that one of the biggest demands for this age group is access to quality medical services.
“Savvy marketing execs and investors are hungrily eyeing which of the nation’s medical meccas will benefit the most from the excess of senior dollars that will inevitably be thrown their way,” AFR Mortgage writes.
According to information from a recent article by commercial real estate company CoStar Group, hospitals are one of the main medical facilities that are benefiting from this boom in healthcare demand. Major cities like Boston, San Francisco and Chicago were mentioned as among the prime locations for strong demand in medical facilities. Other high-population metros will likely begin to see a greater demand in medical services, and not just in hospitals. Private practice offices, medical supply stores, senior care facilities and specialist offices are likely to see an increase in demand in these areas, especially within neighborhoods that are more senior-oriented.
Real estate investors would be wise to take note of this trend and consider shifting their focus from the traditional single-family residential market to the commercial sector. Or, at the very least, residential real estate investors may want to pay close attention to development opportunities in 55+ communities, or multi-family housing in areas with high populations of retirees.
Condo Market Loses Momentum
Unlike the need for senior housing and medical services, the demand for rental homes in the U.S. seems to be waning. Despite the huge surge in rental demand after the housing bust, builders have expressed a slightly lower level of confidence when it comes to the development of new apartment and condominium complexes.
Through the National Association of Home Builders’ Multifamily Production Index (MPI), builders are asked to rate their perceptions of certain aspects of the market. The three main segments evaluated in the index are units for sale (such as condos), low rent units and market rental units. While the majority of builder responses indicated positive perceptions, the index measuring builder perceptions on condo and apartment complexes decreased slightly.
The condominium and apartment complex index fell two points to 52, which is still considered on the positive side of the index, as any score over 50 reflects that more respondents view the aspect as favorable.
Of the three multi-family housing units reviewed, for sale units fell the most, losing 4 points and bringing the score to an average of 42. By contrast, the index for low rent units increased 2 points to 55.
While the slight shift in confidence for the multi-family market may have something to do with lower demand, NAHB’s chief economist, David Crowe, noted that there are likely other factors that are contributing to the change. The need for skilled construction workers and higher prices for building materials are two factors that have surely made an impact on the market.
The good news is that despite these challenges, the overall housing market has made great strides in recovery. As home values increase and foreclosure rates decline across the nation, the U.S. is once again reaching a period where homeownership is not only more accessible, but more valuable.
Banks facing new stress tests while limited inventory poses real estate challenges
Next month, the results of bank “stress tests” will be revealed, showing just how well major financial institutions would handle significant economic changes. Whether it’s a spike in interest rates or another economic downturn, the Federal Reserve wants to know how banks are likely to perform in the event of major shifts in the economy. The deadline for responses was July 5 and the results are said to be made public by September.
Earlier this year, the Federal Reserve released the results of its own stress test. According to the results, another recession would likely cause the 18 major banks to lose $462 billion. While that figure represents quite a significant loss, Federal Reserve governor Daniel Tarullo remarked that the banks could still survive.
“Even with the possibility of losing half a trillion dollars, the country’s 18 largest banks could survive a severe economic meltdown,” Tarullo said.
It should be noted that the stress tests the 18 major banks are subject to are not exactly the same as the Fed’s assessment process. And while both the Fed and the banks plan to review their respective results, because there are differences in the risk assessment processes, some folks are skeptical of the tests’ accuracy.
Last year, 19 banks were subject to the Fed’s stress tests. Only 15 passed. To view a video explaining the process and results of 2012’s tests, click here: http://afrmortgage.com/blog/banks-face-new-stress-tests-as-interest-rates-rise/
While banks are continuing to be put under the microscope, the real estate landscape is continuing to shift. With economic recovery underway, there have been many improvements in the mortgage and real estate world; however, there’s one big issue that seems to be holding up progress. That issue is limited inventory.
According to another blog post from American Financial Resources, sales figures from the past few months have been less-than-spectacular, showing that the tight supply is likely to be the key factor in the decrease of pending home sales. Pending home sales can be a helpful market indicator for industry pros, showing just how much activity is happening in certain areas. However, when pending home sales figures drops, it doesn’t necessarily mean there is a decrease in demand. In this case, according to the National Association of Realtors (NAR), the weak pending home sales are due to a lack of available homes on the market.
Lawrence Yun, chief economist for the NAR, the only viable solution for this problem is to increase new construction. After a recent pending home sales report, in which is was revealed that the figure dropped 17 percent in April from the year prior, Yun stated that he believed housing starts would need to increase 50% above current levels to get the market running. While new construction would surely be helpful, there are other setbacks. The National Association of Home Builders has reported increases in material costs, lack of labor resources and land shortages.
According to American Financial Resources, industry experts acknowledge that construction levels are far from hitting their peak, making it tough for developers to attract investors. Hopefully this will change as the overall economy continues to improve. In the meantime, mortgage interest rates are remaining relatively low, despite recent increases, and home prices have also remained fairly affordable in much of the country. This has definitely helped the U.S. market climb out of the housing crisis, but most experts say that more improvements are needed before we can experience another boom.