{"messages": [{"role": "user", "content": "The global economy faced extraordinary challenges in 2025. Tariffs rose to levels we haven’t seen in nearly a century. Immigration limits tightened labor markets. Geopolitical tensions flared in multiple regions. And policymakers everywhere seemed locked in a constant debate over inflation, interest rates, and fiscal sustainability. At one point, global equity markets lost more than $12 trillion in value in just a few weeks. Recession odds spiked to nearly 50%. And yet, through all of that, the global economy kept expanding. Once all the data is finalized, global GDP is expected to have grown by 3.2% in 2025, which is just a tick below last year’s pace. Inflation eased across most regions. It drifted a bit higher in the U.S., but only modestly so far. Labor markets cooled, but unemployment remains low across most economies. And with real incomes still rising, consumers held up better than expected. In short, the world economy absorbed a historic barrage of shocks last year and continued to push forward."}, {"role": "assistant", "content": "AI as a Growth Engine One of the biggest reasons for that resilience was the AI growth engine, which really took off in 2025. Across industries, generative AI and automation began driving measurable productivity gains, new investment, and innovation. That growth spilled directly into commercial real estate (CRE), especially data centers, which are now one of the fastest-growing and most capitalized property types globally. AI’s physical footprint and its need for power, cooling, and connectivity, is driving extraordinary demand for data centers and creating new requirements for both office and industrial space. Office: Leasing activity improved in 2025 as occupiers made more decisive workplace commitments, particularly in high-quality buildings. Across most markets, one theme stood out—strong demand for modern spaces, coupled with a limited supply. Industrial: Expectations were muted going into the year because of tariff concerns, but the sector held up, continuing to absorb space. With the supply wave largely behind us, fundamentals are set to improve going forward. Retail: Fundamentals held steady, with occupancy near record highs and new construction still limited. Alternatives: Demographic and other structural forces open increasing opportunities for alternative investments, particularly in specialty housing, data centers, and medical real estate uses."}]}
{"messages": [{"role": "user", "content": "From Resilience to Optimism Looking ahead to 2026, the tone is shifting—from resilience to optimism. Policy uncertainty is easing. Central banks have started to lower rates. The cost of debt is coming down. Inflation has moderated in most economies. Capital is flowing aggressively again into the property sector."}, {"role": "assistant", "content": "Investors are rediscovering that commercial real estate remains a compelling source of yield and diversification."}]}
{"messages": [{"role": "user", "content": "Labor Market • GDP growth outperformed expectations in 2025 and is on pace to register a respectable 1.9%."}, {"role": "assistant", "content": "In 2026, we expect similar growth of 1.7%."}]}
{"messages": [{"role": "user", "content": "• The AI boom is now contributing to growth in a meaningful way via capital investments in data centers, computing equipment, and a surging stock market. We estimate that more than half of the GDP growth in 2025 is attributed to AI-related investments. GDP Growth • Inflation remains a thorny issue. While most measures were trending toward 2.0% prior to the impact of tariffs, they are now moving in the wrong direction. • Recent messaging from the Federal Reserve suggests that, despite inflation risks, policy will become more accommodative."}, {"role": "assistant", "content": "We expect the Fed to gradually bring its policy rate down to a “neutral” rate of 3.0% by H2 2026."}]}
{"messages": [{"role": "user", "content": "• Upside risks cannot be discounted either. The AI boom is generating new outlets for investors and occupiers to capitalize on. Moreover, the potential for a real productivity boom could positively impact the macroeconomy and benefit most CRE asset types. Risks & CRE 2026 ECONOMIC OVERVIEW Inflation & Rates 5 A blue arrow in a circle AI-generated content may be incorrect."}, {"role": "assistant", "content": "• Immigration reduced sharply in 2025, leading to a 4.4% decline in the foreign- born labor force since its peak in March. This is likely the predominant headwind to employment growth, a challenge that is expected to continue over the next couple of years."}]}
{"messages": [{"role": "user", "content": "• On the plus side, office-using employment has turned positive and will contribute to employment gains going forward. Average hourly earnings are also outpacing consumer inflation, allowing for modest gains in real income. 7 ECONOMY CPI, Y/Y % Fed Target , Tariffs are Inflationary, but for How Long? • The expected inflationary impact from tariffs outlined in our Midpoint 2025 report is beginning to play out. Overall, inflation is expected to remain uncomfortably elevated in the mid-3% range before subsiding in H2 2026. Tariffs Keep Inflation Elevated in 2026 A blue arrow in a circle AI-generated content may be incorrect."}, {"role": "assistant", "content": "• While downside risks remain, the outlook is clearer than it was in 2025. With better visibility, pent-up leasing decisions should begin to convert, underwriting confidence should improve, and with the supply wave largely behind us, the economic backdrop supports continued firming in the property sector’s fundamentals."}]}
{"messages": [{"role": "user", "content": "9 U.S. Economic Policy Tariffs Trade policy took center stage in 2025 and continues to be a headwind to economic growth. This is driven by both the taxation impacts of tariffs and the uncertainty surrounding the path forward, including ongoing Supreme Court deliberations on the legality of country-specific tariffs under the IEEPA. At present, the average effective tariff rate is about 10%—the highest since 1934— and is estimated to reduce GDP growth by 0.5 to 0.7 percentage point in 2026, all else equal. Fiscal Policy The One Big Beautiful Bill Act that was legislated by Congress and signed by the president in July will have modest net economic benefits over the next several years, raising the level of GDP by as much as 1.0% by 2028."}, {"role": "assistant", "content": "More immediately, the 43-day government shutdown which officially ended on November 12 is expected to shave 0.6 percentage point off GDP growth in Q4 2025, much of which will be recovered in Q1 as federal spending rebounds. Immigration Restrictive immigration policy is precluding stronger economic growth, via reductions in labor supply and the knock-on effects of slower job growth and reduced consumer spending. Over the next few years, we expect annual average net migration to hover in the range, well below the 2+ million in the last several years and below the 1 million per-year long-term average."}]}
{"messages": [{"role": "user", "content": "Federal Reserve Policy shifts have made the Federal Reserve’s job of assessing progress toward its dual mandate of full employment and 2% inflation more challenging. Since first cutting rates in September 2024, the Fed has cumulatively lowered its policy rate by 150 basis points (bps) as of November 2025. While our baseline forecast expects the Fed to continue easing over the coming quarters, the risk of stickier inflation is growing louder and thus could delay a smooth rate cutting cycle in H1."}, {"role": "assistant", "content": "Crucially, the expiration of Chairman Powell’s term paves the way for the Trump administration to nominate a new chair who will likely be more amenable to lowering rates. Ultimately, we expect the policy rate to settle around 3.0% in 2026 and beyond."}]}
{"messages": [{"role": "user", "content": "What to Watch Each of these sources of policy uncertainty will not magically go away, but we believe policy will become less disruptive in 2026 for several reasons: 1) Tariffs are causing a temporary price-level increase, after which inflation will normalize as supply chains adjust. 2) The USMCA agreement is due for renegotiation in 2026 which may encourage the administration to seek more friendly trade policies with our largest trading partners. 3) The OBBBA provides long-term clarity on tax policy and expands pro-growth incentives. 4) Fast-approaching midterm elections will incentivize more pro-business policy initiatives such as deregulation. 5) The economy and CRE have displayed remarkable resilience in the face of drastic policy shifts. Lots Of Scenarios Still In Play 15% Probability 50% Probability 25% Probability 10% Probability SCENARIO 1 Upside SCENARIO 2 Baseline SCENARIO 4 Stagflation SCENARIO 3 Near-Term Recession • Economy continues to grow at a healthy clip, supported in part by early-stage AI-related productivity gains, with GDP growing 2.0% in 2025 and 3.2% in 2026. • The FOMC lowers Fed funds rate through 2026, despite sticky inflation and above-trend economic growth. • Economy slows in early 2026 but avoids a recession, with stronger growth in H2; GDP softens slightly in 2026 and remains under 2.0% through 2027. • Job gains total 1.0 million in 2025 and growth is essentially flat in 2026. The unemployment rate peaks at 4.9%, still low by historical standards. • The U.S. economy falls into recession in 2026. Job losses total 1.2 million and unemployment peaks at 7.2%. • Inflation reaccelerates as the economy weakens. The Fed is initially more concerned about the weakening economy and does not respond to inflation until H2 2026 when it sharply raises Fed funds, causing the economy to fall into a deep recession in 2027. • Job losses are far greater than our baseline in 2026 with a loss of 0.9 million jobs."}, {"role": "assistant", "content": "In 2027, job losses total 7.0 million. • President Trump is expected to nominate a new Fed Chair before the new year and he will be looking for a candidate who supports lowering rates, potentially substantially. This carries inflation risk, hence our consideration of a “stagflation” downside scenario."}]}
{"messages": [{"role": "user", "content": "• The 10-year Treasury yield has remained within a 4.0–4.3% range for the past three months, and our baseline expects it to stay toward the upper end of this range over the next two years, influenced by competing forces—upward pressures such as inflation and deficits and modest downward pressure from slower global growth and uncertainty. • Deficit spending, inflation expectations, and growth prospects bear close watching by CRE investors to assess where yields are headed and potentially capitalize on near- term fluctuations."}, {"role": "assistant", "content": "Pricing Reset Transaction cap rates have gradually adjusted to the higher-rate environment, paving the way for neutral-to-positive leverage conditions. Property price indices have stabilized and now inflected upward in the low-single-digits on a YOY percentage basis. REIT-implied cap rates have also stabilized, suggesting modestly positive forward-looking price movement. Capital Deployment The desire to recycle and deploy capital will increasingly convert into more transactions as there is growing conviction around entering in the early vintage years of the cycle. It is notable that institutional investors have returned to the market in 2025; sales volumes were up 17% YTD through October and single-asset sales among institutions were up 50%. Private fund managers increasingly report being under allocated to real estate in 2025—a positive sign for increased deployment."}]}
{"messages": [{"role": "user", "content": "16 Light Is Growing Brighter Now The light at the end of the tunnel for office leasing is growing brighter with each passing quarter. In Q3, half of U.S. markets posted overall positive net absorption, with Class A space experiencing two consecutive quarters of sustained demand growth. While 2025 started with just a handful of markets having turned the corner, demand lately is picking up across a broader swath regionally thanks to varied growth drivers. Large portions of the markets in New York, the Bay Area, and Los Angeles experienced robust positive absorption over the past year, as did key Sunbelt hubs in Nashville, Atlanta, Tampa, Dallas, and Austin. Turning the Page Overall vacancy rates will inflect in 2026 but a rapid return to pre-pandemic norms is not in the cards. Competitively obsolescent space is likely to sit vacant for years as some owners contemplate renovation or conversion and loan restructuring. But for the in-demand segments of the market, occupancy will begin to edge higher, barring major economic shocks, helping to improve income streams and reset capital values at the same time. Office jobs Non-office jobs Total nonfarm Office Shifts to Employment Driver Source: Office Jobs Perking Up After two years of moving sideways, office job growth is poised to increase in 2026. In the baseline forecast, office-using employment will grow by in accounting for essentially all nonfarm employment gains over that two-year period. Core segments of finance and legal services are driving YTD gains in office employment, particularly among larger firms. And despite alarm that automation could reduce the need for certain white-collar jobs, there is no compelling evidence this is causing layoffs en masse presently."}, {"role": "assistant", "content": "Strong leasing activity in the Bay Area and New York nods to the possibility that AI investment could even be a net positive driver for office leasing in the near term under certain conditions."}]}
{"messages": [{"role": "user", "content": "Sentiment Matters Leasing and the capital markets do not operate in isolation, and improved sentiment on either side will reinforce the other. Both are moving in the right direction, albeit gradually. According to the Q3 2025 Cushman & Wakefield office brokerage survey, more market participants indicated tenant space requirements were ‘unchanged’ or ‘increased slightly’ than at any point in two years. Expectations for vacancy and rents three years out also support more conviction around an eventual move from ‘tenant friendly’ to ‘neutral’ market conditions. On the capital side, debt and equity markets are slowly reengaging in office. Transaction volumes improved 27% in Q3 2025 compared to 2024."}, {"role": "assistant", "content": "Lenders showed more willingness to make new office loans as fundamentals stabilize, highlighted by multiple $1 billion plus refinancings of trophy NYC office assets. The office market also approached bottom in terms of pricing as indicated by upward movements in public markets, bringing would-be buyers back to the table, albeit at far-discounted pricing. Directional improvement in the capital markets should help current owners and buyers add needed value to assets, supporting the budding leasing recovery in tandem."}]}
{"messages": [{"role": "user", "content": "Supply (msf) Demand (msf) Vacancy, % (RHS) Cushman & Wakefield Baseline Forecast – Industrial Source: Upside Surprise Industrial demand surprised to the upside in Q3 2025 with its strongest quarter in over a year, totaling 45 msf and bringing the YTD totals in line with the same period 2024."}, {"role": "assistant", "content": "Leasing activity broke out of its earlier slump, which had been partly tied to trade-policy uncertainty that caused some tenants to delay decisions. As a result of stronger incoming data and the improved economic outlook, we have increased our demand projections for 2026 and 2027 by a combined 70 msf relative to the Midyear 2025 forecast."}]}
{"messages": [{"role": "user", "content": "Development Ramping Down The development pipeline will peak in 2025 and the pipeline ahead suggests below-trend deliveries through 2028. From we forecast that 230 msf will be brought to market per year, which is half the average rate from . Build-to-suit deliveries are rising in market share, going from 17% in 2023 to 39% in 2025. The national vacancy rate is expected to move sideways in 2026 at 7.3% as demand matches new supply but will remain elevated relative to pandemic-era lows that were in the sub-4% range."}, {"role": "assistant", "content": "Rents Retrench, Regionally Slowing rent growth has been in the spotlight in 2025 but the story is highly nuanced regionally. Nationally, average rents continue to increase on average by 1-2% and that should continue for the next couple of years. Rents in the West and Northeast regions, which are currently down 3.0% and 3.7% YOY, respectively, will weigh on national averages while inland markets have the opposite effect. Notably, national asking rents remain 60% above their pre-pandemic levels, so the mark- to-market story for upcoming renewals will remain the more relevant comparison for leasing demand."}]}
{"messages": [{"role": "user", "content": "E-commerce the Mainstay Although consumer spending is under pressure, e-commerce continues to capture a growing share of retail sales, which is a plus for warehouse demand. E-commerce as a share of retail sales (excluding gas, autos, and restaurants) is nearly 30% now and rising. According to the Q3 Cushman & Wakefield Industrial Forecast Survey, 80% of the markets we track expect e-commerce to be the number one driver of leasing demand over the next three years. Supply (# units) Demand (# units) Vacancy Rate (%, RHS) Cushman & Wakefield Baseline Forecast – Multifamily Source: , MULTIFAMILY A blue arrow in a circle AI-generated content may be incorrect. Renters by Necessity (and by Choice) Many factors influence housing choice, but the economic drivers currently favor renting versus homeownership virtually everywhere in the U.S. High mortgage rates, low for-sale inventory, and general affordability issues are buttressing multifamily demand, particularly amid high employment and real wage gains, which alleviates pressure to double-up with roommates or family members. Demand has softened from its 2024 peak but is on track to exceed the 10-year average by 30% in 2025. Pipeline Shrinking Fast Record construction activity has been the chief driver of higher vacancy and softer rent growth over the last couple of years. By the end of 2025, the market will have delivered 12% of prior inventory in a compressed three-year period. Supply is drying up, fast; multifamily starts are down two-thirds from peak and at the lowest level since 2012."}, {"role": "assistant", "content": "We expect a subdued delivery schedule for several more years."}]}
{"messages": [{"role": "user", "content": "Occupancy > Rent Rent growth is softening as most apartment owners adopt defensive leasing strategies focused on preserving occupancy rather than growing rents. Much of that weakness is concentrated on new leases, while renewal rents remain comparatively resilient. With the supply pipeline easing, rent growth is forecast to accelerate toward 5.0% in 2027. Stabilized vacancy remains roughly 90 bps below its historic peak, suggesting the market has absorbed much of the recent supply influx. Record construction activity has been the chief driver of higher vacancy and softer rent growth over the last couple of years. Economy Doing ‘Good Enough’ Though many renters and would-be buyers have become discouraged by affordability challenges, economic conditions are not having a drastic impact on housing tenure. The number of young adults living alone outnumbers those living with roommates; the share living at home with parents has declined, too. Employment is high and inflation-adjusted incomes are rising—all of which translates into lower household size and the ability to trade up into newly built properties. Our proprietary data shows low rates of non-renewals due to household financial issues. Immigration a Growing Concern Immigration of foreign-born workers to the U.S. was the largest source of population growth in two-thirds of metro areas across all four regions of the country in 2024. Recent declines remove a key source of multifamily demand, particularly for coastal markets which typically do not benefit from domestic in-migration or natural population increases as much as Sunbelt markets. The Harvard Joint Center for Housing Studies projects renter households will be added per year over the coming decade compared to during the prior 25-year average. 25 Cushman & Wakefield Baseline Forecast – Retail Shopping Centers Source: , Supply (MSF) Demand (MSF) Vacancy Rate (%, RHS) Source: Green Street, , NCREIF, MSCI Real Capital Analytics, Cushman & Wakefield RETAIL A blue arrow in a circle AI-generated content may be incorrect."}, {"role": "assistant", "content": "Tenant Demand: More than Meets the Eye The retail market is in the crosshairs of tariff uncertainty, but leasing has carried on with little disruption. Yes, demand is slated to be negative in 2025 for the first time since 2020, but this is more about what happened prior to tariffs. Several big- box retailers with large footprints filed for bankruptcy in 2024 and quickly vacated thousands of stores, resulting in negative YTD absorption as the spaces are backfilled. However, the news has been decidedly positive in terms of time to lease and mark-to-market rents achieved for vacated space. Demand is expected to rebound next year, even as some firms face increased margin pressures. What’s Old Is New Again Malls have quietly been one of the better performing CRE asset classes over the past year from both a leasing and capital markets perspective. New leasing among the three largest mall owners is 20% above 2019 levels; refinancing has more than doubled the average; cumulative unleveraged returns over the past four quarters totaled 6.9%; and REIT-implied cap rates have narrowed relative to other CRE assets. This all signals a recalibration of investor sentiment, positioning high-quality retail centers as resilient, income-generating asset classes for the chapter ahead."}]}
{"messages": [{"role": "user", "content": "Q1 Severely delinquent credit cards, % of total (LHS) Consumer confidence index, 100=1985 (RHS) Source: Conference Board, Federal Reserve Board of Governors, Moody’s Analytics The ‘K-shaped’ Economy The concept of a “K-shaped” economy has become a central narrative for consumer spending and the retail outlook."}, {"role": "assistant", "content": "The top end of the “K” represents wealthy households— they’ve seen real estate and financial asset values increase dramatically in recent years and generally are less impacted by economic uncertainty. For everyone else—the bottom spoke of the “K” —confidence is rattled, inflation is real, and value is king. This notion is supported by bellwethers such as earnings reports, foot traffic, and property level performance. The wealthy are increasingly powering consumer spending, which leaves the economy more exposed to a correction in financial markets. We don’t expect an equity bubble to pop but it’s a growing near-term risk for consumer spending and retail CRE."}]}
{"messages": [{"role": "user", "content": "Retail tenants largely followed through on expansion plans for 2025 despite macro headwinds, but the brunt of tariff impacts may ding profit margins as tariffs pass through and spending becomes more fragmented. Industry forecasts project holiday retail sales to moderate from 2024, rising between 1.0-2.0% after accounting for inflation."}, {"role": "assistant", "content": "We expect a bifurcated performance by sector, with housing-related and tariff-sensitive categories experiencing weakness. This could undermine a strong demand rebound in 2026 as firms recalibrate supply chains and pricing."}]}
{"messages": [{"role": "user", "content": "Built-To-Rent Demand remains strong due to unaffordable homeownership and demographic trends, while supply is easing—setting the stage for a healthy recovery in occupancy and rent growth."}, {"role": "assistant", "content": "• Focus on the long term: Prioritize real estate with durable income streams and secular growth themes, as value appreciation typically accrues over time."}]}
{"messages": [{"role": "user", "content": "• Follow the people: Target markets with strong population growth, high concentrations of prime-age workforce, as well as desirable locations for retirees, as these dynamics drive CRE demand and long-term growth. • Capitalize on supply constraints: Trophy office vacancy is tight, and the construction pipeline is the lowest in over a decade; demand is likely to trickle to the next best thing, well-located Class A space. Cushman & Wakefield Baseline Outlook* (50% Probability) U.S. Economy Real GDP (annual avg, YOY %) Nonfarm Employment (year-end diff, ths.) Office-using Employment (year-end diff, ths.) Unemployment Rate (year-end, %) Retail & Food Services Sales (annual avg, YOY %) CPI Inflation (annual avg, YOY %) Federal Funds Rate (year-end, %) -Year Treasury Rate (year-end, %) BAA Corporate Bond (year-end, %) West Texas Intermediate (year-end, $/bbl) Effective Tariff Rate (year-end, %) U.S. Economy Office Sector Industrial Sector Retail Sector Multifamily Sector *The probability can be interpreted as the economy having a 50% chance of performing as well as or better than this scenario, and a 50% chance of performing worse. , , Federal Reserve, U.S. Census Bureau, Moody’s Investor Services, U.S. Energy Information Administration, , NCREIF, Office Sector New Supply (msf) Net Absorption (msf) Vacancy (%) Effective Rent Growth (%) Industrial Sector New Supply (msf) Net Absorption (msf) Vacancy (%) Effective Rent Growth (%) U.S. Economy Office Sector Industrial Sector Retail Sector Multifamily Sector *The probability can be interpreted as the economy having a 50% chance of performing as well as or better than this scenario, and a 50% chance of performing worse. , , Federal Reserve, U.S. Census Bureau, Moody’s Investor Services, U.S. Energy Information Administration, , NCREIF, Cushman & Wakefield Baseline Outlook* (50% Probability) Retail Sector New Supply (msf) Net Absorption (msf) Vacancy (%) Effective Rent Growth (%) Multifamily Sector New Supply (ths. units) Net Absorption (ths. units) Vacancy (%) Effective Rent Growth (%) U.S. Economy Office Sector Industrial Sector Retail Sector Multifamily Sector *The probability can be interpreted as the economy having a 50% chance of performing as well as or better than this scenario, and a 50% chance of performing worse. , , Federal Reserve, U.S. Census Bureau, Moody’s Investor Services, U.S. Energy Information Administration, , NCREIF, Cushman & Wakefield Baseline Outlook* (50% Probability) *This scenario is designed to incorporate the central tendency of a range of baseline forecasts produced by various institutions. views this scenario, often dubbed as a soft landing, as an “upside scenario” relative to our baseline scenario. The probability can be interpreted as the economy having a 15% chance of performing as well as or better than this scenario, and an 85% chance of performing worse. , , Federal Reserve, U.S. Census Bureau, Moody’s Investor Services, U.S. Energy Information Administration, , NCREIF, Upside Scenario* (15% Probability) U.S. Economy Real GDP (annual avg, YOY %) Nonfarm Employment (year-end diff, ths.) Office-using Employment (year-end diff, ths.) Unemployment Rate (year-end, %) Retail & Food Services Sales (annual avg, YOY %) CPI Inflation (annual avg, YOY %) Federal Funds Rate (year-end, %) -Year Treasury Rate (year-end, %) BAA Corporate Bond (year-end, %) West Texas Intermediate (year-end, $/bbl) Effective Tariff Rate (year-end, %) U.S. Economy Office Sector Industrial Sector Retail Sector Multifamily Sector Upside Scenario* (15% Probability) Office Sector New Supply (msf) Net Absorption (msf) Vacancy (%) Effective Rent Growth (%) Industrial Sector New Supply (msf) Net Absorption (msf) Vacancy (%) Effective Rent Growth (%) U.S. Economy Office Sector Industrial Sector Retail Sector Multifamily Sector *This scenario is designed to incorporate the central tendency of a range of baseline forecasts produced by various institutions. views this scenario, often dubbed as a soft landing, as an “upside scenario” relative to our baseline scenario. The probability can be interpreted as the economy having a 15% chance of performing as well as or better than this scenario, and an 85% chance of performing worse. , , Federal Reserve, U.S. Census Bureau, Moody’s Investor Services, U.S. Energy Information Administration, , NCREIF, Retail Sector New Supply (msf) Net Absorption (msf) Vacancy (%) Effective Rent Growth (%) Multifamily Sector New Supply (ths. units) Net Absorption (ths. units) Vacancy (%) Effective Rent Growth (%) U.S. Economy Office Sector Industrial Sector Retail Sector Multifamily Sector *This scenario is designed to incorporate the central tendency of a range of baseline forecasts produced by various institutions. views this scenario, often dubbed as a soft landing, as an “upside scenario” relative to our baseline scenario. The probability can be interpreted as the economy having a 15% chance of performing as well as or better than this scenario, and an 85% chance of performing worse. , , Federal Reserve, U.S. Census Bureau, Moody’s Investor Services, U.S. Energy Information Administration, , NCREIF, Upside Scenario* (15% Probability) *This scenario represents a tail-end downside scenario wherein the economy weakens substantially more than in our baseline. views this scenario as a “downside scenario” relative to our baseline scenario. The probability can be interpreted as the economy having a 75% chance of performing as well as or better than this scenario, and a 25% chance of performing worse. , , Federal Reserve, U.S. Census Bureau, Moody’s Investor Services, U.S. Energy Information Administration, , NCREIF, Downside Scenario* (25% Probability) U.S. Economy Real GDP (annual avg, YOY %) Nonfarm Employment (year-end diff, ths.) Office-using Employment (year-end diff, ths.) Unemployment Rate (year-end, %) Retail & Food Services Sales (annual avg, YOY %) CPI Inflation (annual avg, YOY %) Federal Funds Rate (year-end, %) -Year Treasury Rate (year-end, %) BAA Corporate Bond (year-end, %) West Texas Intermediate (year-end, $/bbl) Effective Tariff Rate (year-end, %) U.S. Economy Office Sector Industrial Sector Retail Sector Multifamily Sector Downside Scenario* (25% Probability) Office Sector New Supply (msf) Net Absorption (msf) Vacancy (%) Effective Rent Growth (%) Industrial Sector New Supply (msf) Net Absorption (msf) Vacancy (%) Effective Rent Growth (%) U.S. Economy Office Sector Industrial Sector Retail Sector Multifamily Sector *This scenario represents a tail-end downside scenario wherein the economy weakens substantially more than in our baseline. views this scenario as a “downside scenario” relative to our baseline scenario. The probability can be interpreted as the economy having a 75% chance of performing as well as or better than this scenario, and a 25% chance of performing worse. , , Federal Reserve, U.S. Census Bureau, Moody’s Investor Services, U.S. Energy Information Administration, , NCREIF, Downside Scenario* (25% Probability) Retail Sector New Supply (msf) Net Absorption (msf) Vacancy (%) Effective Rent Growth (%) Multifamily Sector New Supply (ths. units) Net Absorption (ths. units) Vacancy (%) Effective Rent Growth (%) U.S. Economy Office Sector Industrial Sector Retail Sector Multifamily Sector *This scenario represents a tail-end downside scenario wherein the economy weakens substantially more than in our baseline. views this scenario as a “downside scenario” relative to our baseline scenario. The probability can be interpreted as the economy having a 75% chance of performing as well as or better than this scenario, and a 25% chance of performing worse. , , Federal Reserve, U.S. Census Bureau, Moody’s Investor Services, U.S. Energy Information Administration, , NCREIF, Stagflation Scenario* (10% Probability) U.S. Economy Real GDP (annual avg, YOY %) Nonfarm Employment (year-end diff, ths.) Office-using Employment (year-end diff, ths.) Unemployment Rate (year-end, %) Retail & Food Services Sales (annual avg, YOY %) CPI Inflation (annual avg, YOY %) Federal Funds Rate (year-end, %) -Year Treasury Rate (year-end, %) BAA Corporate Bond (year-end, %) West Texas Intermediate (year-end, $/bbl) Effective Tariff Rate (year-end, %) U.S. Economy Office Sector Industrial Sector Retail Sector Multifamily Sector *This scenario represents an extreme tail-end downside scenario wherein the economy weakens substantially more than in our baseline. views this scenario as a “downside scenario” relative to our baseline scenario. The probability can be interpreted as the economy having a 90% chance of performing as well as or better than this scenario, and a 10% chance of performing worse. , , Federal Reserve, U.S. Census Bureau, Moody’s Investor Services, U.S. Energy Information Administration, , NCREIF, Stagflation Scenario* (10% Probability) Office Sector New Supply (msf) Net Absorption (msf) Vacancy (%) Effective Rent Growth (%) Industrial Sector New Supply (msf) Net Absorption (msf) Vacancy (%) Effective Rent Growth (%) U.S. Economy Office Sector Industrial Sector Retail Sector Multifamily Sector *This scenario represents an extreme tail-end downside scenario wherein the economy weakens substantially more than in our baseline. views this scenario as a “downside scenario” relative to our baseline scenario. The probability can be interpreted as the economy having a 90% chance of performing as well as or better than this scenario, and a 10% chance of performing worse. , , Federal Reserve, U.S. Census Bureau, Moody’s Investor Services, U.S. Energy Information Administration, , NCREIF, Stagflation Scenario* (10% Probability) Retail Sector New Supply (msf) Net Absorption (msf) Vacancy (%) Effective Rent Growth (%) Multifamily Sector New Supply (ths. units) Net Absorption (ths. units) Vacancy (%) Effective Rent Growth (%) U.S. Economy Office Sector Industrial Sector Retail Sector Multifamily Sector *This scenario represents an extreme tail-end downside scenario wherein the economy weakens substantially more than in our baseline. views this scenario as a “downside scenario” relative to our baseline scenario. The probability can be interpreted as the economy having a 90% chance of performing as well as or better than this scenario, and a 10% chance of performing worse. , , Federal Reserve, U.S. Census Bureau, Moody’s Investor Services, U.S. Energy Information Administration, , NCREIF,"}, {"role": "assistant", "content": "ABOUT CUSHMAN & WAKEFIELD Cushman & Wakefield (NYSE: CWK) is a leading global commercial real estate services firm for property owners and occupiers with approximately 52,000 employees in nearly 400 offices and 60 countries. In 2024, the firm reported revenue of $9.4 billion across its core service lines of Services, Leasing, Capital markets, and Valuation and other. Built around the belief that Better never settles, the firm receives numerous industry and business accolades for its award- winning culture. For additional information, visit www.cushmanwakefield.com."}]}
{"messages": [{"role": "user", "content": "The Future of CRE in 2025 U.S. Research Report A year ago, economists debated the chances of a mild recession in 2024 and speculated on when the Fed would begin cutting rates — many anticipated it would happen early in the year. However, the U.S. economy was notably resilient throughout 2024. Robust consumer spending, unemployment at around 4%, and gradually decreasing inflation, toward the Fed’s 2% target, exceeded forecasts. Annual data revisions also revealed stronger-than-expected GDP growth and a higher-than-anticipated savings rate. This economic strength led the Federal Reserve to delay its first rate cut until September, followed by a modest 25-basis- point cut in November. Economic forecasts point to continued growth, supported by expansionary fiscal policies."}, {"role": "assistant", "content": "Increased government spending, especially in the defense sector, is expected to boost GDP. The extension of the 2017 tax cuts for individuals and businesses is also projected to play a pivotal role in sustaining this growth, helping to offset potential challenges from restrictive immigration policies and higher tariffs. Although these measures may strain the labor supply and raise costs for certain industries, the expected boost from tax cuts should help sustain economic momentum and support consumer and business confidence in the near term. U.S. Economy 2 | 2025 Commercial Real Estate Outlook"}]}
{"messages": [{"role": "user", "content": "in 2025 Inflation to Bottom in 2025: Because the recent slowdown in the core PCE deflator indicates a loss of momentum, inflation may not fully return to the Fed’s 2% target in 2025. Moreover, economists caution that President-elect Trump’s planned immigration restrictions and broad tariff measures could potentially drive prices and inflation higher through 2026 and 2027, complicating the Fed’s task of inflation control."}, {"role": "assistant", "content": "Consumers Keep Spending: Robust household balance sheets, easing inflation, and rising wage growth are expected to bolster real disposable incomes. This is likely to support strong consumer spending, forecast to average more than 3% growth in 2025, sustaining economic activity."}]}
{"messages": [{"role": "user", "content": "Consumers have maintained spending habits despite recent economic headwinds, fueled by a combination of savings from prior fiscal stimulus measures, ongoing improvements in job market conditions, and a wealth effect from rising 401k and home values."}, {"role": "assistant", "content": "Sectors like retail, travel, and hospitality are expected to benefit as consumers continue to prioritize both essential and experiential spending."}]}
{"messages": [{"role": "user", "content": "Labor Force to Tighten: With the unemployment rate steady at just over 4% and an aging Baby Boomer workforce edging into retirement, president-elect Trump’s proposed immigration curbs could further strain an already tight labor market. Labor-intensive industries like construction and hospitality rely heavily on immigrant workers, and a shrinking labor supply could heighten worker competition, increase wages, and fuel inflation growth. These dynamics may challenge business operations by raising production costs and delaying new projects, which could potentially slow economic growth. Possible higher consumer prices could complicate policymakers’ efforts to balance economic stability and inflation control."}, {"role": "assistant", "content": "Overall, 2025 is expected to show continued economic resilience fueled by consumer spending and easing inflation. However, policy-driven headwinds, particularly from immigration and tariffs, could drive up inflation and tighten labor market conditions in the following years. The potential return of bond vigilantes may also constrain large-scale fiscal policy moves, underscoring policymakers’ need for careful navigation. The real estate sector’s significant headwinds in the first two-thirds of the year stemmed from delayed interest-rate cuts and election-related uncertainty, along with persistent inflation and stricter lending standards. However, after two interest-rate cuts, less political turbulence than expected, and notably more activity in multiple property types in recent months, the outlook for 2025 appears far more optimistic than it did a year ago."}]}
{"messages": [{"role": "user", "content": "According to Placer.ai, office visits are still 34% below pre-pandemic levels. However, return-to- office mandates from companies like Amazon and Goldman Sachs have gradually boosted occupancy rates. While net absorption turned positive for the first time in two years during the third quarter—albeit modestly—the office sector hasn’t firmly stabilized yet. A surge in development has driven up the national industrial vacancy rate by more than 250 basis points since 2023. Nevertheless, supply and demand are expected to realign before the second half of 2025."}, {"role": "assistant", "content": "Higher interest rates, rising insurance costs, tighter lending standards, and a constrained labor market are expected to continue in 2025. But improved economic clarity is fueling optimism that the real estate sector can build on this year’s momentum and move forward confidently. U.S. CRE Market 4 | 2025 Commercial Real Estate Outlook in 2025 Fed Watch: Few industries are as sensitive to interest-rate fluctuations as real estate. For short-term loans tied to the Secured Overnight Financing Rate (SOFR), future rate cuts will align with these benchmarks and move in tandem. However, for longer-term loans — often linked to the 10-year Treasury yield —the industry will watch each Federal Reserve meeting intently, analyzing every hint of forward guidance and hoping for insights that might signal a compression in the long end of the yield curve. Alternative Capital Continues to Step Up: In recent years, traditional lenders have employed “extend and pretend” loan strategies to manage portfolios. But rising interest rates, stricter regulatory oversight, and $1.8 trillion in commercial real estate debt set to mature by 2026 will compel many to clean up their balance sheets. Private and alternative capital sources are poised to step in to bridge the gap for borrowers seeking to refinance at higher rates."}]}
{"messages": [{"role": "user", "content": "Insurance Challenges Persist: Commercial property insurance costs are projected to rise another 80% by 2030, according to a recent Deloitte study, a significant challenge for property owners. Insurers are becoming increasingly selective, often imposing stringent requirements, such as banning high-risk activities like using gas grills on balconies, to mitigate their exposure. Landlords must rethink their insurance, shifting to focusing on risk management, optimizing coverage, and exploring innovations to control expenses."}, {"role": "assistant", "content": "Acceleration in Tech-Focused Spending: As businesses gain greater economic clarity and confidence in their short and long-term outlooks, many are expected to prioritize technology upgrades over the next few years. Key advancements such as AI-enabled tools, smart building technologies, enhanced data security, sustainability and energy management systems, robotics and automation, and high- speed connectivity will be at the forefront. Investing in these technologies will give companies a competitive edge, optimize workforces, boost operational efficiency, and ultimately drive profitability. in 2025 Prices Have Bottomed: The Fed has begun easing rates; however, at the time of publication, the 10-year Treasury hasn’t responded in kind with SOFR. Regardless, volume has shown clear signs of recovery, and many assets trading today are well below replacement costs. With improving or stabilizing fundamentals across asset classes, pricing is expected to rebound from here. Distress Emerges: While distress is making up a larger share of overall investment activity, the increase has been relatively mild. Office is the exception, where nearly 10% of Q3 sales were distress-driven. More deals will come to market in 2025, topping the totals seen so far in this cycle. Pricing: Conflicting data sources paint different pictures of where pricing stands today. Bid-ask spreads have narrowed, bid sheets are deeper than they have been, and institutional investors are once again active. Relative to 2024, pricing will increase in 2025 across major indices, with industrial leading the charge. Reduction in Inventory: As the market bifurcates further between haves and have-nots, more property owners will consider redevelopment the best option for underperforming assets. For many, converting into alternative property types could better align with location and demand. These buildings, often more than 60 years old and with high vacancy rates, are poised for removal from the national inventory — a shift that could positively impact market fundamentals. While many conversions are already underway or completed, this trend is expected to accelerate as tenant demand increasingly targets top-tier properties. More than 37 million SF of tracked office space is anticipated for redevelopment, 0.6% of the nation’s inventory. Limited New Construction: New construction starts will be limited to build-to-suits, as tenants show little interest in waiting two years for new space. Current headwinds including tighter lending standards with lower loan proceeds, historically high construction costs, and higher interest rates are likely to persist into 2025. Properties with near-term occupancy are expected to be highly appealing in this market. A broader resurgence in new construction is anticipated once vacancy rates in top-tier properties approach single digits. AI and the Workforce: Its full impact on the workplace remains to be seen. AI has so far been used to augment work, automate tasks, speed up data analysis, and generally reduce other mundane responsibilities. While large- scale advancements driving more transformative change haven’t materialized, leaving the broader workforce largely unaffected, rapidly advancing innovation is expected to give AI a larger role in the office workplace in the next few years. This shift aligns well with the retirement of the aging Baby Boomer generation and a shortage of younger workers to fill the void."}]}
{"messages": [{"role": "user", "content": "Vacancy: The office vacancy rate hit a record high of 17.7% in 2024 and is projected to rise another 100 basis points, to near 19% by the end of 2025. However, the pace of vacancy growth is expected to slow by 2026 as certain markets begin to recover and the pipeline of new construction diminishes."}, {"role": "assistant", "content": "Lease Rates: While asking rents have risen steadily post-COVID, their rate of growth is expected to remain below 1% with isolated new development. Limited tenant demand for older buildings with fewer amenities is forcing owners to begin dropping rates to draw interest."}]}
{"messages": [{"role": "user", "content": "Demand: Net absorption is anticipated to stay flat over the near term as the nation’s uneven recovery unfolds."}, {"role": "assistant", "content": "Demand will likely stagnate in the first half of the year as companies cautiously evaluate economic conditions and federal policy shifts under the new administration. Construction: New construction starts will remain on hold, hindered by elevated labor and material costs and subdued demand. Development is expected to be quiet through 2025, with project announcements for new starts in 2026."}]}
{"messages": [{"role": "user", "content": "in 2025 Smaller Warehouses, Bigger Opportunities: Warehouse developers will position themselves for the next development cycle, with a growing number of construction starts expected by late 2025 in markets where supply and demand balance has returned. Although elevated construction costs and uncertainty around regulatory, fiscal, and trade policies could delay some projects, others will move forward, particularly for well-located buildings with smaller footprints."}, {"role": "assistant", "content": "Supply Chain Agility: While supply chain challenges have eased since the pandemic’s peak, pressures persist, and risks, disruptions, delays, and high costs will continue. In 2025, last-mile delivery solutions will be crucial to boosting agility by ensuring more reliable deliveries. More companies will adopt route optimization strategies and crowdsourced delivery networks to improve the last mile and adapt to unexpected delays, making the supply chain more resilient and flexible."}]}
{"messages": [{"role": "user", "content": "Nearshoring & Reshoring to Continue: In the wake of the pandemic, U.S.-China trade tensions, and high inflation, supply chains have been reorganized, leading to a surge in nearshoring to Mexico and reshoring of advanced manufacturing to the United States. Expected to continue in 2025, these changes will help reduce financial and geopolitical risks. U.S. National Industrial Forecast Vacancy: Industrial vacancy in the U.S. and most markets is expected to peak by mid- 2025 as new supply and tenant demand return to equilibrium, after a period of record construction completions driven by an undersupply of modern industrial space since 2020. In markets where new supply has pushed vacancy rates into the double digits, it will take longer for vacancy to return to historical averages."}, {"role": "assistant", "content": "Lease Rates: After peaking at 20% growth in 2023, industrial rents grew by 9% year- over-year by the third quarter of 2024. While rent growth is expected to continue in 2025, it will slow to more typical levels of 3% to 6%. In certain coastal markets where rents climbed more quickly in recent years, lease rates declined in 2024, and that is expected to persist, but at a slower rate, into 2025."}]}
{"messages": [{"role": "user", "content": "Demand: After nine consecutive quarters from late 2020 to 2022 when net absorption exceeded 100 million SF per quarter, demand has slowed, averaging 38 million SF per quarter in 2024. A recent increase in leasing activity and lease proposals is expected to boost net absorption in 2025, but it is unlikely to return to the levels of 2021 and 2022, when demand was exceptional."}, {"role": "assistant", "content": "Construction: After peaking at 711 million SF during the fourth quarter of 2022, total space under construction has dropped by 53%, to 331 million SF. It is expected to fall below 300 million SF by early 2025, in line with pre-pandemic development."}]}
{"messages": [{"role": "user", "content": "“Balance is expected to return to the U.S. industrial market in 2025, with vacancy rates peaking as new supply and tenant demand reach equilibrium and rent growth stabilizes. While some markets are already ahead of the curve, others will follow suit in the coming year as the market gears up for its next growth cycle.” Stephanie Rodriguez National Director, Industrial Services | U.S. & Executive Managing Director | Florida Colliers U.S. Research Report | 11 in 2025 Space Crunch: Elevated construction costs, now 30%–40% above pre-pandemic levels, are limiting new retail developments. In 2025, less than 20 million square feet of retail space will be delivered, well below historical averages. Despite strong demand, these cost pressures challenge developers to justify new investments, and instead push retailers to optimize and innovate within existing spaces."}, {"role": "assistant", "content": "Adaptive Solutions: Most consumers are expected to maintain or reduce retail spending compared to the previous year, by a projected 10 basis points by the end of 2025. In response, retailers are investing in automation to meet customer demand more efficiently and adopting omnichannel solutions to lower service costs. As they also leverage AI and machine learning to create adaptable supply chains that can anticipate disruptions, consumers will be able to shop confidently yet cautiously within their budgets."}]}
{"messages": [{"role": "user", "content": "Prioritization of Value: Consumers are becoming increasingly selective, driven by financial concerns continuing into 2025. Forty-seven percent feel pessimistic about finances, while record-high credit card debt and soaring interest rates are driving more deliberate spending."}, {"role": "assistant", "content": "With 60% of consumers spending more on groceries due to inflation, discretionary spending is expected to decline. To adapt, retailers should highlight savings opportunities and create bundled offerings for cost-conscious shoppers."}]}
{"messages": [{"role": "user", "content": "Vacancy: Vacancy rates are forecast to remain steady throughout 2025, demonstrating the market’s resilience. Less new retail construction is balancing supply with consistent demand. However, in specific segments, particularly freestanding retail locations, vacancy rates may rise as thousands of pharmacies and discount retailers close, partially offsetting the lower rates in other retail subtypes."}, {"role": "assistant", "content": "Lease Rates: Market asking rents are projected to rise by approximately 2% in 2025, continuing the momentum from 2024’s record-high rents. That reflects the sustained strength of retail real estate, as landlords capitalize on steady demand and limited new construction to maintain rental growth even amid broader economic uncertainties."}]}
{"messages": [{"role": "user", "content": "Demand: Demand for retail space is expected to remain strong because of the ongoing need for strategic physical locations. Net absorption may decline slightly but is still likely to stay positive for both malls and shopping centers. This dip reflects the reduced number of new retail completions and a potential slowdown in leasing due to market stabilization."}, {"role": "assistant", "content": "Construction: New retail construction is expected to drop sharply, by 45%, with significantly fewer new space deliveries in 2025. Limited new supply will play a critical role in maintaining stable vacancy rates and sustaining strong demand for existing space. However, the shrinking pipeline also reflects the higher construction costs and economic uncertainties. NOI Erosion: Operational expenses have surged for multifamily properties, and insurance is just one part of the equation. Labor, materials, and utilities are all on the rise. Given the wave of development and decline in occupancy, particularly in Sunbelt markets, NOI has been under pressure. Stabilizing fundamentals will begin to turn the tide in 2025."}]}
{"messages": [{"role": "user", "content": "EXECUTIVE SUMMARY EXECUTIVE SUMMARY 1 JOINT CENTER FOR HOUSING STUDIES OF HARVARD UNIVERSITY HOUSING RECOVERY SCORECARD By many measures, the US housing market has recovered sub- stantially from the crash. According to CoreLogic estimates, nominal home prices were back within 6 percent of their previ- ous peak in early 2016, although still down nearly 20 percent in real terms. The uptick in nominal prices helped to reduce the number of homeowners underwater on their mortgages from 12.1 million at the end of 2011 to 4.3 million at the end of 2015. Delinquency rates also receded, with the share of loans entering foreclosure down sharply as well. Now in its seventh year, the US economic recovery shows signs of flagging in the face of a strong dollar, a weakening global economy, and low energy prices. But as household growth continues to gain momentum, the housing sector should be an engine of growth. Factoring in the need to replace older units and meet demand for vacation homes and other uses, housing construction should average at least 1.6 million units a year over the next decade. This level of activity would provide an important spur to the economy. Indeed, residential fixed invest- ment (including homeowner improvements) has accounted for just 2.8 percent of annual GDP so far this decade, significantly less than the 4.3 percent share averaged in the 1980s and 1990s, leaving plenty of room for growth. With household growth finally picking up, housing should help boost the economy. Although homeownership rates are still falling, the bottom may be in sight as the lingering effects of the housing crash continue to dissipate. Meanwhile, rental demand is driving the housing recovery, and tight markets have added to already pressing affordability challenges. Local governments are working to develop new revenue sources to expand the affordable housing supply, but without greater federal assistance, these efforts will fall far short of need. Although completed forfeitures have slowed considerably, they remain elevated at or about twice the annual average before the downturn. In addition, Mortgage Bankers Association (MBA) data indicate that the share of loans that are seriously delinquent (90 or more days past due or in foreclosure) has also fallen sharply, but is still nearly double the average in the first half of the 2000s. Given the current rate of recovery, foreclo- sures are likely to keep downward pressure on homeownership rates for the next two years."}, {"role": "assistant", "content": "In short, the near-term direction of the US homeownership rate will depend more on whether households can finance their pur- chases than whether they have the desire to own. Over the next few years, homeownership will continue to face the headwinds created by a backlog of homes in foreclosure, tight credit, weak income growth, and impaired credit histories. But as these pres- sures ease, there is every reason to expect homeownership rates to show some increase."}]}
{"messages": [{"role": "user", "content": "RENTAL MARKET STRENGTH The rental market continues to drive the housing recovery, with over 36 percent of US households opting to rent in 2015—the largest share since the late 1960s. Indeed, the number of renters increased by 9 million over the past decade, the largest 10-year gain on record. Rental demand has risen across all age groups, income levels, and household types, with large increases among older renters and families with children. Notes: Rents are from the CPI rent index for primary residence. Changes in vacancy rates are based on a four-quarter trailing average. Source: JCHS tabulations of US Bureau of Labor Statistics, Consumer Price Indexes and Census Bureau, Housing Vacancy Surveys. THE STATE OF THE NATION’S HOUSING 2016 4 Although conversion of formerly owner-occupied single- family homes to rentals met much of the initial surge in demand, construction of multifamily units is now taking on a growing share. But even with these additions to sup- ply, rental vacancy rates have fallen steadily since 2010, dropping to just 7.1 percent by the end of 2015. When adjusted for inflation, it has been three decades since either of these measures registered such tightness in the rental market. A growing supply of new housing in the pipeline may help ease these conditions, although most new units are intended for the upper end of the market. The median asking rent on new apartments was $1,381 per month in 2015, well out of reach for the typical renter earning $35,000 a year. High rents reflect several market conditions, including a limited supply of land zoned for multifamily use and a complex approval process that adds to development costs. Perhaps most important, however, is growing demand from higher-income households. COST-BURDENED RENTERS AT HISTORIC HIGHS The divergence between the rental and owner-occupied mar- kets is evident in the number of cost-burdened households in each segment. On the owner side, the number of households facing cost burdens (paying more than 30 percent of income for housing) has fallen steadily as high foreclosure rates have pushed out many financially strained owners, low interest rates have allowed remaining owners to reduce their housing costs, and fewer young households have moved into homeownership. As of 2014, the number of cost-burdened owners stood at 18.5 million, down 4.4 million since 2008. The decline has occurred across all age groups, but especially among younger homeowners. Homeowners age 75 and over, however, are among the most cost-burdened groups, with their share at 29 percent compared with 24 percent for households under age 45. With the aging baby boomers swelling the ranks of older homeowners and larger shares of households carrying mortgage debt into retirement, the problem of housing cost burdens among the elderly is likely to grow. On the renter side, the number of cost-burdened households rose by 3.6 million from 2008 to 2014, to 21.3 million. Even more troubling, the number with severe burdens (paying more than 50 percent of income for housing) jumped by 2.1 million to a record 11.4 million. The severely burdened share among the nation’s 9.6 million lowest-income renters (earning less than $15,000) is particularly high at 72 percent. While nearly universal among lowest-income households, cost burdens are rapidly spreading among moderate-income households as well, espe- cially in higher-cost coastal markets."}, {"role": "assistant", "content": "The lack of a strong federal response to the affordability crisis has put new pressure on state and local governments to act. A number of cities have now developed plans to expand afford- able housing options for a broad spectrum of renters, from those facing homelessness up to middle-income households. In addition to federal funds, these plans draw on a range of resources that include linkage fees on new commercial devel- opment, tax-increment financing, taxes on real estate transac- tions, and the use of publicly owned land."}]}
{"messages": [{"role": "user", "content": "Housing cost burdens also expose renters to the risk of eviction, with all its damaging impacts on household finances, employ- ment prospects, and school performance. Meanwhile, about renters had been threatened with eviction in the previous three months, with nearly eight out of ten of these threats associated with a failure to pay rent or other lease violations. But efforts to broaden the availability of affordable housing in better communities must be viewed within the context of growing segregation by income in the private housing market. According to the Lincoln Institute of Land Policy, more than 500 local jurisdictions have implemented inclusionary housing poli- cies, but the scale and intensity of these programs vary widely and have yet to reach the scale of federal programs. THE OUTLOOK While the rental market continues to expand at a robust pace, the owner-occupied market is still in the process of recovery. Home prices have rebounded sharply in several markets, but they also remain depressed in other areas, leaving millions of owners still underwater on their mortgages. Foreclosures have fallen steadily, but the share of owners seriously delinquent on their loans remains roughly twice what it was before the down- turn. Household credit and balance sheets will take more time to fully heal. Growth in homeowner demand is therefore likely to remain moderate over the next few years as these headwinds finally abate."}, {"role": "assistant", "content": "But with household growth projected to average over 1.3 million annually over the coming decade, housing construction should continue to climb and help keep the overall economy on solid footing. In addition, the homeownership rate should at least stabilize in the next few years as foreclosures ebb, mortgage credit conditions improve, and household incomes rise."}]}
{"messages": [{"role": "user", "content": "HOUSING MARKETS 7 JOINT CENTER FOR HOUSING STUDIES OF HARVARD UNIVERSITY After a mixed year in 2014, the national housing recovery gained traction in 2015. Residential construction continued to climb as single-family starts revived. On the multifamily side, all key construction measures rose by double digits. Growth in multifamily starts topped 10 percent for the fifth consecutive year in 2015, reaching a 27-year high of units. With single-family construction still recovering, 2015 was the fourth consecutive year that multifamily units accounted for more than 30 percent of housing starts, compared with 20 percent on average between 1990 and 2010. Signaling further expansion, multifamily permits rose 18.2 percent last year, to units. THE DEVELOPMENT LANDSCAPE The gradual recovery in single-family construction largely reflects weak demand in the face of sluggish income growth and tight mortgage credit. But constraints on land, labor, and lend- ing may also play a role. Metrostudy data show that the supply of construction-ready land (vacant developed lots) in 50 metro areas shrank by 30 percent from 2008 to 2013, before settling just above levels posted in the early 2000s. Labor shortages could also be a damper on construction activity. More than 2 million workers left the industry between 2007 and 2013, reducing the construction workforce to 80 percent of its 2007 peak. According to a Census Bureau analysis, only 40 percent of those who lost their jobs between 2006 and 2009 had returned to their previous positions or to other jobs in the industry. Of the remaining displaced workers, more than half found work outside construction and the rest did not return to the formal labor force. Dollar values are adjusted for inflation by the CPI-U for All Items. Sources: US Census Bureau, New Residential Construction and New Residential Sales data; National Association of Realtors®, Existing Home Sales; Bureau of Economic Analysis, National Income and Product Accounts. Meanwhile, development financing is recovering from a sharp drop-off during the recession. According to NAHB, residential construction loan volumes were up 4.5 percent in the fourth quarter of 2015, marking 11 consecutive quarters of increases. While growing nearly 19 percent for the year as a whole, the residential construction loan stock remained 70 percent below the 2008 peak. Other types of acquisition, development, and construction loans have recovered more fully and now stand 51 percent below peak. Credit may be tightening, however. NAHB financing surveys indicate that credit easing slowed at the end of 2015, while the Federal Reserve Board’s Senior Loan Officer Opinion Survey on Bank Lending Practices reported some tight- ening of lending criteria for construction and development loans in late 2015 and early 2016. STRENGTHENING HOME SALES After a slow year in 2014, sales of new single-family homes rose by a robust 14.6 percent in 2015. Sales of existing homes also rebounded from their 2014 decline, up 6.3 percent to just under 5.3 mil- lion units. Although the rollout of new mortgage disclosure regulations in October led to a temporary dip, existing home sales closed 2015 on a strong note. Encouragingly, sales of non-distressed properties are driving growth. CoreLogic reports that real-estate owned (REO) and short sales fell by 10–11 percent in 2015, while non-distressed resales rose by 7.6 percent. With this shift, distressed sales accounted for just over 12 percent of existing home sales in 2015, down from 14 percent a year earlier and 28 percent at the peak in 2009–2011. In addition, cash sales (often to inves- tors) accounted for about a third of home purchases last year, the lowest share since 2008 but still well above the pre-crisis average of 25 percent. Meanwhile, the National Association of Realtors (NAR) reports that the first-time buyer share of home sales slipped for the third straight year to 32 percent, its lowest level since 1987. Sources: JCHS tabulations of NAR, Existing Home Sales and US Census Bureau, New Residential Sales data. THE STATE OF THE NATION’S HOUSING LOW INVENTORIES AND VACANCY RATES The stock of existing homes for sale declined 1.9 percent last year, to 2.1 million units. In contrast, the inventory of new homes for sale climbed 8.2 percent, ending the year at units. But even with three years of significant growth, the supply of new homes slipped to just 5.2 months. One factor keeping first-time homebuyers on the sidelines is that the stock of affordable homes for sale is extremely limited. According to Zillow, inventories of metro area homes in both the bottom- and middle-value tiers shrank by more than 38 per- cent in 2010–2015, while those in the top tier fell by 31 percent. In 2014–2015 alone, bottom- and middle-tier inventories were each down 9 percent, while top-tier inventories declined by 3 percent. As a result, less than 20 percent of existing homes for sale in some of the nation’s largest metros—including Dallas, Denver, Nashville, Phoenix, and Raleigh—were in the most affordable value tier for their areas. The number of vacant units for sale also declined 1.7 percent from 2014, to 1.4 million. Vacant units for rent were down 3.7 percent, to 3.3 million, adding to rental market tight- ness. The number of vacant units held off market, however, remained elevated at 7.2 million, or 55 percent of all year- round vacant homes. Over half of these vacant units are clas- sified as “other.” According to the Housing Vacancy Survey, about 7 percent of these “other” units were in foreclosure while another 5 percent were involved in other legal actions. Overall vacancy rates for both for-sale and for-rent homes are low. After hovering between 2.4 percent and 2.9 percent in 2006–2011, the vacancy rate for owner units fell back in line with longer-term averages in 2015, standing at 1.8 percent for the year. In contrast, the rental vacancy rate plunged from the double-digits in the mid-2000s to a 30-year low of just 7.1 per- cent last year. PROPERTY PRICES ON THE RISE Home prices continued to climb last year. NAR reports that the median price of existing homes rose for the fourth straight year, to —a 6.6 percent increase in real terms from 2014 and the highest level since 2007. Meanwhile, nominal home prices reached a new peak in 2015. The CoreLogic, S&P/Case-Shiller, and OFHEO indexes, which are less affected than the median price by the mix of homes sold, show that prices of repeat sales were up 5.3–5.7 percent through the end of last year. Home prices in all 20 metro areas tracked by S&P/Case-Shiller were up last year, with increases ranging from under 3 percent in Chicago, Cleveland, and Washington, DC, to about 10 percent in Portland, San Francisco, and Seattle. In Los Angeles and Las Vegas, where significant house price inflation in the mid-2000s was followed by sharp declines, pric- es are again rising rapidly. In the case of Denver, home prices rose only moderately in the first decade of the 2000s but have now climbed to a new high. And in Detroit, where price appre- ciation was modest but the ensuing drop was large, home prices reached an eight-year high last year. 11 JOINT CENTER FOR HOUSING STUDIES OF HARVARD UNIVERSITY also averaged at least 70 percent in every tier, with values in 93 percent of zip codes at new peaks in 2015. The recovery in Las Vegas is more mixed, with values up an average of 53 percent in the top tier, 47 percent in the middle tier, and 31 percent in the bottom tier. And in Detroit, top-tier values rose 15 percent on average over this period, while middle-tier values edged up just 2 percent and bottom-tier values fell 22 percent. Thus, while the housing recovery has reached much of the country, neighbor- hoods hit especially hard by the crash and the recession are still struggling to rebound. According to CoreLogic data, the broad uptick in home prices reduced the number of homeowners underwater on their mortgages from 5.3 million in the fourth quarter of 2014 to 4.3 million in the fourth quarter of 2015. While this is a far cry from the 12.1 million peak at the end of 2011, the share of homeowners with high loan-to-value (LTV) ratios remains elevated. Of the homeowners that were still underwater last year, 20 percent had LTV ratios of 100–105, 44 percent had LTVs of 105–125, and 38 percent had LTVs of 125 or higher. However, another 1 million homeowners had less than 5 per- cent equity at the end of 2015, leaving them at risk if home prices decline. HOUSING AND THE ECONOMY Residential fixed investment (RFI), which includes both new construction and homeowner improvement spending, is a critical component of the economy. RFI also contributed 10 percent or 0.35 per- centage point to real GDP growth last year, providing a lift far exceeding its relative size in the economy. Meanwhile, homeowner improvement spending accounted for just over a third of residential construction spending last year, down from about half during the worst of the housing crisis in 2011. Before the crash, homeowners devoted about 40 percent of their remodeling budgets to replacement projects, about 40 percent to discretionary projects such as kitchen and bath remodels, and the remaining 20 percent to property improve- ments and disaster repairs. After cutting back sharply when the crisis hit, homeowners are now undertaking more discretionary projects. At last measure in 2013, discretionary spending was Source: JCHS tabulations of S&P/Case-Shiller House Price Indexes. DEMOGRAPHIC DRIVERS 13 JOINT CENTER FOR HOUSING STUDIES OF HARVARD UNIVERSITY UPTURN IN HOUSEHOLD GROWTH After years of weakness, growth in the number of US house- holds has begun to strengthen. According to the Housing Vacancy Survey, household growth averaged just annually in 2007–2013. The pace of growth has now picked up, rising from in 2013 to 1.0 million in 2014 and then to 1.3 million in 2015—marking the largest single-year increase in a decade. Although monthly counts from this survey show household growth moderating in early 2016, persistently tight housing markets amid rising construction volumes suggest that household formations are still on the increase."}, {"role": "assistant", "content": "Household headship rates rise from about 25 percent for adults in their early 20s to about 50 percent for those in their 30s. As they move further into these age groups, millennials are expected to form well over 2 million new households each year on average, raising their numbers from 16 million in 2015 to a projected 40 million in 2025."}]}
{"messages": [{"role": "user", "content": "GROWING INCOMES BUT GROWING INEQUALITY Low incomes also prevent young adults from living on their own, so the recent pickup in income growth is good news for housing demand. With employment rising for the 67th consecu- tive month in April 2016, job growth has slowly translated into measurable income gains. Real median income for all workers age 15 and over edged up 1.0 percent in 2014, the third year of increases. While back above recent lows, the real median personal incomes for these age groups are still 9–18 percent below previous peaks. Meanwhile, the real median income of US households inched up 1.2 percent in 2014, the second consecutive year of growth. At $53,700, however, real median income was still 6 percent below the 2007 peak and lower than any pre-recession level dat- ing back to 1996. Moreover, income disparities have increased sharply over the past few decades, with the average real income of households in the bottom decile down 18 percent in 1980– 2014 (from $7,700 to $6,300) and that of households in the top decile up 66 percent (from to . Average real incomes for the middle two deciles grew a modest 6 percent over this period. As a result, the average top-decile household now makes 40 times the income of the average household in the bottom decile and 4.7 times that of the average household in the middle deciles. Reflecting the uneven growth in incomes, households earning under $25,000 per year were the fastest-growing segment in 2005–2015. Indeed, their numbers rose by 21 percent over the decade. As a result, this low-income group accounted for 44 percent of the nation’s net growth in households. DISPARITIES IN HOUSEHOLD WEALTH Along with income, wealth is increasingly concentrated in the hands of the few and the numbers of households with little or no assets continue to increase. The Survey of Consumer Finances indicates that the share of wealth held by households in the top income decile jumped from 53 percent in 1992 to 62 percent in 2013. Meanwhile, the share of wealth held by households in the bottom half of the income distribution declined from 15 percent to 10 percent. Over three-quarters of the households with less than $25,000 in wealth are renters, underscoring the close link between wealth and homeownership. At last measure in 2013, the typical home- owner had in net household wealth while the typical renter had just $5,400. Households with traditionally low home- ownership rates—minority and low-income households—are therefore at a significant disadvantage. Indeed, the substantial white-minority homeownership gap has left the median net household wealth of blacks ($11,000) and Hispanics ($13,700) at roughly one-tenth that of whites (. And for those able to make the transition to homeownership, home equity makes up a disproportionately large share of net wealth. In 2013, home equity accounted for more than 80 percent of the net wealth of low-income homeowners and well over 50 percent of the net wealth of minority homeowners. REBOUND IN IMMIGRATION Immigration, another major driver of household growth and housing demand, is starting to pick up steam. From a low of in 2011, net international immigration climbed to an estimated 1.15 million last year. This shift largely reflects a falloff in immigration from Mexico as well as an increase in outmigration from the US to Mexico. The Pew Research Center reports that the number of Mexican immigrants fell from 2.9 million in 1995–2000 to in 2009–2014, while emigration of US residents to Mexico increased from to 1.0 million, resulting in a net population loss of . Immigrants have been an important source of household growth for decades. According to the Current Population Survey, the foreign-born contributed just over a third of the increase in households in 1994–2015, or about house- holds per year. Indeed, just when the large baby-boom gen- eration was moving out of the prime household formation years, immigrants bolstered the ranks of the smaller gener- ation-X population (born 1965–1984), changing the composi- tion of that generation and stabilizing housing demand. The foreign-born thus accounted for nearly a fifth of household heads aged 30–49 in 2015. After falling 48 percent in 2007–2013, net population growth in the South rebounded to a post-recession high of last year, led by the Sunbelt states of Florida, North Carolina, and Texas. Meanwhile, net population losses in the Northeast and Midwest—led by Illinois and New York—increased to their pre-recession levels. One of the most noteworthy changes in mobility patterns after the Great Recession was slower population growth in suburban areas and faster population growth in urban areas. Weaker migration to the Sunbelt was one factor, given that metros in that region are much less compact than in the North. The sharp falloff in single-family construction also contributed since much of that type of housing is developed in suburban and exurban locations. As domestic migration resumes and single- family construction picks up, however, suburban growth rates are likely to rebound. In fact, a 2015 analysis by the Brookings Institution indicates that the turnaround has already begun, with population growth in suburban counties exceeding that in urban core counties for the first time since 2009. But there is no question that the recent strength of urban population growth is driven in part by growing demand for city living. However, the 2015 Demand Institute Consumer Housing Survey indicates that the majority of US households prefer to eventually settle in suburban or exurban communities. Among households expecting to move in the next five years, 69 percent intended to live outside of city centers. This share rises to 78 percent of those planning to move into homes they own. Even among respondents under age 35, fully 63 percent of future movers intended to live outside of a city center, including 71 percent of those planning to own. THE OUTLOOK Growth in the adult population will support significant house- hold growth over the next decade and beyond. According to pre- liminary JCHS projections, demographic forces alone will drive the addition of more than 13 million households in 2015–2025. Much of this growth will occur among the retirement-aged population, with the number of households age 70 and over projected to soar by over 8 million, or more than 40 percent. These increases will lift the share of older households from 16 percent in 2015 to about 21 percent in 2025."}, {"role": "assistant", "content": "THE STATE OF THE NATION’S HOUSING share of remodeling spending, but will also increase demand for different types of projects, such as accessibility improvements. Third, the older households that do move will likely seek units that are smaller and less costly to maintain—the same types of housing young adults want to rent or buy as their first homes. And finally, the number of older single persons living alone will climb, implying a significant increase in the need for in-home healthcare and supportive services. The racial and ethnic diversity of this huge generation will drive up the number and share of minority households. Indeed, minorities are expected to account for roughly 75 percent of household growth over the next 10 years. The growing minor- ity share in housing markets is likely to boost demand for units that accommodate multigenerational households, given that young minority adults are more likely than young white adults to live with their parents and older minority adults are much more likely than older white adults to live with their children. More importantly, however, rapid growth in minority house- holds brings new urgency to the need to reduce white-minority gaps in household income, wealth, and homeownership. Failure to make progress in this realm could have increasingly large impacts on the shape of future housing demand."}]}
{"messages": [{"role": "user", "content": "The persistent decline reflects the lack of growth in the number of homeowner households at a time of robust growth in the number of renter households. According to the Housing Vacancy Survey, the number of renter households hit 42.6 million last year, an increase of 1.4 million from 2014 and some 9.3 million from 2004. Meanwhile, the number of homeowner households slipped to 74.7 million in 2015, down 87,000 from 2014 and up just from 2004. With mortgage credit still tight and foreclosures relatively high, the national homeownership rate continued to trend downward in 2015. Although low inventories of homes for sale are keeping prices on the rise, homeownership in many metropolitan areas remains affordable by historical standards and most Americans continue to believe that owning a home is a sound financial investment. The ongoing recovery in the economy may reinvigorate demand for homeownership, although how quickly a rebound might occur remains an open question. THE STATE OF THE NATION’S HOUSING FORECLOSURES BACKLOG AND SLUGGISH HOMEBUYING The overhang of foreclosures has contributed to the continued slump in homeownership. According to CoreLogic data, the total number of foreclosure completions, short sales, and deed-in-lieu of foreclosure transactions for one- to four-family properties averaged 55,900 per month in 2015. By comparison, foreclosure-related sales ran at just 19,900 per month from 2000 to 2005. With foreclosures on the decline, the future trajectory of the homeownership rate depends largely on the speed of recov- ery in home purchases, particularly among first-time buyers. According to NAR data, the share of sales that were first- time purchases dipped from 33 percent in 2014 to 32 percent in 2015, down from 40 percent in 2003–2005. While this measure has trended upward in each age group since 2013, the speed of recovery in coming years remains uncertain. Note: Data are four-quarter rolling averages. Source: JCHS tabulations of US Census Bureau, Housing Vacancy Surveys. 21 JOINT CENTER FOR HOUSING STUDIES OF HARVARD UNIVERSITY The slowdown in homebuying does not appear to be due to household attitudes or perceptions of risk, as most Americans still believe that homeownership is a sound financial choice. According to a 2015 Demand Institute survey, 78 percent of household heads agreed with the statement “I think home- ownership is an excellent investment,” while only 6 percent disagreed. Although renters were somewhat less favorable, more than 67 percent agreed that homeownership is an excel- lent investment, and just 10 percent disagreed. Younger renter households were especially positive on this point, with 75 per- cent of renters below age 40 agreeing about the financial value of homeownership. AFFORDABILITY OF HOME PRICES While home prices have rebounded from their 2011 lows, they are still affordable by historical standards. The real median sales price of existing homes climbed 6.6 percent in 2015 to while the real median price of new single-family homes rose 4.7 percent to . Despite this increase, the NAR Housing Affordability Index—comparing median household income to the mortgage payment on a median-priced home—suggests that affordability declined only slightly last year. At the metropolitan level, however, affordability varies dra- matically. At one extreme, the ratio of median home price to median household income in the Rockford (Illinois) metropoli- tan area was just 1.8 in 2014, compared with 3.9 for the nation as a whole. But at the other extreme, the price-to-income ratio in Honolulu was 9.1 in 2014. This range illustrates the sharply different market conditions that would-be homebuyers face depending on their location. STUDENT LOAN DEBT AND DOWNPAYMENT PRESSURES Although home prices remain generally affordable, rising stu- dent loan debt has eroded the amount of income that house- holds have to spend on a home purchase. According to the Notes: Home purchases are equal to the number of homeowners that moved in the preceding year. Data are three-year trailing averages. Source: JCHS tabulations of US Census Bureau, Current Population Surveys. THE STATE OF THE NATION’S HOUSING Survey of Consumer Finances, the share of all US households with outstanding student loan debt increased from 12 percent in 2001 to 20 percent in 2013. At the same time, the median outstanding loan balance rose from $10,500 to $17,000, with 36 percent of borrowers in 2013 owing more than $25,000 and 17 percent owing more than $50,000. TIGHT MORTGAGE MARKET CONDITIONS The number of first-lien mortgage originations for owner- occupied home purchases increased only incrementally from its 2011 low, reaching 2.8 million in 2014. Home prices are adjusted using the CPI-U for All Items less shelter. Monthly mortgage payments include principal and interest, and assume a 30-year, fixed-rate mortgage with a 20% downpayment. Source: JCHS tabulations of NAR, Single-Family Existing Home Prices; Moody’s Economy.com, Median Family Incomes; and Freddie Mac, Primary Mortgage Market Surveys. Meanwhile, mortgage credit remains tight for borrowers unable to meet strict underwriting standards. The Urban Institute’s Housing Credit Availability Index indicates that credit conditions changed very little in 2015 and were only slightly looser than at their post-recession trough. Similarly, the MBA’s Mortgage Credit Availability Index does not show a clear trend in 2015 and confirms that market conditions remain relatively tight. As a result, lending to households with less than perfect credit histories has fallen off. CoreLogic data indicate that loans to homebuyers with observed credit scores below 700 declined from 33 percent of first-lien mortgages in 2010 to just 27 percent in 2014. Taken together, these trends suggest that recent growth in the number of conventional mortgage originations has been primarily to low-risk borrowers."}, {"role": "assistant", "content": "The aging of the large millennial generation has the potential to produce millions of new homeowners in the coming years. A 2015 Demand Institute survey found that 83 percent of respondents expected to own homes in the future. Among renters, 52 percent expected to own homes, including 28 percent who anticipated buying a home with their next move, and 24 percent who expected to buy “someday.” Moreover, especially large shares of younger renters expect to become homeowners, including 85 percent of those under age 30 and 69 percent of those aged 30–39."}]}
{"messages": [{"role": "user", "content": "A DECADE OF BROAD-BASED DEMAND As measured by the Housing Vacancy Survey, the number of renter households soared by nearly 9 million from 2005 to 2015—the largest increase over any 10-year period on record. Moreover, 2015 marked the largest single-year jump in net new renter households, up 1.4 million, with most of the gains posted in the first half of the year. Much of the jump in rental demand has come from middle-aged households. Current Population Survey data indicate that the number of renter households in their 50s and 60s rose by 4.3 Rental housing markets across the country tightened again in 2015. While multifamily construction ramped up for the fifth consecutive year, demand continued to outstrip supply, pushing down vacancy rates and pushing up rents. Although renter household growth is likely to slow from its current pace, rental demand should remain strong over the coming decade, keeping markets under pressure— particularly at the low end. THE STATE OF THE NATION’S HOUSING million in 2005–2015, driven by both the aging of baby-boomer renters and declines in homeownership rates among this age group. Renter households age 70 and over also increased by more than over the decade. Meanwhile, households in their 30s and 40s accounted for 3 million net new renters despite the dip in population in this age group. Households under age 30, however, made up only 1 million net new renters, reflecting the steep falloff in headship rates among the millen- nial generation following the Great Recession. In contrast, new construction was responsible for much of the growth in the multifamily stock. Indeed, the number of mul- tifamily starts intended for rent climbed from a low of about 92,000 units in 2009 to units in 2015, the highest level since the 1980s. Given the relatively long multifamily develop- ment timeline, starts remain well ahead of rental completions, which increased to units last year. According to the Survey of Market Absorption, new multifamily units have fewer bedrooms on average than those built over the past two decades. More than half of the unfurnished, market- rate rentals in structures with five or more units that were completed in 2014 were either studios or one-bedroom apart- ments—the largest share in history, and well above the 36 per- cent average share in the 1990s and early 2000s. Only 7 percent of apartments added in 2014 had three or more bedrooms, down from about 13 percent in earlier periods. Construction was also more concentrated in urban areas, with 57 percent of comple- tions in the past two years located in principal cities compared with an annual average of 45 percent dating back to 1970. At the other end of the market, growth in the low-rent supply is largely driven by downward filtering of older units. For example, fully 15 percent of units renting for less than $800 per month in 2013 had rents above this cutoff in 2003 (in inflation-adjusted terms). At the same time, however, many low-rent units were upgraded to higher rents. Factoring in other changes to the stock, the number of low-cost units rose only 11.2 percent over the decade—less than half the increase in higher-rent units and far below the growing number of low-income renters for which these low-cost units would be affordable. PERSISTENT MARKET TIGHTENING The inability of supply to keep up with the rapid rise in demand has led to the longest period of rental market tightening since the late 1960s. Starting in late 2010, the national rental vacancy rate fell for five consecutive years, hitting just 7.1 percent in 2015—its lowest point since 1985. In 2014–2015 alone, the vacancy rate for multifamily buildings with five or more units edged down another 0.9 percentage point while that for single- family rentals slipped 0.2 percentage point. This is a marked departure from the long-run trend, with rent increases averaging slightly below general inflation since the 1960s. Nominal rents continued their climb through March 2016, with annual rates of increase pushing 3.7 percent. 29 JOINT CENTER FOR HOUSING STUDIES OF HARVARD UNIVERSITY At the metro level, rent inflation ranged from under 2.0 percent in Cleveland, Philadelphia, and Washington, DC, to 6.0 percent or more in Houston, San Francisco, and Seattle. The professionally managed apartment sector remains tight in most major markets, with MPF Research reporting a vacancy rate of just 4.2 percent in the first quarter of 2016—a 30 basis- point decline from a year earlier. Much of the recent tightening occurred within the two lower tiers (Class B and C) of the mar- ket. Overall vacancy rates varied widely from 3.0 percent or less in Los Angeles, Miami, Minneapolis, New York, Portland, and Sacramento, to more than 6.0 percent in Houston, Indianapolis, and Memphis. While more than two-thirds of the 94 metro areas that MPF Research tracks reported lower vacancies in the first quarter of 2016, a few major markets—such as Denver, Houston, and Pittsburgh—saw an uptick in rates from a year earlier. Nationwide, rents in the professionally managed apartment sector rose by a strong 5.0 percent in the first quarter of 2016, up from 4.5 percent a year earlier. Increases were widespread, with rents in nearly all 94 metro markets on the rise. At the same time, however, rent growth slowed in a few areas, including Denver and Houston. In 18 of the nation’s 25 largest markets, rent increases in the middle tier (Class B) outstripped those in the upper tier (Class A). STRONG MULTIFAMILY PERFORMANCE Investor returns on rental properties continued to climb last year."}, {"role": "assistant", "content": "The National Council of Real Estate Investment Fiduciaries reports that net operating income for commercial-grade apart- ments increased for the fifth consecutive year in 2015, up nearly 11 percent from 2014. The annual rate of return on rental prop- erty investments rose to 12 percent, driven in large part by price appreciation. This strong performance has attracted investor demand, pushing capitalization rates for apartment properties down to 4.8 percent by year-end—the lowest level since the third quarter of 2008. According to Moody’s/RCA Commercial Property Price Index, prices for apartment properties rose 13 percent in 2015, mark- ing the sixth consecutive year of double-digit growth. As of March 2016, apartment property prices stood 39 percent above their previous peak in late 2007. By comparison, the CoreLogic index indicated that single-family prices remained 5 percent below their pre-recession high. Prices for apartment properties in highly walkable central business districts increased the most last year (19 percent), while those in car-dependent suburbs rose somewhat more slowly (13 percent). Multifamily loans held in commercial mortgage-backed secu- rities (CMBS) posted a sharp drop in what had previously been relatively high delinquency rates. According to Moody’s Delinquency Tracker, the share of CMBS loans that were 60 or more days past due, in foreclosure, or in the lender’s possession peaked at nearly 16 percent in early 2011 before steadily retreat- ing to about half that share at the end of 2015. The share then fell to 2.1 percent in early 2016, but still more than double the 0.9 percent average in 2001–2007. Unusually strong market conditions and historically low inter- est rates helped to propel a sharp rise in multifamily loan origi- nations last year. The MBA Originations Index indicates that the dollar volume of multifamily loans originated increased 31 percent in 2015. Meanwhile, total loans outstanding (including Source: Moody’s Investors Service and Real Capital Analytics, Commercial Property Price Index for Apartments. THE OUTLOOK Rental demand is expected to remain robust over the next decade as the youngest members of the millennial genera- tion reach their 20s and begin to form their own households. Moreover, if homeownership rates for households in their 30s and 40s continue to slide, rental demand will be stronger still. For their part, the aging baby-boom generation will boost the number of older renters, ultimately pushing up demand for accessible units. It is unknown whether high-income households will continue to fill the growing inventory of higher-end rentals or make the transition to homeownership. Regardless, expanding the rental supply through new market-rate construction should provide some slack to tight markets as older units slowly filter down from higher to lower rents. Once high-end demand is sated, developers in some areas may turn their attention to middle- market rentals, although high development costs mean that building new units affordable to even moderate-income house- holds is difficult without government subsidies."}]}
{"messages": [{"role": "user", "content": "HOUSING CHALLENGES 31 JOINT CENTER FOR HOUSING STUDIES OF HARVARD UNIVERSITY PREVALENCE OF COST BURDENS After three consecutive years of declines, the total number of housing cost-burdened households (paying more than 30 per- cent of income for housing) ticked up to 39.8 million in 2014. More than a third of US households faced cost burdens, includ- ing 16.5 percent with severe burdens (paying more than 50 per- cent of income for housing). Cost burdens remain nearly universal among lowest-income households (earning under $15,000), with 83 percent paying more than 30 percent of their incomes for housing in 2014. Most of these households were severely burdened, including 72 per- cent of renters and 66 percent of owners. But households with moderate incomes are also burdened by high housing costs. Indeed, the cost-burdened rate among rent- ers earning $30,000–44,999 edged up from 47 percent in 2010 to 48 percent in 2014, while the cost-burdened rate among renters earning $45,000–74,999 held at the 2010 peak of 21 percent. Moreover, in the 10 metros with the highest median housing costs, three-quarters of renter households earning $30,000–44,999 and half of those earning $45,000–74,999 were cost burdened in 2014. While easing among home- owners, housing cost burdens are a fact of life for a growing number of renters. These burdens put households at risk of housing instability and homelessness, particularly in the nation’s high- cost cities. Meanwhile, growing income inequality and the concentration of poverty have fueled an increase in residential segregation. With dwindling federal subsidies, state and local governments are struggling to preserve and expand the supply of good-quality affordable housing in all neighborhoods. THE STATE OF THE NATION’S HOUSING CONSEQUENCES OF HIGH HOUSING COSTS After paying large shares of their incomes for housing, cost- burdened households cut back spending on other vital needs. According to the 2014 Consumer Expenditure Survey, severely burdened households in the bottom expenditure quartile (a proxy for low income) had just $500 left over to cover all other monthly expenses, while otherwise similar households living in affordable housing had more than twice that amount to spend. As a result, severely cost-burdened households spent 41 percent less on food and 74 percent less on healthcare than their coun- terparts living in housing they could afford. To avoid cost burdens, low-income households often trade off location for affordability. In consequence, low-income house- holds living in housing they can afford spend nearly three times more on transportation than households with severe burdens. 33 JOINT CENTER FOR HOUSING STUDIES OF HARVARD UNIVERSITY those without vouchers to remain stably housed. Accordingly, President Obama has proposed $11 billion in mandatory funding in his FY2017 budget for a new 10-year initiative to end home- lessness among families with children, significantly expanding housing choice vouchers and rapid rehousing assistance. With demand far outstripping supply, competition for housing assistance is intense. The waiting lists for housing vouchers managed by local public housing authorities (PHAs) are years long or even closed. According to HUD’s Picture of Subsidized Households, a renter household that used a voucher in 2015 had waited more than two years on average to move into a unit, with the wait time in the San Diego metro area as long as seven years. Faced with shrinking federal resources, state and local govern- ments are attempting to fill the financing gaps. A report by the Technical Assistance Collaborative found that 30 states offered some form of state-funded rental assistance in 2014, with annu- al funding ranging from about $5 million in Delaware to $83 million in Massachusetts."}, {"role": "assistant", "content": "At the local level, cities have turned to a variety of alternative financing methods, such as taxes on real estate transactions, tax-increment financing, and linkage fees on commercial development."}]}
{"messages": [{"role": "user", "content": "But even after seven consecutive years of growth, new residen- tial construction in 2016 was well below the 1.4–1.5 million unit annual rates averaged in the 1980s and 1990s. In fact, coming on the heels of the most prolonged and pronounced downturn since the Great Depression, housing completions in the past 10 years totaled just 9.0 million units—more than 4.0 million units less than in the next-worst 10-year period going back to the late 1970s. Conditions are particularly tight at the lower end of the mar- ket, likely reflecting both the slower price recovery in this seg- ment and the fact that fewer entry-level homes are being built. Between 2004 and 2015, completions of smaller single-family homes (under 1,800 square feet) fell from nearly units to only . Similarly, the number of townhouses started in was less than half the number started in 2005. Meanwhile, rental markets are extremely tight despite the rela- tively strong pickup in multifamily construction. According to the Housing Vacancy Survey, the rental vacancy rate fell for the seventh straight year in 2016, dipping to 6.9 percent—its lowest level in more than three decades. MPF Research reports that the vacancy rate for professionally managed apartments was also just 4.4 percent. While some rental markets showed signs of softening in early 2017—most notably in San Francisco and New York—there is generally little indication that increases in supply are outstripping demand. 3 JOINT CENTER FOR HOUSING STUDIES OF HARVARD UNIVERSITY Indeed, rent gains across the country continue to far out- pace inflation. The Consumer Price Index for rent on primary residences was up 3.8 percent last year, while MPF Research estimates that rents for professionally managed apartments rose by a similar amount. With most new supply coming at the upper end of the market and strong demand pushing up rents across the board, the number of modestly priced units available for under $800 declined by between 2005 and 2015, while the number renting for $2,000 or more jumped by 1.5 million. Notes: The vacancy rate is calculated as the total number of vacant units for-sale, for-rent, and rented or sold but not yet occupied over the total number of units occupied, vacant for-sale or for-rent, and rented or sold but not yet occupied. Source: JCHS tabulations of US Census Bureau, New Residential Construction and Housing Vacancy Survey. HOMEOWNERSHIP DECLINES MODERATING, WHILE RENTAL DEMAND STILL STRONG After 12 years of decline, there are signs that the national home- ownership rate may be nearing bottom. As of the first quarter of 2017, the homeownership rate stood at 63.6 percent—little changed from the first quarter two years earlier. In addition, the number of homeowner households grew by in 2016, the strongest showing since 2006. Early indications in 2017 suggest that the upturn is continuing. Still, growth in renters continued to outpace that in owners, with their numbers up by last year. 5 JOINT CENTER FOR HOUSING STUDIES OF HARVARD UNIVERSITY AFFORDABILITY PRESSURES REMAIN WIDESPREAD Based on the 30-percent-of-income affordability standard, the number of cost-burdened households fell from 39.8 million in 2014 to 38.9 million in 2015. As a result, the share of households with cost burdens fell 1.0 percentage point, to 32.9 percent. This was the fifth straight year of declines, led by a considerable drop in the owner share from 30.4 percent in 2010 to 23.9 percent in 2015. The renter share, however, only edged down from 50.2 percent to 48.3 percent over this period. With such large shares of households exceeding the tradi- tional affordability standard, policymakers have increasingly focused their attention on the severely burdened (paying more than 50 percent of their incomes for housing). Indeed, 11.1 million renter households were severely cost burdened in 2015, a 3.7 million increase from 2001. By comparison, 7.6 million owners were severely burdened in 2015, up 1.1 million from 2001. The share of renters with severe burdens varies widely across the nation’s 100 largest metros, ranging from a high of 35.4 percent in Miami to a low of 18.4 percent in El Paso. While most common in high-cost markets, renter cost bur- dens are also widespread in areas with moderate rents but relatively low incomes. Augusta is a case in point, where the severely cost-burdened share of renters was at 30.3 percent in 2015. Regardless of location, the cost-burdened shares among lowest- income households (earning under $15,000 a year, roughly equivalent to working full-time, year-round at the federal mini- mum wage) are consistently high. In the nation as a whole, 70.3 percent of lowest-income households face severe housing cost burdens. Indeed, in certain metros such as Cape Coral and Las Vegas, nearly nine out of ten lowest-income renters are severely burdened. But even in the markets with the smallest shares, such as El Paso and Knoxville, six out of ten lowest-income rent- ers face these burdens. The scale and pervasiveness of severe cost burdens among lowest-income renters underscores the fundamental challenge of providing housing that these households can afford. A recent National Low Income Housing Coalition study found that for every 100 extremely low-income renters (earning 30 percent of area median income) in 2015, only 35 rental units were afford- able at the 30-percent standard, in adequate condition, and not occupied by higher income households. In seven metros, fewer than 20 units were affordable and available for every 100 extremely low-income renters. White, black, and Asian/other households are non-Hispanic and include those reporting a second race until 2003. After 2003, Asian/other includes all other households and those reporting more than one race. Source: JCHS tabulations of US Census Bureau, Housing Vacancy Survey. HOUSING MARKETS 2 7 JOINT CENTER FOR HOUSING STUDIES OF HARVARD UNIVERSITY Housing markets continued to strengthen in 2016, with new and existing home sales, prices, and construction levels all on the rise. Still, single-family construction, traditionally the largest source of residential investment, remains well below historical levels. As a result, low inventories of homes for sale are driving nominal prices above pre-recession peaks in many metros. In rental markets, low vacancy rates are pushing up rents and keeping multifamily construction relatively strong. Easing these tight conditions is especially difficult where labor shortages and limited land availability constrain new housing supply. In percentage terms, how- ever, last year’s 5.6 percent increase is the smallest annual gain since 2010–2011. Moreover, housing starts were still running 14 percent below the 1.37 million unit annual rate averaged in the 1990s and 21 percent below the 1.49 million unit annual rate in the 1980s. TIGHTENING INVENTORIES OF HOMES FOR SALE Residential construction in the past decade has added fewer units to the housing stock than in any 10-year period in records dating back to 1968. The number of housing completions between 2007 and 2016 totaled just 8.98 million units, far below Notes: The top 100 metros are the largest metro areas by population as defined by the 2015 American Community Survey. No change is defined as an increase or decrease of less than 2% from the previous year. Source: JCHS tabulations of US Census Bureau, Building Permits Survey. Dollar values are adjusted for inflation by the CPI-U for All Items. Data for new homes include single-family units only. Data for existing homes include condos and coops as well as single-family units. Sources: US Census Bureau, New Residential Construction and New Residential Sales data; National Association of Realtors®, Existing Home Sales; Bureau of Economic Analysis, National Income and Product Accounts. As a result, vacancy rates and inventories of homes for sale have fallen sharply. The national vacancy rate has receded to its 2000 level, erasing all of the run-up at the height of the hous- ing boom. The largest declines are on the rental side, where the vacancy rate was 6.9 percent in 2016—its lowest point since 1985. The vacancy rate for homes for sale, which had risen to 2.8 percent in 2008, was also back down to 1.7 percent last year. Adding to market tightness in many areas, the share of units held off market remains elevated, likely reflecting the contin- ued fallout from the foreclosure crisis. With so few units on the market, homes listed for sale sell quickly and often above the asking price. According to Zillow’s estimates, the median home sold in 2016 was listed for 93 days, 34 days less than in 2010. Listing times were even shorter in hot housing markets, averaging only 50 days in the San Jose and San Francisco metros and under 60 days in Dallas, Denver, and Seattle. House prices in these five markets were up 7.8 percent on average in 2016, exceeding the national average increase. Within metro areas, inventories at the lower end of the market are especially tight. According to Zillow data, only one-fourth of the homes for sale at the end of last year were in the bottom one-third of area homes by price while half were in the top one-third. PICKUP IN HOME SALES More than 6 million homes changed hands in 2016, an increase of about 4.5 percent from 2015 and 33 percent from the post- recession low in 2010. By NAR’s count, existing home sales were Note: Months of supply measures how long it would take the inventory of homes on the market to sell at the current sales rate. Source: JCHS tabulations of NAR, Existing Home Sales. The composition of home sales suggests that the homeown- ership market is strengthening. After three years of declines, purchases by first-time homebuyers accounted for 35 percent of sales in 2016, up from 32 percent in 2015, according to NAR. At the same time, Metrostudy data show that sales to owner- occupants with mortgages rose by 7 percent, indicating that traditional sales are once again driving markets. In contrast, sales of distressed properties continued to recede, dropping 19 percent in 2016."}, {"role": "assistant", "content": "CoreLogic reports that the share of existing single-family home sales that were either real estate owned (REO) or short sales fell to 8.9 percent, far below the 32.4 percent peak in 2009. The share of cash-only home sales—typi- cally to real estate investors—also declined for the fifth straight year, falling from a high of 38.8 percent in 2011 to 30.1 percent in 2016. The investor share of sales also continued its slide from the 30.9 percent peak in 2013 to 26.5 percent in 2016, approach- ing the pre-recession average of 22 percent. HOME PRICES MOVING UP By all major measures, home prices posted solid increases last year. NAR reports that the median sales price for existing homes was in 2016, up 4.9 percent in real terms from 2015. The Freddie Mac House Price Index, the S&P CoreLogic Case-Shiller Index, Zillow’s Home Value Index, and the FHFA Purchase-Only Index all registered inflation-adjusted rates of appreciation in the 4–5 percent range. In the 10 highest-cost areas in 2016, inflation-adjusted median home values were up 63 percent on average from 2000, to —nearly three times the national median home value of . Meanwhile, inflation-adjusted median home values in the 10 lowest-cost metros rose just 3.6 percent on average, to . Some of these lowest-cost metros were among the 19 markets (generally in the Midwest) where real home prices in 2016 were lower than in 2000. NEGATIVE EQUITY DOWN, BUT NOT OUT The steady climb in house prices has sharply reduced the num- ber of homeowners with negative or low equity (under 20 per- cent of the home’s value). According to CoreLogic, the number of households underwater on their mortgages dropped from 4.3 million in 2015 to 3.2 million in 2016, reducing their share of all homeowners from 8.4 percent to 6.2 percent. The number of households with low equity also fell from 9.5 million to 7.7 million over the year. HOUSING’S SHARE OF ECONOMY STILL LAGGING Residential fixed investment (RFI)—including housing con- struction, home improvements, expenditures on manufactured homes, and broker commissions on home sales—climbed for the sixth consecutive year, rising from $660.1 billion in 2015 to $706.1 billion in 2016. Spending on multifamily housing was at a 10-year Notes: Highest-/lowest-cost metros are the 10 with the highest/lowest median home values in December 2016. Home values are adjusted for inflation using the CPI-U for All Items less shelter. Source: JCHS tabulations of Zillow median home values. THE STATE OF THE NATION’S HOUSING high of $60.4 billion while spending on homeowner improve- ments hit $154.4 billion, according to Census Bureau estimates. However, real spending on single-family construction totaled a modest $243 billion last year, close to the level in 1996. Indeed, single-family construction spending accounted for only 34 per- cent of RFI in 2016, significantly less than the 49 percent share averaged in 1993–2006. Housing’s overall share of the economy was also low by histori- cal standards. RFI contributed just 3.8 percent of GDP in 2016, compared with 4.5 percent annually on average since 1959. At the same time, however, spending on housing services (rent and utility payments by renters, plus imputed rents and utility pay- ments by owners) accounted for 12.5 percent of GDP, exceeding its long-term average of 11.3 percent. THE CONSTRUCTION LABOR FORCE SHORTAGE At last measure in 2015, the construction industry employed 7.2 million workers and managers, about 20 percent fewer than in 2007 and roughly the same number as during the worst of the housing crisis in 2012. Meanwhile, the unemployment rate in the sector dropped by half between 2012 and 2016, falling from 13.9 percent to 6.3 percent. With demand for labor high, the lack of growth in construction employment suggests that many workers lost during the downturn have left the industry, creating a labor shortage that could constrain growth in housing construction. The workers lost during the recession were disproportionately young. Between 2007 and 2015, the number of construction employees under age 35 dropped by 34 percent and the number aged 35–44 shrank by 21 percent, while the number over age 45 declined by just 1.5 percent. As a result, the share of older work- ers increased from 33 percent to 41 percent over this period. THE OUTLOOK Homebuilders are optimistic about the market for new single- family homes. Indeed, the NAHB/Wells Fargo Housing Market Index reported that builder confidence in current and expected home sales was at a 12-year high in March 2017. Expectations about the multifamily market are more mixed, with permit- ting nationwide still higher than average levels in the 1990s or 2000s, but with some of the formerly hottest markets reporting a slowdown. Several factors could constrain housing activity in the com- ing years. Rising home prices and historically low inventories of homes for sale are barriers to entry for many potential homebuyers, especially those seeking to relocate to the high- cost metros where price appreciation is outpacing increases in the rest of the country. In addition, construction levels are still well below historical averages, particularly for the types of housing that are often the choice of first-time buy- ers, including smaller single-family homes, townhouses, and condominiums. Still, the millennials have so far had only a muted impact on housing demand. Indeed, their household formation rates remain at post-recessionary lows, at least in part because many continue to live with their parents or grandparents. According to the latest American Community Survey, the share of adults aged 18–34 residing in their parents’ homes increased again in 2015 to an all-time high of 35.6 percent. First of all, millennials not only outnumber members of genera- tion X (born 1965–1984) and the baby-boom generation (born 1946–1964), but they are also much more racially and ethnically diverse. A little more than 45 percent of millennials are minori- ties, compared with only 41 percent of gen-Xers and 29 percent of baby boomers. Moreover, immigration has yet to have its full impact on the size and racial/ethnic mix of the millennial popu- lation. In 2015, only 8.3 million (9.6 percent of) millennials were foreign born. By 2035, however, the Census Bureau projects that the number of foreign-born members of that generation will rise sharply to 20.4 million, more than doubling the share to almost 21 percent. As a result, the minority share of millennials will increase to 49.9 percent by 2035, making this the first genera- tion to be nearly majority-minority."}]}
{"messages": [{"role": "user", "content": "Millennials will thus continue to fuel the growing diversity of neighborhoods across the country. In 1990, nearly one-half (47 percent) of the nation’s census tracts were more than 90 percent white. By 2015, that share was down to one-fifth. Meanwhile, the share of majority-minority census tracts increased from 20 percent (12,100 tracts) to 30 percent (22,100 tracts). Majority- minority neighborhoods already make up as much as 75 percent of census tracts in the San Jose metro area, 71 percent in the Los Angeles metro area, and 49 percent in the New York metro area. This dramatic shift in the age distribution of the US population will drive up demand for a variety of housing options, includ- ing multigenerational living. According to the 2015 American Community Survey, 20 percent of non-institutionalized adults age 65 and over, fully 9.3 million people, live in households with at least two adult generations. The prevalence of multigenera- tional living rises steadily among individuals over age 70, reach- ing 27 percent among individuals age 85 and over. The increasing diversity in the population may also lift demand for multigenerational living. Asians and Hispanics age 65 and Note: Three-year changes are trailing averages, adjusting for the break in the household series in 2003. Source: JCHS tabulations of US Census Bureau, Housing Vacancy Survey and Population Estimates. THE ROLE OF IMMIGRATION A rebound in immigration helped to drive the recent pickup in household growth. Despite a modest slowdown from 1.04 million in 2015 to 1.0 million in 2016, net immigration is still well above the annual pace averaged in 2009–2011. Increased in-migration from Asia and Africa helped to offset out-migration to Mexico and Latin America, and lifted the foreign-born share of population growth from 37 percent in 2011 to 45 percent in 2016. Indeed, the foreign-born share of households increased from 9.5 percent to 14.7 percent over this period. Immigrants are especially likely to rent their housing, and thus made up an even larger share (about 20 percent) of renter households in 2015. At the same time, however, the foreign-born share of owner households was a healthy 12 percent. INTERNATIONAL AND DOMESTIC MIGRATION FLOWS International migration has been a vital source of population growth in several major metros that would otherwise have posted losses. For example, without the influx of nearly immigrants over the past year, the population in the New York metro area would have fallen by about rather than increase by about 35,500. In contrast, with only 26,000 immigrants to offset a net loss of nearly 90,000 domestic out-migrants, Chicago’s population fell by about 19,600 in 2016—the largest drop in any metro area. In other metros experiencing losses, such as Pittsburgh and Youngstown, international immigration was the only source of population growth amid high rates of domestic out-migration and low rates of natural increase. Immigration was also an important force in certain rural areas where the pace of natu- ral increase was either negative or too slow to offset domestic out-migration. In fact, while the total population of counties Note: Affordability of metros is determined by the share of renters paying more than 30% of income on housing. Source: JCHS tabulations of US Census Bureau, 2015 American Community Survey 1-Year Estimates. RISING INCOMES BUT RISING INEQUALITY According to the latest Current Population Survey, real median household income rose 5.2 percent in 2015 and median per capita income increased 4.8 percent. While annual income numbers are known to be volatile, these gains are still substan- tial. Indeed, median household incomes were up 7.3 percent in inflation-adjusted terms from the 2011 low, while personal incomes were up 9.6 percent from the 2010 low. Importantly, strong growth in per capita incomes was reported among 25–29 year olds, the age group that drives growth in both household formations and first-time homebuying. Their median per capita income rose 10.6 percent between 2011 and 2015—well above the increase for the US population overall. Meanwhile, the number of poor people living in neighborhoods with concentrated poverty (poverty rate of 40 percent or more) doubled from 3.0 million in 2000 to 6.0 million in 2015. The over- all share of the population living in concentrated poverty thus increased from 9 percent to 13 percent in 2000–2015, with fully 20 percent of the urban poor living in these conditions. High-income households are also becoming more concentrated in dense urban neighborhoods. In fact, urban population growth in 2010–2015 was fastest in neighborhoods where incomes were in the top decile, suggesting that the popularity of high- end urban living is growing. And in a reversal of long-term trends, the share of 25–34 year olds living in urban neighbor- hoods increased 0.4 percentage point in 2010–2015, while the share of 35–44 year olds was up by 1.0 percentage point. The shift to urban living is especially evident in Northeast metros, where the share of 35–44 year olds living in high-density areas increased nearly 3 percentage points over this period. The concentration of poverty has increased in both urban and suburban areas. Moreover, most of that increase is con- centrated in neighborhoods with already-high poverty rates. The poor population in high-poverty, medium-density areas (generally older first-ring suburbs) doubled from 3.1 million in 2000 to 6.4 million in 2015. Growth was even faster in high- poverty areas in the lowest-density communities of metro areas (exurbs), up 163 percent from 1.5 million to 3.9 million over this period. While the poor populations in non-metro areas also increased modestly, poverty rates in these communities jumped from 14.3 percent in 2000 to 17.4 percent in 2015—well above the 14.7 percent rate within metro areas. THE OUTLOOK According to the latest JCHS projections, household growth should average about 1.36 million annually in 2015–2025 and about 1.15 million in 2025–2035. These increases are in line with the pace averaged in the 1990s and early 2000s. Immigration, however, is a wild card in the current political climate. If the number of immigrants is cut as some federal officials have sug- gested, the slowdown in adult population growth would trans- late into somewhat lower annual household growth. Still, given that newly arrived immigrants often do not immediately form independent households, the impact of any new immigration controls on household growth may be delayed."}, {"role": "assistant", "content": "THE STATE OF THE NATION’S HOUSING Meanwhile, baby-boomer households will remain a force in housing markets even as they move into their 70s and 80s. Thanks to advances in health and longevity, the number of households headed by adults age 65 and over will increase 44 percent in 2015–2025 and 90 percent in 2025–2035."}]}
{"messages": [{"role": "user", "content": "The magnitude of growth in older households will place new demands on the housing stock. Millions of homeowners will face the challenge of keeping their homes safe and accessible as they age. However, many may not have the resources to retrofit their homes with universal design features such as single-floor living and extra-wide doorways. Moreover, the fact that many older households live in lower-density sub- urban areas will make it difficult for social service providers and transportation systems to reach this large and geographi- cally dispersed population. The decision of millions of older households to age in place could also limit the supply of suburban homes available for sale to millennial households seeking to trade up. This was the smallest year-over-year decline since 2006 and may signal that the homeownership rate might be close to bottoming out. Although down across the board from 2004 to 2016, the size and trajectory of homeownership rate declines vary widely by race and ethnicity. The 7.5 percentage point drop among black households (from 49.7 percent to 42.2 percent) was by far the largest. By comparison, the white homeownership rate was down 4.0 percentage points (from 76.0 percent to 71.9 percent) while the Hispanic rate fell only 2.1 percentage points (from 48.1 percent to 46.0 percent). The year-over-year changes in 2015– 2016 followed this pattern, with the black homeownership rate off 0.8 percentage point, the white homeownership rate stable, and the Hispanic homeownership rate up 0.4 percentage point. Homeownership trends also differ meaningfully across metro- politan areas. In the nation’s 50 largest metros, shares of home- owners ranged from 47.9 percent in Los Angeles to 69.2 percent in Pittsburgh. According to American Community Survey data, homeownership rates fell in all 50 of these areas between 2006 and 2015, with Las Vegas posting the largest decline (9.0 per- centage points) and Buffalo the smallest (1.6 percentage points). More recently, though, rates actually increased between 2013 and 2015 in eight metro areas (Boston, Kansas City, Oklahoma City, Philadelphia, Portland, Sacramento, San Jose, and Seattle) and stabilized in three (Birmingham, Nashville, and Richmond). Although still on the decline, the national homeownership rate showed signs of stabilizing in 2016. The foreclosure inventory is approaching its pre-crisis volume and home purchase activity is slowly increasing. While high costs pose a challenge in certain markets, homeownership remains affordable in many metro areas of the country. Meanwhile, with conventional mortgage credit still tight, FHA continues to play a central role in serving first-time homebuyers. While the strengthening economy and the aging of the millennial generation may lift demand for homeownership, much uncertainty surrounds future economic, credit, and housing market conditions. ROLE OF THE FORECLOSURE CRISIS The persistent decline in the national homeownership rate has generated widespread discussion about the future of homeown- ing in the United States. According to a Joint Center analysis, recent changes in the age, race/ethnicity, and family structure of households explain little of the drop in homeownership because they largely offset one another. In particular, while the aging of the US population works to lift homeownership (because older adults have higher ownership rates), the growing diversity of the population exerts downward pressure (to the extent that racial/ ethnic disparities in income and wealth continue). A large unknown is whether former owners that lost homes to foreclosure will get back into the market. According to a recent Experian analysis of credit records, only 12.6 percent of own- ers who underwent foreclosure between 2007 and 2015 had bought other homes by the end of 2015. While loan products are available that allow former owners to buy homes before the foreclosure disappears from their credit histories, it is unclear how many will take advantage of this opportunity in the future. Moreover, given that many of those who experienced foreclo- sure were middle-aged, buying again would likely mean carry- ing mortgage debt into their retirement years. Note: Values are four-quarter rolling averages. Source: JCHS tabulations of Housing Vacancy Survey data. Along with their age profile, the racial/ethnic mix of recent homebuyers also shifted over the last 14 years. In 2015, the number of Asian homebuyers had increased 27 percent from its 2001 level. In contrast, the number of black homebuyers was still 33 percent below its 2001 level in 2015. The number of white homebuyers also remained 17 percent below its 2001 level, while the number of Hispanic recent homebuyers stood 4 percent below. As a result, Asian and Hispanic households accounted for larger shares of recent homebuyers in 2015 than in 2001, while white and black households accounted for smaller shares. The evidence continues to suggest that mortgage credit has tightened for households unable to meet standard under- writing criteria. The median credit score for owner-occupied home purchase originations increased from about 700 in 2005 to 732 in 2016, reflecting a sharp reduction in lending to households with lower scores. CoreLogic data indicate that just 0.1 percent of conventional first-lien home purchase mortgages last year were to borrowers with credit scores below 620 and 3.3 percent were to borrowers with scores between 620 and 659. Access to small mortgage loans has become a particular chal- lenge in metros with lower-cost homes. According to an Urban Institute analysis, the share of mortgage loans for less than $50,000 declined to 2.3 percent in 2014 after hovering near 3.0–4.0 percent from 2004 to 2011. While fixed origination costs and lower servicing income make these loans less attractive to lenders, the availability of small mortgage loans is critical to communities with large stocks of lower-priced homes. In these areas, limited access to mortgage credit could open the door to greater use of land contracts and other credit options that pro- vide fewer protections for borrowers. THE SUSTAINING ROLE OF FHA The Federal Housing Administration (FHA) plays a critical coun- tercyclical role in ensuring access to mortgage credit. Between 2005 and 2009, the number of FHA home purchase mortgages increased by more than 350 percent just as the number of conventional home purchase mortgages plummeted. While the number of conventional loans has notched up in recent years, FHA still accounted for 24.8 percent of first-lien home purchase loans in 2015. THE STATE OF THE NATION’S HOUSING first-time homebuyer share of FHA mortgages was nearly 82 per- cent, almost double the government sponsored enterprise (GSE) share of 44 percent. According to an Urban Institute analysis, first-time homebuyers with FHA loans have lower credit scores, higher loan-to-value ratios, and higher payment-to-income ratios than those with GSE-backed loans. The average FHA loan to repeat homebuyers is also smaller than the average GSE loan to both first-time and repeat homebuyers, reflecting FHA’s central role in financing the purchase of modestly priced homes. In 2015, FHA, Veterans Administration (VA), and other nonconventional mortgages accounted for 53.3 percent of home purchase loans originated to low- to moderate-income borrowers, along with 47.6 percent of loans to middle-income borrowers. Minority house- holds also rely disproportionately on government-insured loans, which accounted for 70.2 percent of home purchase mortgages issued to black homebuyers and 62.6 percent to Hispanic home- buyers in 2015. By comparison, the nonconventional loan shares were just 36.0 percent for white homebuyers and 16.6 percent for Asian homebuyers. Indeed, older households aged 55 and over accounted for fully 44 percent of renter household growth between 2005 and 2016. As a result, the share of renters in this age group increased to 27 percent last year—up from 22 percent in 2005. Renters under age 35 were responsible for the next largest share of growth (25 percent), driven primarily by their delayed entry into the homebuying market. Meanwhile, households in the 35–44 age range—the group that experienced the sharpest drop in home- ownership after the housing crash—contributed 14 percent of renter household growth in 2005–2016 despite a net loss of households in this age range. Meanwhile, the share of high-income households (earning at least that rented their homes increased from 12 per- cent to 18 percent from 2005 to 2016. High-income households thus drove 22 percent of the overall growth in renter house- holds, while households earning $50,000–99,999 accounted for an equal share. The move to renting among high-income house- holds—most with two earners—intensified in recent years, accounting for nearly half (47 percent) of the growth in renters between 2013 and 2016. According to the latest American Community Survey, the share of households renting their homes continued to grow in the majority of the nation’s largest 50 metro areas between 2013 and 2015. Increases in renting even picked up pace in several markets (including Houston, Jacksonville, and Miami) relative to the previous eight years. However, the renter share of house- holds actually fell in 11 of the 50 largest metros. Recent additions to the rental supply remain concentrated at the upper end of the market. According to preliminary data from the Survey of Market Absorption, the typical asking rent for a new unfurnished apartment climbed by 5.6 percent annu- ally in real terms in 2016, rising to $1,478. Although newly constructed units have always commanded a rent premium, the asking rent for new multifamily apartments increased sig- nificantly from 61 percent above the median asking rent for all existing vacant units in the 2000s to 73 percent in 2016. The 2015 American Community Survey data for the 100 largest met- ros confirm this trend, indicating that nearly half (46 percent) of the rental units built in 2010 or later were in the top quartile of area rents, while more than two-thirds fell into the top half. VACANCY RATE AT NEW LOWS Despite the recent burst of multifamily construction, the national rental vacancy rate slipped to a 30-year low of 6.9 per- cent in 2016. Indeed, rental markets in most areas of the coun- try remain tight. MPF Research reports that vacancy rates for professionally managed apartments in early 2017 were under 3 percent in 20 of the 100 markets it tracks, and under 5 percent in 65 of those markets. Under these historically tight conditions, rents were up both nationally and in the majority of markets in early 2017. The US Consumer Price Index for rent of primary residence rose at a 3.8 percent annual rate through April, far exceeding the 0.9 percent inflation rate for non-housing-related goods. According to MPF Research data, rents for units in professionally managed properties were up by 3.7 percent nationwide in early 2017, with increases in 91 of the 100 markets tracked. Rental market conditions did, however, show some signs of eas- ing last year. For one, the nominal rent increase MPF Research reported represents a slowdown from the 4.7 percent pace aver- aged in 2014–2015. Among the list of metros where rents were down Notes: US rental vacancy rates are four-quarter rolling averages. Metro data are for professionally managed apartment properties in the 100 market areas tracked by MPF Research. Sources: JCHS tabulations of US Census Bureau, Housing Vacancy Survey, and MPF Research data. Within markets, signs of easing were most apparent in the high- end segment. Vacancy rates for professionally managed (Class A) rentals were up in more than two-thirds of the 100 markets in the first quarter of 2017 from a year earlier, climbing more than 2.0 percentage points in many areas to a nationwide average of 6.4 percent. At the same time, however, vacancy rates in the lowest-quality segment (Class C) fell nationwide for the seventh straight year, to just 3.8 percent. STRONG RENTAL PROPERTY PERFORMANCE With ultra-low vacancy rates and widespread real rent gains, multifamily rental properties continued to perform well. According to data from the National Council of Real Estate Investment Fiduciaries (NCREIF), net operating income for investment-grade properties rose for the seventh consecutive year in 2016. While lower than the 10.7 percent gain in 2015, last year’s increase was still strong at 6.9 percent. The rise in nominal apartment property prices also slowed somewhat from a 14.8 percent increase in 2015, but remained a healthy 11.0 percent in 2016 according to Moody’s/RCA Apartment Price Index. As of March 2017, apartment property prices were still rising at an 8.1 percent annual rate, and exceed- ed the 2007 peak by 52 percent in nominal terms and 31 percent in real terms."}, {"role": "assistant", "content": "Meanwhile, annual investor return on investment dipped to 6.7 percent in the first quarter of 2017, following several years of double-digit gains. Still, investor demand for rental proper- ties remains strong, with NCREIF data showing a drop in the required rate of return or capitalization rate to 4.6 percent in the first quarter of 2017—one of the lowest rates posted in records dating back to 1982. Indeed, CBRE reports even lower cap rates for Class A multifamily properties in city centers of several large markets, including Los Angeles, New York, and San Francisco."}]}
{"messages": [{"role": "user", "content": "Many property owners have taken advantage of years of strong financials to make improvements deferred during the downturn. The National Apartment Association (NAA) reports that capital spending per unit increased 13 percent annually from 2010 to 2015 in real terms. Community-wide upgrades often focus on fitness centers, business centers, clubhouses, and other common areas, while in-unit improvements typi- cally include installation of washer/dryers and high-end kitchen appliances. According to other NAA/Axiometrics research, these upgrades and other major renovations have lifted effective rents for apartment properties 8 percent on average. ROBUST MULTIFAMILY LENDING The value of multifamily debt outstanding rose by nearly $100 billion in 2016, marking the second year of record-high increas- es and lifting the total to over $1.1 trillion. More than two-thirds of the growth ($67 billion) came from federal sources, while banks and thrifts contributed $39 billion. In contrast, multifam- ily mortgage debt in commercial mortgage backed securities continued to shrink, by $15 billion. At the same time, however, MBA’s Multifamily Originations Index indicates that growth in the dollar value of loan origi- nations slowed from 31 percent in 2015 to just 6 percent last year. One of the reasons for this moderation may be changing multifamily lending standards."}, {"role": "assistant", "content": "According to a Federal Reserve survey in the first quarter of 2017, one-third of domestic banks reported tightening standards for commercial real estate loans secured by multifamily residential structures, up from 22.5 percent a year earlier and no reports of tightening two years earlier. Loan performance in the rental property sector continued to improve last year. Only 0.18 percent of all FDIC-insured loans secured by multifamily residential properties were in noncur- rent status (90 days past due or in nonaccrual status) as of the last quarter of 2016, down from 0.28 percent a year earlier. THE STATE OF THE NATION’S HOUSING According to Moody’s Delinquency Tracker, the noncurrent rate for commercial mortgage-backed securities (60 days past due, in foreclosure, or REO) was higher but still stood at a relatively low 2.5 percent in March 2017. Growth in rental demand may, however, moderate as the share of households opting to rent appears to be stabilizing near 37 percent. But with the large millennial generation now moving into their 20s and 30s, Joint Center projections point to solid growth in renter households over the next 20 years. And even if demand were to slow, there is still broad need for additional supply—particularly of rental units at the lower end of the mar- ket where ultra-low vacancy rates are pushing up rents. In the near term, rising vacancy rates at the upper end, record- setting apartment prices, and the specter of interest rate hikes have the potential to slow the growth in luxury units. But given how tight rental markets remain and the ongoing strength of demand, any slowdown in construction will likely be neither steep nor prolonged."}]}
{"messages": [{"role": "user", "content": "Homeownership rates among young adults today are even lower than in 1988, and the share of cost-burdened renters is significantly higher. Soaring housing costs are largely to blame, with the national median rent rising 20 percent faster than overall inflation in 1990– 2016 and the median home price 41 percent faster. Although better housing quality accounts for some of this increase, sharply higher costs for building materials and labor, coupled with limited pro- ductivity gains in the homebuilding industry, have made housing construction considerably more expensive. Land prices have also skyrocketed as population growth in metro areas has intensified demand for well-located sites. In addition, new regulatory barriers have also served to limit the supply of land available for homes and increased the time, complexity, and risks of housing development. Along with soaring housing costs, weak income growth among low- and moderate-income households has also contributed to affordability pressures. The real median income of households in the bottom quartile increased only 3 percent between 1988 and 2016, while the median income among young adults in the key As we mark the 30th anniversary of the State of the Nation’s Housing series, this year’s report presents an opportunity to reflect on how housing market conditions in the United States have evolved over the decades. In addition to our usual look at current trends, the analysis examines how some of today’s conditions echo the past and are a yardstick for the progress we as a nation have and have not made in fulfilling the promise of a decent, affordable home for all. THE STATE OF THE NATION’S HOUSING –34 year-old age group was up just 5 percent. Meanwhile, gross domestic product per capita, a measure of total economic gains, increased some 52 percent in 1988–2017. If incomes had kept pace more broadly with the economy’s growth over the past 30 years, they would have easily matched the rise in housing costs—under- scoring how income inequality has helped to fuel today’s housing affordability challenges. Most of this new outlook reflects lower net foreign immigration and higher mortality rates among native-born whites. In combination, these changes mean slower growth in the number of older white households as well as of Hispanic and Asian households of most ages."}, {"role": "assistant", "content": "Although lower than the 1.3 million per year previously projected, net immigration is still expected to average 1.0 million annually over the next decade as growth of the native-born population continues to slow. As a result, immigrants will increasingly drive household growth, especially after 2025 when native-born population growth decelerates further."}]}
{"messages": [{"role": "user", "content": "Relatively low headship rates among millennials also contribute to lower projected household growth. Despite the recent pickup in incomes, adults under age 35 are still not forming households at rates as high as previous generations at that age. This suggests that other forces are at play, including higher rates of college and gradu- ate school attendance and lower rates of marriage and childbearing. High housing costs may also be a factor, given the smaller share of young adults heading up households in expensive housing markets. Indeed, just 31 percent of adults aged 25–29 head their own house- holds in the nation’s 25 least affordable metros (measured by the share of renters with cost burdens), compared with 41 percent in the 25 most affordable metros."}, {"role": "assistant", "content": "Because of their sheer numbers, however, millennials have still helped to boost household growth. With the leading edge of this large generation now in its early 30s, adults under age 35 formed 10.5 million new households in 2012–2017, 1.5 million more than in the previous five-year period. Given that millennials born at the peak are now in their late 20s and the youngest are just 13, this generation will continue to lift household growth for years to come. The overall aging of the US population has important implications for housing markets, with 65–74 year olds now the fastest-growing age group. Since older adults generally live in established house- holds and strongly prefer to remain in their homes as they age, they have not historically added significantly to new housing demand. But given the size of the baby-boom generation, households headed by persons age 65 and over will continue to grow at an unprec- edented pace in the next decade, increasing the presence of older households in both the homeowner and rental markets."}]}
{"messages": [{"role": "user", "content": "DEMAND SHIFT FROM RENTING TO OWNING After a decade of soaring rental demand, US households are edging their way back into the homebuyer market. Growth in the number of renter households slowed from annually on average in 2005–2015 to just in 2015–2017, while the number of owner Source: JCHS tabulations of US Census Bureau, 1970–2000 Decennial Censuses, and 2000–2016 American Community Survey 1-Year Estimates. 3 JOINT CENTER FOR HOUSING STUDIES OF HARVARD UNIVERSITY households rose annually on average in the past two years. This reversal lifted the national homeownership rate to 63.9 per- cent last year, with gains spread across most age, race, and ethnic groups. While too early to tell whether this is the start of a rebound, the homeownership rate appears to have at least stabilized. The choice between owning and renting depends on a variety of factors, including relative costs, expected length of stay, tolerance for financial risk, and the perceived benefits of each option. As such, there is no “ideal” homeownership rate. But the wide gap in white-minority homeownership rates conflicts with evidence from consumer surveys that renters of all races and ethnicities want to own homes in the future. Given both the desire to own and the abil- ity of many renters to sustain homeownership, restricted homebuy- ing opportunities for minorities should be a critical public concern. Age Group ● 25–34 ● 35–44 ● 45–54 ● 55–64 ● 65 and Over Homeownership Rates for Both Young Adults... Hispanics may be of any race. Source: JCHS tabulations of US Census Bureau, Housing Vacancy Surveys Race/Ethnicity ● Black ● Hispanic ● Asian/Other ● White Another factor is the low level of single-family construction. Despite six consecutive years of increases, single-family starts stood at just units in 2017, well below the long-run annual average of 1.1 million. Indeed, only single-family homes were added to the stock annually in 2008–2017. Limited new construction may hold back existing home sales by reducing the tradeup options for current owners, deterring them from putting their own homes on the market. The slow growth in single-family construction reflects in part homebuilder caution following the dramatic housing bust. But risk aversion aside, a significant constraint on new residential construc- tion may be the dwindling supply of buildable lots. According to Metrostudy data, the inventory of vacant lots in the 98 metro areas tracked fell 36 percent in 2008–2017. Indeed, 21 of the nation’s 25 largest metros reported inventories that would support less than 24 months of residential construction. MULTIFAMILY CONSTRUCTION LEVELING OFF Unlike single-family homebuilding, multifamily construction ramped up quickly after the crash as rental demand surged. From a low of units in 2009, construction of multifamily units peaked at starts in 2015 and accounted for more than half the gains in housing starts over that period. However, the multifam- ily construction wave is now moderating, with starts down 1 percent in 2016 and 10 percent in 2017. This slowdown comes in response to both weaker overall rental demand and increasing slack at the upper end of the market. The Note: Months of supply measures how long it would take the number of homes on the market to sell at the current rate, where 6 months is typically considered a balanced market. Source: JCHS tabulations of National Association of Realtors (NAR), Existing Home Sales. The vacancy rate for all rental units includes single-family rentals and is from the HVS. Vacancy rates for Class A, B, and C units are from RealPage, and refer to professionally managed apartments. Source: JCHS tabulations of US Census Bureau, Housing Vacancy Surveys, and RealPage data. 5 JOINT CENTER FOR HOUSING STUDIES OF HARVARD UNIVERSITY Census Bureau reports that the national rental vacancy rate rose last year for the first time since 2009, ticking up from 6.9 percent to 7.2 percent. In 2013, units renting for $1,000 or more had the lowest vacancy rate of all rentals, while units renting for less than $600 had the highest rate. The situation has now reversed, with vacancies at 6.8 percent in the low-cost market and 7.7 percent in the high-cost market. AFFORDABILITY PRESSURES EASE, BUT REMAIN WIDESPREAD At last measure in 2016, some 38.1 million households spent more than 30 percent of their incomes on housing (the standard definition of cost burdened). While down by from 2015 and by 4.6 million from the peak in 2010, the number of cost- burdened households was still some 6.5 million higher in 2016 than in 2001. All of the drop in cost-burdened households is among homeowners, whose numbers fell by 5.5 million in 2010–2016. The pickup in income growth and the low interest rate environment no doubt helped, but this improvement also reflects the fact that millions of distressed owners lost their homes to foreclosure during the housing crisis and, more recently, that lenders have imposed stricter payment- to-income requirements for new buyers. Moreover, the number (4.1 million) and share (84 percent) of cost-burdened homeowners earn- ing under $15,000 was unchanged over this period. Nearly half of burdened owners at this income level are age 65 and over, and of that group, three-quarters are single-person households. The improvements in affordability for renters are much more mod- est. Although the share of cost-burdened renters retreated from a peak of 51 percent in 2011 to 47 percent in 2016, strong growth in renters overall meant that the number with burdens continued to rise through 2014. Their numbers did drop by in 2014–2016, but the previous increase of 6.5 million in 2001–2014 dwarfed this progress. In addition, more than half of the growth in cost-burdened renters since 2001 was among households paying more than half their incomes for housing. Indeed, the number of severely burdened renters rose by 3.6 million between 2001 and 2016. POLICY CHALLENGES Expanding the supply of lower-cost housing would help relieve the cost burdens of some households of modest means, but subsidies are the only way to close the affordability gap for the nation’s lowest-income families and individuals. Even so, increases in fed- eral rental assistance have lagged far behind growth in the number of renters with very low incomes, the group typically eligible for subsidies."}, {"role": "assistant", "content": "For their part, many state and local governments are finding new ways to leverage and supplement federal funds to spur develop- ment of below-market-rate housing. These strategies include rais- ing new revenues through bond issuances, real estate transfer taxes, and linkage fees, as well as using their regulatory powers to either incentivize or mandate inclusion of affordable units in new market-rate developments. However, state and local initiatives are generally modest in scale."}]}
{"messages": [{"role": "user", "content": "THE OUTLOOK By many metrics, the housing market is on sound footing. With the economy near full employment, household incomes are increasing and boosting housing demand. On the supply side, a decade of his- torically low single-family construction has left room for expansion of this important sector of the economy. Although multifamily con- struction appears to be slowing, vacancy rates are still low enough to support additional rentals. In fact, to the extent that growth in supply outpaces demand, a slowdown in rent growth should help to ease affordability concerns. Indeed, the cumulative effect of strong growth in housing costs and modest gains in household incomes has left nearly half of today’s renters with cost burdens, including a quarter with severe burdens. The rising cost of homes for sale also raises downpayment and clos- ing costs, making it more difficult for individuals and families to make the transition to owning. HOUSING MARKETS 2 7 JOINT CENTER FOR HOUSING STUDIES OF HARVARD UNIVERSITY New construction, home sales, and housing prices ticked up modestly in 2017, but a slowdown in the multifamily sector and the rising costs of residential construction are preventing a stronger upturn in housing markets. Intense competition for the historically low supply of existing homes on the market has pushed up home prices in most metros, raising further concerns about affordability. Still, the 3.7 percent increase in RFI last year was the smallest annual gain since the recovery began in 2011. As a result, the sector contributed just 0.07 percentage point of the 2.3 percent real growth in gross domestic product (GDP) in 2017. As a share of the economy, RFI alone accounted for 3.9 percent of GDP. Adding in spending on housing services and furnishings, the combined housing-related share of GDP totaled 18.2 percent last year. Permitting outside of the core counties of large metros is still below the 1990s average, down 16 percent in the non-core counties of large metros and 6 percent in all other metro areas. Construction is even further below average levels from the 2000s, with permitting down 23 percent in non-core counties and 24 percent in other metros. Single-family permitting, which remained low across the board in 2017, accounted for an important share of activity outside of core areas. Last year, permits for single-family homes contributed just 43 percent of total permits issued in core counties, but 73–75 percent of permits in non-core counties and other metro areas. Nonetheless, entry-level housing still accounts for a small share of new construction. Only small single-family homes were completed in 2016, or 22 percent of single-family construction— down significantly from the 33 percent share averaged in 1999–2007. Moreover, manufactured home shipments totaled just 93,000 units in 2017, far below the annual average in the 1990s and even the annual average in the 2000s. Modest-sized homes are considerably more affordable for first-time and middle-market buyers. According to the Survey of Construction, the median price for a small home sold in 2016 was . The average sales price for a new manufactured home in 2017 was even lower, at $72,000. By comparison, the median price for all other single-family homes was in 2016. Manufactured housing is prevalent primarily in the South, where some 58 percent of the 6.6 million units nationwide are located. Another 21 percent are in the West, 14 percent in the Midwest, and Percent Change 2015––17 Residential Construction (Thousands of units) Total Starts Single-Family Multifamily Total Completions Single-Family Multifamily Home Sales (Thousands) New Single-Family All Existing Median Sales Price (Thousands of dollars) New Single-Family All Existing Existing Home Inventory Homes for Sale (Thousands) Months of Supply 4.4 3.9 -8.3 -11.4 Construction Spending (Billions of dollars) Residential Fixed Investment Notes: Components may not add to totals due to rounding. Dollar values are adjusted for inflation using the CPI-U for all items. Residential fixed investment includes spending on new housing construction and homeowner improvements, plus broker commissions on home sales. Sources: US Census Bureau, New Residential Construction and New Residential Sales; NAR, Existing Home Sales; Bureau of Economic Analysis, National Income and Product Accounts. IMPEDIMENTS TO HOMEBUILDING Four main constraints stand in the way of a stronger upturn in housing construction. First is the shortage of skilled work- ers. In a 2017 survey of homebuilders, 82 percent of respondents cited the cost and availability of labor as a significant problem. Unemployment in the construction industry fell to 6 percent last year, while inflation-adjusted construction wages and benefits were up 7 percent from 2001—somewhat less than the 9 percent increase for all private industry workers. These pay raises have not been suf- ficient to attract new workers, and the number of job openings in the construction industry approached by the end of 2017— the highest level in a decade. Third, developed land has become scarcer. Metrostudy data for 98 metro areas indicate that the number of vacant developed lots declined from 1.26 million in 2008 to just in 2017. As mea- sured by months of supply (where 24–36 months is considered a balanced market), the inventory shrank in 73 of those 98 markets in 2016–2017. The shortage of land for new housing is especially acute in the Western metros of San Francisco (9 months), San Diego (10 months), Seattle (10 months), Los Angeles (12 months), and Las Vegas (13 months). In contrast, developed land is more readily avail- able in many Southern and Midwestern markets, like Chicago (62 months), Atlanta (44 months), and Minneapolis (28 months). THE STATE OF THE NATION’S HOUSING percent contractor fee. While on par with 2017, this represents a 12 percent jump from 2014 after adjusting for inflation. Modular housing, constructed in factory conditions before being transported and assembled on site, could provide at least part of the answer. Including the value of land, the median price for a new modular unit was in 2016—nearly $90,000 less than for a new site-built home. To date, however, homebuilders have been slow to adopt this innovation, with only 15,000 modular homes added in 2016. Indeed, modular housing has never accounted for more than 4 percent of single-family construction in the United States. By comparison, modular housing accounts for 9 percent of new homes in Germany, 12–16 percent in Japan, and 20 percent in the Netherlands. PERSISTENTLY LOW INVENTORIES AND SLOWING SALES The National Association of Realtors reports that the number of homes on the market fell from 1.65 million in 2016 to 1.46 million in 2017. The single-family inventory alone shrank 11 percent, from 1.45 million to 1.29 million. In December 2017, for-sale inventories were at their lowest levels since at least 1999 for all homes and since 1982 for single-family homes. Meanwhile, the for-sale vacancy rate fell to 1.5 percent in the first quarter of 2018, matching the lowest readings since 1994. Of the 93 large metros tracked by Zillow, only one had a for-sale inventory of more than 6.0 months in 2017. Markets in many Western metros were especially hot, with supplies of less than a month in both San Francisco and San Jose. Home sales in Salt Lake City, Seattle, and Stockton also closely tracked the number of homes on the market. At the other extreme, the metros with the largest inventories of available homes were Bridgeport (6.9 months), El Paso (5.6 months), New Haven (5.3 months), Virginia Beach (4.8 months), and Scranton (4.8 months). Constrained by limited inventory, growth in home sales slowed from 4.5 percent in 2016 to only 1.9 percent in 2017, to a total of 6.1 million units. Although increasing for the third consecutive year, existing home sales led the slowdown with just 1.1 percent growth, to 5.5 million units. The only appreciable upticks in sales (2–3 per- cent) were in the South and West. In contrast, new home sales rose 9.3 percent from 2016, to units. This was the sixth straight year of growth from the five- decade low of units in 2011. More than half (55 percent) of new home sales were in the South, and about a quarter were in the West. Of the remaining sales, 12 percent were in the Midwest and only 7 percent in the Northeast. By the end of 2017, nominal home prices in 59 of the nation’s 100 largest markets exceeded their pre-crisis peaks. Prices were furthest above peak in metros that experienced only a modest downturn after the crash and then a surge in appreciation, such as Denver (62 percent above peak), Austin (58 percent), Dallas (55 percent), and Houston (44 percent). Other metros with above-peak home prices had posted less of a drop but also a milder rebound. In Albany, for example, home prices fell just 6 percent during the housing crisis, then climbed 10 percent through 2017 to stand 3 percent above the previous peak. Similar trends are evident in Little Rock, Oklahoma City, and Tulsa. In still other metros, home prices rebounded sharp- ly from a severe drop. Los Angeles is one example, where nominal home prices fell by 36 percent after the crash, but now exceed the previous peak by 3 percent. Real home prices in non-metro areas also climbed by a relatively strong 18 percent in 2000–2017. The largest increases were in the non-metro areas of North Dakota (85 percent), Hawaii (69 percent), Montana (52 percent), and South Dakota (45 percent). Moreover, in 19 of the 47 states with non-metro counties, home price appreciation in those areas outpaced statewide increases. Over this period, non-metro home prices declined in only four states—Michigan (down 6 percent), Ohio (6 percent), Connecticut (2 percent), and Indiana (2 percent). GROWING CONCERNS ABOUT AFFORDABILITY Rising prices have made homes less affordable, particularly at the low end of the market. In 2017, real home prices for the lowest- cost homes (selling for 75 percent or less of the median sales price) Notes: Homes for sale include both new and existing units. Months of supply measure how long it would take homes on the market to sell at the current rate, where 6 months is generally considered a balanced market. Source: JCHS tabulations of Zillow data. Meanwhile, increases in the median sales price of existing homes have outstripped growth in median household income for six years. As a result, the price of a typical existing home sold in 2017 was more than four times the median income. Topping the list is San Jose, where the median sales price was 10.0 times the median household income, followed closely by Los Angeles (9.5 times), Honolulu (9.2 times), San Francisco (8.9 times), and San Diego (8.1 times). On the flip side, price-to-income ratios were below 3.0 in 25 metro areas last year, including Pittsburgh, Rochester, Syracuse, Toledo, and Wichita. By comparison, nearly three-quarters of large metro areas had price-to-income ratios below 3.0 in 1988, while only 14 metros had ratios over 4.0."}, {"role": "assistant", "content": "Over the medium and longer terms, however, demographic forces will support a pickup in housing construction. The latest Census Bureau projections indicate that the population of 30–44 year olds, the age group most likely to buy new homes, will increase by 8.5 million over the next decade. Of course, the housing preferences of millennials, as well as the decisions that baby boomers make about aging in place, will determine the types and locations of homes demanded. The critical question, however, is whether the home- building industry can supply, and local regulations allow, enough new housing to meet the need for homes affordable to a broad range of households."}]}
{"messages": [{"role": "user", "content": "3 DEMOGRAPHIC DRIVERS 13 JOINT CENTER FOR HOUSING STUDIES OF HARVARD UNIVERSITY MILLENNIALS PROPPING UP HOUSEHOLD GROWTH The latest Census Bureau data point to moderate household growth in 2017. The Housing Vacancy Survey, the most consistent source of estimates, puts the increase at households, in line with growth in 2016 and well above the annual average in 2006–2011. All three major Census Bureau surveys show that household growth has picked up over the past three years, with increases ranging from to 1.1 million annually—above post-recession lows but short of the 1.35 million annual average in 2000–2006. The millennial generation is driving much of the rebound in house- hold growth, forming an average of 2.1 million net new households annually in 2012–2017. For example, when members at the peak of this large generation were aged 20–24 in 2011, only one in four headed an independent household. At ages 25–29 in 2016, that share increased to 42 percent."}, {"role": "assistant", "content": "By the time they reach the ages of 30–34 in 2021, half of this group will likely head households."}]}
{"messages": [{"role": "user", "content": "Even so, millennials are not forming households at the same rates as past generations at the same ages. In fact, household headship rates among young adults are still declining, albeit more slowly than after the recession. Indeed, 26 percent of adults aged 25–34 were living with parents or other relatives in 2017, while 9 percent were doubling up with non-family members—both shares all-time highs. Still, population growth among young adults has outweighed relatively low headship rates, lifting new household formations and overall household growth. The aging of the US population has also boosted the number of older households because the baby-boom generation is so much larger than the preceding generation. Eight years after the oldest baby boomers hit 65, younger members of that generation are now turning 65 at a rate of 3.6 million a year. In the past 10 years alone, the number of older households grew by over 7 million, rising from one in five households to one in four. By 2035, one out of every three households will be at least 65 years old. Although wealth is growing, homeowners and those at the top have captured most of the gains, and millions of households have little or no wealth. Going forward, immigration will become an increasingly large, albeit unpredictable, source of population growth and therefore housing demand. THE STATE OF THE NATION’S HOUSING THE IMPORTANCE OF IMMIGRATION TO HOUSING As a major source of adult population growth, immigration has driv- en a significant share of US household growth over the past three decades. According to Census Bureau data, the number of foreign- born households more than doubled from 7.7 million in 1990 to 17.8 million in 2016, accounting for more than a third of the growth in households over that time. American Community Survey estimates show that the foreign-born share of household growth was even higher in 2006–2016, at 41 percent. Indeed, even given the Census Bureau’s new, lower projections of net immigration, the immigrant share of population growth will increase from 42 percent in 2018 to 67 percent in 2040. As the foreign-born share of population growth rises, so, too, will their share of household growth. Despite substantial gains at the low end of the income spectrum, the gap between rich and poor has widened. Average incomes for households in the bottom income quintile rose sharply in 2015–2016 but, at just $12,900 in inflation-adjusted terms, were still 5 percent below the previous peak in 2006 and 9 percent below the level in 2000. Meanwhile, average real incomes for households in the top quintile stood at in 2016, up 7 percent from the previous peak and 8 percent from the level in 2000. As a result, the average income of households in the top quintile was 16.6 times higher than the average income of households in the bottom quintile in 2016, compared with 14.0 times in 2000. In addition, the median wealth of white households in 2016 (was ten times higher than that of black households ($16,300) and eight times higher than that of Hispanic households ($21,400). Low minority homeownership rates are a factor, but the median net wealth of white homeowners was also roughly 2.5 times that of black and Hispanic owners. Moreover, home equity makes up a much larger share of household wealth for the average minor- ity homeowner, accounting for 56 percent among blacks, 65 percent among Hispanics, and 49 percent among all other minorities. By comparison, the share among white homeowners is just 38 percent. In sharp contrast, the median wealth of households age 65 and over was in 2016, fully 51 percent above the level in 1995. This increase has occurred despite a 19 percentage-point jump in the share of older owners carrying mortgage debt over this period, to 41 percent. In addition, the median amount of mortgage debt among these older owners was $72,000, more than double the inflation- adjusted average of $28,200 in 1995. GROWTH IN LOW-WEALTH HOUSEHOLDS With so much wealth accruing to so few, the number of US house- holds with little or no wealth is on the increase. After a modest rise in the 1990s and early 2000s, the number of households with less than $20,000 in wealth jumped during the last recession from 30.8 million in 2007 to 37.6 million in 2010. In 2016, after several years of economic recovery, 38.5 million households (31 percent of house- holds) had net wealth of less than $20,000, and 14.4 million of this group (11 percent of all households) had zero or negative wealth. THE STATE OF THE NATION’S HOUSING Minorities made up half of the nation’s low-wealth households in 2016, up from 39 percent in 1995. They also accounted for more than three-quarters of the growth in low-wealth households between 1995 and 2016. Indeed, as the number of minority house- holds increased over this long span, the shares with low wealth remained consistently high at 52 percent for blacks, 49 percent for Hispanics, and 30 percent for Asians and other minorities. Meanwhile, the share among whites also remained steady at a rela- tively low 22 percent. The numbers of working-aged households with little or no wealth are rising, particularly among adults approaching retirement—the time of life when wealth traditionally peaks. The number of 45–54 year olds with less than $20,000 in net wealth doubled from 3 mil- lion in 1995 to 6 million in 2016, while the number of 55–64 year olds with low wealth climbed from 2 million to 5 million. While population growth within these age groups accounts for some of this increase, the likelihood of having low wealth also increased. For example, the share of low-wealth households aged 45–54 rose from 17 percent to 26 percent over this period, while that of households aged 55–64 rose from 16 percent to 21 percent. Although the share did not increase, population growth alone pushed up the number of low-wealth households age 65 and over from 10 million in 1995 to 15 million in 2016. As younger cohorts move into this age group, how- ever, they will drive up both the number and share of retirement- age households with little financial cushion. With rising numbers of households with low incomes and little wealth, more people are living in poverty. Between 2000 and 2016, the population with below-poverty-level incomes grew by 28 per- cent (12.8 million). At the same time, the number of poor people living in high-poverty census tracts (with poverty rates of 20 percent or higher) rose by 41 percent or some 10 million. As a result, the share of the nation’s poor people living in high-poverty neighbor- hoods increased from 43 percent in 2000 to over half in 2016. The number of high-poverty census tracts in the United States also grew 53 percent from 13,400 to 20,600 over this period. HISTORIC LOW IN RESIDENTIAL MOBILITY The rate at which US households change residences has been declining for many years. According to the Current Population Survey, 11 percent of the population in 2017 moved to different homes within the preceding 12 months, down from 12 percent five years earlier and 13 percent in 2007. The American Community Survey also reported a 2 percentage-point decline in the mobility rate from 2006 to 2016. Although renters traditionally move more often than owners, their mobility rate has also dropped sharply, offsetting the impact of higher rentership rates. As a result, even though the number of people living in rental housing rose from 72.5 million in 1996 to 83.2 million in 2017, the number of renter-movers declined from 24.2 million to 17.9 million. The lower mobility rate among renters thus contributed 3.4 percentage points of the 5.3 percentage point decline in overall residential mobility. Resuming past trends, total net domestic migration to the Southeastern states of Florida, Georgia, and the Carolinas rebound- ed from a low of 86,000 in 2009 to in 2017. Meanwhile, domestic outflows from the Northeast and Midwest continued to increase in 2017. The three states with the largest net domestic outflows—California, Illinois, and New York—lost residents to domestic migration in 2017, more than double the net losses in 2011. Across age groups, interstate migration appears to have settled near the lows reached in 2010, with slight increases among millennials and baby boomers. The rate of domestic migration among 25–34 year olds rose modestly from 3.7 percent in 2010 to 4.0 percent in 2016, lifting the number of state-to-state movers from 1.5 million to 1.7 million. The number of domestic migrants in the 65-and-over age group rose even more, from to not only because of strong population growth within this age group, but also because of an increase in their rates of migration. At the county level, recent flows of domestic migrants are in keep- ing with long-term trends of urbanization and suburbanization. As a group, core counties of large metros consistently lost domestic migrants on net from 2010 to 2017, as did non-metro (rural) coun- ties. At the same time, non-core counties of large metros, as well as counties in medium-sized metros, continued to draw domestic migrants on net."}, {"role": "assistant", "content": "THE OUTLOOK Although the pace of household growth in 2017 still lagged long- term average rates, the outlook remains largely positive. With incomes and wealth rising, the growth and aging of the US popula- tion is expected to drive up household growth and therefore the demand for housing. Assuming that the current economic expan- sion continues, state-to-state migration should increase further, bringing new housing demand to different parts of the country."}]}
{"messages": [{"role": "user", "content": "1 / EXECUTIVE SUMMARY 1 JOINT CENTER FOR HOUSING STUDIES OF HARVARD UNIVERSITY CONTINUING SHORTFALL IN SUPPLY Just as the recent housing downturn was longer and deeper than any other since the Great Depression, the residential construction rebound has been slower. Since reaching bottom in 2011 at just new units, additions to the housing stock have grown at an average annual rate of just 10 percent. Despite these steady gains, completions and placements totaled only 1.2 million units last year—the lowest annual production, excluding 2008–2018, going back to 1982. The sluggish construction recovery is in part a response to persis­ tently weak household growth after the recession. On a three-year trailing basis, the number of net new households dropped below 1.0 million in 2008 and held below that mark for seven straight years, including a low of just in 2009. By comparison, even through the three recessions and large demographic shifts that occurred between 1980 and 2007, household growth still averaged 1.3 million annually and only dipped below 1.0 million once. With the economy finally back on track, household growth picked up to 1.2 million a year in 2016–2018, close to expected levels given the size and age composition of the population. As a result, the national vacancy rate for both owner-occupied and rental units fell again in 2018, to 4.4 percent, its lowest point since 1994. Although there have been brief periods when residential construc­ tion was similarly constrained, the duration of today’s tight condi­ tions is unprecedented. Since 1974, annual additions to the housing supply exceeded household growth by an average of 30 percent to accommodate replacement of older housing, additional demand for second homes, population shifts across markets, and some slack for normal vacancies. According to Joint Center for Housing Studies estimates, annual construction should now be on the order of 1.5 million units, or about higher than in 2018. Several factors may be contributing to the unusually slow construc­ tion recovery. For one, the housing boom in the early 2000s created an excess supply of homes. The vacancy rate for housing units for With the economy on sound footing and incomes ticking up, household growth has finally returned to a more normal pace. This rebound in homeownership comes amid worsening affordabil­ ity. In the wake of the recession, falling home prices and historically low interest rates produced the most affordable homeownership conditions in decades. After adjusting for inflation, the monthly pay­ ment on the median-priced home was just $1,176 in 2012—45 percent below the peak in 2006 and 36 percent below the level in 1990. Since then, interest rates have remained low but home prices have climbed steadily. Indeed, real prices were back within 2 percent of their 2006 peak at the end of 2018, according to the FHFA Home Price Index. As a result, the monthly payment on a median-priced home stood at $1,775 last year, just 3 percent below its 1990 level and within 17 percent of its 2006 high. Strong income gains among younger households helped to counter the increase, however, with median incomes of households aged 25–34 and 35–44 both growing more than 11 percent in real terms between 2013 and 2017. Notes: Household growth estimates are based on three-year trailing averages. Placements refer to newly built mobile homes placed for residential use. Source: JCHS tabulations of US Census Bureau, Housing Vacancy Surveys and New Residential Construction data. In the years ahead, demographic trends should support growing demand for homeownership as more members of the large mil­ lennial generation age into their 30s when homebuying peaks. According to the latest Joint Center projections, if age-specific homeownership rates remained at the same level as in 2018, household growth alone would add roughly 8.0 million home­ owners between 2018 and 2028. And if, consistent with recent trends, the overall homeownership rate rises by 1.6 percentage points from the 2018 level, growth in the number of homeowners could reach 10.1 million for the decade. At the same time, a rise in interest rates and home prices plus a tightening of credit, on top of the limited supply of entry-level housing, could put homeownership out of reach for many more households. The sensitivity of the market to changes in home­ buying conditions was evident at the end of 2018 when a jump in interest rates was followed by a slowdown in home sales. Although a retreat in interest rates in early 2019 helped to stabilize the mar­ ket, the near-term outlook for homeownership still depends on how trends in house prices, interest rates, household incomes, and credit availability affect affordability for first-time buyers. RENTAL MARKETS STEADY AMID SLACKENING DEMAND According to the Housing Vacancy Survey, the number of renter households fell again in 2018. Although down by just over two years, even this modest dip is in stark contrast to average annu­ al increases of nearly renter households in the preceding 12 years. The declines were widespread, with 31 states losing renters from 2015 to 2017. However, estimates show an uptick in early 2019, in keeping with Joint Center projections of about net new renter households annually over the coming decade. THE STATE OF THE NATION’S HOUSING 2019 4 Trends in rents and vacancy rates indicate that rental markets are still on solid footing. The Consumer Price Index indicates that over­ all rents rose at a 3.6 percent annual rate in early 2019, or twice the pace of overall inflation. Meanwhile, rents for professionally man­ aged apartments were up more than 3.0 percent in more than half of the 150 metros that RealPage tracks, with growth exceeding 5.0 percent in 25 of those markets. Low and falling vacancy rates are keeping the pressure on rents, with the national vacancy rate sliding from 7.2 percent in 2017 to 7.0 percent in the first quarter of 2019. Tightening occurred in all regions of the country and in about two- thirds of RealPage metros. These conditions seem somewhat at odds with the falloff in demand and the continued strength of rental construction. Indeed, rental completions were near a 30-year high at units last year, while starts rose 5.0 percent to units. But even as overall demand cooled, higher-income households kept up demand for new apartments. Indeed, even after adjusting for inflation, the number of renters earning at least $75,000 increased for eight consecutive years, rising by households in 2017–2018 alone and by some 4.6 million households since 2010. Changes in the rental stock have also offset some new construction, keeping absorptions in line with supply. Of the unit decline in rentals in 2017, most were single-family homes and apartments in two- to four-unit buildings that likely converted to owner occu­ pancy. Thus, even if homeownership rates continue to increase, low vacancy rates and shifts in the existing stock are likely to prevent a significant softening of rental markets. In fact, weaker overall rental demand could help to ease conditions at the low end. With most new construction targeting the high end of the market, there has been some potential for excess supply to filter down to lower rent levels. But with rental demand far outpacing additions to supply through 2016, this has not happened. In fact, reports that the vacancy rate for lower-quality rentals was only 4.8 percent at the beginning of 2019, down from 6.7 percent at the end of 2011. COST BURDENS IMPROVING OVERALL, BUT RENTERS STILL PINCHED The share of US households paying more than 30 percent of their incomes for housing, the standard definition of cost burdens, declined for the seventh straight year in 2017. The latest American Community Survey reports that the share of cost-burdened house­ holds inched down 0.5 percentage point to 31.5 percent—some 5.7 percentage points below the 2010 peak. The total number of cost- burdened households in the US also fell by 4.9 million in 2010–2017, to 37.8 million. Public concern about a rental affordability crisis has increased in many areas of the country as cost burdens have moved up the income scale. Households with incomes under $15,000 continue to have the highest burden rates, with 83 percent paying more than 30 percent of income for housing, including 72 percent paying more than 50 percent. The spread of renter cost burdens is most evident in expensive met­ ros such as Los Angeles, New York, San Francisco, and Seattle. In the nation’s 25 highest-rent markets, some 46 percent of renter house­ holds with incomes of $45,000–74,999 were cost burdened in 2017, Note: Contract rents are adjusted to 2017 dollars using the CPI-U for All Items Less Shelter. Source: JCHS tabulations of US Census Bureau, American Community Survey 1-Year Estimates. 5 JOINT CENTER FOR HOUSING STUDIES OF HARVARD UNIVERSITY compared with only 30 percent of same-income households across all 100 largest metros. Severe cost burdens are also more common in the 25 highest-rent markets, affecting 28 percent of renters with incomes of $30,000–44,999 and 7 percent of those with incomes of $45,000–74,999. The comparable shares across all 100 largest metros are substantially lower at 16 percent and 4 percent, respectively. HOMELESSNESS ON THE RISE IN HIGH-COST STATES There have been notable reductions in homelessness over the past decade. According to HUD’s annual point-in-time counts, the number of people experiencing homelessness fell by 87,000 from 2008 to 2018 and by some 38,000 in the last five of those years. This progress reflects an expansion of permanent sup­ portive housing and the widespread adoption of the “housing first” model that provides housing without preconditions for changes in behavior. The improvements have been most evi­ dent among populations that have received targeted efforts and resources—veterans, families, and the chronically homeless."}, {"role": "assistant", "content": "THE STATE OF THE NATION’S HOUSING 2019 6 These two large generations will propel growth in 35–44 year-olds and lift the number of older adults to new heights. The Joint Center projects that the number of households in their mid-30s to mid-40s will increase by 2.9 million over the decade, while those age 65 and over should grow by an astounding 11.1 million. Meanwhile, the number of 45–64 year-old households will fall by 1.9 million as the smaller gen-X generation (born 1965–1984) replaces the baby boom­ ers in this age range. If current housing supply trends persist, house prices and rents will continue to rise at a healthy clip, further limiting the hous­ ing options for many. To ensure that the market can produce homes that meet the diverse needs of the growing US popula­ tion, the public, private, and nonprofit sectors must address constraints on the development process. And for the millions of families and individuals that struggle to find housing that fits their budgets, much greater public efforts will be necessary to close the gap between what they can afford and the cost of producing decent housing."}]}
{"messages": [{"role": "user", "content": "2 / HOUSING MARKETS 7 JOINT CENTER FOR HOUSING STUDIES OF HARVARD UNIVERSITY Housing markets lost steam at the end of 2018 as interest rates rose and new construction, home sales, and price appreciation all slowed. But even as rates came back down in early 2019 and helped to stabilize markets, the national housing supply remained constrained by more than 10 years of historically low production levels. The tight supply of homes for sale is keeping the pressure on prices in much of the country, while high land prices, labor shortages, and restrictive land use policies limit development of moderate-cost housing. LATE-YEAR SLOWDOWN IN CONSTRUCTION Housing construction grew modestly for the year in 2018, with starts increasing 3.9 percent to 1.25 million units. The number of comple­ tions totaled 1.18 million, a gain of only 2.8 percent from 2017—the slowest annual growth rate since the recovery began in 2012. Until this cycle, single-family construction had been below current levels only once in the preceding 25 years. Moreover, single-family activity slowed sharply over the course of 2018, downshifting from an average of 6.2 percent year-over-year growth in the first nine months to 7.4 percent declines in the last three months. The slowdown continued in the first quarter of 2019. With the slow pace of single-family construction, real residential fixed investment (RFI) was down 0.3 percent in 2018. This was the first decline in RFI since 2011 and produced a slight drag on real GDP growth for the year. In addition, RFI accounted for only 3.9 percent of GDP, nearly a full percentage point lower than the annual aver­ age from 1987 to 2006. In fact, RFI’s share was lower only once in the 20-year period preceding the housing bust. Similarly, the 3.2 percent real increase in residential construction spending was the smallest gain since 2011. Combining Census Bureau estimates of the value of single-family and multifamily con­ struction and Joint Center estimates of homeowner improvement and repair spending, construction spending totaled $658 billion in 2018. Single-family construction accounted for just 43 percent of this amount, well below the 57 percent share averaged in 1995– 2006. In contrast, homeowner improvement and repair spending drove 48 percent of construction outlays last year, compared with 36 percent on average before the housing downturn. However, compared with annual averages in 1980–2016, pro­ duction of single-family homes was down 13 percent nation­ ally and in every region of the country last year, but especially in the Northeast (off 40 percent) and Midwest (off 35 percent). Construction levels were only 6 percent lower in the West and 2 percent lower in the South. In contrast, multifamily construction was significantly above long-run averages in the West (up 19 per­ cent) and the Northeast (up 18 percent), and more modestly in the South (up 7 percent). In the Midwest, however, multifamily starts were 14 percent below historical averages. In eight of the 50 metros, the growth in households exceeded the number of housing permits. San Francisco topped the list with only 79 permits issued for every 100 net new households, followed by San Antonio (80), Boston (82), Sacramento (88), Columbus (89), San Diego (94), Denver (97), and Phoenix (99). Vacancy rates in these markets fell about 2 percentage points on average over the decade, exacer­ bating already tight conditions in some areas. LIMITED SUPPLY OF NEW MODEST-COST HOUSING With millions of millennials moving into their prime homebuying years, demand for smaller, more affordable homes seems poised for a surge. So far, however, construction of modest-sized single-family homes has been particularly weak. Despite increases in 2017, small homes under 1,800 square feet represented just 22 percent of single- family completions, down from 32 percent on average in 1999–2011. Indeed, completions of large homes with more than 3,000 square feet outnumbered those of small homes for the first time in 2013 and have continued to do so for five straight years. The median sales price for small homes was in 2017, less than half the price for large homes. Construction of multifamily condominiums and co-operatives also held near post-recession lows last year, with completions of just 27,000 units. Moreover, many condos are even more expensive than single-family homes because of their locations, with a median ask­ ing price of for units completed in 2017. At the same time, construction of townhomes (attached single-family units) rose sig­ nificantly over the past year, up 8 percent to units—nearly double the level in 2011. Again, though, the number of new town­ homes was still well below levels in the early 2000s. CONSTRAINTS ON NEW DEVELOPMENT High land prices are one explanation for the lack of middle-market housing. Land costs rise when demand is strong and land use regulations limit the number of new units that can be built and/or impose significant costs on developers through fees and protracted approvals. According to Joint Center analyses of the Federal Housing Finance Agency (FHFA) data, the median price per acre of residen­ Note: Housing starts are based on 12-month trailing averages. Source: JCHS tabulations of US Census Bureau, New Residential Construction data. In addition to rising land costs, labor shortages are a growing concern for housing developers. According to the latest National Association of Home Builders survey, 82 percent of respondents expect the cost and availability of workers will be among the most significant problems they face in 2019. On a 12-month rolling basis, the number of construction job openings topped at the end of 2018, up 39 percent from a year earlier. With no discernible uptick in hiring, the unemployment rate for the industry fell from 6.0 percent in 2017 to 5.1 percent in 2018, its lowest level since at least 2000. FOR-SALE INVENTORIES ON THE RISE Home sales slowed last year after several years of moderate but steady growth. About 5.3 million existing homes were sold in 2018, down from 5.5 million in 2017. Sales of existing single-family homes fell 3.1 percent, to 4.7 million units, while sales of condos and co-ops dipped 2.9 percent, to units. New single-family home sales rose to units, or by just 0.7 percent in 2018—a fraction of the 12.0 percent gains averaged over the previous three years. Sales rose 5.6 percent in the Midwest and 2.7 percent in the South, partially offsetting the 20.0 percent drop in the Northeast and 1.8 percent decline in the West. The slowdown reflects a shift in consumer confidence in the face of rising interest rates and a sharp stock market drop at the end of 2018. According to the University of Michigan Survey of Consumers, 32 percent of respondents thought that homebuying conditions were bad in the fourth quarter of 2018, up 5 percentage points from a year earlier and the highest levels since 2008. Sentiment was essentially unchanged in the first quarter of 2019, even after inter­ est rates retreated. In fact, the number of existing single-family homes for sale never fell below its current level between 1982 and 2016. Tight inventories pushed the vacancy rate for the owner-occupied stock down again last year to just 1.5 percent, the lowest rate since the mid-1990s. At the same time, however, the inventory of newly built homes for sale was up 18 percent year-over-year at the end of 2018, to units. With sales slowing, the average months of supply of new homes was 6.1 through 2018, up from 5.4 in 2017 and the highest level since 2011. Although inventories declined somewhat in early 2019, the supply of newly built homes is still in line with or above average levels in the 1980s and 1990s. According to Joint Center tabulations of Zillow data, 46 percent of the for-sale inventory at year’s end was in the top third of homes by value within each market, while 31 percent was in the middle tier and only 23 percent was in the bottom tier. However, supplies of more affordable units may be turning a corner. After declining for four straight years, the number of homes for sale in the bottom and middle price tiers increased by 4 percent, while supply in the top tier continued to fall by 4 percent. Notes: Months of supply are based on three-month trailing averages for single-family homes only. Months of supply measure how long it would take the number of homes on the market to sell at the current rate, where six months is typically considered a balanced market. Sources: JCHS tabulations of NAR, Existing Home Sales; US Census Bureau, New Residential Sales. 11 JOINT CENTER FOR HOUSING STUDIES OF HARVARD UNIVERSITY MODERATION IN HOME PRICE GROWTH According to the FHFA All-Transactions Home Price Index, year- over-year home price growth slowed nationwide from 6.9 percent on average in the first three quarters of 2018 to 6.0 percent in the last quarter. The S&P/Case-Shiller National Home Price Index shows an even sharper slowdown, with price increases falling from a high of 6.5 percent in early 2018 to 4.6 percent in December, and then to 4.0 percent in early 2019. Nevertheless, home prices have risen year-over-year for more than 80 consecutive months. Nominal prices climbed 5.9 percent in 2018 as a whole, slightly faster than in 2016 and 2017. At the end of last year, nominal home prices stood 11.0 percent above the 2006 peak, 53.0 percent above the 2012 bottom, and 105.0 percent above the 2000 level. In inflation-adjusted terms, however, home price appre­ ciation slowed from 4.9 percent to 3.8 percent in 2016–2018. As a result, real prices were 7.6 percent below the pre-crisis high at year end, but up 45.8 percent from the bottom and 44.4 percent from the level in 2000. Home price growth decelerated in nearly two-thirds of the nation’s 120 largest metro areas and divisions at the end of 2018, compared with a little over a quarter of markets a year earlier. In the nation’s 10 most expensive housing markets, year-over-year home price appreciation slowed from 8.0 percent in the fourth quarter of 2017 to 6.7 percent at the end of 2018. Prices in these markets rose only 4.9 percent in early 2019. Price growth eased the most in Seattle, where appreciation fell from 14.4 percent at the end of 2017 to 6.8 percent at the end of 2018. Other high-cost metros where home price increases slowed include Sacramento (from 10.2 percent to 6.4 percent), New York (6.3 percent to 4.8 percent), and Los Angeles (8.5 percent to 7.6 percent). PERSISTENT AFFORDABILITY CHALLENGES Slower home price appreciation did little to improve affordabil­ ity. Prices for lowest-cost homes rose the fastest again last year. According to CoreLogic, prices for more affordable homes (priced at or below 75 percent of the metro area median) rose 6.9 percent on average in the last quarter of the year—nearly double the rate for more expensive homes (priced at or above 125 percent of the metro area median). The National Association of Realtors reports that the median sales price of existing single-family homes rose from in 2017 to Notes: The 10 lowest- (highest-) cost metros are in the bottom (top) decile of the 100 largest metros for median home values in 2018, based on Zillow estimates. Non-metro prices are weighted averages of all state non-metro prices, with each state's value weighted by the share of detached single-family homes. Sources: JCHS tabulations of FHFA, All-Transactions House Price Index; Zillow median home values. THE STATE OF THE NATION’S HOUSING in 2018 after adjusting for inflation, outpacing growth in the median household income for the seventh straight year. Home price-to-income ratios, a key measure of affordability, indicate whether household incomes are in line with home values. In 2018, the national median sales price for an existing home in 2018 was more than 4.1 times the median household income—somewhat higher than the 3.7 ratio averaged in 1990–2018. Although low inter­ est rates have kept monthly costs relatively manageable in many markets, buyers of higher-priced homes must have substantial incomes to cover downpayment and closing costs. 3 / DEMOGRAPHIC DRIVERS 13 JOINT CENTER FOR HOUSING STUDIES OF HARVARD UNIVERSITY PICKUP IN HOUSEHOLD GROWTH All three Census Bureau surveys that provide household growth esti­ mates point to an upturn. The Housing Vacancy Survey (HVS) puts the increase in the number of households in 2017–2018 at 1.5 million, while the Current Population Survey reports similarly strong growth of 1.4 million. Meanwhile, the American Community Survey shows a solid 1.2 million increase in 2017. THE ROLE OF MILLENNIALS Millennials, the largest generation in history, are moving steadily into their mid-20s and early 30s—the age groups most likely to Supported by rising incomes, household growth is now back to levels more in keeping with adult population growth. Even so, high housing costs have prevented many young adults from living on their own, especially in expensive metros. Growing income inequality is another serious drag on household formations. Over the next decade, the fastest- growing household types will be younger families and older empty-nesters—households with very different housing needs. The growing share of foreign-born households will also add to the increasing diversity of demand. THE STATE OF THE NATION’S HOUSING form new households. Measured as a three-year moving average, the US population aged 25–34 grew by 14.7 percent in 2002–2018 to a record high of 45.3 million, while households headed by someone in this age group increased by just 1.3 million (7.1 percent) over this period—about half the number that population growth alone would imply."}, {"role": "assistant", "content": "Their record-low headship rates put millennials on a much lower trajectory for forming independent households than previous gen­ erations. The question remains whether they will continue along this lower path as they age. If history is any guide, though, head­ ship rates of generations that have been slow to form households eventually catch up to those of their predecessors by age 40. What is different today, however, is that housing in many areas has become so expensive."}]}
{"messages": [{"role": "user", "content": "THE HOUSING AFFORDABILITY BARRIER Although down across the country, household formation rates for young adults have fallen the most in the nation’s highest-cost mar­ kets. Between 2006 and 2017, headship rates for 25–29 year olds—the age group hardest hit by the Great Recession—dropped 9.1 percent­ age points in the 25 largest metros with the highest rents, but just –2028 Projected Annual Average Note: Household growth estimates are three-year trailing averages. Sources: JCHS tabulations of US Census Bureau, Housing Vacancy Surveys; JCHS 2018 Household Projections. Source: JCHS tabulations of US Census Bureau, Housing Vacancy Surveys and National Population Estimates. THE STATE OF THE NATION’S HOUSING In sharp contrast, the average incomes of households in the bottom quartile have improved relatively little during the recent recovery— up just 8.0 percent in real terms from the 2014 low, compared with 12.1 percent among households in the top income quartile. Given this disparity in growth and the fact that bottom-quartile incomes fell more than top-quartile incomes during the downturn, the gap between high- and low-income households continued to widen. Adjusting for inflation, the average income in the top quartile rose 38.5 percent between 1987 and 2017, while the average income in the bottom quartile increased just 2.3 percent. Over the three decades, the average top-quartile income therefore increased from 9.2 times the average bottom-quartile income to 12.4 times. Immigrants are a major source of household growth and therefore of housing demand. Despite making up only 13.7 percent of the population in 2017, foreign-born households were responsible for 37 percent of household growth from 1990 to 2017. The immigrant share of homeowners increased from 7 percent to 12 percent over this period, while the immigrant share of renters increased from 12 percent to 20 percent. As the native-born population ages over the coming decades, the number of deaths will rise faster than births and increasingly cut into adult population growth. Immigrants will therefore pro­ pel a larger and larger share of both population and household growth in the years ahead. Even assuming that immigration is unchanged, the foreign born are projected to account for a major­ ity of household growth in 2018–2028 and a majority of popula­ tion growth by 2030. THE ADDED IMPACT OF DOMESTIC MIGRATION ON GROWTH According to the American Community Survey, 7.5 million people made interstate moves in 2017, slightly higher than the 7.2 million annual average from 2010–2017. The number of households making those interstate moves totaled 2.5 million, also slightly above recent annual averages. Like international immigration, domestic migration can contribute significantly to household growth in certain markets. Indeed, on average, interstate migrants accounted for at least half of household growth in six of the nation’s ten highest-growth states in 2010–2017, with shares reaching as high as 63 percent in Colorado and 82 per­ cent in Arizona. THE STATE OF THE NATION’S HOUSING Roughly 80 percent of all moves in a given year are in-state. According to the American Community Survey, the local mobil­ ity rate slipped from 11.5 percent in 2016 to 11.3 percent in 2017 because of fewer in-state moves by renters, who make up the majority of domestic migrants. The population living in rental housing that reported a local move within the previous year fell slightly from 24.8 percent in 2016 to 24.1 percent in 2017. Meanwhile, the domestic mobility rates of people living in owner- occupied housing increased modestly from 7.8 percent to 8.0 per­ cent over the year. Population aging explains some of the slowdown in domestic migra­ tion over the last 20 years, given that older adults are more likely to own homes and less likely to move. However, domestic mobility rates have dropped across all age groups, and particularly among young adults and renters. Moreover, despite relatively low mobility rates, older adults now account for a growing number of domestic migrants. Because of the strong growth in the population age 65 and over, the number of older-adult movers increased from 1.5 million in 1998 to 1.8 million in 2018, raising their share of all movers age 18 and over from 4.9 percent to 7.4 percent over the decade. THE OUTLOOK The latest JCHS projections, incorporating Census Bureau data through 2018, put average annual household growth in 2018–2028 at 1.2 million households, in line with recent averages. Some 2.9 million millennial households will move into the 35–44 year- old age group, contributing to the 1.6 million increase in the number of married couples with children and driving up demand for family housing. Factoring in replacement and second-home demand plus a minimum vacancy rate, these household growth projections imply baseline demand for new housing of 15.1 mil­ lion units in 2018–2028. The rebound in homeownership reflects a substantial pickup in homeowner household growth and a slowdown in renter household growth. According to the Housing Vacancy Survey, the number of homeowner households was up by 1.6 million in 2017–2018 to a total of 78.2 million, while the number of renters fell by to 43.2 million. PRICE PRESSURES ON POTENTIAL BUYERS According to the FHFA Purchase-Only House Price Index, nominal home prices climbed 5.7 percent last year on average, or 3.9 percent in real terms. With this increase, real home prices were up 41 per­ cent from 2011 to 2018 and stood within 2 percent of the 2006 peak. The median price for homes in the lowest tier continued to rise more rapidly than those for higher-cost units last year. Note: Change in owner households is the year-over-year change in the number of homeowner households. Source: JCHS tabulations of US Census Bureau, Housing Vacancy Surveys. 21 JOINT CENTER FOR HOUSING STUDIES OF HARVARD UNIVERSITY The National Association of Realtors reports that the real median sales price of an existing home hit in 2018, up from in 2011. Adding to affordability pressures, the average rate on a 30-year fixed-rate mortgage also rose 55 basis points last year, to 4.54 percent—higher than any annual reading since 2010. MIXED SIGNALS ON CREDIT CONDITIONS The credit environment for potential homebuyers in 2018 was mixed, with borrower credit scores and loan-to-value ratios indicating stable and tight conditions, but debt-to-income ratios pointing to some eas­ ing. According to the Federal Reserve Bank of New York, the median credit score for new mortgage originations was 758 in the fourth quar­ ter of 2018, within the 750–765 range where it has held since 2014, although well above the 720 median at the end of 2005 and 715 at the end of 2000. The bottom decile credit score hovered between 640 and 660 throughout 2014–2018, still significantly higher than the 597 level at the end of 2005 and 574 at the end of 2000. The median loan-to- value ratio for purchase originations has also been largely stable in the post-crisis period, remaining near 95 percent at the end of 2018. Notes: House prices, household income, and monthly homeowner costs are adjusted to 2018 dollars using the CPI-U for All Items Less Shelter. Monthly homeowner costs assume a 3.5% downpayment on a median-priced, existing single-family home, condo, or co-op, with property taxes of 1.15%, property insurance of 0.35%, and mortgage insurance of 0.85%. Sources: JCHS tabulations of NAR, Existing Home Sales; US Census Bureau, Current Population Surveys; Moody’s Analytics Forecasts; Freddie Mac, Primary Mortgage Market Surveys (PMMS) data. 23 JOINT CENTER FOR HOUSING STUDIES OF HARVARD UNIVERSITY Qualifying for one of these mortgage products, however, remains an obstacle for many potential homebuyers. According to the Survey of Consumer Expectations, 67 percent of renters in 2018 would prefer or strongly prefer to own homes, compared with 19 percent who would prefer or strongly prefer to rent. But 68 percent of renters also thought that it would be somewhat or very difficult to obtain a mortgage last year, while just 17 percent thought it would be some­ what or very easy. For those who do qualify for mortgages, navigating the home purchase process can also be a challenge. The National Survey of Mortgage Originations found that while 77 percent of buyers that purchased homes in 2016 were very satisfied with their mortgage lenders, 28 percent were only somewhat or not at all satisfied that they received the lowest interest rate they could qualify for, and 45 percent were only somewhat or not at all satisfied that they paid the lowest possible closing costs. Moreover, significant numbers of respondents reported issues with the closing process. Fully 15 per­ cent said that they faced an “unpleasant surprise” such as having the closing rescheduled, needing more cash than expected, having mortgage terms change, or being asked to sign blank documents. STRONG GROWTH IN HOME EQUITY BUT NOT EXTRACTIONS Fueled by rapidly rising home prices and modest increases in mort­ gage debt, the aggregate value of home equity more than doubled between 2011 and 2018. According to the Federal Reserve’s Flow Notes: Median incomes are estimated at the core-based statistical area (CBSA) level. Only CBSAs with at least 30 home sales in 2017 are shown. Recently sold homes are defined as homes whose owners moved within the 12 months prior to the survey date. Monthly payments assume a downpayment of 3.5%, property taxes of 1.15%, property insurance of 0.35%, and mortgage insurance of 0.85%. Affordable payments are defined as requiring less than 31% of monthly household income. Sources: JCHS tabulations of US Census Bureau, 2017 American Community Survey 1-Year Estimates; Freddie Mac, PMMS data. THE STATE OF THE NATION’S HOUSING of Funds data, the total value of home equity held by households jumped from $7.0 trillion to $15.5 trillion over this period after adjusting for inflation."}, {"role": "assistant", "content": "THE OUTLOOK Although homeownership demand increased in 2018, the latest estimates show a reversal in the first quarter of 2019, underscoring the uncertain trajectory of the homeownership rate. In the near term, the strength of homebuying will likely depend on home prices and the direction of changes in employment, incomes, and interest rates. Over the longer term, though, homeownership trends will be shaped by a larger set of factors related to affordability, household demographics, tax law and the mortgage finance system, and the supply of homes for sale."}]}
{"messages": [{"role": "user", "content": "JCHS projections suggest that, at current homeownership rates, population growth alone will add about 8.0 million households to the ranks of homeowners in 2018–2028."}, {"role": "assistant", "content": "Over the decade, the aging of the baby-boom generation is expected to boost the number of homeowners age 65 and over by some 8.4 million, lifting their share of all homeowners to 38.1 percent. Meanwhile, members of the millennial generation will drive up the number of homeowner households aged 30–49 by just under 1.9 million, to 30.2 percent. In contrast, the aging of generation-X will reduce the number of homeowners aged 50–64 by 2.1 million, to a share of 27.1 percent. These broad demographic shifts will bring substantial changes in the housing needs and preferences of homeowners that could, in turn, alter the configuration of the owner-occupied stock."}]}
{"messages": [{"role": "user", "content": "5 / RENTAL HOUSING 25 JOINT CENTER FOR HOUSING STUDIES OF HARVARD UNIVERSITY MODEST DECREASE IN RENTER HOUSEHOLDS All three major annual household surveys show a decline in renter households, although the size of the decrease varies. By the Current Population Survey’s measure, the num­ ber of renter households fell by in 2017–2018, while the Housing Vacancy Survey puts the decline at with a slight rebound in the first quarter of 2019. Although a year behind, the lat­ est American Community Survey also shows a drop of about renter households in 2016–2017. Despite the overall decline in renter households, there was strong growth in the numbers of older and higher-income households that now rent their housing. According to the Current Population Survey, the number of renter households headed by a person age 55 and over rose by about in 2018, following gains of on average in the prior two years. With these increases, older households now make up more than a quarter of renters. Households under age 35, however, still account for the largest share of renters at 38 percent. Rental markets are basically stable despite the upturn in homeownership. Demand from higher-income households is still on the rise, and construction of rental housing picked up again last year after a slight dip. Low vacancy rates across the board are pushing up the prices of multifamily properties, while also keeping the pressure on rents. According to the Survey of Construction, 53 percent of new multi­ family rentals completed in 2017 were in properties with at least 50 units, while only 6 percent were in buildings with less than 10 units. Many newly completed apartments offer added amenities. For example, 71 percent of the units that came on the market in 2017 had access to an on-site swimming pool and almost 90 percent had in-unit laundry. Although the number of renter households declined in 2018, demand for newly constructed units remained steady with the growth in higher-income households. According to the Survey of Market Absorption, 79 percent of apartments completed in 2017 were rented before the second half of 2018—on par with absorp­ tion rates in the early 2000s before the housing market downturn. At the regional level, demand early this year modestly exceeded new supply in the Northeast and Midwest, while supply essentially matched demand in the South and West. Source: JCHS tabulations of US Census Bureau, Housing Vacancy Surveys. Single-family rentals accounted for the largest losses, falling by more than units in 2017. Even with this sizable decline, though, single-family homes still make up about a third of the national rental stock, or about 15.8 million units. Moreover, since most of these lost single-family rentals were built between 2000 and 2009, it is likely that they were converted to owner occupancy rather than permanently removed from the housing stock. Just under half of the lost single-family rental units were in the South, where sin­ gle-family homes make up 38 percent of the rental stock. Although the number of single-family rentals increased in the Northeast in 2017, single-family homes still represent only a fifth of the region’s rental supply. While rental losses have been concentrated in smaller structures, new construction has continued to add units in larger buildings. The number of rentals in buildings with 20 or more apartments rose by from 2016 to 2017, with just over half of these additions in buildings with at least 50 apartments. While somewhat smaller than in previous years, the increase in rental units in buildings with 20 or more units in 2016–2017 was the fourth annual net gain in a row, bringing total additions from 2013 to 2017 in larger buildings to more than 1 million apartments. CONTINUING TIGHTNESS OF RENTAL MARKETS Rents nationwide continued to climb in 2018, up 3.6 percent for the year according to the Consumer Price Index. While this was a slight deceleration from 3.8 percent in 2017, rent growth picked up pace again in the first months of 2019. Year-over-year rent growth hit 3.8 percent in April, more than double the rate of inflation for other items. RealPage data for multifamily apartments in 150 metros also show an acceleration, with nominal rent growth increasing from 2.6 percent in the first quarter of 2018 to 3.3 percent in the first quarter of 2019. Meanwhile, CoreLogic data indicate that rent growth for single-family units increased from 2.7 percent in January 2018 to 3.2 percent in January 2019. RealPage data also show that rents for multifamily units are rising fastest in the West, where year-over-year growth climbed from 3.5 percent at the beginning of 2018 to 3.7 percent in the first quarter of 2019. Rents were also up 3.2 percent in the South in early 2019, but less than 3.0 percent in the Midwest and Northeast. Rent growth in all segments of the market continued in early 2019. With demand from higher-income households increasing, rent growth for higher-quality properties (with a rating of four or five stars) rose from 2.1 percent at the beginning of 2018 to 2.9 percent at the beginning of this year. At the same time, rent increases for lower-quality properties (with a rating of one or two stars) slowed slightly from 3.2 percent to 3.0 percent over this period. This is the weakest growth in that segment in the last four years, coinciding with the drop in the number of lowest-income renter households. Nevertheless, the persistent rise in rents for lower-quality units remains a cause for concern. Low vacancy rates have kept the pressure on rents. The Housing Vacancy Survey reports a further decline in the annualized rental vacancy rate from 7.2 percent in the first quarter of 2018 to 6.9 percent in 2019. Annualized vacancy rates are lowest in the West (4.8 percent) and the Northeast (5.3 percent), although tightening is evident across all regions. In addition, rental vacancies in 94 of the 150 metros tracked by RealPage fell from the beginning of 2018 to the beginning of 2019. Note: Change in occupied apartments, or net unit absorptions, is the change in physically occupied units from one period to the next. Source: RealPage data. Rates for ’s top-ranked properties declined through 2018 to 8.6 per­ cent at the beginning of 2019 after several years of softening. At the same time, the rate for lower-quality properties fell from 5.0 percent in the first quarter of 2018 to just 4.8 percent in the first quarter of 2019, while that for moderate-quality properties edged down from 5.6 percent to 5.4 percent. The Housing Vacancy Survey also shows a year-over-year decline in single-family rental vacancies from 6.2 percent to 5.8 percent in the first quarter of 2019. HEALTHY RENTAL PROPERTY PERFORMANCE With steady rent gains and low vacancy rates, net operating incomes for multifamily properties remained strong in 2018. The National Council of Real Estate Investment Fiduciaries reports that annualized growth of net operating income jumped from 3.4 per­ cent in the first quarter of 2018 to 7.5 percent in the first quarter of 2019. At the same time, National Apartment Association data show a 2.1 percent nominal rise in operating expenses and an 11.3 percent increase in capital expenditures. As a result, annualized returns on investment held steady at 5.9 percent in early 2019— well below the 10.4 percent average in 2013–2016 but still far out­ stripping overall inflation. According to the Real Capital Analytics Commercial Property Price Index, apartment prices cooled at the end of 2018 but still posted year-over-year growth of 9.0 percent. Growth in rental property prices continued to slow through the beginning of 2019, but prices were still up 7.1 percent year-over-year in April. The Northeast was the only region where nominal property prices lost ground last year, declining 3.3 percent after averaging 11.6 percent fourth-quarter to fourth-quarter growth for the previous three years. Nationally, prices rose the most for properties in car-depen­ dent suburbs and for garden-style apartment buildings. data include market-rate apartments in buildings with five or more units. Housing Vacancy Survey data include all apartments in buildings with five or more units. Vacancy rates are smoothed four-quarter trailing averages. Source: JCHS tabulations of US Census Bureau, Housing Vacancy Surveys, and data. 29 JOINT CENTER FOR HOUSING STUDIES OF HARVARD UNIVERSITY cent year-over-year at the end of 2018, indicating that growth in net operating incomes did not offset the rise in prices. Declines in all 13 metros covered by the index suggest that conditions are becoming less favorable for new multifamily investors."}, {"role": "assistant", "content": "The capitalization rate, or annual net operating income divided by property price or value, is an indicator of the rate of return inves­ tors can expect over one year. According to Real Capital Analytics, cap rates were largely unchanged from 2017, but stood at just 5.4 percent in the last quarter of 2018—their lowest point in a decade. Meanwhile, data indicate that cap rates averaged 5.0 percent for their highest-rated multifamily units in the first quarter of 2019 and 5.4 percent for mid- and lower-quality units. Across all property classes, cap rates are lowest in top-tier markets such as Boston, Los Angeles, and New York, and highest in bottom-tier markets such as Cleveland, Memphis, and Oklahoma City."}]}
{"messages": [{"role": "user", "content": "Rising property prices have not slowed transactions, however. Real Capital Analytics reports 9 percent year-over-year growth in apart­ ment transaction volumes in the fourth quarter of 2018, following a slight dip in 2017. The mid- and high-rise segment led in deal vol­ ume with a 34 percent annual increase, while the garden apartment segment posted a relatively weak 2 percent uptick. Dallas and Los Angeles had the highest sales volumes in 2018, with transactions totaling more than $9.2 billion each. Access to financing has been critical to these property purchases. The Mortgage Bankers Association Originations Index, which tracks origination volumes for multifamily properties, increased 32 per­ cent year-over-year at the end of 2018—double the pace at the end of 2017. Multifamily mortgage debt outstanding was at a decade- long high of $1.4 trillion. With returns holding steady, delinquencies for multifamily debt last year were at their lowest level since the Federal Deposit Insurance Corporation began reporting these data in 1991. The noncurrent rate was just 0.14 percent in 2018, almost a full percentage point lower than in 2013."}, {"role": "assistant", "content": "Multifamily financing activity will likely remain stable this year, although credit conditions may tighten. A moderate net share of banks responding to the Federal Reserve’s Senior Loan Officer Opinion Survey reported tightening lending standards. At the same time, a small net share of respondents also noted weakening demand for multifamily lending."}]}
{"messages": [{"role": "user", "content": "For lowest-income renter households, however, conditions have barely improved since 2011. More than four-fifths of households with incomes under $25,000 were at least moderately cost burdened in 2019, including 62 percent paying more than half their incomes for housing. The economic fallout from the COVID-19 pandemic has amplified the rental affordability crisis. According to the Census Bureau’s Household Pulse Survey for late September, renters earning less than $25,000 a year were much more likely to report lost employment income since the March shutdown. Indeed, more than half (52 percent) of lowest-income renters lost wages during this period, compared with 41 percent of all households. Not surprisingly, about one in five renters earning less than $25,000 also said they were behind on rent, compared with 15 percent of all renters and just 7 percent of renters earning more than $75,000. 2 T H E S T A T E O F T H E N A T I O N ’ S H O U S I N G 2 0 2 0 According to the Pew Research Center, the share of adults aged 18–29 living with their parents climbed to 52 percent in July 2020, up from 46 percent at the start of the year and the highest level since the Great Depression. While many of these young adults may move to their own homes as the economy reopens further, some share of this group will remain out of the rental market either out of choice or necessity. Softening demand has been accompanied by a steady flow of new supply. data for 12.6 million professionally managed apart­ ments put the vacancy rate at 7.0 percent in the third quarter of 2020—the highest level since 2010. The sharpest rise was in the higher-quality segment, up 1.9 percentage points from a year earlier, to 10.5 percent. The increases are widespread, with RealPage report­ ing higher vacancies in 93 of the 150 markets they survey. finds that rents were down just 0.6 percent nation­ wide in the third quarter of 2020, but this decline represents a sharp reversal from the 2.8 percent gains averaged in 2019. With vacancy rates rising, the higher-quality segment has seen the largest drop in rents, off 2.2 percent. RealPage data indicate that third-quarter rents declined in 51 of the metros surveyed—six times the number a year earlier. But if the rental market is at a turning point, relatively tight supply com­ ing into the pandemic may prevent a steep downturn. In fact, market conditions appear to be relatively strong as apartment property prices Note: Apartment quality is based on the Building Rating System for professionally managed market-rate apartments in buildings with five or more units. Source: JCHS tabulations of data. Federal support provided through the CARES Act—including enhanced unemployment benefits, stimulus payments, and fund­ ing for state and local relief efforts—did manage to keep many renters afloat. The overall economy has also recovered to some degree, with the unemployment rate dropping from 14.7 percent in April to 6.9 percent in October. So far, state and federal mora­ toriums have slowed evictions, but without additional federal aid, many households that have missed payments may be unable to cover their back rents. UNCERTAIN DIRECTION OF THE RENTAL MARKET Even before the pandemic derailed the economy, rental housing demand had slowed as the millennials (born 1985–2004) moved into their prime homebuying years. The number of renter households fell in 2017 and 2018 before rebounding by in 2019, leaving their numbers essentially unchanged from 2016. However, the number of renters with higher incomes did continue to rise over this period, buoying the apartment market despite slackening demand overall. 3 J O I N T C E N T E R F O R H O U S I N G S T U D I E S O F H A R V A R D U N I V E R S I T Y continue to rise. According to Real Capital Analytics, prices increased at an 8.8 percent annual rate over the 12 months ending in September 2020, down only slightly from the 9.5 percent rate a year earlier. Moreover, construction of multifamily housing began 2020 well above the year-earlier pace. Although starts fell sharply during the spring lockdown, they made a quick and strong comeback. This lifted year-to-date starts in September above those in the same period in 2019, which was already the strongest year for multifamily construction in three decades. However, given the lengthy develop­ ment process, a falloff in multifamily volumes would lag any drop in demand for new rentals. One indication that multifamily construc­ tion is in fact headed for a slowdown is that permitting activity was down 10 percent from year-earlier levels through September. For many of these homeowners, the income losses come on top of cost burdens, leaving them struggling to pay their mortgages once the shutdown started. Among owners earning less than $25,000 annually, 69 percent were cost burdened going into the pandemic. Homeowners of color at this income level were also 5–10 percentage points more likely to have cost burdens than white homeowners. Once the pandemic hit and the economy shut down, however, homebuying came to an abrupt halt. New home sales were down 14 percent year over year in April and existing home sales were off 27 percent in May. At their present pace, sales of both new and existing homes are likely to exceed 2019 levels this year. Meanwhile, single-family construction started the year at its fastest pace since the Great Recession, running above a unit annual rate. Like home sales, though, single-family starts fell sharply in April, dipping below units before making a rapid recovery. Still, the supply of homes for sale has not kept up with demand, shrinking already tight inventories. Only 1.47 million existing homes were on the market in September, representing a 2.7 months sup­ New Home Sales Existing Home Sales Jan Feb Mar Apr May Jun Jul Aug Sep Year-to-Date Jan–Sep Notes: Year-over-year changes are based on seasonally adjusted data, while the year-to-date changes are not seasonally adjusted. Recent monthly data are subject to revision. Source: JCHS tabulations of US Census Bureau, New Residential Sales; National Association of Realtors (NAR), Existing Home Sales. As it was, however, the share peaked at just 8.8 percent in June and fell steadily thereafter."}, {"role": "assistant", "content": "These federal initiatives do not, however, cover 14.6 million home­ owners with mortgages, although some lenders are extending simi­ lar safeguards to these borrowers. Another notable gap in protec­ tions is for the nearly three-quarters of owners of manufactured homes whose units are titled as personal property rather than real estate. Indeed, the Household Pulse Survey for late September shows that owners of manufactured homes are more likely to report lost income since March as well as to be behind on their housing payments."}]}
{"messages": [{"role": "user", "content": "As a result, people of color have far higher cost-burden rates and far lower homeownership rates than white households, and account for a disproportionately large share of the home­ less population. In 2019, some 43 percent of Black, 40 percent of Hispanic, and 32 percent of Asian households spent more than 30 percent of their incomes on housing, compared with 25 percent of white households. Although the higher rate of cost burdens among people of color in part reflects their generally lower incomes, disparities are evident even across households in the same income groups."}, {"role": "assistant", "content": "While high unemployment would normally be a significant head­ wind for the market, the combination of low inventories and low interest rates will likely keep upward pressure on home prices."}]}
{"messages": [{"role": "user", "content": "Moreover, lending standards have tightened. With all the uncer­ tainty in the economy, the Mortgage Bankers Association Mortgage Credit Availability Index declined by 34 percent from February to September this year, dipping to its lowest levels since 2014. This The housing affordability challenges facing people of color are also clear from their disproportionately high rates of homelessness. In 2019, Black people accounted for just under 13 percent of the US population but nearly 40 percent of people experiencing home­ lessness. A large disparity also exists among Native Americans and Alaskan Natives, who collectively made up 0.9 percent of the population but 3.2 percent of those experiencing homelessness. The National Housing Act of 1949 established the goal of a decent home in a suitable living environment for all. In the more than 70 years since this landmark legislation, the country has not come close to this ideal, at least in part because there is no coherent national housing policy. Instead, US housing policy is an amalgam of measures intended to address past priorities and market conditions, and generally created without regard for any overarching goal. 8 T H E S T A T E O F T H E N A T I O N ’ S H O U S I N G 2 0 2 0 After a year of healthy growth in home sales and new construction, housing markets stalled in mid-March 2020 with the COVID-19 outbreak. Since the summer, however, the rebound in both sales and construction has been surprisingly strong. Home prices have also continued their steady rise, propped up by the historically tight supply of homes for sale and record- low interest rates. These recent trends lend hope that the housing sector can lead the economy into recovery as it has in several past cycles."}, {"role": "assistant", "content": "Whether this momentum will continue depends largely on containment of the virus and the pandemic’s longer-term impacts on the labor market."}]}
{"messages": [{"role": "user", "content": "SHARP DECLINE AND REBOUND IN HOME SALES Sales of existing homes were steady in the first quarter of 2020, on par with the first quarter of 2019. Once the economy began to shut down in response to the pandemic, however, year-over-year sales plunged 17 percent in April and 27 percent in May. Indeed, May sales sank to a 3.91 million unit annual rate, the lowest reading for that month in records dating back to 1999. Existing home sales began to bounce back in June to a 4.70 million unit annual rate, but were still down 12 percent year over year. The pace of sales then continued to pick up through the summer, climbing 10 percent in August (to a 5.98 million unit annual rate) and 21 percent in September (to a 6.54 million unit annual rate)—the strongest single month since 2006. Unlike existing home sales, new home sales are not constrained -by low inventories and can be recorded when the contract is signed, including before construction even starts. Year-over-year sales of new single-family homes were up 46 percent in July, 41 percent in August, and 32 percent in September. The sum­ mer surge put year-to-date new home sales some 17 percent higher in September than a year earlier, while existing home sales were off by just 0.2 percent. As a result, existing home sales overall were flat in 2019 at 5.34 million units. Home sales over the summer were strong for several reasons. First, interest rates dipped to historic lows as the economy entered a 9 J O I N T C E N T E R F O R H O U S I N G S T U D I E S O F H A R V A R D U N I V E R S I T Y recession in March. According to Freddie Mac’s Primary Mortgage Market Survey, the interest rate on a 30-year fixed-rate mortgage declined below 3.0 percent in July for the first time since the survey began in the early 1970s and stood at a record low of 2.8 percent at the end of October. Second, demographic changes favor homeownership. The Census Bureau’s most recent population estimates point to strong growth in the number of 30–44 year olds, the age group most likely to pur­ chase homes. In fact, adults in this age range accounted for half of total population growth between 2018 and 2019. In addition, the economic fallout from the pandemic has had a relatively modest impact on higher-income households, another demographic group likely to purchase homes. Third, the pandemic disrupted the usual seasonal pattern in home sales, which are typically low in winter months, increase in the spring, and then peak in early summer. This year, the pandemic delayed homebuying in April and May, likely shifting many pur­ chases to the late summer and fall. And fifth, innovations in homebuying and selling have stream­ lined the purchase process in ways that allow social distanc­ ing. According to Zillow’s 2020 Urban-Suburban Market Report, virtual searches were up significantly over the summer and virtual showings have also become more commonplace. In addition, the Federal Housing Finance Agency (FHFA) made loan closings easier by allowing virtual appraisals and remote notarization of documents. The recent strength of single-family construction is a sharp depar­ ture from 2019 when starts edged up just 1.4 percent, to units—the 12th consecutive year below the million mark. In con­ trast, construction of multifamily units continued to climb, with starts rising 7.5 percent last year to units. This was the first year that multifamily starts topped units since 1988. With its current momentum, the housing sector could lead a broader recovery. Historically, housing has helped to bolster eco­ nomic growth after recessions because starts and sales tend to rebound quickly. Moreover, the persistent deficit in homes for sale makes residential construction ripe for a continued upturn. Indeed, after more than a decade of limited homebuilding, the homeowner vacancy rate was just 1.1 percent in the first quarter of 2020 and the rental vacancy rate was 6.6 percent, both historic lows. Homebuilders are also optimistic about market conditions. According to the NAHB/Wells Fargo Housing Market Index, builder confidence hit 85 in October—the highest reading in the survey’s 36-year history. THE LOCATION OF NEW CONSTRUCTION The pandemic could lead to a change in housing location prefer­ ences. For example, if working remotely becomes the norm, demand could strengthen for homes in outlying communities that are Notes: Single-family and multifamily historical averages are of seasonally adjusted monthly data from January 1990 to September 2020. Recent monthly data are subject to revision. Source: JCHS tabulations of US Census Bureau, New Residential Construction data. 11 J O I N T C E N T E R F O R H O U S I N G S T U D I E S O F H A R V A R D U N I V E R S I T Y Measured in months of supply, for-sale inventories fell from an average of 3.9 months in 2019 to a record low of 2.5 months in September. Inventories were tightest for lower- and moderate- cost homes. According to CoreLogic, the supply was under 2.0 months in July for homes costing 50–150 percent of the metro area median sales price. Inventories of homes priced under 50 percent of the median also ticked down from 3.4 months in 2019 to 3.0 months so far in 2020, while those of homes costing more than 200 percent of the median fell from 5.3 months to 3.9 months. The pandemic both broadened and accelerated the tightening of supply. In January, for-sale inventories had already fallen year over year in 65 of the 96 large markets tracked by Zillow. By June, inventories were lower in 94 of those markets, with declines accelerating in all but two. The sharpest drop in the number of homes for sale was in the Northeast, where supplies in the Allentown, Philadelphia, and Syracuse metro areas were down by more than 30 percent. Several Western metros also posted declines of more than 25 percent, including Los Angeles, San Jose, and Seattle. Inventories in only two markets—Colorado Springs and San Antonio—increased from the prior year, but by only 2 percent or less. Although well below their 37 percent share in 1999, smaller homes accounted for 24 percent of newly completed houses last year. Notes: Data are for single-family homes only. Months of supply measure how long it would take the number of homes on the market to sell at the current rate, where six months is typically considered a balanced market. Source: JCHS tabulations of NAR, Existing Home Sales. Regulations on housing density effectively limit the supply of new housing and push up land prices, particularly in highly restricted markets with strong demand. According to FHFA data, the median price per quarter acre of land underneath existing single-family housing was in 2018, up 56 percent from 2012. At the median, land prices thus represented 39 percent of the total prop­ erty value. But in highly constrained markets, land costs accounted 13 J O I N T C E N T E R F O R H O U S I N G S T U D I E S O F H A R V A R D U N I V E R S I T Y After rising for more than eight consecutive years, nominal home prices are now 20 percent above their previous peak. Indeed, home prices more than doubled between 2000 and mid-2020, up 121 per­ cent. Even after adjusting for inflation, home prices climbed 51 per­ cent over this period and are back near their previous record highs during the housing boom in the mid-2000s. Prices for lower-cost homes continue to escalate the most, driven by high demand and limited supply. According to CoreLogic data, prices rose 7.6 percent in July for homes selling for 75 percent or less of the area median price, compared with 5.0 percent for homes selling for 125 percent or more of the area median. In both segments, home price growth accelerated during the spring and summer, although not quite to the pace in 2017 and 2018. Home price increases in the second quarter of 2020 were wide­ spread, with the FHFA All-Transactions Price Index showing nomi­ nal year-over-year gains in 117 of the nation’s 120 largest metro areas and divisions. The most rapid increases were in Western markets, including Boise (up 10.0 percent), Tacoma (up 7.6 percent), and Phoenix (up 7.2 percent). At the height of the economic dislo­ cation in the second quarter, price increases did slow in 81 of the 120 largest markets, with notable cooling in Las Vegas, Omaha, San Antonio, and Spokane."}, {"role": "assistant", "content": "Given such tight inventories and historically low interest rates, home prices will likely continue to rise in the short term. However, demand could drop if unemployment remains high and more temporary job losses become permanent. Freddie Mac forecasts a moderation in home price growth in 2021, while the CoreLogic Home than 120 percent over that period, but appeared to decline slightly in October."}]}
{"messages": [{"role": "user", "content": "ELEVATED PRICE-TO-INCOME RATIOS Rising home prices relative to household incomes can impede access to homeownership, particularly for low- and moderate-income households. In 2019, the median sales price of existing single-family homes continued to rise faster than the median household income for the eighth straight year, lifting the ratio from 4.2 in 2018 to 4.3. This marked the fourth consecutive year that the median sales price was quadruple median household income. Moreover, the price-to-income ratio was higher in 2019 than in all but the three years before the housing bust, when it jumped from 3.9 in 2002 to 4.7 in 2005. What is different this time around, how­ ever, is that it took five years to reach its current level. And with interest rates so much lower now, buyers can bid up home prices but still keep their monthly payments relatively low, assuming they can afford the larger downpayments. 15 J O I N T C E N T E R F O R H O U S I N G S T U D I E S O F H A R V A R D U N I V E R S I T Y As 2020 began, low unemployment and rapid income gains were fueling steady household growth, the main driver of housing demand. But the demographic forces that could drag down future demand were already at work, including slowdowns in native population growth, immigration, and residential mobility. And when COVID-19 hit, the crisis not only brought huge losses of life and livelihoods, but also highlighted how growing income inequality has left many millions of households behind. Between 2007 and 2017, falling headship rates had kept household growth among the under-35 age group to just percent), even though the population aged 15–34 increased by fully 5.5 million (7 per­ cent) over that period. As headship rates rose in 2017–2019, however, the number of households under age 35 climbed by more than twice the growth in population aged 15–34. Still, there Housing Vacancy Survey American Community Survey 2000–––––:1 Note: Estimate for 2020:1 is based on year-over-year change in the four-quarter trailing average. Source: JCHS tabulations of US Census Bureau, American Community Survey 1-Year Estimates via IPUMS USA, University of Minnesota, www.ipums.org. 1 6 T H E S T A T E O F T H E N A T I O N ’ S H O U S I N G 2 0 2 0 large positive impact on household growth because the likelihood of heading a household increases with age. In addition, much of the decline in resident population growth is due to lower birth rates and fewer children under age 18—cohorts that are too young to form households. And finally, because the majority of immigrants do not immediately form their own households upon arrival in the country, the drag on household growth from lower immigration only becomes apparent over time. SLOWDOWN IN POPULATION AND HOUSEHOLD GROWTH In the short term, the fallout from the pandemic is sure to result in even slower population growth. International immigration was brought to a halt early in the year, and the spread of COVID-19 led to more than additional deaths by November. In addition, the ongoing uncertainty in the economy is likely to lead to lower births, which the Brookings Institution notes typically decline in times of turmoil. Pandemic-related job and income losses in 2020 will also delay household formations among young adults, the age group driving most of household growth. Beyond 2020, slower population growth is likely to lead to even lower household growth than previously projected. As it is, Joint Center projections from 2018, which were based on the 2017 Census popu­ lation projections, already anticipated a drop in annual household growth from 1.2 million in 2018–2028 to in 2028–2038. A prolonged slowdown in immigration would lower these projec­ tions even further. The 2017 Census projections assumed average net annual immigration of 1.0 million in 2018–2038 (roughly the same as in 2016), well above its 2019 low-series assumptions of just per year. Under that revised scenario, projected household growth resident population growth and immigration—were losing steam. Indeed, Census Bureau estimates indicate that US population growth edged up by just 0.48 percent last year, the lowest annual growth rate since 1918 according to the Brookings Institution. Weaker natural growth of the resident population reflects lower- than-expected births and higher-than-expected deaths even before the pandemic struck. According to the Census Bureau, natural growth was a full 30 percent below its 2017 projections last year, as it dropped below 1 million for the first time in decades. Births were 7 percent below projections, accounting for most of the difference, while deaths were 4 percent above projections, accounting for about a quarter of the difference. At the same time, the Census Bureau estimates that the net con­ tribution of international immigration to US population growth fell 15 percent in 2019, to just . This brought the total drop since 2016 to 43 percent. Immigration is sensitive to a variety of economic, political, and other factors, and wide swings over a few years are not uncommon. Still, immigration has been a significant source of household growth for decades, driving well over a third (38 percent) of all household growth from the mid-1990s to 2019. In the 2010s alone, foreign-born households contributed more than 4 million of the roughly 10 million households added over the decade. Slowing population growth is a long-term concern that has not yet affected current measures of household growth for several reasons. 17 J O I N T C E N T E R F O R H O U S I N G S T U D I E S O F H A R V A R D U N I V E R S I T Y But as the pandemic spread, the uptick in mobility rates came to a halt. For owners, the pause may be temporary, given the sharp rebound in home sales in July. On the rental side, however, the reports are mixed. RealPage notes that renter retention rates climbed to an all-time high for the month of July. At the same time, though, there was a surge in short-term lease-ups, suggesting that renter mobility rates could rise in the coming months. RISING INCOMES, BUT GROWING INCOME INEQUALITY Prior to 2020, strong income growth and falling unemployment were giving a lift to housing demand. Adjusted for inflation, the US median household income grew at a 2.5 percent average annual Notes: Cities are defined following Kneebone & Nadeau (2015), where city tracts are either in the metro’s principal city or in cities with populations over . All non-city tracts in metro areas are suburban. Source: JCHS tabulations of US Census Bureau, 1990 and 2000 Decennial Censuses and and 2018 American Community Survey 5-Year Estimates. Higher mortality rates and lower levels of natural population growth, which are also not factored into the 2017 Census projections, would make future household growth lower still. After declining for decades, residential mobility rates for both owners and renters may have edged up slightly heading into the pandemic. Increased homebuying activity since 2016 stabilized the mobility rate of owners and even led to higher rates within certain age groups. Although the rate for renters fell again in 2019, the evidence suggests that apartment turnover was increasing. The National Apartment Association reported a small year-over-year decline in the share of units whose leases renewed last year, while RealPage noted a brief year-over-year decrease in apartment renewal rates in early 2020. Across-the-board income growth, however, did nothing to reduce the inequality between high- and low-income households. In fact, the gap between lowest- and highest-income households widened. After adjusting for inflation, the average annual income of households in the bottom decile ($7,800) increased just 5 percent from 2010 to 2019, or about $340. In contrast, the average income of households in the top decile (soared by 20 percent, or about $52,000. As a result, the average income of top-decile households increased from 35 times the average income of bottom-decile households in 2010 to 41 times in 2019. COVID’S SEVERE AND DISPARATE ECONOMIC IMPACTS The pandemic has reduced incomes, especially for those already struggling. The nationwide shutdown of businesses and organiza­ tions led to an unprecedented surge in unemployment as well as furloughs and other reductions in work schedules. More than 20 million workers lost jobs between March and April, and initial unemployment claims hit a record 6 million per week twice in those months. In the first five weeks of the shutdown alone, unemploy­ ment claims shot up by 20.4 million, the same as in the first year of the Great Recession. After 20 weeks, claims topped 50 million. According to the Census Bureau’s Household Pulse Survey in late September, 41 percent of all US households reported a pandemic- related loss in earned income since mid-March. Although eco­ nomic impact payments from the federal government provided temporary support, the drop in employment income hit Hispanic, Note: Incomes are adjusted for inflation using the CPI-U for All Items. Source: JCHS tabulations of US Census Bureau, and 2000 Decennial Censuses, and 2010 and 2019 American Community Survey 1-Year Estimates via IPUMS USA, University of Minnesota, www.ipums.org. Households of color are a higher share of younger households and accounted for just over 90 percent of additional households under age 35. The numbers of Black, Hispanic, Asian, and other households of color aged 35–64 also increased enough to offset the 2 million decline in white households in this age range over the past five years, with Hispanic households contributing much of this growth. Diversity within the 65-and-over age group is also slowly increasing, with the white share declining from 80 percent to 78 percent in 2014–2019. INCREASING DIVERSITY AND AGE OF HOUSEHOLDS With such a large share of household growth among people of color, income inequality has major implications for the strength of hous­ ing demand going forward. Hispanic households drove 36 percent of household growth per year) in 2014–2019, lifting their share of all households to 14 percent. Black households were responsible for 17 percent of growth per year) and made up 12 percent of all households in 2019. Asian households accounted for another 15 percent per year) of the increases, raising their share of all households to 5 percent. By comparison, white households drove Notes: Householders who are white, Black, Asian, or another race are non-Hispanic. Hispanic householders may be of any race. Source: JCHS tabulations of US Census Bureau, American Community Survey 1-Year Estimates. 2 0 T H E S T A T E O F T H E N A T I O N ’ S H O U S I N G 2 0 2 0 increase in multigenerational living. The growing diversity of the pop­ ulation has also contributed to this rise, given that Hispanic, Asian, and foreign-born households are especially likely to be multigenera­ tional. The number of two-generation households, consisting of adult children at least 25 years old and their parents, rose by nearly 1.8 million (15 percent) from 2014 to 2019, to 13.8 million—accounting for roughly one out of every three households added during that period."}, {"role": "assistant", "content": "Still, the sheer size of the millennial and the baby-boomer popu­ lations should help to sustain housing demand over the com­ ing decade. The aging of the millennials—the largest and most diverse generation in US history—will drive up the number of households in their prime homebuying years. Millennials will also boost the number of families with children. Similarly, the baby boomers will increase the number and share of age 65-and-over households to unprecedented levels, pushing up the number of single- and two-person households. But the question remains whether persistent inequalities in income and opportunity will continue to make housing unafford­ able to millions of households of color. If the pandemic has dem­ onstrated nothing else, it has clearly shown how many households, young and old, lack the financial resources needed to withstand economic downturns and pay for housing without sacrificing other basic necessities. At the same time, the aging of Generation X—the smaller cohort born after the baby boomers—reduced the number of house­ holds aged 45–54 by some 1.6 million in 2014–2019, and by more than in 2018–2019 alone. This age group will continue to shrink until the mid-2020s, when members of Gen-X will begin to age out of this age range and the oldest millennials will begin to move in."}]}
{"messages": [{"role": "user", "content": "Meanwhile, the number of married couples without young chil­ dren living at home grew by 1.8 million, or another 32 percent of all household growth. Households age 65 and over accounted for nearly all of the increase in these households."}, {"role": "assistant", "content": "The increase in these households reflects the long-term trend toward delayed marriage and childbearing. In fact, single-person households headed by people under age 35 now outnumber same- age married couples with children. Even so, the aging of the older millennials has lifted the number of married couples with children in the 35–54 year-old age group, and will continue to do so as more members of this large generation move into this age range."}]}
{"messages": [{"role": "user", "content": "21 J O I N T C E N T E R F O R H O U S I N G S T U D I E S O F H A R V A R D U N I V E R S I T Y HOMEOWNERSHIP RATE EDGING UP The US homeownership rate began 2020 with some momentum. The Housing Vacancy Survey reported a national rate of 64.6 percent for 2019, up slightly from 64.4 percent in 2018. While still far below the peak of 69.0 percent in 2004, the homeownership rate had recovered by more than a percentage point from the 63.4 percent low in 2016. Strong home sales over the summer suggest that the homeowner­ ship rate could increase again in 2020. The aging of the US population has also helped lift the number of homeowners. With continued strong growth in the 65-and-over age group, the number of older homeowners increased by more than 2.5 million from 2016 to 2019. Over this same period, the aging of Source: JCHS tabulations of US Census Bureau, Housing Vacancy Surveys. All of the recent growth in homeowners has been among households with higher incomes. According to the American Community Survey, the number of owner households increased by 4.9 million between Demand for homeownership firmed through 2019 and, after a dramatic but temporary slowdown when the pandemic took hold, is on track for a strong year in 2020. Low interest rates are attracting homebuyers, while rising home prices are lifting the housing wealth of current owners. Preferences for homeownership also remain steady. At the same time, though, ongoing economic uncertainty has led to tighter credit conditions and left many owners struggling to pay their mortgages. Fortunately, conditions today are much less threatening than before the foreclosure crisis. First, home price appreciation remains strong. According to the S&P CoreLogic Case-Shiller Home Price Index, seasonally adjusted prices surged 5.7 percent year over year in August 2020, compared to 3.1 percent in August 2019. In contrast, home prices were already falling as the econ­ omy headed into the Great Recession, leaving more and more homeowners underwater on their mortgages. Attitude surveys show continued enthusiasm for homeowner­ ship through 2019. According to Freddie Mac’s Profile of Today’s Renter and Homeowner conducted in April percent of renter respondents said it was either somewhat or extremely likely they would ever own a home. Millennial renters (aged 23–38) are especially likely to see themselves as future home­ owners, with 78 percent stating that they were somewhat or extremely likely to own. Among those expecting to move within the next five years or who were unsure about the timing of their move, 52 percent of millennial renters expected their next move to be to a home they buy. SHARP CONTRASTS IN AFFORDABILITY Continuing a decade of growth, US home prices increased again in 2020. The National Association of Realtors® (NAR) reports that the monthly median sales price of existing homes averaged through the first six months of the year, a 3.3 percent rise in real terms from 2019. Meanwhile, the Freddie Mac Primary Mortgage Market Survey showed a steady drop in the 30-year fixed mortgage rate from 3.93 percent in 2019 to 3.51 percent in the first quarter Jan Feb Mar Apr May Jun Jul Aug Sep Year-to-Date Jan–Sep Note: Monthly data are weekly averages. Source: JCHS tabulations of Mortgage Bankers Association (MBA), Weekly Applications Survey via Moody’s Economy.com. According to Federal Reserve Flow of Funds data, real home equity rose for 33 straight quarters from early 2012 to a new peak of $20.2 trillion in the second quarter of 2020. At the same time, mortgage debt grew only modestly to $10.6 trillion."}, {"role": "assistant", "content": "The ratio of aggregate home equity to the value of real estate thus held at 65.6 percent, the highest level since mid-1990."}]}
{"messages": [{"role": "user", "content": "According to an Urban Institute analysis, the majority of the nation’s nearly 5 million owners of manufactured homes were excluded from federal foreclosure protections because their homes were titled as personal property rather than real estate. Many of these owners are in need of support, given that 35 percent work in industries that have had the greatest job losses during the pandemic. In addition, some 14.6 million owners with privately backed mortgages were not covered by federal forbearance plans and foreclosure moratoriums. The Joint Center found that the drop in interest rates would ben­ efit new homebuyers as well, despite a more than $9,000 increase in the median sales price of homes from 2019 to mid-2020. These conditions offer moderate-income buyers an opportunity to become homeowners. Based on a 30-percent-of-income affordabil­ ity standard, a 30-year fixed rate, and an average downpayment for Notes: House prices and monthly homeowner costs are adjusted to 2020 dollars using the CPI-U for All Items less shelter. Household incomes are adjusted to 2019 dollars using the CPI-U-RS for All Items. Monthly homeowner costs assume a 3.5% downpayment on a median-priced, existing single-family home (including condos and coops) with property taxes of 1.15%, property insurance of 0.35%, and mortgage insurance of 0.85%. Data for 2020 are the monthly averages from January to June. Source: JCHS tabulations of NAR, Existing Home Sales; US Census Bureau, Current Population Surveys; Moody’s Analytics Forecasts; Freddie Mac, Primary Mortgage Market Surveys. 25 J O I N T C E N T E R F O R H O U S I N G S T U D I E S O F H A R V A R D U N I V E R S I T Y tightness based on borrower characteristics (including credit score, loan type, and loan-to-value ratio), as well as lender and investor underwriting criteria. During the recovery from the Great Recession, the MCAI rose 90 points from December 2012 to December 2017 as access to credit eased, and then was essentially flat around 180 through the end of 2019. As the pandemic progressed in 2020, however, the credit availability index fell more than 60 points from January to September, holding near its lowest level in six years. These renters typically chose to delay buying a home (22 percent), live in cheaper housing (22 percent), or live in smaller units (21 percent). In addition, 23 percent of all renter respondents and about a third of millennial renter respondents altered their housing choices to afford daycare or childcare costs. Moreover, only 23 percent of respondents were aware that low-down­ payment programs existed. Indeed, the National Survey of Mortgage Originations found that fewer than half of borrowers taking out mortgages in 2017 were told about government programs providing low-downpayment options. While credit and financial constraints are very real barriers to homeownership for many, increased outreach to underserved communities and information about affordable loan options would improve access to ownership for those who want it. Racial disparities in homeownership also increased within the 65-and-over age group. In percent of older white house­ holds were homeowners, compared with 70.2 percent of same-age Black households. The homeownership rate for older white house­ holds remained in the 80–85 percent range for the next two decades, while the rate for older Black households peaked at 71.3 percent in 2003 and then dropped to 58.9 percent in 2019—doubling the gap to nearly 25 percentage points. The largest disparity in homeownership rates continues to be between white and Black households. According to the Housing Vacancy Survey, the homeownership rate for white households ticked up from 73.0 percent in 2018 to 73.3 percent in 2019, while the homeownership rate for Black households was essentially flat at 42.8 percent. This 30.6 percentage point gap is the largest dispar­ ity since 1983. And even though the number of Black households increased by some 3.1 million between 2000 and 2019, the number of Black homeowner households rose by just . Moreover, the pandemic has had a disproportionately large impact on lower-income workers, placing those that own homes at higher risk of foreclosure and limiting renter households’ ability to save for future downpayments. Other real barriers to homeownership also remain, including tight credit conditions, competing financial demands, and, significantly, the far-reaching impacts of exclusionary housing policies. Efforts to expand access to homeownership as well as educational and economic opportunity must not only address current economic pressures but also confront the lasting legacy of discriminatory housing policy head on. 2 8 T H E S T A T E O F T H E N A T I O N ’ S H O U S I N G 2 0 2 0 The economic fallout from the pandemic has hit renter households particularly hard. Despite widespread job losses and limited income support, however, most have continued to make their rent payments. After a sharp spike in the summer, rental construction resumed a more moderate pace in September, but sales of multifamily properties fell amid rising vacancy rates and ongoing uncertainty. Meanwhile, with most new units intended for the high end of the market and continued losses of low-cost units, rental affordability continues to erode, and the concentrated location of affordable units reinforces inequities. HARDSHIPS FOR TENANTS AND LANDLORDS ALIKE Renter households have been especially vulnerable to the economic disruption caused by COVID-19. According to the Census Bureau’s Household Pulse Survey, 49 percent of renter households reported at least some lost employment income between mid-March and mid- September—a much larger share than the 36 percent of homeown­ ers. Income losses have been widespread, affecting some 59 percent of Hispanic renters, 53 percent of Black renters, and 45 percent of white renters. Nevertheless, most renters continued to make rent payments. As of late September, 15 percent of renter households responding to the Household Pulse Survey said that they were behind on rent. With the aging of the population, adults age 55 and over drove about two-thirds of renter household growth in 2004–2019, lifting their share of all renters from 22 percent to 30 percent. Indeed, the rent­ ership rate for older adults continued to increase in 2019, with their numbers up . While households under age 35 still made up just over a third of all renters, the slowdown in their household for­ mation rates kept their share of renter household growth to only 4 percent over this period."}, {"role": "assistant", "content": "Although the number of younger renters picked up by about in 2018–2019, the pandemic will likely slow any gains in 2020."}]}
{"messages": [{"role": "user", "content": "But even as overall rental demand slowed in recent years, American Community Survey data indicate that the number and share of higher-income renters were on the rise. Some 7.9 million renter households were added between the homeownership peak in 2004 and 2019, bringing the total number to 44.0 million. With higher- income households driving over half of this growth, the number of renter households with incomes of at least $75,000 increased by 4.6 million in 2004–2019 and their share of renter households jumped from 18 percent to 26 percent. Meanwhile, the number of renter households with incomes under $30,000 grew by just over this interval, reducing their share of renters from 42 percent to 36 percent. Indeed, the number of lower-income renter households was on the decline in recent years, including a drop of more than in 2019 alone. However, the massive job losses due to the COVID-19 pandemic could reverse this trend, increasing both the number and share of renter households with lower incomes. The racial and ethnic diversity of renters increased from 2004 to 2019, with households headed by a person of color accounting for about three-quarters of growth and foreign-born households Note: Estimates for 2020:1 are based on year-over-year change in the four-quarter trailing average. Source: JCHS tabulations of US Census Bureau, Housing Vacancy Surveys. 3 0 T H E S T A T E O F T H E N A T I O N ’ S H O U S I N G 2 0 2 0 just 0.5 percent. In contrast, rental supply and demand in subur­ ban areas were in close balance, lifting the vacancy rate by just 0.2 percentage point. RealPage data confirm that expanding supply and faltering demand are behind the jump in rental vacancy rates. Second-quarter com­ pletions of new units outpaced the growth in renter households in 92 markets, and net demand fell in 44 markets. Several of the metros with a drop-off in rental demand were high-cost markets, including some that were initially hard hit by COVID-19, such as Boston, New York, and San Francisco. Rental demand regained strength in the third quarter, with especially large increases in Southern and Western markets. Completions of rental units exceed­ ed renter household growth in just 29 markets and net demand was down from the previous quarter in only 11. While not yet capturing the third-quarter uptick in demand, the Survey of Market Absorption indicates that apartment take-ups at the high end of the market slowed sharply during the spring. Only a third of new units completed in the first quarter of 2020 and renting for more than $2,050 were leased within three months, the lowest absorption rate posted in the last five years. By comparison, two- thirds of newly completed units with rents under $1,050 were leased within three months. A slowdown in apartment COOLING AT THE HIGH END Although still positive, rent growth slowed slightly from March to September 2020 as the pandemic progressed. In September, howev­ er, the Consumer Price Index for rent of primary residence (a stable measure of overall rent growth that rarely shows nominal declines) rose at a 3.4 percent annual rate—down 0.3 percentage point from March but still more than four times the pace of prices for all other items. CoreLogic’s Single-Family Rent Index also showed continued growth of 1.7 percent in July 2020, although a slowdown from 2.9 percent a year earlier. At the same time, however, nominal rents for professionally man­ aged apartments were falling. According to , rents for units in higher-quality (4 & 5 Star) properties were down by 1.6 percent year over year in the second quarter of 2020. This was the first actual decline since 2010 and a significant drop from the 2.7 percent increase a year earlier. Rents for top-quality units continued to slide in the third quarter, off 2.2 percent year over year. Rent growth for moderate-quality (3 Star) properties slowed somewhat less, easing from 3.1 percent in the third quarter of 2019 to 1.2 percent in the third quarter of 2020. The slowdown in the lower-quality (1 & 2 Star) segment was even more modest, with rent growth dipping from 2.7 percent to 1.7 percent. The third-quarter cooldown in rent growth was widespread geo­ graphically, with about a third of the 150 markets tracked by RealPage reporting year-over-year declines. By comparison, only eight markets posted rent decreases a year earlier. Rents for profes­ sionally managed units dropped by more than 2 percent in 20 mar­ kets, 17 of which were in the South or West. Declines of more than 4 percent were posted in 11 markets, including Boston, Los Angeles, New York, and San Francisco. Softening rents in professionally managed properties reflect rising vacancy rates. data indicate that the vacancy rate for apartments in buildings with at least five units rose to 6.9 percent in the second quarter and held at 7.0 percent in the third quarter of 2020, nearly a full percentage point higher than a year earlier. Vacancy rates climbed the most in the higher-quality segment, up nearly 2 percentage points year over year in the third quarter, to 10.5 percent. Meanwhile, the vacancy rate at the lower end of the market inched up only 0.2 percentage point to 5.3 percent. Of the 150 markets tracked by RealPage, third-quarter vacancy rates were up year over year in 93 markets, with increases of more than 1.0 percentage point in 32. The vacancy rate in these prime areas hit 9.1 percent in the third quar­ ter as the rental supply increased by 3.8 percent but demand rose Notes: Prime urban areas are the most expensive urban markets. Urban/suburban areas are defined based on density in the 54 largest markets that tracks. Source: JCHS tabulations of data."}, {"role": "assistant", "content": "With vacancy rates rising, rent collections lagging, and pandemic-related expenses increasing, the net operating incomes of rental property own­ ers will likely continue to fall in the coming months."}]}
{"messages": [{"role": "user", "content": "MODERATING GROWTH OF MULTIFAMILY CONSTRUCTION Multifamily construction fluctuated wildly this year before settling back to a more sustainable pace in late summer. After reaching a 30-year high of units in 2019, starts of multifamily buildings with at least five apartments jumped to a unit annual rate in the first quarter of 2020. But once the pandemic hit and some state and local governments halted non-essential construction activity, seasonally adjusted starts fell 37 percent year over year in April and 31 percent in May. Multifamily starts then bounced back to their 2019 level in June and spiked in July, before gradually easing to a seasonally adjusted annual rate of units in September. Meanwhile, completions of multifamily apartments slowed from a to a unit seasonally adjusted annual rate in the first quarter of 2020. Much of this decline came in February when the seasonally adjusted number of new units coming on the mar­ ket was down 43 percent from the year-earlier peak. Activity in the following two months was also weak, with completions falling 20 percent year over year in April and 3 percent in May. Even so, completions were already more than 10 percent higher in June and July than a year earlier, before climbing to a strong annual rate in September. price growth accompanied the sharp drop in transactions. According to Real Capital Analytics data, year-over-year price growth exceeded 9 percent through April 2020 but then fell steadily to 6.7 percent in September—the lowest year-over-year pace since early 2011. Although still modest, delinquency rates for multifamily loans ticked up slightly from a near-historic low of 0.12 percent in the first quarter of 2020 to 0.19 percent in the second quarter. Defaults have likely remained low because most tenants continued to make rent payments and owners could use cash reserves to cover tem­ porary shortfalls."}, {"role": "assistant", "content": "According to the National Council of Real Estate Investment Fiduciaries, Note: Apartment property prices are nominal and indexed to 2000. Source: JCHS tabulations of Real Capital Analytics data."}]}
{"messages": [{"role": "user", "content": "SOARING PRICES AMID HIGH DEMAND AND TIGHT SUPPLY Home sales bounced back quickly from a mid-2020 pause. Following a 26 percent drop in May, sales of existing homes were up 20 percent year over year on average from September 2020 through February 2021. Sales of new single-family homes rebounded even earlier and faster, increasing by more than 30 percent on average from June through February. For 2020 as a whole, existing home sales rose 5.6 percent and new single-family home sales jumped 20.4 percent. On the strength of these gains, total home sales were at their highest level since the peak of the housing boom in 2006. The combination of robust demand and limited supply lifted home prices to their fastest pace in over a decade. According to the S&P CoreLogic Case-Shiller Home Price Index, home prices rose 13.2 percent nationally in March 2021, up from 4.2 percent on average in the first quarter of 2020 and 3.5 percent on average throughout 2019. The FHFA House Price Index shows a similarly large year-over-year increase in the first quarter of 2021, with prices up by double digits in 85 of the 100 large metro areas and divisions that it tracks. The J O I N T C E N T E R F O R H O U S I N G S T U D I E S O F H A R V A R D U N I V E R S I T Y 1 1 E X EC UT I VE SU MM ARY T H E S T A T E O F T H E N A T I O N ’ S H O U S I N G 2 0 2 1 2 HOMEOWNERSHIP RATES RISING, BUT NOT FOR ALL The national homeownership rate remains on an upward trajectory, driven by the aging of more millennials into their 30s and the strong income gains among these young adults. Census Bureau estimates for the first quarter of 2021 show a 0.3 percentage point year-over-year increase in homeownership, which comes on the heels of a 1.2 per­ centage point rise between the post-recession low in 2016 and 2019. Younger households continued to lead the growth in homeowner­ ship rates, with a 0.8 percentage point year-over-year increase in the first quarter of this year. Indeed, rates for households under age 35 were up 2.2 percentage points in 2016–2019, coinciding with an 8.0 percent rise in real incomes among renters in this age group. However, rapidly rising home prices mean that the upfront costs of homeownership are also increasing, particularly in markets where bidding wars have become commonplace. As it is, home price gains continued to outrun income growth last year, lifting the national price-to-income ratio to 4.4—the highest level since 2006. Two decades ago, the ratio was less than three times income in two- thirds of the 100 largest metros and above five times income in only a handful of markets. With house prices representing such large multiples of income, accumulating the downpayment and closing costs to buy homes could take years, particularly for younger households facing the twin burdens of high rents and significant student debt. Low interest rates and rapidly rising prices have in turn given a substantial boost to new residential construction. Single-family housing starts hit 1.0 million units at a seasonally adjusted annual rate in August 2020 and continued to exceed that pace through the first quarter of 2021. If sustained, this would be the first year that single-family starts have topped the one-million mark since 2007. Although part of the answer to the nation’s housing shortage, new construction can only do so much to ease short-term supply con­ straints. To meet today’s strong demand, more existing single-family homes must come on the market. The widespread availability of COVID-19 vaccines and resumption of more normal social interac­ tions may in fact encourage more homeowners to sell. Still, with interest rates so low and home sales at such a furious pace, prices are likely to continue their rapid ascent in the near term. According to the latest Housing Vacancy Survey, the Black-white homeownership gap stood at 28.1 percentage points in the first quarter of 2021, an improvement from the record high of 30.8 per­ centage points in 2019 but still large by historical standards. Indeed, the Black-white gap held under 27 percentage points for most of the 1980s and 1990s. Meanwhile, the Hispanic-white gap decreased by 1.8 percentage points between 2019 and the first quarter of 2021, to 23.8 percentage points. Accumulating the savings needed for downpayment and closing costs is difficult for most first-time buyers, but especially for renter households of color. According to Survey of Consumer Finances data, the median net wealth of Black renters was just $1,830 in 2019—a fraction of the $6,000 median for Hispanic renters and $8,300 median for white renters. In addition, only 8 percent of Black renters and 12 percent of Hispanic renters had more than $10,000 in cash savings, compared with 25 percent of white renters. Moreover, studies have found that white homebuyers are four times more likely on average than Black homebuyers to receive help from par­ ents in coming up with a downpayment. RENTAL MARKETS STABILIZING AFTER SLOWDOWN Just as rental demand cooled in urban areas last year, it heated up in suburban markets. According to data on the professionally managed stock, vacancy rates in prime urban neighborhoods soared from 7.2 percent in the first quarter of 2020 to 10.0 percent in the fourth quarter, before edging back down to 9.6 percent in the first quarter of 2021. At the same time, vacancy rates in prime suburban areas also started out at 7.2 percent early last year, but shrank to 6.3 percent by the end of 2020 and further to 6.0 percent in early 2021. Since many higher-quality rentals are located in prime urban areas, vacancy rates in this segment rose from 10.1 percent in the first quar­ ter of 2020 to 10.5 percent in the fourth, then receded to 9.9 percent early this year. Even before the pandemic, the number of people experiencing homelessness was on the ascent. In January 2020, HUD put the However, the markets for moderate- and lower-quality apartments remained tight, with little change in vacancies over this period. Rent growth for moderate-quality apartments eased from 2.0 percent to 1.5 percent in 2020, but then jumped to 3.0 percent in the first quarter of 2021—an even faster pace than before the pandemic. In contrast, rent increases for lower-quality apartments slowed from 2.3 percent in early 2020 to 1.8 percent in early 2021. The firming of rents and vacancy rates in prime urban areas and in the higher-quality segment in early 2021 suggests that the strengthening economy and easing of pandemic-related restric­ tions will make the dip in rental demand only temporary. The latest uptick in multifamily construction reflects that view, with starts of units in buildings with five or more apartments ris­ ing from a annual rate in the fourth quarter of 2020 to a annual rate in the first quarter of 2021. If sustained, this year would be the first time that starts in this segment have exceeded units since 1987. THE WORSENING CHALLENGE OF RENTER COST BURDENS Even after ten years of economic expansion and the lowest unem­ ployment rate in decades, the share of renter households with cost burdens in 2019 was down just four percentage points from the 2011 high. Some 20.4 million renters (46 percent) paid more than 30 percent of their incomes for housing that year, including 10.5 million (24 percent) severely burdened households that paid more than half of their incomes for rent. Although long the plight of lowest-income renters, cost burdens have moved up the income ladder. More than 80 percent of renters earning less than $25,000 were cost burdened in 2019, with a large majority severely burdened. Remarkably, 70 percent of renter house­ holds earning between $25,000 and $34,999 and nearly 50 percent of renters earning between $35,000 and $49,999 were also at least moderately burdened. The racial and ethnic disparities are stark, with 54 percent of Black and 52 percent of Hispanic renters having at least moderate burdens, compared with 42 percent of both white and Asian renters. For the many households that had to tap savings or go into debt to cover lost income last year, the impacts of the pandemic will linger well into the future. A Joint Center review of surveys conducted over the past year found that about a quarter of the renters with COVID- related job losses reported that they had substantially depleted their savings, another quarter had borrowed from families and friends, and a tenth had turned to payday or personal loans. Even assuming they regain their financial footing, these households will have fewer resources to draw on whether for everyday needs, emergencies, or for a downpayment on a home. Recovering from the devastating effects of the pandemic will be harder yet for those who have lost loved ones to COVID-19 or are themselves suffering from the long- term debilitating effects of the virus. ENDURING PRESSURES AMID THE RECOVERY Spurred by generous federal spending packages and the wide availability of COVID-19 vaccines, the US economy is steadily recovering. In the first four months of 2021 alone, the economy added more than 1.3 million jobs, reducing the national unem­ ployment rate to 6.1 percent. Even so, there were 7.6 million fewer jobs in February than a year earlier, and unemployment rates remained distressingly high for Black (9.7 percent) and Hispanic workers (7.9 percent), as well as for those with less than a high school diploma (9.3 percent). T H E S T A T E O F T H E N A T I O N ’ S H O U S I N G 2 0 2 1 6 dollar disasters has already escalated from $27 billion in the 1990s to $81 billion in the 2010s. Beyond disaster recovery, additional federal support is needed for mitigation programs that support at-risk com­ munities in efforts to improve the resiliency of their housing stocks. problems, leaks, and/or pest infestations, and put the total cost of addressing these needs at $127 billion. Moreover, it is likely that overall repair needs are even higher today, given that many homeowners had to put off these types of expenses during the pandemic. In the longer term, impending demographic changes cloud the housing outlook. Falling birth rates, sharply lower immigration, and higher-than-expected mortality rates have already left population growth at its lowest level in 100 years. Although this slowdown may help to alleviate the current imbalance between housing demand and supply, it also has serious implications for the broader economy. To sustain vibrant housing markets, policymakers must take mea­ sures now to reinvigorate population growth through increased immigration, promote higher birth rates through support for work­ ing families, and reduce the drag on economic growth from income and wealth disparities. T H E S T A T E O F T H E N A T I O N ’ S H O U S I N G 2 0 2 1 8 The homebuying market remained hot even as the COVID-19 pandemic moved into its second year. Sales of both new and existing homes soared in early 2021 amid low interest rates and strong demand. In combination with record- low inventories, the homebuying frenzy has helped to push up home prices by double digits. Rents have also started to recover from last year’s drop. After years of underbuilding, housing developers have finally responded to favorable market conditions, with production increasing in line with projected household growth. CONTINUING SURGE IN HOME SALES Despite a sharp drop at the onset of the pandemic, home sales bounced back quickly in 2020. Several factors helped to buoy sales, starting with record-low mortgage interest rates. The pandemic itself drove up demand for more private living space, particularly among the higher-income households that were least affected by the eco­ nomic downturn. The aging of the millennial generation also helped by lifting the number of households in their peak homebuying years. Even after a 26 percent year-over-year plunge in May, sales of exist­ ing homes increased 5.6 percent for the year, to 5.64 million units. Meanwhile, condo and co-op sales fell slightly for the third straight year, to units. Sales rose across the country, with growth in the South (7.4 percent) and the Midwest (6.4 percent) far outpacing increases in the West (2.7 percent) and Northeast (1.4 percent). Existing home sales continued to gather steam in the first quarter of 2021, up 15 percent on average. Following a 16 percent year-over-year drop in April, new home sales jumped 53 percent in July, to units at a seasonally adjusted annual rate. For 2020 as a whole, sales of new single-family homes were up 20.4 percent, to units—the highest mark since 2006. New home sales were strong across all regions of the country, increasing 29 percent in the Midwest, 23 percent in the Northeast, 20 percent in the West, and 19 percent in the South. Robust growth continued in the first quarter of 2021, with seasonally adjusted single-family sales averaging 32 percent gains and running at an annual rate of units. Metro-level home sales followed a similar pattern. Early in 2020, slightly more than half of the 95 large markets tracked by Zillow posted year-over-year increases in sales. But after stumbling in April and May, sales were on the rise in fully 89 metros by the end of the year. Indeed, growth exceeded 50 percent in five markets, includ­ ing Baltimore (63 percent), Milwaukee (57 percent), and New Haven (53 percent). The six metros with year-over-year declines included Wichita (down 17 percent) as well as Ogden and Boise City (both 2 H O U SI N G MA R KETS INCREASINGLY ACUTE SHORTAGE OF HOMES FOR SALE The supply of existing homes for sale has never been tighter. This amounts to a 29 percent decline in just one year and a 37 percent drop in two years. Single-family homes accounted for only of the existing units available—the lowest level in records dating back to 1982. The decline in the supply of new single-family homes for sale was somewhat more modest. After starting the year at units, the number of new homes available bottomed out at units in August—a year-over-year drop of 13 percent. New home inventory, which includes homes under construction, picked up to more than units from December 2020 through March 2021 as housing production increased. Even so, supplies were still down 8 percent on average from the same period a year earlier. Supply constraints are nearly universal. Inventories in 87 of the 95 markets tracked by Zillow fell year over year in December 2020, up from 31 markets in December 2019. The number of homes available for sale fell by more than 30 percent in 14 of these metros, with the largest drops in mid-sized markets in the West, including Provo (43 percent) and Boise (40 percent). Declines were also severe in certain metros in the South, ranging from 34 percent to 36 percent in Augusta, Columbia, Jackson, and Raleigh. While still historically tight, for-sale inventories increased in some higher-cost markets, especially those on the West Coast, including San Francisco (50 per­ cent), San Jose (45 percent), and Seattle (16 percent). But the biggest reason behind the constraints on supply is the underproduction of new homes since the mid-2000s. New con­ struction creates housing choices for current homeowners who want to move, freeing up existing units for other buyers. Without that option, owners are more likely to remain in place. As a result, only a consistent increase in housing construction over a period of years will provide meaningful growth in inventory in many of today’s tight markets. HOUSING CONSTRUCTION AT NEW HIGHS Like home sales, new residential construction rebounded quickly in the summer of 2020 and continued at a strong pace through early 2021. Housing starts climbed 6.9 percent last year to 1.38 million units—the highest output since 2006 when production reached 1.80 million units. Completions were also up 2.5 percent to 1.29 million units, while permitting rose 6.1 percent to 1.47 million units. Although those projections do not account for lower-than-expected population growth in the past few years, the low level of homebuild­ ing since the mid-2000s likely means that new supply has not yet caught up with demand. In fact, Freddie Mac estimates that the housing supply at the end of 2020 was 3.8 million units short of the level needed to match long-term demand. In addition, some land use and zoning practices, as well as other local and state requirements, restrict the amount of land available for development. These regulations can raise the cost of land, espe­ cially in markets where demand is strong. According to FHFA esti­ mates, the median land value of a quarter-acre lot occupied by an existing single-family home was in 2019, some 60 percent higher than in 2012. Among the nation’s 100 largest markets, medi­ an land prices were highest on the West Coast, particularly San Jose ($1.2 million), San Francisco (and Honolulu (. In contrast, median land values were below $50,000 in 38 large mar­ kets located outside the West. Many communities also require multiple approvals for residential developments. While ensuring that legitimate public concerns are addressed, these approvals mean delays, uncertainty, and additional costs for developers. The process for approving construction of single-family units takes about 2.5 months on average if the project With more young and first-time homebuyers entering the market, demand for smaller, more affordable homes was on the increase in 2019. Completions of single-family homes with less than 1,800 square feet rose 13 percent that year, to units, slightly out­ pacing the 11 percent increase in midsized units (1,800–2,999 square feet). The share of larger homes (at least 3,000 square feet) declined 4 percent. Even so, smaller units accounted for only 24 percent of completions in 2019, about the same as in 2018 but well below the 32 percent share averaged from 1999 to 2011. Newly built units, however, are typically more expensive than exist­ ing homes. According to CoreLogic, new homes accounted for almost a fifth (19 percent) of premium home sales nationally (in the top third by price) from October 2019 through September 2020, but just 6 percent of entry-level sales (in the bottom third). However, new con­ struction does provide more than 10 percent of entry-level housing in nearly a quarter of the 100 large markets that CoreLogic tracks. Most of the metros with large shares of new entry-level homes—including Dallas (18 percent), Phoenix (14 percent), and Denver (11 percent)— are moderate-cost markets with substantial new construction. PERSISTENT CLIMB IN HOME PRICES With inventories and interest rates at or near record lows, home prices have moved progressively higher. Year-over-year increases in the S&P CoreLogic Case-Shiller Home Price Index jumped from 4.5 percent in March 2020 to 10.4 percent in December—the first double-digit rise since 2014. The runup that began in mid-2012 and continued for over 100 consecutive months is permitted under existing rules and 4.3 months if special approval is required. For multifamily projects, the average review times are 3.1 months and 4.9 months, respectively."}, {"role": "assistant", "content": "THE OUTLOOK Given the extremely limited supply of homes for sale across the country, prices will likely continue to rise for the foreseeable future even if interest rates tick up and more sellers put their homes on the market. But in the longer term, robust growth in housing con­ struction will be necessary to temper conditions in some of today’s overheated homebuying markets. However, homebuilders will need to meet the growing demand for homes of various sizes and at dif­ ferent price points, especially as millennials become a dominant force in the market."}]}
{"messages": [{"role": "user", "content": "According to the FHFA Purchase-Only House Price Index, nominal home prices in the first quarter of 2021 increased by at least 10 percent in 85 of the 100 metro areas and divisions tracked by the index, up from just 5 markets the year prior. In 99 of those markets, the pace of the increases was escalating. The largest metro area gains were in Boise (28 percent), Austin (23 percent), and Tacoma (22 percent). Home prices in non-metro areas also climbed. The FHFA All-Transactions House Price Index, which generally shows slower appreciation than the Purchase-Only Index, indicates that non- metro home prices rose at a 6.0 percent annual rate at the end of 2020, up from 5.6 percent a year earlier."}, {"role": "assistant", "content": "Based on Moody’s household income projections, the national price- to-income ratio is expected to rise from 4.14 in 2019 to 4.37 in 2020. This would mark the fifth consecutive year that the median home price was more than four times median household income. By com­ parison, average price-to-income ratios were considerably lower at 3.21 in the 1980s, 3.31 in the 1990s, 4.01 in the 2000s, and 3.82 in the 2010s. Ratios in the nation’s 100 largest metros are expected to range as high as 10.9 in San Jose, 9.5 in Honolulu, and 9.4 in Los Angeles, and as low as 2.5–2.6 in Scranton, Syracuse, and Toledo."}]}
{"messages": [{"role": "user", "content": "Meanwhile, home prices and rents have diverged sharply. Zillow reports that typical home values rose 9.1 percent nationally in January 2021, up from 3.7 percent a year earlier. At the same time, rent growth slowed from 2.9 percent to just 1.2 percent. This diver­ gence is widespread, with home price growth exceeding rent growth in all 99 large metros that Zillow tracks. T H E S T A T E O F T H E N A T I O N ’ S H O U S I N G Early estimates suggest that the pandemic did little to interrupt the ongoing rise in household growth, with millennials continuing to head up new households at a strong clip. As these young adults marry and have children, they are reinforcing household growth outside of urban centers. The economic disruption caused by the pandemic did, however, widen already large inequalities in income and wealth. On top of slowing population growth, these persistent disparities prevent people of color and those with lower incomes from forming their own households, in turn reducing longer-term demand for housing. UPTICK IN MILLENNIAL HOUSEHOLDS The pandemic hit at a time when household growth, the pri­ mary driver of housing demand, was strong and accelerating. By American Community Survey estimates, the number of US house­ holds increased by 1.3 million per year on average from 2016 to 2019—significantly faster than the annual increases aver­ aged in 2013–2016. By both of these measures, household growth had been running well above the 1.2 million mark—the pace that Joint Center projections suggest would be due to population growth and demographic shifts alone. The economic shutdowns starting in March 2020 had only a lim­ ited and temporary impact on headship rates and therefore on household growth. When the unemployment rate spiked to 14.8 percent in April, many young workers were unable to sustain their own households and moved back in with their parents. However, 3 D E MO G R A P HI C DRIVERS According to Housing Vacancy Survey data, the total number of households was up by 1.5 million in the first quarter of 2021 from a year ear­ lier, largely on the strength of higher headship rates among these young adults."}, {"role": "assistant", "content": "The surprising resilience of household formations among the mil­ lennial population suggests that their generation will continue to lead the growth of housing demand. The headship rates of adults under age 35 are still historically low and therefore have room to increase. In addition, the older millennials are moving into the 35-44 year old age group, a stage of life when headship rates are consis­ tently higher. While slowdowns in national birth and death rates are becoming increasingly evident, higher household formation rates among the millennial generation will likely offset those drags on household growth in the near term."}]}
{"messages": [{"role": "user", "content": "CHANGES IN RESIDENTIAL MOBILITY Early in the lockdown, most households chose to stay put. Renewals of rental leases thus hit record highs in April 2020, while existing home sales were down 27 percent in May from a year earlier. As the months wore on, however, the pace of residential moves picked up. Historically low mortgage interest rates encouraged a spate of homebuying, lifting existing home sales by more than 20 percent year over year from September 2020 through January 2021. A growing num­ ber of urban renters—particularly those with higher incomes—also moved out of apartments where they were paying a premium for prox­ imity to job centers and other amenities. Many of these households either bought homes or relocated to rentals in the suburbs, but others simply moved to nearby apartments that were offering rent conces­ sions or at least lower costs. Indeed, RealPage data indicate that renter retention rates in urban areas fell much more than rental occupancy rates, implying that many households either traded up to higher-quali­ ty apartments or sought out lower-rent units within the city. With the reopening of businesses, restaurants, entertainment venues, demand for rental housing in prime urban areas started to revive in early 2021, giving another boost to residential mobility. As pandemic- related restrictions continue to ease and vaccination rates increase, more homeowners will become comfortable putting their homes on the market and more potential buyers will consider relocating. Many conditions that encourage homebuying are already in place, including low interest rates, a growing number of households at the prime ages for first-time homeownership, changing needs for living space, and increased ability to work from home. However, the persistent shortage of homes for sale is a significant constraint on purchases and there­ fore on overall residential mobility rates. At the same time, though, soaring job losses left millions of other households in dire straits. The US lost 22 million jobs between February and April 2020 when employment in food services and in the leisure and hospitality industries dropped by nearly half. The need for more space to work comfortably from home was yet another impetus to move. In 2019, the American Community Survey indicated that just 5.7 percent of the labor force worked from home full time. In May 2020, however, the Bureau of Labor Statistics reported that the share working from home because of the pan­ demic stood at 35.4 percent. Although the total share working from home receded to 18.3 percent by April 2021, large portions of certain groups continued to work remotely, including over a third of work­ ers with college degrees and nearly half of workers in business and financial operations. Even lowest-income households that own homes are vulnerable to job losses because much of their wealth is tied up in home equity— an asset that is difficult to access quickly and without cost. Indeed, while homeowners in the bottom income quartile had a median net wealth of their median cash savings amounted to just $1,500. One in three of these homeowners had less than $500 in cash. THE IMPENDING DRAG OF SLOWER POPULATION GROWTH New Census Bureau estimates indicate that US population growth slowed again last year, dipping to 0.35 percent from July 2019 to July 2020. The addition of just 1.15 million people was about half the 2.37 million originally projected. The unexpected weakness of population growth reflects a combination of factors, including higher-than-predicted death rates and lower-than-predicted birth rates among the resident population, as well as the more than 50 percent drop in international immigration from 2016 to 2020. T H E S T A T E O F T H E N A T I O N ’ S H O U S I N G THE OUTLOOK Despite the unprecedented economic and social disruption caused by the pandemic, the rebound in headship rates among the millennial generation should prop up household growth in the near term even as overall population growth slows."}, {"role": "assistant", "content": "The aging of this large generation into their 30s will likely increase demand for single-family homes in suburban and exurban areas. If working at home full time becomes common practice post-pandemic, this change could also reinforce the shift in housing demand away from expensive urban locations."}]}
{"messages": [{"role": "user", "content": "to the count, with drug overdoses reaching a record high in May 2020. Meanwhile, the US fertility rate declined 4 percent last year, resulting in the fewest births since 1979. The Brookings Institution estimates that the number of births in 2021 will also be below normal due to the pandemic. Moreover, the CDC reduced the estimated life expectancy for those born between 2019 and the first half of 2020 by one full year. The halt in immigration in April 2020 also pulled down overall population growth, reducing the number of net new immigrants to for the year. The size of this decline is significant because immigrants account for such a large share of both popula­ tion growth and household growth. Indeed, foreign-born residents contributed about a third of the nation’s population growth in 2010–2019, along with 40 percent of household growth. Immigration is particularly critical to sustaining population growth in large cities and stabilizing the populations in rural areas. For example, the population of New York City would have declined by more than a quarter-million between 2010 and 2019, but instead grew by with the arrival of nearly international immigrants. Similarly, in rural counties with declining populations, gains from immigration over the decade have stemmed even greater losses."}, {"role": "assistant", "content": "If international immigration remains as constrained as it has been since 2017, population losses across the country will increase in scale and scope, not only dampening household growth but also destabilizing local economies."}]}
{"messages": [{"role": "user", "content": "So far, though, household growth measures do not reflect the impacts of slowing population growth for several reasons. First of all, the overall aging of the population continues to have a large positive impact on household growth because the likelihood of heading a household increases with age. Rising headship rates among younger adults are also giving a large and growing boost to household growth. Moreover, much of the slowdown in resident population growth is due to lower birth rates and fewer children under age 18—cohorts that are too young to form households and therefore not affecting current growth rates. And finally, since the majority of immigrants do not immediately form their own house­ holds upon arriving in this country, the drag on household growth from lower immigration only becomes apparent over time. Given rapidly rising home prices and the economic challenges facing many low- and moderate-income households during the pandemic, the households able to buy homes last year generally had relatively high incomes. According to NAR’s Profile of Home Buyers and Sellers, the median income of households purchasing homes between April and June 2020 (was well above that of households pur­ chasing homes from July 2019 and March 2020 ($94,400). The homes themselves were also substantially more expensive, with a median price of compared with . Indeed, almost a quarter (23 percent) of the households that bought homes between April 2020 and June 2020 paid or more. Low-income homeowners were also more apt to be in arrears. In fact, the share of homeowners making less than $25,000 that were behind on their payments actually increased from 20 percent in August 2020 to 24 percent in the first quarter of 2021. Meanwhile, 15 percent of homeowners with incomes of $25,000–49,999 were also delinquent, along with 11 percent of homeowners with incomes in the $50,000–74,999 range. In contrast, just 5 percent of homeowners earning at least $75,000 were behind on their mortgages in early 2021. Age of the household head is also a factor, with owners under age 55 twice as likely to be in arrears (11 percent) than older own­ ers (5 percent). In combination with extremely limited supply, however, low interest rates have also helped to fuel the rapid climb in home prices. NAR reports that the median sales price of homes jumped 28 percent from in December 2016 to in December 2020. According to Black Knight, 7.1 million homeowners (14 percent of all mortgage holders) entered into forbearance during the pandemic. Along with favorable interest rates, rising home prices encouraged many owners to tap their growing equity. According to Freddie Mac, homeowners took the opportunity to cash out $48.0 billion in net home equity in the fourth quarter of 2020, a substantial increase from $34.3 billion a year earlier but still well short of the $108.1 bil­ lion peak in the second quarter of 2006. THE OUTLOOK Both the national homeownership rate and the number of home­ owner households continued to rise in early 2021, boosted by low interest rates and steady gains in savings among many younger renters. The aging of the population also helped by lifting the num­ ber of households in age groups with traditionally higher home­ ownership rates. Today’s strong demand for homeownership is thus J O I N T C E N T E R F O R H O U S I N G S T U D I E S O F H A R V A R D U N I V E R S I T Y 25 Millions of renter households were still behind on their housing payments in the first quarter of 2021. Still, rental demand in prime urban areas was already recovering from a jump in vacancy rates earlier in the pandemic. Multifamily housing starts also bounced back from the second-quarter slowdown. But returns to rental property owners took a hit from increases in vacancy rates and operating costs, and mom-and-pop landlords were feeling the pinch of lower rent collections. Despite the recent growth in new multifamily construction, much of the nation’s rental stock is older and in need of maintenance and repairs."}, {"role": "assistant", "content": "The Household Pulse Surveys suggest that the shortfalls for own­ ers of smaller properties will continue, with 18 percent of renters of single-family homes and 17 percent of renters in buildings with 2–4 units reporting they were behind on their payments in the first quarter of 2021."}]}
{"messages": [{"role": "user", "content": "T H E S T A T E O F T H E N A T I O N ’ S H O U S I N G DIVERGING TRENDS IN RENTAL SUBMARKETS Much of the overall increase in vacancy rates reflects conditions in prime urban markets, particularly at the high end. Vacancy rates in other urban markets rose more modestly, from 6.0 percent in the first quarter of 2020 to 6.4 percent in the first quarter of 2021. Meanwhile, rental vacancies in suburban areas fell. Following four consecutive quarters of increases, the vacancy rate in prime sub­ urban submarkets declined from 7.2 percent in early 2020 to 6.0 percent in early 2021. Rates in suburban markets outside of prime areas dipped as well, from 6.8 percent to 6.3 percent. The tightening of suburban markets may reflect a move of some urban renters to less expensive locations after the pandemic forced many commut­ ers to work from home. Trends in rental demand also varied by quality segment. According to data, vacancy rates in higher-quality (4 & 5 star) apartments soared to 10.5 percent in the fourth quarter of 2020, before retreating to 9.9 percent in early 2021. In contrast, the market for lower-quality (1 & 2 star) apartments remained especially tight, with a vacancy rate of just 5.2 percent in the first quarter of 2021. The vacancy rate for moderate-quality (3 star) apartments was nearly as low at 5.6 percent. At the metro level, first-quarter 2021 vacancy rates were up year over year in about a third (48) of the 150 markets tracked by RealPage. The sharpest increases were primarily in high-cost mar­ kets such as San Francisco (up 3.0 percentage points), San Jose (up Many of the states with the smallest shares of renters behind on hous­ ing payments were in the West and Upper Midwest, where housing cost burden rates are relatively low and the local economies are less dependent on service industries. The share of renters behind on rent was just 10 percent in Idaho and under 12 percent in Montana, North Dakota, and Utah. MODERATION IN RENTAL DEMAND AMID UPTURN IN SUPPLY The pandemic came on the heels of a nationwide slowdown in renter household growth. After increasing by nearly per year from 2004 to 2016, the number of renter households has since remained essentially flat. Indeed, the latest Housing Vacancy Survey put the total number of renter households at 43.4 million in the first quarter of 2021, just shy of the 43.5 million recorded in 2016. Completions also slowed briefly in the second quarter of 2020 but recovered quickly, climbing to units for the year—the highest annual total since 1989. Completions of professionally managed apartment units also rose throughout 2020, climbing from units at an annual rate in the first quarter to in the fourth quarter. The pace of com­ pletions picked up even further in the first three months of 2021, increasing to a unit annual rate on average. As a result, the national vacancy rate for profes­ sionally managed multifamily rentals increased from 6.7 percent in early 2020 to 6.9 percent in early 2021. J O I N T C E N T E R F O R H O U S I N G S T U D I E S O F H A R V A R D U N I V E R S I T Y 27 which slowed during the pandemic but remained positive through 2020—accelerated from 1.5 percent in the fourth quarter to 3.0 per­ cent in the first quarter of this year. Rent growth for lower-quality apartments was essentially flat, edging up from 1.7 percent in the fourth quarter to 1.8 percent in the first quarter of 2021. RENTAL PROPERTY PRICES HOLDING UP Despite rising vacancy rates and slowing rent growth, apartment property prices were up a relatively strong 7.1 percent year over year in March 2021, according to Real Capital Analytics. Still, the increase was substantially smaller than the 10.2 percent gain a year earlier. At the same time, vacancy rates fell in 101 metros, with especially large declines in Riverside (down 1.9 percentage points) and Virginia Beach (down 1.3 percentage points). SLOWDOWN IN RENT GROWTH With vacancy rates moderating, rents followed suit with only mod­ est gains in early 2021. The annual change in the Consumer Price Index for rent of primary residence—the broadest and most stable measure of rents—dropped from a high of 3.8 percent in March 2020 to just 2.5 percent in April 2021. This was the smallest annual increase in any month since 2012, although still substantially larger than the 1.2 percent rise in prices for all other items. Rents in the higher-quality segment started to rebound as well, recovering from a 1.9 percent year-over-year decline in the fourth quarter of 2020 to a 0.8 percent gain in the first quarter of 2021. At the same time, rent increases for moderate-quality apartments— Although overall mortgage debt remained on the increase, the pace of growth slowed. Multifamily mortgage originations in the first quarter of 2021 were 5 percent below the year-earlier level, with lower transaction volumes more than offsetting the strong demand for refinancing. data indicate that year-over-year growth in transaction volumes in the professionally managed market sank from a 7.5 percent increase in the first quarter of 2020 to a 71.6 percent drop in the second quarter. By the first quarter of 2021, year-over-year transaction volumes were recovering but still down 37.5 percent. Lower returns, in combination with rising property prices, may have dampened investor interest in multifamily properties. Indeed, ris­ ing vacancy rates, declining incomes, and increased operating costs pushed rental property returns deeply into negative territory last year."}, {"role": "assistant", "content": "The National Council of Real Estate Investment Fiduciaries reports that annualized declines in net operating incomes acceler­ ated from 1.5 percent in the second quarter to 10.3 percent in the third and to 17.2 percent in the fourth—the largest drop since 1987."}]}
{"messages": [{"role": "user", "content": "T H E S T A T E O F T H E N A T I O N ’ S H O U S I N G 2 0 2 2 2 Rents for single-family homes rose even faster than those for apartments, pushed up by increasing demand for more living space among households able to work remotely. According to CoreLogic data, single-family rents nationally rose 14 percent in March 2022, the 12th consecutive month of record-high growth. The largest year-over-year increases were in Miami (39 percent) and Cape Coral (28 percent), as well as six other Florida metros. Other Sunbelt metros where single-family rents rose sharply include Phoenix (18 percent) and San Diego (17 percent). Although leveling off from the record surge in 2021, both home prices and rents are still rising because of the severe constraints on supply. Indeed, the inventory of existing homes for sale set a new low of units in January 2022 before edging up to 1.0 million units in April, still down 10 percent from the year-earlier level. Rental vacancy rates in the professionally managed apartment stock also reached an all-time low of 4.8 percent in the third quarter of 2021 and held at just 5.0 percent in the first quarter of 2022. But now with the Federal Reserve in a battle to curb runaway inflation, rising interest rates will likely slow the growth of households along with that of the economy. Even so, household formation rates among young adults are still low relative to those of previous generations at similar ages, suggesting that there is still pent-up demand among the under-45 age group. Increased immigration may also provide a near-term lift to household growth as borders reopen and immi­ gration services return. Indeed, the Pew Research Center reports that green card issuances were back to pre-pandemic levels at the end of 2021. Younger buyers accounted for a substantial share of these new homeowners. Homeownership rates among households under age 35 jumped by 1.5 percentage points over this two-year period, to 38.8 percent, while the rate for households aged 35–44 rose 0.8 percentage point, to 62.3 percent. Indeed, measured from their lows in the first quarter of 2016 to the first quarter of 2022, homeownership rates for these two age groups have rebounded by a solid 4.6 percentage points and 3.4 percentage points, respectively, outpacing the increases among all other age groups. As a result, the number of homeowner households under age 45 rose by 2.7 million over the past five years, to a total of 23.3 million, while their share of all homeowners increased to 28 percent. Households of color accounted for half of the total growth in homeowners between early 2016 and early 2022, and even a larger share (55 percent) of the increas­ es over the past two years. Even so, disparities in home­ ownership remain large. In early 2022, the homeowner­ ship rates of Black households stood at just 45.3 per­ cent—some 28.7 percentage points below the rate for white households. Although the homeownership rate for Hispanic households was somewhat higher at 49.1 percent, the gap was still substantial at 24.9 percentage points. These wide disparities are in part the legacy of centuries of discrimination—in education and labor markets as well as in housing—that has constrained the earning power of households of color. Between high prices and rising interest rates, the home­ buying frenzy has already started to cool. As of mid- May 2022, the Mortgage Bankers Association’s unad­ justed Purchase Index shows a 16 percent year-over- year drop in average weekly home purchase mortgage applications. In addition, sales of existing homes were down each month from January to April, bringing the total decline so far in 2022 to 13.6 percent on a seasonally adjusted basis. Given the additional bump in interest rates in May, home sales are likely to slow even further."}, {"role": "assistant", "content": "PERSISTENT INEQUALITIES IN WEALTH Although making conditions more challenging for first-time buyers, the surge in home prices has been a boon for current homeowners. Federal Reserve data show that, in aggregate, owners’ equity in real estate soared by $4.3 trillion between the fourth quarter of 2020 and the fourth quarter of 2021, to $26.4 trillion. At the same time, the amount of mortgage debt outstand­ ing rose by only $823 billion, to a total of $11.7 trillion. By CoreLogic’s estimates, the typical US homeowner saw an increase in equity of $55,300, although state-level averages reached as high as ."}]}
{"messages": [{"role": "user", "content": "T H E S T A T E O F T H E N A T I O N ’ S H O U S I N G 2 0 2 2 6 prices and rents. Even so, new construction adds supply primarily at the upper end of the market. In just the past two years, the share of new homes that sold for at least increased from a third of all homes to more than half (56 percent). Meanwhile, the typical asking rent for new multifamily units stood at $1,740 per month in 2021, well above the $1,080 afford­ able to the median renter. THE ONGOING AFFORDABILITY CRISIS Job and income losses early in the pandemic increased the affordability challenges for millions of households already struggling to pay for housing. In 2020, the nationwide share of cost-burdened households pay­ ing more than 30 percent of their incomes for hous­ ing stood at 30 percent. Moreover, 14 percent of all households were severely burdened and spent more than half their incomes for shelter. The shares among lower-income households and households of color were also dispro­ portionately high. These shares reflect the first substantial uptick in national cost-burden rates in 10 years and include large increases for some groups of households. In 2019–2020, the cost-burdened shares were up far more for renters (2.6 percentage points) than for homeowners (1.0 per­ centage point), and more for Black households (2.4 per­ centage points) than for white (1.6 percentage points), Asian (0.8 percentage point), and Hispanic households (0.6 percentage point). Although lowest-income house­ holds continued to have the highest cost-burden rate, the share for households earning between $30,000 and $45,000 increased the most—up 4.2 percentage points in 2019–2020, to 46.4 percent. The spike in inflation has compounded the pressures on these financially stressed households. Overall prices shot up 8.6 percent in March from a year earlier, the steepest rise in 40 years, and only edged down to 8.3 per­ cent in April. The cost increases were especially large for necessities such as food (up 11 percent), in-home energy (up 16 percent), and gasoline (up 44 percent). Assuming a constant level of consumption, average household spending on these three items alone jumped by $200 per month from April 2021 to April 2022. So far, the federal approach has been largely reactive, providing funds through the FEMA recovery programs and HUD’s CDBG program. However, repeated damage to the housing stock is costly and poses a serious risk to the housing finance system. THE OUTLOOK Assuming that the Federal Reserve can tame runaway inflation without causing a serious downturn, the near- term outlook for housing demand is largely positive. Demographic shifts are favorable, unemployment is low, and wage growth remains strong. Conditions on the supply side are also encouraging, with supply-chain delays diminishing and a record number of homes set for completion in the coming months. 9 J O I N T C E N T E R F O R H O U S I N G S T U D I E S O F H A R V A R D U N I V E R S I T Y UNPRECEDENTED RISE IN HOUSING COSTS The imbalance between supply and demand sent home prices up sharply in 2021. As measured by the S&P CoreLogic Case-Shiller index, nominal home prices rose at an unprecedented 20.0 percent annual rate in August—more than three times faster than the 5.8 percent increase a year earlier and the fastest pace in records going back more than 30 years. Even after adjusting for inflation, the year-over-year rate of price appreciation was at an all-time high of 12.7 percent. Unlike the previous runup when loose credit and spec­ ulative buying fueled a housing bubble, the current home price surge largely reflects years of underbuild­ ing. In the current market, the number of households with sufficiently high incomes and savings to buy homes far exceeds the for-sale inventory in places Housing markets across the country remain extremely tight. The combination of soaring demand and historically low inventories of available homes pushed both home prices and rents to unprecedented heights in the past year. Although ramping up to its highest level in decades, residential construction is still being held back by supply-chain issues, labor shortages, and regulatory constraints on homebuilding. With interest rates now on the rise, housing markets are headed for a cooldown in 2022 as affordability pressures increase. T H E S T A T E O F T H E N A T I O N ’ S H O U S I N G With the spectacular rise in home prices, the median home price-to-income ratio was at an all-time high in 2021. As estimated by Moody’s Analytics, the median sales price for existing homes last year was 5.3 times the median household income—well above the 4.6 ratio in 2020 and a notable increase from the previous peak of 4.9 in 2005. By comparison, price-to-income ratios averaged 3.9 in the 2010s, 4.1 in the 2000s, and just 3.1 in the 1980s. Soaring prices have kept many would-be homeowners in rental housing, contributing to the already strong growth in renter households. In turn, increased compe­ tition for the limited supply of rentals accelerated the year-over-year rise in typical rents from 0.8 percent in December 2020 to 16.2 percent in December 2021. Such large rent increases make it more difficult for would-be buyers to save for a downpayment, further delaying their transition to homeownership. However, given that home prices have risen even faster than rents, the price- to-rent ratio (typical home value divided by the annual­ ized typical rent) stood at 14.5 at the end of last year, up from 14.1 a year earlier and just 12.2 in 2015. PRICE GROWTH UP NATIONWIDE Home prices have climbed across the country, with all 100 markets tracked by the FHFA Purchase-Only House Price Index posting year-over-year increases in the first quarter of 2022. In fully 67 of these markets, home price appreciation was at record highs at some point since the start of 2021. Home price-to-income ratios were sky-high in many markets in 2021. Median sales prices outstripped medi­ an incomes by a factor of 10 or more in four Western metros, including San Jose (12.6), Honolulu (12.5), San Francisco (11.3), and Los Angeles (10.3). At the same time, price-to-income ratios remained below 4.0 in 26 mar­ kets, with the lowest ratios in McAllen (2.8), Pittsburgh (2.9), Scranton (3.0), Syracuse (3.1), and Wichita (3.1). At the same time, though, the climb in interest rates above the 5.0 percent mark may prevent some home­ owners with low-rate mortgages from selling, further reducing the for-sale inventory. According to FHFA data, over half of outstanding mortgages in the fourth quarter of 2021 had interest rates below 4.0 percent, including 13 percent with rates below 3.0 percent. Homeowners with such low-rate mortgages may hesi­ tate to sell if they have to take on new loans at substan­ tially higher rates. ONGOING RISE IN EXISTING HOME SALES Despite the limited supply of homes and record-high prices, the number of existing homes sold was up again last year. Some 6.1 million homes were sold nationally in 2021, an increase of 8.5 percent from 2020 and the highest level since 2006. Sales of single-family homes rose by 6.8 percent, to 5.4 million, while sales of condos and coops jumped 22.3 percent, to units. Home sales climbed in all four regions, led by 10.2 percent In contrast, sales of new single-family homes fell 6.2 percent last year, to units, with declines across all four regions. The drop was largest in the West (down 10.1 percent), but still significant in the Midwest (down 7.5 percent), South (down 4.4 percent), and Northeast (down 2.7 percent). However, these declines followed a 20.4 percent surge in 2020, leaving new single-family home sales up 12.9 percent in 2021 from 2019. The combination of rising prices and rising interest rates already took a toll on homebuying activity in early 2022. Indeed, the annualized pace of existing home sales fell from 6.5 million units in January to 5.6 million units in April, the lowest rate since June 2020. In addition, the Michigan Surveys of Consumers reported that the share of households that considered it a good time to buy a home stood at just 35 percent in the first quarter of 2022, the lowest reading since the early 1980s. Investors have focused primarily on markets in the South and West. In the fourth quarter of 2021, the high­ est investor share of home sales was posted in Atlanta (41 percent), followed closely by San Jose (38 percent), Phoenix (36 percent), and Las Vegas (36 percent). The investor share was lowest at 14 percent in several markets in the Northeast, including Albany, Buffalo, Pittsburgh, and Rochester. 13 J O I N T C E N T E R F O R H O U S I N G S T U D I E S O F H A R V A R D U N I V E R S I T Y share of existing homes sold for vacation use increased from 5.0 percent in 2019 to 5.5 percent in 2020 and to 6.7 percent in the first four months of 2021. Until then, single-family pro­ duction in the preceding 13 years had lagged below the 1.0 million unit annual rate averaged since 1980. Multifamily starts increased even faster, surging 21.8 percent to units from already high levels. In fact, more multifamily units were started in 2021 than in any year since 1987. Multifamily construction has now topped units for eight straight years, after hitting that mark only twice in the previous quarter- century. Starts of multifamily units continued to climb in the first four months of 2022 to a seasonally adjusted average annual rate of units. The building boom lifted the number of homes under construction above 1.6 million units in April 2022, up 24 percent from a year earlier and the highest total in records dating back to 1970. Homeowner improvement and repair spending also soared. According to the Joint Center’s Leading Indicator of Remodeling Activity, annual homeowner expenditures jumped by more than 11 percent in the first quarter of 2022, to $391 billion. As a result, residential fixed investment—which includes spending on home improvements, manufactured hous­ ing, and brokers’ commissions as well as new construc­ tion—accounted for some 4.7 percent of gross domestic product last year. This is a notable increase from the 3.3 percent average annual share in 2008–2020 and even exceeds the 4.4 percent share averaged since 1970. PERSISTENT BARRIERS TO NEW HOUSING Even with the elevated pace of new construction, sev­ eral barriers continue to limit how much new housing can be built. In the short term, the price and availability of materials remain key constraints. According to the NAHB/Wells Fargo Housing Market Index, 96 percent of builders surveyed in December 2021 considered the price of materials a significant issue, and 91 percent considered availability a significant issue. Echoing these results, multifamily developers responding to an NMHC COVID Construction Survey in August– September were nearly unanimous in reporting that building material prices had increased and that the lack of some materials had affected their operations. Along with other inflationary pressures, these short­ ages have led to higher building material costs. The price of inputs to new residential construction (exclud­ ing capital, labor, and imports) was up 20 percent year over year in February 2022. Although significantly smaller than the 30 percent price jump in midJ O I N T C E N T E R F O R H O U S I N G S T U D I E S O F H A R V A R D U N I V E R S I T Y this increase was still 7 percentage points larger than the year-over-year increase in February 2021. Although slowing somewhat from their hectic pace in 2021, the prices for lumber and wood products continued to climb at a 20 percent clip early this year. The disruption of global supply chains has prevented builders from finishing homes and delivering them to market on time and on budget. According to data from Zonda for March 2022, more than a third of home­ builders experienced serious shortages of windows, home doors, and garage doors, while more than a fifth reported serious shortages of HVAC equipment and appliances. As a result, the average time from authori­ zation to start of a single-family home hit an all-time high of 1.3 months in 2021, while the average time from start to completion was at a 12-year high of 7.2 months. On average, multifamily structures took 2.1 months to start and 15.4 months to complete, on pace with the previous two years but also tied with the all-time high. Limited availability of land and high lot prices also pose significant barriers to housing construction. According to Zonda’s New Home Lot Supply Index, the inventory of single-family lots ready for development fell by 28 percent in the fourth quarter of 2021 from a year earlier and some 44 percent from two years ear­ lier. In 2021 alone, inventory was down in 29 of the 30 large markets tracked by the index, and lot supply in all 30 markets was already significantly depleted."}, {"role": "assistant", "content": "THE OUTLOOK Housing markets are likely to remain tight in the near term. However, the steep rise in interest rates has already cooled homebuyer demand somewhat and should give inventories a chance to rebuild and help slow the pace of price growth. With higher interest rates making homeownership even less affordable, though, these changes will likely reinforce the tight conditions in rental markets."}]}
{"messages": [{"role": "user", "content": "T H E S T A T E O F T H E N A T I O N ’ S H O U S I N G PERSISTENT STRENGTH OF HOUSEHOLD GROWTH Although no reliable annual estimates for 2020 or 2021 are available, the latest Housing Vacancy Survey data indicate that some 3.2 million households were added between the first quarter of 2020 and the first quarter of 2022. This implies average annual growth of 1.6 mil­ lion households, or just short of the 1.8 million average increases in the preceding two years. By this latest count, the total number of US households stood at 127.6 million in early 2022. The current pace of household growth substantially outstrips the Joint Center’s baseline projection of 1.2 million per year in 2018–2028. Nonetheless, private market measures mirror the unexpected strength of demand shown in the Housing Vacancy Survey data. For example, RealPage reports that the number of occupied apartments in the professionally managed rental segment rose by a record units between the first quarter of 2021 and the first quarter of 2022. This large increase is notable given that this segment accounts for only about 13 percent of the housing stock. Two major demographic trends have contributed to the surge in household growth. Over the decade from 2011 to 2021, the population of 25–34 year olds—the age Household growth was unexpectedly robust over the past two years as millennials aged into the prime household formation years, more than offsetting the drastic slowdown in overall population growth. HISTORIC SLOWDOWN IN POPULATION GROWTH The recent strength of household growth is all the more remarkable given the slowdown in population growth. The number of people living in the United States increased just 0.1 percent in 2021, the slowest pace in records going back to 1900. The overall popula­ tion grew by less than people, a fraction of the 2.0 million annual average increase from 2011 to 2020. T H E S T A T E O F T H E N A T I O N ’ S H O U S I N G International immigration receded to a trickle between 2016 and 2021, driven down first by federal policies dis­ couraging immigration and then by pandemic condi­ tions that limited entry into the country. According to the Census Bureau’s Population Estimates Program, net immigration dropped from a recent peak of 1.07 million in 2016 to in 2019, and then by more than half to just in 2021. Given the typical lag between the time when new immi­ grants arrive in this country and when they form new households, the severe drop in immigration has not yet become a noticeable drag on overall household growth. However, it has already had a significant impact on states that rely on immigrants to buoy population growth. The state experiencing the largest decline was California, where net international immigration plunged from a recent peak of in 2015 to 14,000 in 2021. New York also posted a sharp decrease from 84,000 to 18,000 over this period. Meanwhile, natural population change contributed even less than immigration to population growth in 2021. The number of births had been declining well before the pandemic, notching down from 4.0 million in 2011 to 3.8 million in 2019. At the same time, the annual number of deaths climbed from 2.5 million to 2.8 million, due in part to the aging of the population. After the onset of the pandemic, births fell again to 3.6 million in 2021, while deaths shot up to 3.4 million. As a result, births exceeded deaths by only last year—a small fraction of the difference as recently as 2019 and the 1.5 million difference in 2011. GROWING DIVERSITY OF DEMAND The increasing racial and ethnic diversity of house­ holds, as well as the aging of the overall popula­ tion, are reshaping housing demand. According to the new Decennial Census, the US population grew by almost 23 million from 2010 to 2020. People of color accounted for all of the net increase, with the Hispanic population growing by nearly 23 percent, the Asian population by 36 percent, and the Black population by 6 percent. The largest proportional increase was in the number of people identifying as multiracial, which jumped some 127 percent to almost 8 million. Meanwhile, the white population declined by nearly 3 percent over the decade. People of color also drove most of household growth. The latest Housing Vacancy Survey indicates that people of color formed 11.0 million of the 14.5 million households added from Q1 2011 to Q1 2022. The largest absolute increase was among Hispanic householders, up 40 percent to 18.6 million. The number of Black householders also rose by 18 percent to a total of 16.5 million, while the number of multiracial householders grew by 36 percent to 1.7 million. However, the largest proportional gain was among householders identifying as Asian or another race, whose numbers were up 53 percent to 8.1 million."}, {"role": "assistant", "content": "The increasing diversity of households has several implications for future housing demand. First, there is evidence that people of color are more likely to live in households that include at least three generations. In 2019, 7.6 percent of Hispanic householders lived in mul­ tigenerational settings, along with 6.9 percent of Asian householders and 5.3 percent of Black householders. By comparison, the share among white householders was just 2.5 percent. As multigenerational households become more common, demand will increase for larger homes with floorplans and features that can accom­ modate the needs and preferences of both older and younger occupants."}]}
{"messages": [{"role": "user", "content": "T H E S T A T E O F T H E N A T I O N ’ S H O U S I N G Households of color are also more likely to have expe­ rienced recent income losses. According to Household Pulse Survey data for early percent of Hispanic households reported lost employment income within the previous four weeks, along with 20 percent of Black households, 20 percent of households identifying as another race or multiracial, and 12 percent of Asian households. The share for white households was only 11 percent. CONTINUING TRENDS IN HOUSEHOLD MOBILITY The decades-long slowdown in residential mobility con­ tinued in 2021. According to Current Population Survey data, only 8.5 percent of US households moved last year, down from 10.7 percent annually on average in 2011– 2020. The decline occurred across all age groups, with the sharpest drops among the age groups most likely to relocate—householders aged 18–24 (from 41.2 percent to 37.0 percent) and aged 25–34 (from 22.7 percent to 19.3 percent). The mobility rate for renter households also fell significantly, from 22.7 percent annually on average in 2011–2020 to 16.8 percent in 2021. A recent Housing Studies article pointed to housing shortages and worsening affordability since the Great Recession as a reason for the sharp decrease in mobil­ ity rates over the past decade. Current housing market conditions therefore suggest that residential mobility rates will slow even further."}, {"role": "assistant", "content": "Sharply higher interest rates will likely reduce relocations among the many households that recently bought homes or refinanced, while record-low vacancy rates and rapidly rising rents will likely keep many renters in place. THE OUTLOOK Household growth should remain robust in the short term. The sheer size of the millennial generation will continue to fuel increases as this large cohort moves through the age range of 24–34 when household forma­ tion rates are highest. Many other adults who fared well financially during the pandemic are also in a posi­ tion to form independent households."}]}
{"messages": [{"role": "user", "content": "In the longer term, housing demand is set to decline dramatically with the slowdown in population growth and the changing age structure of the population. Over the next decade, millennials will move out of the prime household formation years and be replaced by the small­ er Gen Z generation in this age group. At the same time, the oldest baby boomers will be reaching their 80s, the age when mortality rates start to climb sharply. These trends will weaken the pace of household formations and ultimately curb the growth of housing demand. With more younger households financially ready to purchase homes, the share of first-time buyers increased last year. According to NAR’s 2021 Profile of Home Buyers and Sellers report, first-time buyers accounted for 34 percent of all purchases between July 2020 and July 2021, up from 31 percent in the preced­ ing year and the highest share since 2017. However, trends in more recent mortgage lending data are mixed. In either case, GROWING PRESSURE ON AFFORDABILITY The average rate on a 30-year mortgage hit a record low of 2.68 percent in December 2020 and remained under 3.00 percent through most of 2021. Even though home prices continued to climb, these rock-bottom rates helped many first-time buyers qualify for mortgages while also providing current owners a chance to reduce their monthly mortgage payments through refinancing. In turn, the substantial increase in monthly payments pushed up the amount of income necessary to qualify for a mortgage. In April 2021, a household had to earn at least $79,600 a year to afford payments on the median- priced home of . One year later, the income requirement stood at . According to the latest American Community Survey data, this cost increase meant that roughly 4 million renter households earning between $79,600 and that could have bought a median-priced home last year could no longer afford that home in April 2022. These amounts far exceed the typical renter’s sav­ ings. At last measure in 2019, the Survey of Consumer Finances estimated that the median savings of renter households was just $1,500. Indeed, renters in the top income quintile had only $26,100 in savings, or just under the 7.0 percent of the median sales price that first-time buyers typically put down. Even if home price growth slows, the gap between renter household savings and downpayment costs at current prices will remain a significant obstacle for first-time buyers, leav­ ing many potential homeowners on the sidelines. STUBBORNLY LARGE RACIAL/ETHNIC DISPARITIES Despite recent modest gains, homeownership gaps by race and ethnicity remain wide. According to the T H E S T A T E O F T H E N A T I O N ’ S H O U S I N G Housing Vacancy Survey, the share of Black house­ holds owning homes was at 45.3 percent in early 2022, up 0.6 percentage point from early 2020—twice the 0.3 percentage increase for white households. But with fully 74.0 percent of white households owning homes, the Black-white gap still stood at 28.7 percentage points. Meanwhile, the homeownership rate among Hispanic households increased by just 0.2 percentage point, to 49.1 percent, slightly widen­ ing the gap with white households to 24.9 percent­ age points. UNEQUAL BENEFITS FROM RISING PRICES Surging home prices have given a big lift to the balance sheets of current owners."}, {"role": "assistant", "content": "The latest Federal Reserve Flow of Funds data show that real aggregate owners’ equity in real estate rose for 39 consecutive quarters, increasing from $10.1 trillion in early 2012 to a new peak of $26.3 trillion at the end of 2021. Meanwhile, real aggregate home mortgage debt remained essentially flat, dipping from $11.9 trillion in 2012 to a low of $11.0 trillion in 2014 before rising to $11.7 trillion at the end of last year."}]}
{"messages": [{"role": "user", "content": "The low rates for delinquencies and foreclosures so far attest to the effectiveness of federal interventions that helped millions of homeowners weather the economic disruptions brought on by the pandemic. According to Black Knight, of all borrowers that were ever in for­ bearance between March 2020 and April per­ cent exited their plans. Among this group, 53 percent were current on their mortgage payments, 29 percent had paid off their loans by refinancing or selling, and only 10 percent remained in delinquency or were in active foreclosure. The Homeowner Assistance Fund (HAF) may provide some relief for homeowners still experiencing financial hardship. Created by the American Rescue Plan Act, this program has nearly $10 billion in funding to help income- eligible homeowners cover their mortgage payments, utility bills, or insurance costs. Recipients may also use the funds to pay down principal or lower the interest rate on their mortgages to ensure long-term affordabil­ ity. State, territory, and tribal agencies are responsible for establishing programs to administer this aid. According to the National Council of State Housing Agencies, most states had their HAF programs up and running by May 2022, although six (including the District of Columbia) were still in the pilot stage and three only had prelimi­ nary information on programs available. After a brief dip in 2020, rent growth in the profes­ sionally managed segment hit a record 11.6 percent at the end of 2021 and remained at that pace in the first quarter of 2022. This was the largest year-over-year increase in two decades and more than three times the 3.2 percent average annual rise in the five years preced­ ing the pandemic. According to data, asking rents for higher- quality (4- and 5-star) apartments fell the most early in the pandemic but also rebounded the fastest, increas­ ing at a record 14.0 percent year-over-year rate in the fourth quarter of 2021 and then at a 13.5 percent rate in the first quarter of 2022. The recent pace of growth is more than five times the 2.5 percent annual average in 2015–2019. Rents for moderate-quality (3-star) units were also up by a substantial 12.1 percent in early 2022 from a year earlier, or more than three times their pre- pandemic average of 3.8 percent. Meanwhile, rents for lower-quality (1- and 2-star) units rose 5.9 percent year over year in the first quarter of 2022, well above the 3.5 percent growth rate averaged in 2015–2019. Rental markets across the nation bounced back quickly from the pandemic-induced downturn, with rents rising at a record pace and vacancy rates hitting new lows. Although at a decades-long high, multifamily construction has not kept up with the growth in rental demand even at the upper end of the market. These tight conditions have boosted returns from multifamily properties and in turn sparked a surge in new investment. At the same time, however, job and income losses over the past two years have left many lower-income households and households of color unable to cover their rents and potentially at risk of eviction. 31 J O I N T C E N T E R F O R H O U S I N G S T U D I E S O F H A R V A R D U N I V E R S I T Y Rents for single-family homes also surged. CoreLogic reports that single-family rents shot up 12.4 percent year over year in the first quarter of 2022, the fastest pace in records going back to 2004. The increase in February alone of 13.1 percent was also an all-time high. By comparison, year-over-year rent growth for single- family homes averaged just 3.1 percent in 2015–2019. The rapid climb in single-family rents since 2020 in part reflects the jump in demand for more living space after the pandemic forced the closure of offices and schools. T H E S T A T E O F T H E N A T I O N ’ S H O U S I N G Of the 34 metros where year-over-year rent growth was under 10 percent, most were in the Midwest (15 markets) and Northeast (11 markets). Just 8 were in the South, and none were in the West. Rent growth was lowest but still positive in Midwestern markets that include Champaign-Urbana (1 percent), Youngstown (2 percent), and Fargo, Madison, and Minneapolis (all at 5 percent). In general, lower-cost housing markets posted relatively modest increases in rents. REBOUND IN RENTAL DEMAND Despite the pandemic and recession, renter household growth continued to climb between early 2020 and early 2022. According to the Housing Vacancy Survey, the number of households that rented their housing grew by 1.1 million over this two-year period, to 44.2 mil­ lion. This implies an average annual increase of about households, significantly exceeding the year- over-year addition of households in the first quarter of 2019. Demand for rental units in the professionally man­ aged segment bounced back sharply in the past year. RealPage reports that net new leases for profession­ ally managed apartment properties were up by units in the first quarter of 2022 compared with a year earlier, the largest annual increase in net occupancy in records going back to 2000. VACANCY RATES AT NEW LOWS The resurgence in rental demand left the national vacan­ cy rate at a record low last year. Housing Vacancy Survey data indicate that the vacancy rate fell in each quarter of 2021, ending the year at 5.6 percent—the lowest quarter­ 33 J O I N T C E N T E R F O R H O U S I N G S T U D I E S O F H A R V A R D U N I V E R S I T Y ly reading since 1984. Although edging up to 5.8 percent in the first quarter of 2022, the vacancy rate remained a full percentage point below the average in 2019. Conditions in the professionally managed stock are especially tight. According to data, the vacan­ cy rate in this segment hit a record low of 4.8 percent in the third quarter of 2021 and held at just 5.0 per­ cent in the first quarter of 2022. By comparison, the vacancy rate for professionally managed apartments averaged 6.1 percent annually in the five years pre­ ceding the pandemic. This latest reading is 0.9 percent­ age point lower than the pre-pandemic average. Even so, conditions in other urban and suburban areas are even tighter. The rental vacancy rate in other urban neighborhoods stood at just 4.6 percent in early 2022 (0.9 percentage point below the 2015–2019 annual average) while that in suburban markets was at 4.8 percent (a full 1.5 percentage points below the 2015–2019 average). According to RealPage data for 150 markets, the num­ ber of metros with vacancy rates below 2 percent jumped from just 10 in the first quarter of 2021 to 56 in the first quarter of 2022. At the same time, the number of markets where vacancy rates were falling in early 2022 surged to an astounding 144, up from 101 in early 2021. However, these unusually tight conditions may begin to ease as the large supply of new apartments now under construction becomes available. JUMP IN NEW RENTAL SUPPLY With vacancy rates so low and demand so high, rental housing construction is booming. In 2021, starts of mul­ tifamily units reached —the highest level since the mid-1980s and 24 percent above the average annual increases in 2015–2019. Of those units, 88 percent were in larger buildings with 20 or more apartments. In addition, fully 94 percent of all multifamily units started last year units) were intended for the rental market. But even at this elevated pace, completions of new rental housing have not caught up with the record- breaking growth in absorptions. In the five years pre­ ceding the pandemic, supply and demand for profes­ sionally managed apartments were in much closer balance, with annual completions averaging units and net new leases averaging units. But as RealPage data show, despite completions running at a robust unit annual rate in the first quarter of 2022, the number of occupied apartments was rising at more than twice that pace. It will take a significant increase in housing production for the rental supply to match such strong demand. CONSTRUCTION TARGETED TO THE HIGH END New rental construction has added supply almost exclusively at the upper end of the market. Although helping to meet strong demand from higher-income households, these new units have rents that are gener­ ally out of reach for low- and moderate-income house­ holds. According to preliminary data from the Survey of Market Absorption, the median asking rent for newly completed units in 2021 was $1,740, up 24 percent from the median in 2015. Meanwhile, the share of newly completed units renting for less than $1,250 fell from 39 percent in 2015 to 15 percent in 2021, including a drop in the share of units renting for less than $850 from 9 percent to just 2 percent. The central location of new multifamily construction has contributed to high asking rents. According to the NAHB Home Building Geography Index, 41 percent of multifamily permitting between 2016 and 2021 was in core counties of large metro areas, where land prices have risen sharply in recent years. Added amenities have also helped to push up asking rents. For example, the share of newly completed multifamily units built for rent offering in-unit laundry facilities increased from 70 percent in 2010 to 89 percent in 2020. Although the overall share of new rental units with air conditioning only edged up from 93 percent to 95 percent over the past decade, the share in the Northeast increased some 14 percentage points in 2010–2020, to 99 percent. Another factor in high asking rents is the increasing size of new apartments. The share of new multifamily rental units with less than 1,000 square feet declined from 45 percent in 2000 to 37 percent in 2020, while the share with at least 1,400 square feet rose from 9 percent to 12 percent. Even so, the share of newly completed rentals that were studios or one-bedroom units rose from 37 percent to 53 percent, while the share with two bedrooms fell from 47 percent to 39 percent, and that with three or more bedrooms dropped from 15 percent to 8 percent. SURGE IN RENTAL PROPERTY INVESTMENT With vacancy rates at record lows and rent growth at record highs, the National Council of Real Estate Investment Fiduciaries Property Index shows a 24.1 percent jump in returns on investment in multifamily apartment properties in the four quarters ending in early 2022. Much of this strength comes from a rebound in net operating incomes, which were up 23.5 percent over the year—a spectacular comeback from the 17 per­ cent year-over-year drop in the fourth quarter of 2020 and further declines in the subsequent two quarters. The current pace of growth is more than four times the 5.3 percent average annual increase in 2015–2019. Meanwhile, rental property prices reached a 20-year high in early 2022. Real Capital Analytics data indicate that year-over-year price appreciation hit a record 22.5 per­ cent in February and only inched down to 22.4 percent in March. The February and March readings were three times the pandemic low of 7.3 percent in September 2020 and more than double the 8.4 percent average monthly increases in 2019. With property prices rising so rapidly, Multifamily loan originations also increased signifi­ cantly in late 2021. According to the MBA Commercial/ Multifamily Mortgage Bankers Originations Index, originations were up 57 percent year over year in the fourth quarter of 2021, raising multifamily mortgage debt outstanding to $1.8 trillion. At the same time, delinquency rates for multifamily mortgages remained historically low. By the FDIC’s measure, the delinquency rate for loans secured by multifamily properties in late 2021 was double the late 2019 rate but still near historic lows at just 0.25 percent. According to Household Pulse Surveys covering late December through April, one in five renter households said that they had lost income in the preceding four weeks. Although declining from a peak of 19 percent, the share of households behind on rent in early 2022 was still at a concerning 15 percent. The shares of renters in arrears varied widely by state, ranging from a high of 23 per­ cent in Mississippi, followed by Louisiana, New York, and New Jersey, to a low of just 7 percent in Idaho, fol­ lowed by Utah, Vermont, and Montana. The longer-term picture is quite different from today’s overheated conditions. Over the next decade, the millennials will be replaced in the prime house­ hold formation years by a smaller generation, reduc­ ing the demand for housing among young adults. At the same time, the baby boomers will age into their late 70s, the time of life when mortality rates begin to rise more quickly. And with overall population growth already at historic lows, household growth will ultimately slow as well, dragging down the demand for rental housing. Disproportionately large shares of renters that lost income or were behind on rent have lower incomes or are households of color. Fully 27 percent of renter households earning less than $25,000 said that they had lost income in the previous four weeks, compared with 9 percent of those with incomes of $75,000 or more. Since lower-income households are also more likely to have housing cost burdens and limited savings to cover those income losses, they are also more likely to have fallen behind on rent. Indeed, 21 percent of lower- income renters stated that they were in arrears—more than four times the 5 percent share of households mak­ ing $75,000 or more. 37 J O I N T C E N T E R F O R H O U S I N G S T U D I E S O F H A R V A R D U N I V E R S I T Y THE AFFORDABILITY SQUEEZE Millions of US households are unable to afford their housing. According to the American Community Survey, nearly a third of households spent more than 30 percent of their incomes on housing costs in 2020, including 14 percent that spent more than half of their incomes for shelter. Renters were particularly hard-pressed, with 46 percent at least moderately cost burdened and 24 percent severely burdened. Just over a fifth of homeowners also had cost burdens, including 9 percent with severe burdens. T H E S T A T E O F T H E N A T I O N ’ S H O U S I N G households that moved because asking rents and home prices were climbing even more rapidly. Historically high inflation in the prices for all other goods—includ­ ing energy (up 16 percent), gasoline (up 44 percent), and food (up 11 percent)—has added to the financial strain on household budgets. The surge in energy prices has hit lower-income households especially hard, given that they typically spend about 12 percent of their limited incomes on monthly utility costs. HOUSING INSTABILITY ON THE RISE With government protections now ended, eviction filings have picked up pace. In fact, evictions were increasing even before the Supreme Court struck down the federal moratorium in August 2021 and continued to climb through December as state-level measures expired and emergency rental assistance ran out in some locations. T H E S T A T E O F T H E N A T I O N ’ S H O U S I N G Just over $46 billion in emergency rental assistance was targeted to households that lost income during the pandemic. As of March 2022, 5.3 million payments— covering current and back rents, plus utility expens­ es—had been made on behalf of these hard-hit rent­ ers. According to the National Low Income Housing Coalition, states and localities still had about $20.4 billion left to spend in early May 2022."}, {"role": "assistant", "content": "Meanwhile, ARPA allocated nearly $10 billion for the Homeowner Assistance Fund to help owners experi­ encing financial hardship pay their mortgages, home­ owner’s insurance, and utilities. As of early June states and Washington, DC, were serving homeowners in need, while the remaining states were expected to open their programs soon."}]}
{"messages": [{"role": "user", "content": "ARPA also includes ongoing support for affordable housing and homelessness services through the Coronavirus State and Local Fiscal Recovery Funds pro­ gram. The National Council of State Housing Agencies estimates that 24 states applied these allocations to affordable housing initiatives, utility payment assis­ tance, or grants for struggling tenants and landlords, with outlays totaling more than $8 billion by April 2022. At the local level, estimates from the Brookings Institution indicate that some $2.3 billion of ARPA funds had gone toward housing-related activities as of February, including $867 million for projects to expand the affordable supply and $1.1 billion for housing and services for people experiencing homelessness. LONGER-TERM ASSISTANCE NEEDS The stopgap measures put in place over the past two years underscore the need for substantial, consistent investment in affordable rental housing. At last count in 2019, some 7.8 million unassisted households with very low incomes had severe cost burdens, lived in severely inadequate housing, or both. Moreover, just one out of every four income-eligible renter households actually receives federal assistance. According to the Center on Budget and Policy Priorities, there were house­ holds on waiting lists at just 44 housing agencies in 2021. One drawback of both the Section 8 and LIHTC pro­ grams is that the units they support can revert to market rate once their affordability periods expire. The Public and Affordable Housing Research Corporation and NLIHC estimate that project-based Section 8 and LIHTC units could come to the end of their affordability periods by 2025. The dwindling stock of rural USDA Section 515 housing is also at severe risk of loss. According to the Housing Assistance Council, an average of 2,000 USDA-subsidized units will exit the program annually in 2022–2027, and the affordability requirements on all units will expire by 2050. The Housing Choice Voucher program provides its 2.3 million recipients greater options about where they live. However, the effectiveness of vouchers depends on the participation of private landlords and the avail­ ability of suitable housing that meets HUD’s payment standards. The regulatory requirements of the program can be onerous for landlords, who are under no obliga­ tion to accept vouchers in most places. Indeed, a 2018 Urban Institute study in five cities found that 59 per­ cent of tests simulating rental inquiries from voucher holders were denied."}, {"role": "assistant", "content": "With limited federal funds available and millions of renters with unmet housing needs, state and local gov­ ernments increasingly use bonds to fund the produc­ tion and preservation of affordable units. In 2020 alone, state agencies issued more than $17.2 billion in multi­ family private activity bonds, surpassing the previous year’s record high of $16.4 billion. In addition, more than 820 state and local housing trust funds generate about $3 billion annually for affordable housing through developer impact fees, real estate transfer taxes, sales taxes, property taxes, and general funds."}]}
{"messages": [{"role": "user", "content": "EXPANDING THE MARKET-RATE SUPPLY The national housing shortage is not just in affordable homes. According to Freddie Mac estimates, the short­ fall in market-rate housing both for sale and for rent amounts to some 3.8 million units. Although the federal government has limited power to expand the residential stock, the Biden Administration’s new Housing Supply Action Plan would advance this goal by giving commu­ nities higher scores on competitive grants if they reduce exclusionary zoning and other regulations that severely restrict housing development. State and local zoning reforms have in fact gained traction in recent years, allowing construction of other types of housing in areas previously limited to single-family homes. Minneapolis and Oregon took the lead with changes that went into effect in 2020 and 2021, followed by California in 2022."}, {"role": "assistant", "content": "MEETING THE NEEDS OF AN AGING POPULATION The Joint Center projects that the number of house­ holds headed by adults age 65 and over will surge from about 33 million in 2018 to more than 50 million in 2038, lifting the older-adult share of all households from 26 percent to 34 percent. In addition, the number of house­ holds in their 80s and older is expected to more than double from 8.1 million to 17.5 million over this period."}]}
{"messages": [{"role": "user", "content": "01 Housing markets continue to cool even as homeowners and renters face higher costs. On the for-sale side, home sales and construction levels are declining, as is the pace of home price appreciation, while rental markets are experiencing sharply reduced rent growth and rising vacancy rates. Nevertheless, home prices and rents remain elevated from pre-pandemic levels. Millions of households are now priced out of homeownership, grappling with housing cost burdens, or lacking shelter altogether, including a disproportionate share of people of color, increasing the need for policies to address the national housing shortfall at the root of the affordability crisis. Likewise, there is growing urgency for public and private investment to address longstanding disinvestment in underserved communities of color, adapt the housing stock to increasing risks of climate change, and expand options for older adults to age safely in their communities. Asking rents nationally also rose year over year, though the rate of growth has slowed considerably. Annual rent growth also slowed over Notes: Asking rents are for professionally managed apartments in buildings with five or more units. Home prices in 2023q1 reflect data for January and February only. Source: JCHS tabulations of RealPage data; S&P CoreLogic Case- Shiller US National Home Price Index. Still, housing costs remain high relative to pre-pan­ demic levels. Between the beginning of 2020 and early 2023, asking rents in the professionally managed sector rose 23.9 percent. Similarly, nominal home prices rose an astounding 37.5 percent, helping to push up the median sales price for existing homes from just before the pandemic to in March 2023. In the face of higher home prices, first- time homebuyers must save even more to afford the up-front and downpayment costs needed to secure a mortgage, and require ever-higher incomes for the ongoing payments. In the near term, home prices are unlikely to return to pre-pandemic levels, due largely to the low number of homes available for purchase. However, the run-up in home prices during the pandemic has resulted in record-high levels of home equity for existing home­ owners. According to the Federal Reserve, homeowner equity totaled $31.0 trillion in the fourth quarter of 2022, $7.7 trillion higher than in the first quarter of 2020 after adjusting for inflation. On average, homeowners had in equity, according to CoreLogic. Meanwhile, renter household growth slowed in 2022 following a brief mid-pandemic surge in late 2021. The slowdown has been most evident in professionally managed apartments, thanks in part to rising rents and the increased number of households with higher incomes transitioning to homeownership. Looking forward, total household growth is likely to slow in the coming few years, in part because much of the pent-up demand for household formation among young adults has been released, and also because of deteriorating affordability and slowing population growth, the primary long-term driver of household growth. The oldest baby boomers are turning 77 this year and as they continue aging the death rate will eventually exceed that of births, making immigration the country’s main source of population growth. But, compared with natural growth, immigration is much less predictable. However, homeownership growth of this magni­ tude is unlikely to continue in 2023. First-time home­ buying plummeted in the second half of last year in response to sharply rising interest rates that have significantly increased the cost of homeownership. Median monthly payments then settled to $3,000 by March 2023 as interest rates plateaued at 6.5 percent, but Monthly Mortgage Payment on US Median-Priced Home (Right scale) 30-Year Mortgage Interest Rate Note: Monthly mortgage payments include principal, interest, taxes, and insurance (PITI) and assume a 3.5% downpayment on a 30-year fixed-rate loan, 0.85% mortgage insurance, 0.35% property insurance, and 1.15% property taxes. Source: JCHS tabulations of Freddie Mac, Primary Mortgage Market Surveys; National Association of Realtors (NAR), Existing Home Sales. Agency data provided by the Urban Institute show a 22 percent annual decline in the number of mortgages originated to first-time home­ buyers in 2022, including a year-over-year drop in the fourth quarter of nearly 40 percent. Note: Single-family and multifamily historical averages are of seasonally adjusted monthly data from January 1990 to March 2023. Source: JCHS tabulations of US Census Bureau, New Residential Construction. While estimates of the degree of the undersupply vary significantly, there is widespread agreement that new supply has not kept pace with demand, compressing vacancy rates and limiting the supply of homes for sale. In March 2023, just existing homes (including single-family homes) were avail­ able for purchase, an uptick from the all-time inventory lows reached during the pandemic but still 42 percent less than in 2019, when supply was already historically low. Movement in both interest rates and the economy will help determine whether single-family construction rebounds in 2023. Either way, there remains an urgent need for more new single-family construction. Multifamily Construction Thriving Unlike single-family homebuilding, multifamily construction continued to rise in 2022 even as rental demand softened. Indeed, new multifamily units were started last year, the highest number since the mid-1980s. Plus, fully units in multifamily buildings were under construction as of March 2023, the highest number in half a century. Meanwhile, rental vacancy rates are rising, which suggests a forthcoming slowdown in multifamily construction when combined with higher interest rates, tightening lending standards, and weak developer sentiment. The overall rental vacancy rate climbed to 6.4 percent in the first quarter of 2023 after falling to a four-decade low of 5.2 percent in late 2021. Like­ wise, the vacancy rate for professionally managed apartments has more than doubled from a record low of 2.5 percent in 2022 to 5.2 percent in early 2023, with vacancy rates highest for the highest-cost (Class A) units, at 5.6 percent, and lowest for the lower-cost (Class C) units, at 4.7 percent, suggesting the market for these units remained relatively tight. Given that the bulk of new construction targets the higher-cost market segment, the robust pipeline of multifamily units may lead to additional vacancy rate increases that will simultaneously help to limit rent growth for high-cost units, while likely providing less relief to renters with lower incomes. According to data from the Survey of Market Absorption, the median asking rent for newly completed multifamily units in 2022 was $1,800 and thus affordable only to households earning more than $72,000 assuming the 30 percent of income affordability standard. Moreover, fully 36 percent of newly completed multifamily units had asking rents of $2,050 or more, while just 5 percent had asking rents below $1,050, leaving renters with low and moderate incomes to reckon with a stubbornly tight supply of moderate- and lower-priced apartments. Cost Burdens Reach Record Levels Rising housing costs, coupled with pandemic-era income losses, produced the most significant drop in housing affordability in years, as seen in the most recent Census data. Among these, 11.6 million were severely cost burdened, spending more than 50 percent of their income on housing. Although the share of renter households with cost burdens had been steadily declining in the past decade, the trend reversed during the pandemic. Between 2019 and 2021, the share of cost-burdened renters grew by * 2021 Severely Burdened Moderately Burdened Notes: Moderately (severely) cost-burdened households spend more than 30% (more than 50%) of income on housing. Estimates for 2020 are omitted due to data collection issues experienced during the pandemic. Source: JCHS tabulations of US Census Bureau, American Community Survey 1-Year Estimates. Likewise, the number of cost-burdened homeowners increased by 2.3 million to 19.0 million, including 8.7 million who were severely cost burdened in 2021. This increase upturned a years-long decline in the share of home­owners with cost burdens and drove the cost- burden rate up by 1.5 percentage points to nearly 23 percent of homeowners. In total, 40.6 million house­ holds were cost burdened in 2021, including 20.3 million who were severely burdened. Predictably, cost burdens affect the vast majority of households with lower incomes, including 86 percent of those with incomes below $15,000 and 68 percent with incomes between $15,000 and $29,999. But, cost-burden rates are rising quickly among those higher up the income scale, particularly among renters. Between 2019 and 2021, the share of cost- burdened renters with incomes between $30,000 and $44,999 increased 3 percentage points to 63 percent. Meanwhile, the share of cost-burdened renters earning between $45,000 and $74,999 increased by 4 percentage points to 34 percent—the largest increase of any income group. With such high housing costs, many households with lower incomes may struggle to pay for other neces­ sities like food, clothes, and healthcare, which have become more expensive as inflation has risen. In 2021, the median renter and homeowner households with incomes under $30,000 had just $380 and $680 per month, respectively, after paying for housing to cover other necessities—the lowest residual incomes in two decades. Residential Mobility Shifting Geography of Housing Demand Mobility patterns dominant during the pandemic persisted in 2022, as people continued to move into lower-cost, lower-density areas. Social distancing put a premium on living space and motivated moves to less expensive suburban and rural areas. But as the pandemic has eased, the share of people working from home has remained elevated for many occupations, sustaining demand for housing in lower-cost areas. Longer-distance moves to states with warm climates and lower housing costs also remained high in 2022. Regionally, the South saw the largest net inflows, led by Texas, Florida, and North Carolina. Some moun­ tain states, including Montana and Wyoming, also recorded net gains in movers from other states. As such, domestic migration has become the largest source of population growth in 20 states and the largest source of population decline in 23 states. Further jeopardizing homes is the increasing damage from climate-related disasters. CoreLogic estimates that more than 14.5 million homes were affected by hazards in 2021, amounting to $57 billion in damage. Even more homes are at potential risk, including 60 million units located in areas with at least moderate expected annual losses. Federal programs that help communities and households repair their homes after disasters are crucial for minimizing losses in housing stock. In 2022 alone, the Federal Emergency Manage­ ment Association (FEMA) provided $1.9 billion to 1.2 million households through its Individuals and House­ holds Program, defraying the cost of home repairs and other recovery needs. The number of people experi­ encing homelessness on a given night in January 2022 was a 0.3 percent (2,000 people) increase from 2020. That homelessness didn’t increase more may indicate that government supports limited evic­ tions and provided emergency rental assistance. The expiration of renter protections and the looming end of rental assistance could leave more people unhoused. Disaster Recovery funds in 2021–2023 to help commu­ nities rebuild after disasters. While these recovery efforts are important, reduced development in high- risk areas, improvements to the stock to mitigate future damage, and better awareness of risk will be needed to adapt to climate change over the long term. Moreover, the housing stock requires modifications to mitigate its impact on climate change given that homes are responsible for 20 percent of US green­ house gas emissions. Recent federal efforts to reduce housing’s contribution to greenhouse gas emissions have been substantial. The 2022 Inflation Reduction Act provided nearly $9 billion for energy-efficiency and electrification rebates and extended the Resi­ dential Clean Energy Credit, which helps homeowners offset the costs of renewable energy improvements. A one-time $3.5 billion infusion into the Weatheriza­ tion Assistance Program will further support energy- efficiency upgrades for households with lower incomes."}, {"role": "assistant", "content": "Meanwhile, multifamily construction has remained strong, with a record number of apartments under construction. However, most of this new housing supply targets renters with high incomes, and renters with lower and moderate incomes will likely find little relief."}]}
{"messages": [{"role": "user", "content": "02 H O U S I N G M A R K E T S After reaching record highs during the pandemic, home price and rent growth have fallen through early 2023 as interest rates rose sharply, affordability worsened, and housing demand softened. In the for-sale market, significantly fewer homes sold in 2022. Despite historically low levels of supply, single-family homebuilding also declined. Likewise, in the professionally managed apartment market, the number of renter households dropped and vacancy rates returned to pre-pandemic levels. Nevertheless, multifamily development remained robust, with the number of units under construction the highest in half a century. Decelerating Home Price Growth As mortgage interest rates rose sharply in 2022, the for-sale housing market cooled rapidly, leading to a decline in home prices. According to Center tabula­ tions of the S&P CoreLogic Case-Shiller home price index, monthly home prices dipped 0.2 percent in January 2023 on a seasonally adjusted basis, the seventh consecutive month of declines following 124 months of growth, before ticking up slightly in February. After adjusting for inflation, real home prices declined 2.8 percent relative to the prior year. Late 2022 was the first decline in real home prices in over a decade. Nominal home prices declined year over year in fully a quarter of the 100 large markets tracked by the Freddie Mac House Price Index in March 2023, compared with zero metros a year earlier. Prices dropped most sharply in previously hot Western markets such as Boise, down 11.8 percent, and Austin, down 8.8 percent, and also fell significantly in Northern California, where the lack of affordability, a slumping tech sector, and the preva­ lence of remote work likely softened demand. While prices rose in the remaining 75 markets, the rate of increase slowed across the board. Despite this slowdown, prices continued to rise in most markets. Knoxville was the lone market with double- digit price growth—up 10.5 percent year over year in March—as compared with all 100 metros a year earlier. On an annual basis, home prices rose most rapidly in the South, including Greensboro (8.8 percent), Columbia (8.0 percent), and Charleston (7.8 percent). Some Northeast and Midwest markets experienced similarly swift appreciation, including New Haven (7.5 percent), Syracuse (7.1 percent), Youngstown (7.1 percent), and Omaha (6.9 percent). Although national home prices have declined in the past several months, they have risen astoundingly when measured from the start of the pandemic. Between February 2020 and February 2023, nominal home prices jumped a stunning 37.5 percent, or 17.5 percent after accounting for inflation. Over the longer term, nominal home prices since 2010 have more than doubled—rising 102.2 percent—while real home prices have climbed 51.5 percent."}, {"role": "assistant", "content": "As long as interest rates remain elevated, home price growth will likely continue to slow. But prices are unlikely to plummet like they did during the Great Recession thanks to the combination of the strong job market, the continued aging of millennials into peak homebuying years, the dearth of housing available for purchase, and the low foreclosure rate."}]}
{"messages": [{"role": "user", "content": "Persistent Shortage of For-Sale Housing Contributes to Declining Home Sales The number of homes available for sale remained near historic lows in early 2023, driven by a decade-long slowdown in the construction of single-family housing that preceded the pandemic, the growing population of older adults who are less likely to move, and the lack of available inventory for would-be sellers. According to the Housing Vacancy Survey, homeowner vacancy rates remained at 0.8 percent in the first quarter of 2023, tied for the lowest reading since data became available in the mid-1950s, and under 1.0 percent for the ninth consecutive quarter. Inventories have remained low in part because many homeowners may be disinclined to move in the face of rising interest rates. According to the FHFA National Mortgage Database, nearly two-thirds of outstanding residential mortgages carry an interest rate of less than 4 percent, including one-quarter of mortgages with interest rates below 3 percent—significantly lower than the 6–7 percent averaged on a 30-year fixed-rate mortgage in early 2023. Consequently, the number of new listings continued to decline into early 2023, dropping 16 percent in the first quarter, according to Realtor.com. Instead, growth in overall inventory has been due to homes remaining on the market longer. On average, homes were on the market for a median of 65 days in the first quarter of 2023, up from 47 days the year before but far short of the 81 days recorded in the first quarter of 2019. The constrained supply, along with rising interest rates and eroding affordability, contributed to a sharp decline in home sales last year. According to Center tabulations of data from the National Association of Realtors, existing home sales dropped 18 percent in 2022 to 5.0 million, including a 17 percent decline in single-family home sales, to 4.5 million, and a 23 percent decline in condo/co-op sales, to units. Sales of newly built single-family homes also fell. In new homes sold, down 17 percent from the year prior and well below the pandemic peak of in 2020. Seasonally adjusted existing home sales declined just 4 percent in the first quarter of 2022 relative to the first quarter one year earlier but 32 percent in the fourth quarter of that same year. In January 2023, the season­ ally adjusted rate of existing home sales was just 4.0 million units, down 37 percent from the year prior and the lowest since 2010. As interest rates stabilized in early 2023, so, too, did the sales rate, which ticked up to 4.4 million units in March. Notes: Months of supply measures how long it would take homes on the market to sell at the current rate. Six months is typically considered a balanced market. Source: JCHS tabulations of NAR, Existing Home Sales. Investor Demand for Single-Family Homes Softens but Remains Strong Investor activity in the housing market skyrocketed during the pandemic as interest rates hit record lows and home price and rent growth reached all-time highs. But, as interest rates rose in late 2022, investor home purchases fell significantly. According to Core­ Logic, purchases of single-family homes by investors who simultaneously owned three or more properties within the past 10 years declined by 25 percent year over year in the fourth quarter of 2022. Nevertheless, investor purchases remained a high share of total sales because owner-occupant homebuying fell just as sharply. Investors bought 26 percent of single- family homes in the fourth quarter of 2022, just shy of the record-high 28 percent share recorded in early 2022 and well above the 16 percent share averaged in the three years immediately preceding the pandemic. Investor activity in the housing market can exacer­ bate inventory shortages and limit homeownership opportunities for owner-occupant buyers by reducing the available supply, especially in markets where investor activity is highest. According to CoreLogic, investors purchased a third or more of single-family homes in Los Angeles, Memphis, and Salt Lake City, among others, in the fourth quarter of last year. And in one study of home sales in metro Atlanta, large institutional investors accounted for up to three- quarters of annual single-family home sales in some neighborhoods. Investor activity in these neighbor­ hoods was associated with a decline in homeowner­ ship for Black households in particular. Likewise, investor activity influences the single- family rental market. According to CoreLogic, about 16 percent of investor purchases in the summer of 2022 were resold within six months, in line with histor­ ical averages. Many of the remaining homes were likely rented to tenants, and the implications of this activity for renter households are still unfolding. On the one hand, large single-family rental operators can provide higher value and potential cost savings to renters through more professionalized property management. Moreover, they might increase access to rental housing in a wider variety of neighborhoods, including those typically less accessible to renters. On the other hand, research indicates that at least some of these investors might more aggressively pursue evictions, and their activity is associated with increased rents. According to RealPage data, asking rents in the profes­ sionally managed apartment sector have moderated significantly after rising 15.3 percent year over year in the first quarter of 2022, an all-time high in data dating back more than 20 years. By the first quarter of 2023, rents rose 4.5 percent annually, just above the 3.6 percent average annual growth between 2015 and 2019. But even with the slowdown, rents have risen a stunning 23.9 percent between the first quarter of 2020 and the first quarter of 2023. The slowdown in rent growth was evident across the country. Asking rents in the first quarter of 2023 declined outright year over year in two of the 50 large markets consistently tracked by RealPage: Phoenix, down 1.9 percent, and Las Vegas, down 1.0 percent . Asking rents in both markets had risen about 25 percent annually in early 2022. Though rents increased in the remaining 48 markets, the rate of rent growth slowed as compared with a year earlier. Beyond previously hot markets in the West, rent growth moderated most precipitously in parts of Florida. Asking rents in West Palm Beach, Tampa, and Fort Lauderdale each rose over 27 percent annually in the first quarter of 2022, but less than 6 percent annually in the first quarter of 2023. Similar to apartment trends, rent growth for single- family homes cooled significantly from pandemic-era record highs. According to CoreLogic, single-family rents in March 2023 rose 4.3 percent year over year, still somewhat higher than the pre-pandemic rate though down from the 13.6 percent growth experienced a year earlier. This discrepancy relative to the sharp slowdown in gains among professionally managed apartments is partly explained by the CPI being a lagging indicator that estimates rents for the entire rental stock. Rising rents in the CPI show that many renters are still experiencing substantial rent growth as old leases turn over and rents reset at higher levels, and is an important indi­ cator of inflation for the Federal Reserve to consider when deciding the course of interest rate increases."}, {"role": "assistant", "content": "However, the softening of other rent indicators suggest that CPI rents will likely also slow in the future, which would be good news for those hoping for relief from today’s higher interest rates."}]}
{"messages": [{"role": "user", "content": "Rising Rental Vacancies New leasing traffic plunged in the second half of 2022, according to data from RealPage, leading to the first drop in annual apartment demand since 2009 despite high retention rates. Leasing then ticked up only slightly in early 2023, as the professionally managed apart­ ment market added just 19,000 new renters on net in the first quarter—modestly reversing recent declines but the weakest first quarter in a decade. The decline in leasing, combined with new construc­ tion focusing on the high end of the market, pushed apartment vacancy rates back to recent norms. After falling to a record-low 2.5 percent in the first quarter of 2022, vacancy rates in the professionally managed apartment sector have subsequently increased every quarter. By the first quarter of 2023, vacancy rates had climbed to 5.2 percent, a full 2.7 percentage points Note: Data are for professionally managed apartment buildings with five or more units. Source: JCHS tabulations of RealPage data. Vacancy rate increases were widespread, rising year over year in the first quarter of 2023 in 148 of the 150 markets tracked by RealPage, including 117 markets with increases of at least 2 percentage points. Nationally, vacancies remained lowest in less expen­ sive market segments, where less new supply is coming online. The vacancy rate in more affordable Class C apartments was just 4.7 percent in the first quarter of 2023, lower than the 5.6 percent vacancy rate in higher-quality Class A apartments. Likewise, vacancies in the broader rental market ticked up in the first quarter, but remained near the decades-low set during the pandemic. According to Center tabu­ lations of the Housing Vacancy Survey, 6.4 percent of all rental units were vacant in the first quarter of 2023, up 0.6 percentage point from a year earlier. Still, such low vacancy rates have not been recorded since the mid-1980s, aside from the pandemic and one reading at the end of 2019. Slowing New Construction In both the for-sale and rental markets, significant amounts of new construction are required to alleviate the supply shortages. However, housing production declined modestly in 2022, driven by a sharp slowdown in single-family homebuilding. The number of newly started housing units fell from 1.60 million in 2021 to 1.55 million in 2022, a small but significant 3.0 percent decline in the context of the nation’s housing shortfall. Similarly, the number of permitted units declined 4.1 percent to 1.67 million in 2022. However, in the near term, more supply is coming online as the number of housing units completed continued to rise 3.7 percent to 1.39 million units last year. Most new units target the high end of the market. The median sales price for newly built single- family homes was in 2022, up an inflation- adjusted 23 percent since 2019. Likewise, the production of smaller, typically less expensive, single- family units remains historically low. In 2021, just homes under 1,800 square feet were built, less than a quarter of all single-family home completions. By comparison, smaller single-family homes repre­ sented 37 percent of new units as recently as 1999."}, {"role": "assistant", "content": "Given the glut of apartments under construction and rising vacancies in the professionally managed apartment sector, multifamily construction is likely to moderate going forward. Already, the Federal Reserve Board’s Senior Loan Officer Opinion Survey on Bank Lending Practices reported tighter lending standards and weaker demand for multifamily loans and commercial real estate construction loans. In the rental market, slowing rent growth and rising vacancies, especially in high-cost market segments, will likely lead to a slowdown in new apartment construction. But even as the abundance of mostly high-end apartment units under construction reaches the market, it remains unclear how much relief this will provide for households with low and moderate incomes."}]}
{"messages": [{"role": "user", "content": "03 D E M O G R A P H I C D R I V E R S Household growth remained high in 2022, driven largely by a surge in millennial household formation pent up since the Great Recession. However, the drivers of household growth are now likely receding, leaving record-low levels of population growth that will slow household growth going forward. Mean­ while, wide regional variation in housing affordability, combined with a rise in remote work, is spurring domestic migration, in turn shifting the geography of housing demand. As the US population ages and diversifies, the need to ensure equitable access to high-quality, affordable housing and communities becomes even more urgent. Nevertheless, the household growth rate in 2022 represents a slowdown from the 2.0 million annual average between 2019 and 2021, and likely signals that the recent surge is waning. Likewise, the share of Source: JCHS tabulations of US Census Bureau, Housing Vacancy Surveys."}, {"role": "assistant", "content": "Because this pent-up demand has been largely satisfied, household growth will likely slow going forward, fueled by native population growth, which is at a near-record low, and immigration, which is inher­ ently mired in politics and therefore is unpredictable."}]}
{"messages": [{"role": "user", "content": "Historically Low Population Growth Population growth is the primary long-term driver of household growth and remains historically low. Overall, the US population grew by 1.26 million people in 2022, or just 0.38 percent. While this represents a slight uptick from previous years—population growth hit 100-year lows in 2019 and again in both 2020 and 2021—it is nevertheless a meager growth rate when compared with the 2.8 million annual average (0.94 percent) in the 2000s. In fact, if not for the 0.35 percent rate of growth in 2020 and the 0.16 percent growth rate in 2021, the 2022 growth rate would have marked a new 100-year low. Population growth is generated by either “natural” growth—the net of births minus deaths—or immigra­ tion. Gains from immigration can be fickle because they are subject to unpredictable policy changes and economic cycles in the US as well as other countries. Natural growth, on the other hand, is more predict­ able because it is driven by slow-moving factors like birth and mortality rates. Until recently, natural growth has been the primary source of population growth in the US. Throughout the 2000s and early 2010s, natural growth gradually slowed from 1.7 million to 1.4 million per year while net gains from immigration fluctuated between and 1.2 million. Then, in the late 2010s, both natural growth and immigration plummeted, with annual gains from immigration ultimately dipping below and natural growth dropping to less than in 2021. Indeed, deaths are projected to outnumber births beginning in 2043, according to the Congressional Budget Office, at which point population growth will rely entirely upon immi­ gration. Recent estimates suggest we may reach that point much sooner. Population and Household Growth Depending on Immigration While immigration has recently emerged as the primary source of population growth nationwide, it has long been the largest driver in many areas across the country. Growth in immigrant-headed households accounted for more than a third (35 percent) of all household growth between 2002 and 2022, raising the share of households headed by an immigrant from 14 percent in 2002 to 17 percent in 2022. Immigrants make up even higher shares of households in some states, repre­ senting 33 percent—fully one-third—of households in California, 27 percent in New Jersey, and 21 percent in Texas. Immigrants also headed large shares of house­ holds in select metro areas, including 48 percent of households in the Miami metro, 40 percent in the Los Notes: Natural population change is the difference between births and deaths. “All negative” means that each component of population change was negative in 2021–2022. Source: JCHS tabulations of US Census Bureau, 2022 Population Estimates Program. Residential Mobility and the Shifting Geography of Housing Demand As the rate of population growth slows, domestic migration will become a more important driver of household growth and housing demand. Already, domestic migration was the largest source of popula­ tion growth in 20 states and in the majority of counties that experienced growth in 2022. Some of this shift in geography, particularly the increase in moves to smaller metros and rural areas, may be related to the pandemic-fueled rise in remote work. Between 2019 and 2021, the share of the workforce reporting that they usually worked from home tripled from 6 percent to 18 percent. Among younger workers ages 25–34, rates of working from home more than quadrupled from 4 percent to 18 percent. Given that younger adults have the highest mobility rates and that remote workers were more likely than commuters to move, the increase in working from home among younger workers likely contributed greatly to the recent rise in interstate mobility. In 2021, fully 29 percent of householders ages 25–34 who worked from home had moved in the past year, compared with 21 percent of commuters of the same ages. That said, surveys continue to show that, on net, inter­ state and intercounty mobility rates at best only inched upward in 2022. And, within-county moves—which account for the vast majority of household moves— continued to decline as they have for decades. In all, since 2010 the share of households moving outside their county each year has held at roughly 3.4–3.9 percent, with the interstate component hovering between 1.9 percent and 2.4 percent. Meanwhile, the share of households moving within their county dropped by nearly half, from 8.3 percent in 2010 to 4.8 percent in 2022. This decline in local mobility results in fewer homes available for sale or rent and less spending on pre- and post-move renovations, furnishings, and other services, and has shrunk the overall residential mobility rate. According to Current Population Survey data, the total share of households that reported having moved in the past 12 months— local or otherwise—fell from 11.9 percent in 2010 to 9.8 percent in 2019 and then again to 8.8 percent in 2022. Additionally, new, younger households are helping to make US households more racially and ethnically diverse. As of 2022, while 35 percent of all house­ holds were headed by a person of color, up from just 25 percent in 2000, people of color accounted for 44 percent of households ages 25–34 and 42 percent of households ages 35–44, as compared with 35 percent of households ages 45–64, and 24 percent of house­ holds ages 65 and older. People of color accounted for about 85 percent of household growth over the past 10 years, including 42 percent of total household growth from Hispanic households, 18 percent from Black households, and 25 percent from Asian house­ holds or households of another race. Going forward, people of color are expected to drive the majority of both population and household growth, while the older households lost will primarily be white. According to 2022 Current Population Survey data, real median household income rose from $60,200 in 2011 to $70,200 in 2021, with particularly large gains among people of color, helping to reduce racial inequalities. During this period, median incomes rose 28 percent among Asian households, 26 percent among Hispanic households, and 25 percent among Black households, as compared with 18 percent among white house­ holds. Nevertheless, enormous racial income dispar­ ities persist. At last measure, the median income for white households was $78,000, which was 35 percent higher than the $57,900 median for Hispanic house­ holds and 62 percent higher than the $48,100 median for Black households. Only Asian households, with a median income of in 2021, had incomes that exceeded white households. Households with low incomes, which are dispropor­ tionately headed by people of color, are more likely to be disadvantaged in housing markets because they are more likely to be cost burdened, less likely to live in opportunity-rich neighborhoods, and less likely to meet the income and downpayment requirements for homeownership. Against this backdrop, it is easy to draw a line from long-standing income inequality to even more dramatic and entrenched racial wealth disparities. According to the latest Survey of Consumer Finances from 2019, the median net wealth for white households was more than five times the $36,000 median for Hispanic households, nearly eight times the $24,100 median for Black households, and over two and a half times the $74,500 median for households of all other races, including Asian. The Outlook The pandemic era of rapid household growth, fueled by the release of pent-up demand from millennials to form their own households, appears to be nearing an end as headship rates among most age groups have recovered much of the losses incurred since the Great Recession. Going forward, population growth will once again become the main driver of household growth, as has been the case for decades. However, population growth is at a near-record low, with little sign of recovery on the horizon. Birth rates are declining and mortality rates are rising, consistent with the aging of the enormous generation of baby boomers, many of whom are in their mid-70s. Consequently, low population growth is likely for the foreseeable future, leading to both a reduction in household growth and an increased reliance on international and domestic migration to fuel new household formations. While the homeownership rate increased in 2022, by the end of the year the higher costs appeared to be taking a toll as the rate of homeownership growth slowed. Meanwhile, many homeowners thrived, with home equity levels hitting new highs and delinquency and foreclosure rates remaining low. That said, aggregate data may somewhat mask the distress experienced by more financially vulnerable home­ owners, underscoring the continued and urgent need to reduce the nation’s gaping racial homeownership disparities and expand access to affordable homeownership among people of color, especially in light of the increased cost of homebuying. These increased costs have left millions of house­ holds unable to afford to buy a home. As of March 2023, monthly mortgage payments on the US medi­ Note: Estimates assume a 3.5% downpayment on a 30-year fixed-rate loan, 0.85% mortgage insurance, 0.35% property insurance, 1.15% property taxes, 3% closing costs, and a maximum 31% debt-to-income ratio. Source: JCHS tabulations of Freddie Mac, Primary Mortgage Market Surveys; NAR, Existing Home Sales. Homeowner Cost Burdens Skyrocket As homebuyer affordability has deteriorated, cost burdens among current homeowners have climbed sharply. As a result, 19.0 million homeowner households, or 22.7 percent, were burdened by monthly housing costs in 2021, of which 8.7 million (10.4 percent of all homeowners) had housing costs that exceeded 50 percent of their income. Consequently, the Housing Vacancy Survey indicates the US homeownership rate grew to 65.8 percent in 2022, up from 65.5 percent a year earlier and continuing the six years of consecutive homeown­ ership growth started in the aftermath of the Great Recession, after rates bottomed out at 63.4 percent in 2016. Younger households were the primary drivers of the increase. For households under age 35, home­ ownership rates rose by 0.8 percent in 2021–2022 to 39.0 percent, and have now risen 2.3 percentage points since 2019. Likewise, homeownership rates for those ages 35–44 also increased, up 2.1 percentage points since 2019, to 62.2 percent, as more millennials entered the market after experiencing financial constraints during the Great Recession that forced them to delay homeownership. Homeowner Households Homeownership Rate (Right scale) Note: Estimates for 2020 are omitted due to data collection issues experienced during the pandemic. Source: JCHS tabulations of US Census Bureau, Housing Vacancy Surveys. Homeowners with low incomes were only one of the many vulnerable populations whose burden rates increased between 2019 and 2021. Cost burdens affected a quarter of all homeowners age 65 and over (26 percent) and more than a third of all single- person (39 percent) and single-parent (36 percent) homeowner households in 2021. Additionally, burdens reached nearly a third of all Black (31 percent) and Hispanic (29 percent) homeowners and more than a quarter (26 percent) of Asian homeowners, compared with one in five white homeowners (21 percent). Such high rates of burden leave many homeowners strug­ gling to pay for other monthly necessities and acutely vulnerable to sudden losses of income, urgent home repairs, or other financial shocks. The overall homeownership rate has been further boosted by the nation’s aging population. Older adults have the highest homeownership rates of any age group, with 79 percent of households ages 65 and older owning a home in 2022. While homeownership rates for older households have remained relatively stable, hovering between 78.5 and 80.0 percent since 2016, their share of households rose from 24 percent to 27 percent during that period and has helped to lift the overall homeownership rate. Nevertheless, these low overall rates of serious delin­ quency conceal higher levels of distress among homeowners. Fully loans that have exited the forbearance program are either delinquent or in loss mitigation, while an additional loans are in active foreclosure or liquidation following their forbear­ ance plan exit, as of April 2023. This financial distress disproportionately impacts households with low incomes and people of color. According to the Census Bureau’s Household Pulse Survey, rates of missed payments for Black (10.3 percent), Asian (10.1 percent), and Hispanic homeowners (7.9 percent) were each well above the share reported by white homeowners (3.8 percent) in late 2022. Racial income inequality plays a role in these disparities, as households of color are more likely to have lower incomes, and are also much more likely to be behind on payments. Overall, 13.0 percent of homeowners earning less than $25,000 reported being behind on housing payments, along with 9.8 percent of homeowner households earning between $25,000 and $50,000, versus less than 4 percent of homeowners earning $75,000 or more. While the bulk of the Homeowner Assistance Fund remains unobligated and thus will be able to assist some distressed homeowners, more resources will be needed to help homeowners after the fund is fully committed. On the other hand, Black households’ pandemic-era homeownership gains may be at least partially a product of the low Black homeownership rate before the pandemic. While Black homeownership rates have increased modestly since the eve of the pandemic in 2019, rates for Black households were then near their lowest levels in decades. This was due at least in part to the fact that Black households did not share equally in the economic recovery experienced by white and Hispanic households after homeowner­ ship rates bottomed out in 2016. And so, while the low interest rates of 2020 and 2021 helped Black home­ ownership rates to begin to catch up, the progress was only incremental. Hispanic householders may be of any race. Source: JCHS tabulations of US Census Bureau, Housing Vacancy Surveys."}, {"role": "assistant", "content": "The Outlook Over the coming year, overall higher housing costs will continue to make access to homeownership a challenge. That said, interest rates have plateaued and home prices have declined modestly in much of the nation since mid-2022, allowing buyers time to adjust to these new conditions. Homeownership demand persists, evidenced by the rise in loan appli­ cations that has accompanied every dip in interest rates in recent months. Against this backdrop, poli­ cymakers and practitioners will need to continue to adapt homeownership programs to improve access to affordable homeownership; address the racial dispar­ ities in income, wealth, and access to credit that fuel the nation’s racial homeownership rate gaps; and increase the housing supply to satisfy anticipated demand from future buyers. Additionally, policies for distressed homeowners are needed to stave off poten­ tial harms when the next economic downturn arrives."}]}
{"messages": [{"role": "user", "content": "05 A drop-off in demand is cooling the formerly heated rental markets. Rental vacancy rates are climbing from historic lows, and rent growth is slowing from last year’s all-time high. Nonetheless, rents are still rising, the supply of low-rent units is falling, and new construction is adding primarily to the high-end rental stock. In response, renter cost burdens have risen to their highest recorded level, underscoring the worsening affordability challenges facing many renters with lower incomes. R E N TA L H O U S I N G Slowing Demand for Rental Units Rental demand declined in early 2023. According to the Housing Vacancy Survey, the number of renter households decreased by between the first quarter of 2022 and the first quarter of 2023. The recent decline came after a surge in rental demand early in the pandemic, when the number of renter house­ holds grew by 1.0 million between the first quarter of 2020 and the first quarter of 2022, an implied annual average increase of renter households. Note: Estimates for 2020 are omitted due to data collection issues experienced during the pandemic. Source: JCHS tabulations of US Census Bureau, Housing Vacancy Surveys. Softening Rental Markets Cool Multifamily Investor Demand Slowing rent growth, combined with rising vacancies, interest rates, and operating costs, has hurt multifamily property performance through early 2023. In the first quarter of 2023, the rental vacancy rate increased to 6.4 percent, up from its lowest level in decades (5.6 percent) in the fourth quarter of 2021, according to the Housing Vacancy Survey. Meanwhile, the vacancy rate in the professionally managed apartment segment increased even more dramatically, reaching 5.2 percent in early 2023, according to data from Real­ Page, nearly 3 percentage points above its record-low reading of 2.5 percent in the second quarter of 2022. Between the first quarter of 2022 and the first quarter of 2023, rents for units in professionally managed apartments were up by just 4.5 percent—well below the record-high annual rate of 15.3 percent one year earlier at the height of the pandemic-era surge, but nearly a percentage point above the 3.6 percent rate averaged in the five years Notes: Asking rents are for professionally managed apartments in buildings with five or more units. Class A (Class C) apartments are relatively higher (lower) quality. Source: RealPage. According to data from RealPage, the net number of occupied apartments within the professionally managed segment dropped by between the first quarter of 2022 and the first quarter of 2023. This drop-off in apartment demand marked a sharp reversal from the surge in the first quarter of 2022, when the net number of occupied apartments increased by a record-breaking units annually. Several factors have contributed to the recent drop-off in rental demand. Many renter households with higher incomes transitioned to homeownership during the pandemic-era homebuying boom. Further, demand may simply be normalizing after the temporary surge in rental household formations that happened when restrictions were lifted. Lastly, high inflation rates, rapidly rising rents, and economic uncertainty may have presented additional barriers to household formation, either disincentivizing or simply preventing some individuals from moving out of homes shared with family or roommates to form new households. leading up to the pandemic. This slowdown in the pace of rent growth occurred across property classes. Rents for higher-cost Class A units, which increased at a rapid annual rate of 18.5 percent in the first quarter of 2022, grew by just 4.8 percent in early 2023. Rent growth for lower-cost Class B and Class C units also deceler­ ated but remained slightly higher than pre-pandemic averages. Rents for Class B apartments grew by 4.2 percent annually in early 2023, down from a peak of 16.1 percent, and rents for Class C apartments grew by 4.6 percent, down from a peak of 9.5 percent. Cooling market conditions along with increased oper­ ating costs have reduced multifamily investment activity. Indeed, rising costs of labor, maintenance materials, insurance, and property taxes pushed oper­ ating expenses up nearly 8 percent in 2022, according to Yardi Matrix. Consequently, net operating income growth dropped to 8.1 percent on a four-quarter trailing basis in the first quarter of 2023, down from a pandem­ ic-high of 24.8 percent in the second quarter of 2021, according to the NCREIF Property Index. As a result, investor activity decreased precipitously. Transaction volumes declined to $26.7 billion in the first quarter of 2023, fully 50 percent lower than the $53.2 billion recorded a year earlier and 23 percent lower than the same period in 2019. The reduction in multifamily investment comes after an extended period of strong property performance. Apartment prices fell 10 percent annually in March 2023 but were still up 131 percent over the past decade, according to Real Capital Analytics. The longer-term strong financial performance attracted non-individual investors such as LLPs, LLCs, real estate corporations, and others to the market. According to the Rental Housing Finance Survey, the share of rental proper­ ties owned by non-individual investors increased by 9 percentage points over the past two decades to 27 percent in 2021. New Construction Targets High-End Market Multifamily production was extraordinarily strong over the past year, with multifamily rental units added in 2022 alone, mostly targeting the high end of the market. According to data from the Survey of Market Absorption, in the third quarter of 2022, the median asking rent for new units reached $1,805, an increase of $125, or 7 percent, from the $1,680 median in the third quarter of 2015 after adjusting for inflation. This growth in rents has shifted the distribution of asking rents for new multifamily units. Between 2015 and 2022, the share of newly completed units with asking rents JOINT CENTER FOR HOUSING STUDIES OF HARVARD UNIVERSITY THE STATE OF THE NATION’S HOUSING Rising rents are at least partly driven by increased amenities in new units to meet demand from house­ holds with higher incomes. For example, in percent of multifamily for-rent completions had in-unit laundry, an all-time high and well above the 76 percent share in 2011. Additionally, new multifamily construction remains highly concentrated in large metro areas, where land is most expensive. According to the National Association of Home Builders’ Home Building Geography Index, 70 percent of multifamily permitting in the third quarter of 2022 was in large metro areas, including 38 percent in core counties and 28 percent in suburban counties. In comparison, just 27 percent of multifamily permitting was in small metro areas and under 4 percent was outside metro areas. Because rental demand has been strongest in high- cost urban centers, multifamily completions have become increasingly concentrated in large buildings. Apartments in buildings with at least 20 units consti­ tuted 89 percent of new multifamily completions in 2021, up from 77 percent a decade earlier, according to the Census Bureau’s Survey of Construction. Units in buildings with at least 50 units rose from 30 percent of all new units in 2011 to 59 percent in 2021. During those same two years, virtually every state saw declines in their low-cost rental stock, with 36 states losing more than 10 percent of units with contract rents below $600 and 14 states losing more than 15 percent. Many states with the most substantial losses were previously more affordable but have experienced increasing demand and relatively strong population growth. For example, the number of units with rents below $600 declined by 86,000 in North Carolina, more than in any other state, and also dropped significantly in Georgia (67,000) and Texas (64,000). Other large losses were recorded in less expensive Midwestern states experiencing slower population growth, including Ohio (73,000), Illinois (63,600), Missouri (44,000), Indiana (41,000), and Michigan (40,000). In 2021, the number of cost-burdened renter households reached 21.6 million, the highest recorded level since 2001, according to the American Community Survey. This number increased swiftly during the pandemic, growing by 1.2 million households between 2019 and 2021. Households that were severely cost burdened accounted for most of the growth, increasing by 1.1 million households to 11.6 million. While the share of renter households with cost burdens had declined nearly every year since 2014, the sharp increase in 2021 reversed this trend, increasing the cost burden rate by 2.6 percentage points to 49.0 percent of renter households. Renters with low incomes are by far the most likely to be cost burdened. In 2021, fully 85 percent of households with incomes below $15,000—the approximate wages JOINT CENTER FOR HOUSING STUDIES OF HARVARD UNIVERSITY THE STATE OF THE NATION’S HOUSING of a person working full-time at the federal minimum wage—were cost burdened, the vast majority of whom (76 percent) were severely burdened. In addition, 81 percent of households earning between $15,000 and $29,999 were cost burdened—well above the 9 percent of households with incomes of $75,000 or more. Under –––and Over All Households Household Income Notes: Incomes are adjusted for inflation using the CPI-U for All Items. Cost-burdened households spend more than 30% of income on housing. Source: JCHS tabulations of US Census Bureau, American Community Survey 1-Year Estimates. While 43 percent of Asian and 45 percent of white renter households were cost burdened in percent of Black renter house­ holds were burdened, along with 53 percent of Hispanic renters, 50 percent of both Native Hawaiian and Pacific Islander and multiracial renters, and 47 percent of American Indian and Alaska Native renters. Half of renters living in metropolitan areas were cost burdened in 2021, compared with 41 percent in smaller metropolitan areas and 39 percent in rural areas. Despite the relatively lower rate, renter households living in rural areas were cost burdened in 2021, including households who were severely burdened. Cost-burden rates also varied significantly by metro, with higher cost-burden rates concentrated in areas with higher rents, larger shares of households with low incomes, or some combination of the two. Examples include Miami (61 percent), Los Angeles JOINT CENTER FOR HOUSING STUDIES OF HARVARD UNIVERSITY THE STATE OF THE NATION’S HOUSING While increasing cost burdens are widespread, rates vary by geography and household characteristics. Yet, the primary driver is the same: rents have been rising faster than incomes. Between 2019 and 2021, the median monthly rent increased 3 percent while the median renter income fell 2 percent. The disparities are even worse for renters with lower incomes. For renter households making less than $30,000 a year, rents rose 5 percent in real terms between 2019 and 2021 while incomes fell by 6 percent. Consequently, the median residual income—the amount of money that remains after paying housing costs—fell 5 percent for all renters, while residual incomes for renters earning less than $30,000 annually fell by 22 percent to the lowest level in two decades. This left these renters with an average of just $380 per month to cover all other needs and increasingly thin financial margins. Recent declines in real incomes and increases in rents produced a record-high number of renter house­ holds with housing cost burdens. Although the pace of rent growth in the professionally managed segment is slowing from its record-breaking post-lockdown surge, atypically fast rent growth and high inflation will continue to put pressure on household budgets in the short term. Moreover, new construction continues to target the high end of the market, while the declining number of low-rent units will leave renters who have low and moderate incomes with fewer affordable options. Even though multifamily construction is at historic highs, increasing production of moderately priced rental housing is an urgent priority."}, {"role": "assistant", "content": "The national housing shortage is also the product of local restrictive zoning policies and other regula­ tory barriers that make it difficult to build a range of housing types at different price points. An estimated 75 percent of land in many cities is zoned exclusively for single-family homes. Growing policy momentum at the federal level seeks to address restrictive zoning. For example, the 2023 omnibus appropria­ tions bill included $85 million in HUD grants for cities to identify and implement reforms that will increase density, reduce minimum lot sizes, and streamline permitting processes."}]}
{"messages": [{"role": "user", "content": "Increasingly, the federal government has turned to tenant-based assistance in the form of Housing Choice Vouchers, which typically cover the difference between 30 percent of a household’s income and their rent, up to a local fair market rent. However, the program’s regulatory requirements and inspec­ tions can be cumbersome for landlords, who are not required to accept vouchers in most places. Laws that prevent discrimination against voucher holders could help renters successfully use vouchers and have recently been adopted in Hawaii, Illinois, and several cities, but do not address landlords’ concerns with the program. Preserving subsidized housing in all its forms requires additional resources. The national Housing Trust Fund (HTF) is one flexible source of funding that could help. Additionally, HTF resources are modest compared with the scale of the problem and are split between new construction and pres­ ervation. According to the National Low Income Housing Coalition, just 15 percent ($41 million) of the 2018 HTF allocations went to preserving existing affordable units."}, {"role": "assistant", "content": "Compared with renters, homeowners fared better during the pandemic, both because they were less likely to lose employment income and because those unable to make their mortgage payments benefited from widely available forbearance protections. Never­ theless, delinquencies are a concern for about 2 million homeowner households. The $9.9 billion provided through the Homeowner Assistance Fund will help some to make mortgage, homeowner’s insurance, and utility payments. By the fourth quarter of 2022, $3.8 billion was obligated, providing critical assistance for over households. However, with more than a third of available resources already spent, the fund will likely be depleted quickly."}]}
{"messages": [{"role": "user", "content": "As federal pandemic housing assistance programs wind down, state and local governments are turning to general fiscal recovery funds to meet ongoing housing needs. With longer spending timelines and more potential uses, $14.2 billion of state and local fiscal recovery funds were budgeted as of September 2022 to support nearly 1,800 housing affordability proj­ ects and programs to address short- and longer-term housing needs. At the end of 2021, these funds had already helped households with rent, mort­ gage, or utility assistance and households with eviction prevention services. The experience with pandemic assistance for both emergency and longer- term housing needs has demonstrated that these are effective means to keep people stably housed and merit continued support. Today, new federal resources are available to address homelessness. The 2023 omnibus spending bill provided $3.6 billion for homelessness assistance grants and $2.7 billion to support veterans experiencing homelessness. The 2021 the American Rescue Plan Act included $5 billion for state and local governments to fund services, shelter, and housing for unhoused people and at-risk households through the HOME-ARP program. Smaller efforts included $315 million in grants to address rising unsheltered and rural homeless­ ness. Additionally, state and local governments have collectively committed more than $3.3 billion in fiscal recovery funds to homelessness services and housing. Nevertheless, more funding is needed to meet the scale of the challenge, including increased support for rental housing assistance and affordable housing to help address the root of the problem. Modifications to the existing housing stock are also needed to reduce greenhouse gas emissions from the residential sector, and several recent efforts aim to help households make incremental changes. The Inflation Reduction Act of 2022 provided almost $9 billion in energy-efficiency and electrification rebates, and also extended tax credits, such as the Residential Clean Energy Credit, that incentivize homeowners to make energy improvements. Likewise, the Infrastruc­ ture Investment and Jobs Act provided an additional $3.5 billion to the Weatherization Assistance Program, which helps 35,000 low-income households make energy-efficient upgrades in a typical year. temporary housing and home repairs. In 2022, FEMA provided $1.9 billion to 1.2 million households through this program. To fill gaps in FEMA assistance, the 2022 Rapid Unsheltered Survivor Housing (RUSH) program enables communities to provide emer­ gency shelter, rapid re-housing, and homelessness services after disasters. However, these funds are limited, with $56 million initially set aside and $6.8 million allocated to Florida after Hurricane Ian. For long-term recovery, Congress also appropriated a total of $10 billion of Community Development Block Grant Disaster Recovery funds in 2021–2023 to help communities rebuild. Ultimately, to adapt to increasing risks from climate change, less development on high-risk land, phys­ ical improvements to reduce exposures, and better household awareness of risks will be necessary. FEMA’s Hazard Mitigation Grant Program has supported such efforts, including the New Jersey Blue Acres Buyout Program, which pairs property acquisitions with supportive services to manage retreat from flood- prone areas. Stronger building codes for new construc­ tion in hazard-prone areas can also help to prevent an estimated $1.6 billion per year in losses, according to a recent FEMA study. Over the longer term, mitigation efforts and disaster response will require a substantial commitment from federal and state governments to help high-risk communities."}, {"role": "assistant", "content": "Investing in communities of color is critical for addressing these racial inequities. However, care must be taken to mitigate the risk of displacement of current residents. Mindful of that balance, Enterprise Commu­ nity Partners launched the Equitable Path Forward program in 2020, an initiative expected to leverage $3.5 billion over five years to extend capital to communities of color and diversify the real estate industry. In Seattle, the 2021 Equitable Communities Initiative started with an initial $100 million commitment to invest in BIPOC communities and housing. The city also created the Equitable Development Monitoring Program to track community indicators related to race and social equity and to mitigate displacement risks."}]}
{"messages": [{"role": "user", "content": "Homeowner cost burdens are also on the rise, driven by growing taxes and insurance costs. For renters, the number with cost burdens has hit an all-time high as rents have escalated. While single-family construction is accelerating and a surge of new multifamily rental units is slowing rent growth, any gains in affordability are likely to be limited by robust household growth, ongoing development constraints, and high construction costs. All stakeholders must work together to address the affordability crisis and many related urgent housing challenges, including the inadequate housing safety net, the record number of people experiencing homelessness, and the growing threat of climate change. Housing Costs Continue to Rise Lack of affordability defines both the for-sale and the for-rent housing markets. Home prices rebounded to a new all-time high in early 2024 despite persistently elevated interest rates. After declining briefly in early 2023, home prices ended the year up 5.6 percent annually and continued to rise in early 2024 at an annual rate of 6.4 percent in February, according to the S&P CoreLogic Case-Shiller US National Home Price Index. Home price growth was widespread in early 2024, occurring in 97 of the top 100 markets, with higher increases in the Northeast and Midwest and more muted growth in the South and West. Additionally, home insurance premiums grew an average of 21 percent between May 2022 and May 2023 alone, according to Policygenius, and property taxes are on the rise, further increasing the cost of homeownership. In the rental market, although rent growth slowed to just 0.2 percent year over year in early 2024, rents remain up 26 percent nationwide since early 2020 after rapid pandemic-era growth. Rents are rising in three out of every five markets, including in much of the Midwest and Northeast. Declines were contained mostly to markets in the West and South, though rents there were still up from pre-pandemic levels by an average of 21 and 28 percent, respectively. Cost Burdens Hit Record Highs In the face of rising housing costs, burden rates are increasing. The number of cost-burdened home­ owners, those who spend more than 30 percent of household income on housing and utilities, grew by 3 million to 19.7 million between 2019 and 2022. Nearly one in four homeowner households (23.2 percent) are now stretched worryingly thin, including 27.4 percent of homeowners age 65 and over. Households earning less than $30,000 annually constituted over half of the growth in cost-burdened homeowners from 2019 to 2022. While such burdens are difficult for any household, they present distinct challenges for these homeowners. During this period, homeowners with incomes under $30,000 saw their residual incomes—the amount of money left over each month after paying for housing and utilities— fall 18 percent to just $627 after adjusting for infla­ tion, forcing tough choices among daily necessities, basic home maintenance and repairs, and possibly accessibility improvements. Among renters, cost-burden rates have increased across the income spectrum. Still, renters with the lowest incomes have the highest cost-burden rates. Fully 83 percent of renter households earning less than $30,000 annually were cost burdened in 2022, including 65 percent (9.4 million households) with 0 Renters Homeowners Notes: Cost-burdened households spend more than 30% of income on housing and utilities. Estimates for 2020 are omitted due to data collection issues experienced during the pandemic. Source: JCHS tabulations of US Census Bureau, American Community Survey 1-Year Estimates. More than half of Black (57 percent), Hispanic (54 percent), and multiracial (50 percent) renter house­ holds were cost burdened at last measure in 2022. Rates were lower for white (45 percent), Asian (44 percent), and Native American (44 percent) house­ holds. While racial income inequality explains some of the difference, burden rates remain disproportionately high for lower-income renters of color, at 85 and 87 percent for Black and Hispanic renters, respectively, as compared to 80 percent of their white counterparts. Household Growth Still High Despite high housing costs, household growth remained robust through last year. The nation gained 1.7 million households between 2022 and 2023, according to the Housing Vacancy Survey. Though lower than the previous year’s 1.9 million new house­ holds, this is still a significant uptick from the 1.1 million annual pace averaged in the 2010s. Another major contributor to robust household growth is ballooning immigration, which peaked at 3.3 million in 2023 according to the Congressional Budget Office, after averaging annually in the 2010s. The majority of this increase is asylum seekers facing challenges that will slow their housing trajectories. But household growth may remain strong for some time, as this population will eventually form households. New Units Soften Rental Market Multifamily completions rose by 22 percent to in 2023, the highest annual level in more than three decades, and the number of units under construction in March 2024 remained near the record high. Real­ Page reports vacancy rates in professionally managed apartments rose to 5.9 percent at the beginning of 2024, more than twice the record low of 2.5 percent recorded in early 2022. At the same time vacancies have risen, so have oper­ ating costs, straining property owners’ balance sheets. As of January 2024, apartment operating expenses increased by 7.1 percent year over year, according to Yardi Matrix, led by a 27.7 percent nationwide average increase in owners’ insurance premiums. Against this backdrop, net operating income growth fell to 2.8 percent in the first quarter of 2024, down from 8.1 percent a year earlier. These declines affected valu­ ations: apartment property prices fell in 2023 for the first time in more than a decade, down more than 10 percent nationwide by the end of the year, according to Real Capital Analytics. By March 2024, prices were falling 8.4 percent year over year. Low For-Sale Inventories Lead Homebuyers Toward New Homes Existing homes for sale remain in short supply. Just 1.1 million homes were available for purchase in March 2024, down from 1.7 million in March of 2019, according to the National Association of Realtors (NAR). This is just 3.2 months of supply, even with the current reduced sales rate. Annual existing home sales dropped 19 percent to 4.1 million in 2023, nearly a 30-year low. With few existing homes for sale, aspiring home­ buyers are turning to new construction. New home sales increased by 4 percent in 2023, constituting 15 percent of all single-family home sales compared to 12 percent just two years earlier. Though down for the year in 2023, single-family starts rose to an annualized rate of 1.06 million units in the last quarter, a 25 percent year-over-year increase. Homeownership Increasingly Out of Reach The high affordability hurdle has reduced the number of first-time homebuyers and slowed the growth in homeownership over the past year. According to the Housing Vacancy Survey, the homeownership rate for households under age 35—a key first-time homebuyer demographic—fell 0.4 percentage points over the last year as first-time homebuying dropped. As a result, the US homeownership rate across all age groups inched up just 0.1 percentage points in 2023 to 65.9 percent, the smallest increase since 2016. The rate on the 30-year fixed-rate mortgage peaked in October 2023, hitting 7.79 percent, the highest in more than 20 years, according to the Freddie Mac Primary Mortgage Market Survey. After a brief dip in early 2024, rates were again over 7.0 percent by mid-April, more than twice the 3.0 percent rate averaged across 2020 and 2021. This combination of rising interest rates and home prices pushed the median payment on home mort­ gage applications up $108 over the past year (to $2,201), according to the Mortgage Bankers Associa­ tion, and the median is now up more than $850 over the last three years. To afford such a high payment under common payment-to- income ratios, a borrower would need an annual income of at least a threshold just one in seven (6.6 million) of the nation’s 45 million renter households can meet. It now takes an annual house­ hold income of at least to afford the median- priced home in nearly half of all metro areas. Although rising home prices are a barrier for first-time buyers, the recent rapid home price appreciation has provided substantial equity gains for many home­ owners. According to CoreLogic, the average home equity among owners with mortgages increased $24,000 in 2023 and over the past four years. As of the fourth quarter of 2023, the average mort­ gaged home equity is a substantial . Many current homeowners, especially those with higher incomes, are also enjoying the benefits of past histor­ ically low mortgage interest rates. Having locked in fixed rates with lower monthly payments, homeowners as a whole are paying less on housing debt service as a percentage of income than at any time since 1980. Monthly Payment Four-Quarter Average Notes: Payments are inflation adjusted using the CPI-U for All Items Less Shelter. Monthly payments assume a mortgage with a 3.5% downpayment on a 30-year fixed-rate loan with zero points and 0.55% mortgage insurance, 0.35% property insurance, and 1.15% property tax rates. Source: JCHS tabulations of Freddie Mac, Primary Mortgage Market Surveys; National Association of Realtors, Existing Home Sales. Expanding the Housing Safety Net Growing numbers of income-eligible households need housing assistance but don’t get it. The number of very low-income renter households increased by 4.4 million from 2001 to 2021, while the number of assisted households increased by just . As of 2021, three in every four income-eligible renter households go without help. Additionally, a record-high 8.5 million of these very low-income households had worst case housing needs, spending more than half their income on housing or living in severely inadequate housing, according to HUD. Given the hardships facing the vast majority of renters with very low incomes, expanding assistance is imper­ ative. But federal funding has not grown to meet the rising need, and as housing costs increase, simply maintaining current levels of support requires more funding each year. In need of additional resources, many state and local governments are expanding their funding for housing assistance. They’ve been aided by roughly $3 billion generated annually through housing trust funds, multifamily private activity bonds that totaled $17.2 billion at last measure in 2020, and nearly $18 billion allocated to housing needs through American Rescue Plan state and local fiscal recovery funds. While every bit helps, these efforts pale in comparison to the scope of the housing crisis, and increased federal resources are critical to meaning­ fully addressing the need. The Growing Threat of Climate Change to the Nation’s Housing Stock The housing stock is increasingly at risk of damage from severe hazards. At last count, 60.5 million housing units were located in areas with at least moderate risk, according to the Federal Emergency Management Agency (FEMA) National Risk Index. An effective response requires both structural adaptations and financial resources to increase household, building, and land resiliency, and to reduce future risks by shrinking the residential sector’s carbon footprint. Federal resources are available to shore up the housing stock against the impacts of hurricanes, floods, wild­ fires, and other hazards. Eligible activities are property acquisition, retrofits, floodproofing, and long-term planning, among other strategies. Yet FEMA’s hazard mitigation programs deliver an average of less than $2 billion annually to states and tribal nations, and signifi­ cantly more resources and strategies are needed to increase properties’ resiliency. To date, the bulk of the funding has been dedicated to recovery and adaptation after a disaster. The programs help the hardest-hit households and communities after an event but are not designed to make households whole. This approach could leave critical needs unmet at a moment of extreme household vulnerability. However, the upfront cost of retrofits can be significant and a barrier to implementation. To help reduce costs, the Inflation Reduction Act of 2022 allocated more than $9 billion for rebates and expanded property owner tax credits, and another $27 billion to leverage financing for community and residential energy- efficiency improvements, among the largest such federal investments. Along with additional resources for the Weatherization Assistance Program through the Infrastructure Investment and Jobs Act of 2021 and various state resources, there is a concerted effort to mitigate housing’s impact on climate change and reduce household energy burdens."}, {"role": "assistant", "content": "The Outlook Looking forward, housing costs are likely to remain high. On the for-sale side, home prices are set to rise in the face of highly constrained supply, prolonging this unusually difficult market for first-time homebuyers. On the rental side, there may be some affordability gains in the near term. Wage growth is high and the nearly 1 million new multifamily units currently under construction will soon come online, suppressing rent growth. But subdued rent growth will not last long. New construction starts are dropping rapidly, and financial conditions are increasingly impeding multi­ family development projects."}]}
{"messages": [{"role": "user", "content": "Further pressuring the housing markets are the nation’s shifting demographics. Housing demand will remain strong in the near term, fueled by the immigration surge, household formations among Gen Zers, and the large millennial generation’s shifting housing needs."}, {"role": "assistant", "content": "However, demand is expected to slow over the longer term. Native-born population growth is decel­ erating and will soon turn negative as baby boomer mortality rates overtake birth rates. Immigration will then become the primary, albeit much less predict­ able, source of population and household growth. Households across the income spectrum will continue to struggle to secure affordable housing. Yet the shortage will remain most acute for those with low incomes, especially if the nation continues to lose low-rent units even as the population of financially vulnerable households grows. While regulatory relief and technological innovation can help to grow the private supply of lower-cost housing, there is also a need to expand the housing safety net beyond the market’s reach to serve the growing number of renters with very low incomes."}]}
{"messages": [{"role": "user", "content": "02 H O U S I N G M A R K E T S Rising home prices, elevated interest rates, and a limited supply of homes for sale have forced many potential homebuyers out of the market. Existing home sales fell to a near three-decade low in 2023. By contrast, rental vacancy rates are rising and rent growth has stalled as a large volume of new apart­ ments comes online. Homebuilders and developers face numerous barriers to providing housing at the cost, quantities, and locations needed most. Home Prices Rising Again After a brief period of decline, home prices turned upward in early 2023 despite persistently higher interest rates. Since then, home prices have rebounded and were up 6.4 percent year over year by February 2024, or 4.5 percent when adjusted for inflation. In 2023, the median sales price for existing homes in the US was as compared to in 2019, according to NAR. As home prices have risen, they have grown to many multiples of household income. In 2022, the median sales price for existing single-family homes rose to 5.1 times the median household income, up from 4.1 in 2019 and the 3.2 price-to-income ratio averaged in the 1990s. Though this ratio dipped slightly to 4.9 in 2023 as home price growth slowed, it nonethe­ less means that homeownership is unaffordable for many households. Constrained Inventory Fuels Declining Home Sales The limited supply of housing for sale has helped fuel the rise in home prices. As a result, a scant 3.2 months of for-sale inventory was available in March 2024 versus 3.8 months in March 2019. In the first quarter of 2024, inven­ tory was down an average of 42 percent in 94 of the 100 largest metros relative to the same period in 2019, according to Center tabulations of Realtor.com data. Declines were steepest in Northeastern metros with the strongest home price growth, including Hartford, Bridgeport, and Providence, where they exceeded 70 percent. Inventories were up in just six markets, concentrated mostly in the South, including San Antonio, Lakeland, and Austin. Though the number of homes available for purchase remains alarmingly low, for-sale inventories have Months of Supply (Right scale) Inventory Notes: Months of supply measures the length of time needed at the present pace to sell homes currently listed for sale. A balanced market is typically considered six months. Source: JCHS tabulations of National Association of Realtors, Existing Home Sales. The dearth of inventory has led to a substantial reduc­ tion in existing home sales. This was the lowest level of existing home sales in nearly 30 years—lower even than in 2008 (by 23,000)—and a striking 33 percent decrease from the 6.1 million homes sold in 2021. The 2023 decline was widespread, with 30 percent fewer sales in the Midwest, 31 percent fewer in the South, 35 percent fewer in the Northeast, and 41 percent fewer in the West, as compared to 2021. Meanwhile, new single- family home sales climbed modestly last year, up 4 percent to units in 2023. With limited competition from existing sellers, new construction is giving homebuyers more options. New JOINT CENTER FOR HOUSING STUDIES OF HARVARD UNIVERSITY THE STATE OF THE NATION’S HOUSING Existing, Single-Family Existing, Condo and Co-op New, Single-Family (Right scale) Source: JCHS tabulations of National Association of Realtors, Existing Home Sales; US Census Bureau, New Residential Sales. To improve affordability for buyers without lowering prices, large homebuilders increasingly offer mort­ gage rate buydowns: homebuyers who purchase a new home through a partnering lender benefit from an interest rate reduction paid for by the builder. Rate buydowns offset current high interest rates and lower monthly payments. According to an April 2024 survey by the National Association of Home Builders (NAHB), about a quarter of homebuilders used mortgage rate buydowns to bolster sales, up from just 4 percent during the same month in 2019. Rate buydowns are most common among large builders. According to a September 2023 survey by John Burns Research and Consulting, 60 percent of production builders offered interest rate buydowns. Single-Family Multifamily Single-Family Historical Average Multifamily Historical Average Note: Single-family and multifamily historical averages are of seasonally adjusted monthly data from January 1990 to March 2024. Source: JCHS tabulations of US Census Bureau, New Residential Construction. Despite declining starts, the multifamily stock continued to grow in 2023 as projects in the development pipeline reached completion. Indeed, new multifamily units hit the market in 2023, a 22 percent increase from the previous year and the highest number of comple­ tions in more than three decades."}, {"role": "assistant", "content": "Completions will likely remain elevated at least for a time, as multifamily units were under construction in March 2024, just shy of the record high of over 1 million units reached in 2023. Even so, this is a 3 percent decline from last year’s total."}]}
{"messages": [{"role": "user", "content": "These units command higher asking rents in part because of the rising costs of land, building materials, and labor, and also because of where they are built and the amenities they increasingly offer. According to the NAHB Home Building Geography Index, 68 percent of new multifamily units were located in large metros in the fourth quarter of 2023, including 38 percent in those metros’ core counties. Another 24 percent were in the core counties of smaller markets. Consistent with new construction trends over the last several years but higher than the rates observed in previous decades, 97 percent of multifamily units completed in 2022 had air conditioning and 88 percent had in-unit laundry. Rental Vacancies Rise and Rent Growth Stalls Rental vacancy rates have increased considerably as more new rental units come online. The national rental vacancy rate hovered at 6.6 percent through the first quarter of 2024, up a full percentage point from the pandemic-era low of 5.6 percent in early 2022 and much closer to the 6.9 percent vacancy rate averaged in the five years leading up to the pandemic, according to the Housing Vacancy Survey. In the professionally managed apartment sector, 5.9 percent of units were vacant at the start of 2024, up from 5.2 percent a year earlier and 2.5 percent in the first quarter of 2022, according to RealPage. This is also significantly higher than the 4.8 percent vacancy rate averaged in the five years preceding the pandemic. Likewise, RealPage reports that vacancy rates rose to about 6 percent across property types. The lower- quality Class C apartments recorded the largest year-over-year increase (1.2 percentage points to 5.9 percent), followed by Class B (0.5 percentage points to 5.8 percent), and the highest-quality Class A apart­ ments (0.5 percentage points to 6.1 percent). These increases were geographically widespread. Vacancy rates increased annually in 135 of the 150 large markets tracked by RealPage, including 44 that reported growth of at least 1 percentage point. Vacancy rates increased the most in previously hot markets in the South and West, including Cape Coral (up 3.3 percentage points), Honolulu (up 2.8 percentage points), and Crestview, Florida (up 2.7 percentage points). Similarly, rent growth for single-family rental homes also tempered. According to CoreLogic’s Single-Family Rent Index, rents grew by just 3.4 percent annually in March 2024, much closer to pre-pandemic norms and a sharp retreat from the 14.0 percent annual peak growth rate recorded in April 2022. Though recent apartment rent trends have been wide­ spread, they have varied geographically. Rents have continued to rise in a majority of markets, with the most rapid growth in smaller, less expensive metros. There are a number of reasons builders and developers are unable to provide enough homes at affordable prices. According to a NAHB JOINT CENTER FOR HOUSING STUDIES OF HARVARD UNIVERSITY THE STATE OF THE NATION’S HOUSING survey of homebuilders, high interest rates and rising inflation were the most frequently cited challenges in 2023, with more than 80 percent of respondents identi­ fying them as an obstacle to construction. Other chal­ lenges included the cost and availability of labor (73 percent), the price of building materials (63 percent), the cost and availability of developed lots (57 percent), and difficulties obtaining zoning or permit approvals (49 percent). According to Center tabulations of data from the Bureau of Labor Statistics (BLS), the number of job openings in the construction industry remains near record highs. On a 12-month trailing basis, construction jobs went unfilled at the end of 2023, down slightly from a year earlier but still up 20 percent from the openings at the end of 2019. At the same time, labor costs continue to rise. Total compensation for construction workers increased 3.7 percent year over year in the first quarter of 2024 and 14.2 percent since 2020, according to the BLS Employ­ ment Cost Index. The availability of developed land also remains a key impediment to increasing the supply of housing. Though lot availability was down just 1 percent year over year in the first quarter of 2024, it was down 11 percent from the first quarter of 2020 and 42 percent relative to the same quarter in 2015, according to the Zonda New Home Lot Supply Index. Moreover, the cost of land in many parts of the country continues to rise. According to the American Enterprise Institute’s Land Price and Land Share Indicators, the price of a stan­ dardized quarter-acre lot for existing single-family homes in the US grew 13 percent annually in 2022 and an astounding 51 percent since 2019. Finally, local zoning and regulatory barriers frequently impede new construction by restricting or deterring the types, amount, and density of housing that can be built. These regulations can take many forms, including exclusionary single-family zoning, large minimum lot sizes, and excessive parking require­ ments. Because land-use and zoning policies are administered at the local level, it’s often difficult to identify the full extent of these barriers and study their effects. But there have been numerous efforts in recent years to do so. The National Zoning and Land Use Database, for example, captures data from 2,639 municipalities. According to Center tabulations, 43 percent of jurisdictions have a minimum lot size of at least one acre in any residential district, nearly 10 percent don’t allow multifamily housing by right in any district, and a median of 1.8 parking spaces are required per new unit, on average."}, {"role": "assistant", "content": "In the rental market, rising multifamily completions and the number of apartments under construction will likely keep rent growth in check for a time. However, declining multifamily housing starts in the face of both higher interest rates and tighter lending standards mean those gains could be short-lived, as unafford­ ability in the for-sale market and the wave of young adult Gen Z households bolster rental demand."}]}
{"messages": [{"role": "user", "content": "03 D E M O G R A P H I C D R I V E R S Housing demand remains robust, driven by young adults forming new households, strong home- ownership demand from millennials and Gen Xers, and the baby boom generation lifting up the number of older adult households. Immigration surged in 2023 to a level not seen in decades, foreshadowing the expanding role of immigrants in sustaining housing demand as natural population growth slows. Even as wages rise, disparities in household finances persist, with some enjoying the benefits of enormous home equity gains while others are left struggling with low wealth and income and high housing costs. Note: Estimates for 2020 and 2021 are omitted due to data collection issues experienced during the pandemic. Source: JCHS tabulations of US Census Bureau, Housing Vacancy Surveys. The bulk of the recent household growth is among members of Gen Z (born 1995–2009) and millennials (born 1980–1994). As they entered peak household formation years, Gen Zers, the oldest of whom turn 29 in 2024, formed 8.1 million households on net from 2017 to 2022, according to the American Community Survey. The surge in immigration comes as natural population growth (births minus deaths) is slowing. Last year’s estimated increase continued a trend of declining growth from the aging population’s falling birth rates and rising mortality rates. With 3.65 million births and 3.15 million deaths in 2023, natural population growth was only last year, according to the Census Bureau. This is down from an increase of 1.3 million in 2013. Residential Mobility Continues to Decline The residential household mobility rate dropped by half a percentage point in 2023. This drop is attribut­ able mainly to homeowners moving less often. The homeowner mobility rate fell a full percentage point, from 4.6 percent in 2022 to 3.6 percent in 2023, the lowest rate in the past forty years, according to the latest Current Population Survey (CPS). Faced with high interest rates, homeowners with below-market mortgage rates were disincentivized to sell. At the same time, many potential buyers were stymied by either the high cost of homeownership or the limited supply of homes for sale. The result was a population with fewer choices or incentives to relocate. Meanwhile, renter mobility rates inched up by half a percentage point but remained relatively low after long-term declines. New supply has recently come online, creating additional options for renters and reducing record-high lease renewal rates. Even so, the renter mobility rate remained close to 17 percent in 2023, according to the CPS, a full 7.5 percentage points lower than a decade prior. Regionally, domestic moves continued to fuel growth in the South, the only census region to report net gains from domestic migration at last measure in 2023. Domestic inflows in this region remain higher than pre-pandemic norms, though the South has consistently gained migrants for the past decade. The Northeast and Midwest census regions saw consis­ tent outflows leading up to and during the pandemic, JOINT CENTER FOR HOUSING STUDIES OF HARVARD UNIVERSITY THE STATE OF THE NATION’S HOUSING After the Federal Reserve instituted a series of interest rate hikes, inflation cooled in 2023 and still the economy managed to avoid a recession. The labor market added an average of more than jobs per month in 2023, and the unemployment rate held steady under 4 percent throughout the year. Addition­ ally, wage growth began to exceed inflation in early 2023, according to the the Bureau of Labor Statistics, a welcome change of pace when compared to the decline in real wages in 2022. These economic improvements are especially good news for households with lower incomes, whose income growth has been slower than that of more affluent households. Indeed, real household income only rose by 10 percent from 2012 to 2022 for house­ holds in the lowest income quartile, compared to 16 percent among households in the highest income quartile, according to the CPS. As a result, income gaps widened. As of 2022, those in the bottom quartile had a median income of $20,000 as compared to for those in the highest quartile. These income gaps are exacerbated by the recent resumption of federal student loan payments, which were paused from March 2020 to September 2023 in response to the pandemic. An estimated 28 million households carried student debt in 2022, according to the most recent Survey of Consumer Finances, including about 13 million households with annual incomes under $75,000. The added stress of these loans was made clear when only 60 percent of borrowers with payments due made their first student loan payment on time after the pause ended, according to the US Department of Education. Widening Wealth Disparities Between Owners and Renters Median real household wealth rose between 2019 and 2022, the last years for which data are available. For many households, the combination of Economic Impact Payments, paused student loan payments, and reduced consumer spending early in the pandemic meaningfully increased household savings. However, not all households experienced these gains equally, with homeowners’ wealth increasing significantly more than renters’, due to skyrocketing home equity. The opportunity for homeowners to build equity results in large wealth disparities with renters. In 2019, median renter household wealth was $7,300, compared to for homeowners. That gulf widened dramati­ cally between 2019 and 2022, during which the median net wealth for renter households and homeowners rose by $3,100 and respectively, after adjusting for inflation. Consequently, median renter household wealth was less than 3 percent of median homeowner wealth, at $10,400 compared to ."}, {"role": "assistant", "content": "Furthermore, according to researchers at the Federal Reserve Bank of San Francisco, the nationwide aggre­ gate cash savings that ballooned to more than $2 trillion between 2020 and 2021 will likely be depleted by mid-2024. This will leave many households, especially those that rent, with even less of a financial buffer."}]}
{"messages": [{"role": "user", "content": "In the longer term, however, younger generations may be unable to form households fast enough to outpace baby boomers’ rising mortality rates. Instead, the decline in the natural population growth rate may accelerate, as projected by both the CBO and the Another Race Black Hispanic White Race/Ethnicity Notes: White, Black, and another race householders are non-Hispanic. Hispanic householders may be of any race. Another race householders are Asian, multiracial, or of another race. Source: JCHS tabulations of Federal Reserve Board, Surveys of Consumer Finances. 04 H O M E O W N E R S H I P High home prices and interest rates have raised the costs of homebuying to historic heights, pricing out millions of potential first-time buyers, slowing homeownership growth, and exacerbating racial home­ ownership gaps. While the average homeowner is enjoying significant equity gains and a below-market mortgage interest rate, cost burdens are rising for owners with lower incomes in the face of higher insur­ ance premiums and property taxes. For homeownership to remain a viable and beneficial choice for US households, the affordability, accessibility, and sustainability of homeownership must be improved for both current and future homeowners. Median Home Sales Price Monthly Payment on Median-Priced Home Mortgage Interest Rate Notes: Payments and prices are inflation-adjusted using the CPI-U for All Items Less Shelter and a four-quarter rolling average. Monthly payments assume a mortgage with a 3.5% downpayment on a 30-year fixed-rate loan with zero points and 0.55% mortgage insurance, 0.35% property insurance, and 1.15% property tax rates. Source: JCHS tabulations of Freddie Mac, Primary Mortgage Market Surveys; National Association of Realtors, Existing Home Sales. Consequently, homeownership is less affordable than it has been in decades. In March 2024, the median monthly mortgage principal and interest payment on home purchase mortgage applications rose $108 year over year to $2,201, according to the MBA Purchase Applications Payment Index, and is now up more than $852 over the last three years. Accounting for prop­ erty taxes and insurance pushes these payments even higher. As monthly payments have increased, so, too, has the income required to afford them. In the first quarter of 2024, a household needed to earn a whopping annually to afford the median-priced home in the US, up from an inflation-adjusted $82,000 in the first quarter of 2021, assuming a loan with a down­ payment of 3.5 percent and a 31 percent housing- payment-to-income ratio. In a growing number of metro areas, a buyer must have an annual income of more than to afford the median-priced home, including nearly half (48 percent) of the 179 markets covered by NAR in the first quarter of 2024, up from 40 percent a year earlier and just 11 percent of metros in the first quarter of 2021. Higher home prices also necessitate larger down­ payments, further limiting access to homeowner­ ship. As of the first quarter of 2024, a buyer of the US median-priced home of would need to have $25,300 in cash to cover a 3.5 percent downpayment and 3 percent closing costs. Just 12 percent of renters can hit that benchmark, according to the most recent Survey of Consumer Finances. In the event a buyer could not qualify for a low-downpayment loan, the required cash would be $89,600 for a 20 percent downpayment and 3 percent closing costs on the same property. Assuming the buyer earns the national median household income of $74,800, they would need to save more than a full year’s salary to amass sufficient cash. Millions of First-Time Homebuyers Priced Out of Market Faced with rising homeownership costs, fewer renters can afford to transition to homeownership. Just 6.6 million renter households (14.5 percent) had suffi­ cient income to afford the US median-priced home in the first quarter of 2024, down from 7.7 million in early 2023 and 10.2 million in 2022, according to Center tabulations of the American Community Survey and assuming a 31 percent housing-payment-to-income ratio. If a cash requirement of a 3.5 percent down- payment and 3 percent closing costs is added, the eligible population plummets to just 2.6 million renter households (5.8 percent), according to Center tabu­ lations of data from the Survey of Consumer Finances. This increasing unaffordability is evident in the declining purchases by first-time homebuyers. According to the Urban Institute, the number of first- lien mortgages originated to first-time homebuyers dropped by 17 percent in 2023 after falling 22 percent in 2022, translating to fewer mortgages than two years prior. pull down growth of the US homeownership rate to just 0.1 percentage points in 2023. However, last year’s annual increase was the smallest since, according to the Housing Vacancy Survey. The US homeownership rate dropped slightly year over year in the first quarter of 2024, suggesting an end to the multiyear streak of annual increases. Additionally, the number of homes for sale remains lower than at any time before the pandemic, further complicating homebuyers’ efforts. According to the 2023 NAR Profile of Home Buyers and Sellers, successful buyers reported that finding a home was the most diffi­ cult step in the process, more challenging even than obtaining a mortgage or saving for the downpayment. Homeowner Households Homeownership Rate (Right scale) Note: Estimates for 2020 are omitted due to data collection issues experienced during the pandemic. Source: JCHS tabulations of US Census Bureau, Housing Vacancy Surveys. Financing is another barrier that disproportionately affects people of color. Mortgage loan denial rates are much higher for Black (16.8 percent) and Hispanic (12.0 percent) applicants, in contrast to their Asian (9.6 percent) and white (6.7 percent) counterparts, according to the latest Home Mortgage Disclosure Act report. A January 2024 report by the Federal Reserve Bank of Minneapolis found that Black applicants are more likely than their white counterparts to be denied a loan because of their credit history. Furthermore, research published in 2021 by the Brookings Institution links such credit and financing challenges to neighbor -hood residential segregation by race, whereby many households of color live in underserved neighbor­ hoods with less access to banking institutions and other financial vehicles for establishing creditwor­ thiness. Each of these barriers contributes to racial differences in homeownership and the associated wealth accumulation. Race/Ethnicity White Black Hispanic Another Race Black-White Hispanic-White Another Race-White Notes: White, Black, and another race householders are non-Hispanic. Hispanic householders may be of any race. Another race householders are Asian, multiracial, or of another race. Rate gaps shown in right panel are from the first quarter of each year. Estimates for 2020 are omitted due to data collection issues experienced during the pandemic. Source: JCHS tabulations of US Census Bureau, Housing Vacancy Surveys. According to CoreLogic, the average mortgaged homeowner has gained in home equity since 2020, including $24,000 in just the past year, and now possesses in home equity as of the fourth quarter of 2023. Aggregate Mortgage Debt Aggregate Home Equity Note: Homeowner equity and mortgage debt are adjusted for inflation using the CPI-U for All Items Less Shelter. Source: JCHS tabulations of Federal Reserve Board, Financial Accounts of the United States. Black homeowners have experienced above- average increases in home values since the pandemic, according to an analysis by Zillow. Still, the average value of a home owned by a Black or Hispanic house­ hold in January 2023 was 17 or 12 percent lower, respec­ tively, than that of a white household, clear evidence of the consequences of both racial segregation and the entrenched biases against neighborhoods of color that underpin property valuations. In addition to equity gains, the record-low interest rates available during the pandemic have benefited many owners. As of the fourth quarter of 2023, more than half (58 percent) of all homeowners with a mort­ gage enjoy rates under 4.0 percent, according to the Federal Housing Finance Agency’s National Mortgage Database. Having locked in these low fixed rates, US homeowners are, on average, paying less for mort­ gage debt as a percentage of disposable income than at any time since such data collection began in 1980. Increasing Number of Homeowners Are Cost Burdened Although many homeowners are in favorable financial positions, many others face a growing affordability challenge, especially those with lower incomes. Nearly 20 million homeowners as of last measure in 2022 are cost burdened, spending more than 30 percent of income on housing and utilities. This includes 9 million who are severely burdened, spending more than 50 percent of household income on these costs. Concerningly, homeowner cost-burden rates are rising. Between 2019 and 2022, the burden rate grew from 21 percent to 23 percent of homeowners, an increase of roughly 3 million households. Increasing property insurance premiums and taxes have likely made this worse. According to Policygenius, home insurance premiums increased an average of 21 percent between May 2022 and May 2023, with statewide increases aver­ aging a shocking 35 percent (nearly $500) in Florida. Single-family property taxes also grew an average of 4.1 percent in 2023 to $4,062, according to the ATTOM 2023 property tax analysis. Cost burdens are concentrated among disadvantaged and vulnerable populations, including homeowners of color and those with low incomes. Specifically, 30.3 percent of Black, 28.5 percent of Hispanic, and 25.8 percent of Asian homeowners are cost burdened, as compared to 21.3 percent of their white counterparts. Single-parent homeowners also have high burden rates (36.1 percent). And adults age 65 and over, 27.4 percent of whom are burdened, constitute a large JOINT CENTER FOR HOUSING STUDIES OF HARVARD UNIVERSITY THE STATE OF THE NATION’S HOUSING and rapidly growing share of homeowners with cost burdens, up by 1.4 million since 2019 to 7.6 million. Still, burdens are most prevalent and growing fastest among homeowners with low incomes, with fully half of the growth in owner cost burdens since 2019 among households with annual incomes under $30,000. Though this population constitutes just 14 percent of homeowners, they represent 42 percent of those with burdens and an alarming 66 percent of the severely burdened. The growth in burdens has been espe­ cially swift among older adult homeowners with low incomes, up from 30 percent in 2001 to 45 percent in 2022, and is particularly high among those with mort­ gages. A shocking 95 percent of older adult home­ owners with low incomes and mortgages are cost burdened, dramatically higher than the 56 percent of their counterparts who own their homes outright and the 74 percent of those who rent. These homeowners are feeling the financial strain. The median low-income homeowner has just $627 per month available after paying for housing and util­ ities, while those with cost burdens have just $216 per month, forcing tough choices between housing and other basic needs. According to the 2022 Consumer Expenditure Survey, homeowners with low incomes and severe burdens spent half as much on food and healthcare and contributed less than half as much to savings and retirement as those who were unburdened. Household Income Under and Over All Homeowner Households Severely Burdened Moderately Burdened Notes: Household incomes are adjusted for inflation using the CPI-U for All Items. Moderately (severely) cost-burdened households spend more than 30% (more than 50%) of income on housing and utilities. Households with zero or negative income are assumed to have severe burdens, while households that are not required to pay rent are assumed to be unburdened. Source: JCHS tabulations of US Census Bureau, American Community Survey 1-Year Estimates."}, {"role": "assistant", "content": "The Outlook In the near term, interest rates will likely remain elevated, disincentivizing homeowners with below- market mortgage rates to move and continuing the constrained supply of homes for sale. Consequently, the high cost of homebuying will likely persist and possibly even increase further, underscoring the need for new construction to help meet demand. Smaller homes, townhouses, and modular and manufactured housing would be especially helpful in serving poten­ tial buyers with more modest incomes who are priced out of the current market. Downpayment assistance, interest rate buydowns, and other targeted programs that can help to increase homeownership rates among households of color are also critical to narrowing the large racial homeownership disparities."}]}
{"messages": [{"role": "user", "content": "05 R E N TA L H O U S I N G Rental affordability is the worst on record. The number of renters with cost burdens has hit an all-time high, and the stock of low-rent units has continued to fall."}, {"role": "assistant", "content": "Though a rush of new supply has helped to temper rent growth and increase vacancies, the slowdown will likely be short-lived. High interest rates and rising insurance and operating costs are weakening property performance and hindering new development. Renter Cost Burdens Reach New High The number of cost-burdened renter households reached a record-breaking 22.4 million at last measure in 2022, an increase of 2.0 million households since 2019. The number of severely cost-burdened renter households also hit a record high at 12.1 million, fully 1.5 million households above pre-pandemic levels. This rise pushed the share of cost-burdened renter house­ holds to an alarming 50 percent in 2022, an increase of 3.2 percentage points since 2019 and 9.0 percentage points since 2001. Among renter households earning $30,000 to $44,999 per year, 67 percent were Notes: Household incomes are adjusted for inflation using the CPI-U for All Items. Moderately (severely) cost-burdened households spend more than 30% (more than 50%) of income on housing and utilities. Source: JCHS tabulations of US Census Bureau, American Community Survey 1-Year Estimates. cost burdened in 2022, an increase of 2.6 percentage points from 2019 and 15.1 percentage points since 2001. Burden rates also rose among renter households with annual incomes under $30,000, which consistently have the highest cost-burden rates. In percent of these households were cost burdened, an increase of 1.5 percentage points from 2019, including 65 percent who were severely burdened. Long-standing discrimination in housing, employment, and education has contributed to disproportionately high cost-burden rates for renter households headed by a Black, Hispanic, or multiracial person. In 2022, more than half of Black (57 percent), Hispanic (54 percent), and multiracial (50 percent) renter households were cost burdened, as compared to white (45 percent), Asian (44 percent), and Native American (44 percent) households. Even among renters with incomes under $30,000, households headed by a Hispanic (87 percent), Asian (86 percent), or Black person (85 percent) were more likely to be cost burdened than those headed by a white person (80 percent). Because rents have been increasing faster than incomes for years, renters have less money to cover non-housing expenses. While median rents have risen 21 percent in inflation-adjusted terms since 2001, median renter household incomes have risen just 2 percent. Consequently, renters’ median residual income—the amount of money available each month after paying for rent and utilities—declined 4 percent since 2001 to $2,600 in 2022. Renters with lower incomes have been particularly stricken by rising housing costs. Residual incomes for those making less than $30,000 annually dropped to an all-time low of $310 in percent lower than in 2001. Among these renters, those with cost burdens had a scant $170 in residual income. High housing costs are forcing financially vulner­ able renters to reduce their spending in areas critical to well-being. Center tabulations of the Consumer Expenditure Survey indicate that severely cost- burdened renter households in the lowest expenditure quartile (a proxy for low incomes) spent 39 percent less on food and 42 percent less on healthcare than their unburdened counterparts in 2022. Renters may also make other trade-offs to reduce housing costs, including relocating to an older or substandard unit or a different neighborhood, or opting for overcrowded living arrangements or longer commutes. These and other such choices may further threaten an already vulnerable household’s health, financial stability, and economic mobility. Shortage of Low-Rent Units Grows Over the past decade, the supply of low-rent stock has continued to decline, leaving lower-income house­ holds even fewer housing options they can afford. Between 2012 and 2022, the nation lost 2.1 million units with rents under $600 when adjusted for inflation, the maximum amount affordable to a household earning $24,000 annually when applying the 30 percent of income standard. Meanwhile, the supply of higher-rent units increased. The number of units with rents between $1,000 and $1,399 increased by while those with rents between $1,400 and $1,999 grew by 4.3 million, and those with rents of $2,000 or more increased by 4.1 million. These changes have shifted the distribution of rents upward. In 2022, just 16 percent of units had rents below $600, down from 22 percent of the rental stock in 2012. Meanwhile, the share of units renting for $2,000 or more increased from 7 percent to 16 percent. The national rental vacancy rate rose to 6.6 percent in the first quarter of 2024, according to the Housing Vacancy Survey, up from the pandemic low of 5.6 percent in the second quarter of 2022 and approaching the 6.9 percent rate averaged in the five years leading up to the pandemic. Vacancies have also rebounded in the professionally managed apartment sector: rates climbed steadily through 2022 and 2023, reaching 5.9 percent in the first quarter of 2024, over 1 percentage point above the pre-pandemic rate of 4.8 percent averaged between 2015 and 2019, according to Real­ Page. As a result, rent growth slowed to 0.2 percent year over year in the first quarter of 2024 after reaching a record high of more than 15 percent annually in early 2022. As supply has surged, new units are sitting vacant longer. According to the Survey of Market Absorp­ tion, 52 percent of new units were leased within three months of completion in the third quarter of 2023, down from a high of 75 percent in the third quarter of 2021. This indicates a slowdown in the market’s ability to absorb the rush of new units. According to the National Council of Real Estate Investment Fiduciaries (NCREIF), net operating incomes for apartments grew by 2.8 percent annu­ ally in the first quarter of 2024. This was a substantial deceleration from the high of 24.8 percent in late 2021 and lower than the 5.4 percent annual rate averaged in the five years preceding the pandemic."}]}
{"messages": [{"role": "user", "content": "And, despite an abundance of new apartments, high rents have left more people than ever cost burdened, and have contributed to a sharp rise in homelessness. Meanwhile, unprecedented destruction from wildfires has further highlighted the growing threat to the housing stock from climate-related disasters. Home Prices Grow Along with Inventories In the for-sale market, home prices grew again over the previous year across most of the country. Prices increased in all four regions and in 88 of the top 100 largest metro areas. Consequently, the US median existing single- family home price hit a new high of in 2024, according to the National Association of Realtors (NAR). This is a shocking five times the median house­ hold income and significantly above the price-to- income ratio of 3 that has traditionally been consid­ ered affordable. As prices rose, existing home sales dropped to a 30-year low. Just 4.06 million home sales were recorded last year, the fewest since 1995. Contributing to the low rate of sales is the large share of existing homeowners with below-market mortgage rates who are disincen­ tivized from selling in the higher-rate environment. The slowdown in home sales has increased the for-sale inventory, which could help to moderate the rate of appreciation in prices. Although inventories remain low, the number of homes for sale rose 20 percent in March 2025. Inventories were up in 98 of the nation’s 100 largest metros in early 2025, with some of the largest gains in metros that saw slower home price growth over the year. Though existing home sales remained flat, new home sales increased by 3 percent last year. The growth of new home sales reflected rising construction levels. Contending with the same high costs and affordability pressures as existing home sellers, many builders responded by producing homes that were smaller or had fewer amenities. The median size of a new single-family home declined for the third consecutive year in 2024, to 2,150 square feet. As a result of these competitive adjustments, new construction consti­ tuted the largest share of all home sales since percent). Additionally, the median sales price of new single-family homes fell for the second straight year to just $7,800 above that of existing single- family homes in 2024. Many builders also cut prices or offered mortgage rate buydowns to facilitate sales. Going forward, however, these sorts of adjustments and incentives could be overshadowed by increases in interest rates or construction costs. Applying the standard lender affordability ratio of 31 percent debt to income, a buyer would need an annual income of at least to afford such a payment. As of 2023, only 6 million of the nation’s nearly 46 million renters can meet this benchmark, according to the American Community Survey (ACS). While home prices vary by market, a buyer still needs to earn at least in more than half (53 percent) of all metro areas to afford the median-priced home, up from 11 percent in 2021. Access to homeownership is further restricted by the large sums needed for a downpayment, which have grown in step with rising home prices. Inability to afford a downpayment was the primary reason households continued to rent, according to a 2024 report by the Federal Reserve. Last year, a buyer would need to possess $26,800 in cash to cover both the closing costs and a 3.5 percent downpayment on the median-priced home, or $95,000 in cash for closing costs and a 20 percent downpayment. It is perhaps, then, not surprising that first-time homebuyers were older and more affluent in 2024. Nevertheless, they increasingly relied on friends and family for help covering the downpayment, according to NAR’s 2025 survey of homebuyers and sellers. In this environment, annual growth in the number of homeowner households dropped from 1.25 million in 2023 to just last year. The US homeownership rate fell in 2024 for the first time in eight years to 65.6 percent and continued downward to 65.1 percent in the first quarter of 2025. The largest decline occurred among households under the age of 35, dropping a full 1.4 percentage points in 2024. This downturn cut JOINT CENTER FOR HOUSING STUDIES OF HARVARD UNIVERSITY THE STATE OF THE NATION’S HOUSING Median Single-Family Sales Price Mortgage Interest Rate Monthly Mortgage Payment Notes: Payments and prices are adjusted for inflation using the CPI-U for All Items Less Shelter and a four-quarter rolling average. Monthly mortgage payments are on the median-priced home and assume a 3.5% downpayment on a 30-year fixed-rate loan and 0.55% mortgage insurance, 0.35% property insurance, and 1.15% property tax rates. Source: JCHS tabulations of Freddie Mac, Primary Mortgage Market Surveys; National Association of Realtors (NAR), Existing Home Sales. Rental Demand Remains Strong as Supply Grows As fewer households have been able to become homeowners, the renter population has grown, espe­ cially over the past two years. After increasing by an average of per year between 2019 and 2022, the number of renter households jumped by in 2023 and then another in 2024, according to the Census Bureau’s Housing Vacancy Survey. While new construction has grown the rental supply overall, it has failed to increase the stock of low-rent units, which has dwindled over time. Between 2013 and 2023, the number of units renting for less than $1,000 per month after adjusting for inflation fell by more than 30 percent, from 24.8 million to 17.2 million. Instead, new construction focused primarily on higher-rent units, which helped to nearly triple the stock that rents for $2,000 or more, from 3.6 million to 9.1 million during the same period. Burdens are rising most rapidly for homeowners with lower incomes and for the growing number of older homeowners. In 2023, a record-high 74.2 percent of the 10.9 million homeowners with incomes below $30,000 were cost burdened, up from 68.7 percent in 2019. The rising cost of homeownership is partially explained by steep increases in insurance premiums and prop­ erty taxes. Home insurance premiums jumped 57 percent from 2019 to 2024, according to Freddie Mac. according to the ICE Mortgage Monitor, or an annual payment of more than $11,000 on the metro’s median- priced home (of . Property taxes also increased an average of 12 percent between 2021 and 2023, lifting the average annual tax bill to $4,380, according to the ACS. Some state and local governments have implemented tax abatement programs, typically targeted to low- income and older adult households. However, discounts are often limited, as property taxes are one of the few sources of local revenue. Cost Burdens Hit Record Number of Renters For the third consecutive year, the number of cost- burdened renters reached another record high in 2023 at 22.6 million renters (50 percent). This includes more than 12.1 million (27 percent) who are severely burdened, spending more than half of their income on housing and utilities. As rental unaffordability has worsened, burdens have become more pervasive across the country. Between 2019 and 2023, the share of renters with cost burdens increased in states and in 89 of the nation’s 100 largest metro areas. More than half of all renters were burdened in 13 states and in 50 of the 100 largest metro areas. While households with lower incomes constitute the bulk of burdened renters, the strain is creeping up the income ladder. Fully 83 percent of renters earning under $30,000 were cost burdened in the most recent data, including an astounding 67 percent with severe burdens. But burden rates were also over 70 percent for renters earning $30,000 to $44,999, an increase of 15.0 percentage points since 2001. During the same period, burden rates doubled to more than 45 percent for renters earning $45,000 to $74,999. As housing costs have grown, many households have less money available to cover other neces­ sities. In 2023, renters with incomes below $30,000 had a median of just $250 per month left over after paying for housing. Many are forced to make difficult spending trade-offs between crucial needs, including healthcare, food, and retirement savings, according to the 2023 Consumer Expenditure Survey. Demand Set to Slow Net household growth decelerated for the second year in a row in 2024, and the underlying drivers suggest an extended slowdown is on the horizon. Last year, the US added just 1.56 million households, on the heels of 1.61 million in 2023. Growth has further slowed to 1.26 million households annually as of the first quarter of 2025. By contrast, the nation averaged 1.93 million annually between 2019 and 2022. The immigration surge ended in early 2025, removing the largest source of population growth and, in turn, the largest driver of new housing demand. At the same time, demographics are becoming less favorable for further growth. Baby boomers will start to turn 80 in 2026 and will soon experience mortality rates that overshadow new household formations. Proposed reductions in federal resources for crucial housing supports would leave even more house­ holds with severe housing problems. Rental assis­ tance programs like Housing Choice Vouchers, public housing, and Low-Income Housing Tax Credits provide lifelines for roughly 5.1 million households. These programs, which assist vulner­ able households and expand the supply of affordable housing, are already underfunded."}, {"role": "assistant", "content": "New financing mechanisms are also increasingly important. Last year, voters approved more than $640 million in state and local affordable housing bonds. Eight places also passed ballot initiatives to levy lodging taxes in support of affordable housing, and three others increased or extended real estate transfer taxes. More than 800 state and local housing trust funds are also available to finance affordable housing. But flexible federal resources are often needed to buttress these efforts. States and localities will be far less effective in addressing the affordability crisis if federal funding declines."}]}
{"messages": [{"role": "user", "content": "Homebuilders estimate that the newly imposed tariffs on construction materials will increase new home prices by $10,900 apiece, according to an April 2025 survey by the National Association of Home Builders (NAHB). Changing interest rates could have an even greater impact on costs for builders and buyers of both single- and multifamily housing. And overall economic uncertainty surrounding the implications of recent policy changes could continue to slow market activity as consumer confidence languishes at near-record lows. Home Price Increases Continue Over the past year, home prices increased modestly for much of the nation. Prices grew by 3.9 percent year over year in February (1.9 percent after adjusting for inflation), according to Center tabulations of the S&P CoreLogic Case-Shiller US National Home Price Index. By contrast, prices increased nationwide by 6.6 percent in February 2024 and 20.2 percent in the same month in 2022. In nominal terms, prices increased for 21 consecutive months after declining briefly in JOINT CENTER FOR HOUSING STUDIES OF HARVARD UNIVERSITY THE STATE OF THE NATION’S HOUSING Price-to-Income Ratio Under 3.0 3.0–3.9 4.0–4.9 5.0 and Over US Ratio (Right scale) Notes: Price-to-income ratios are for the 100 largest metro areas by population. Income data for 2024 are based on Moody’s Analytics forecasts. Source: JCHS tabulations of NAR, Metropolitan Median Area Prices; Moody’s Analytics estimates. mid-2023, pushing home prices up 60 percent since 2019 and 127 percent since 2010. The median sales price for an existing single-family home was in 2024, up from 2019, according to NAR. These price increases have been widespread. Home prices rose annually in 88 of the 100 largest metro areas in the first quarter of 2025, according to Center tabu­ lations of the Freddie Mac House Price Index. Gains were greatest in the Northeast, where prices rose by 6.8 percent on average, followed by the Midwest (5.2 percent), West (2.4 percent), and South (1.8 percent). Recent increases have pushed home prices up since 2019 between 57 percent (in the West) and 68 percent (in the Northeast). Yet some Southern and Western markets saw prices decline last year, mostly in areas where inventories increased substantially, including Cape Coral (down 6.2 percent year over year), North Port (down 4.2 percent), and Austin (down 2.1 percent). Much of the inventory bump is attributable to an increase in the length of time that homes are available for sale. In the first quarter of 2025, the median number of days on market hit 64, according to Realtor.com. This is the highest first-quarter reading since 2020 and far above the 45 days averaged at the beginning of 2022. Months of Supply (Right scale) Existing Homes for Sale in March Notes: Months of supply measures the length of time needed at the present pace to sell all homes currently listed for sale. Six months of supply is typically considered to be a balanced market. Source: JCHS tabulations of NAR, Existing Home Sales. In 2024, existing home sales fell to a 30-year low of 4.06 million, including 3.67 million single-family homes and condo and co-op units. This is a drop of 34 percent from the pandemic-era high of 6.12 million in 2021, and lower than the 5.24 million averaged since 2000. Compared to 2021, sales dropped by 40 percent in the West, 35 percent in the Northeast, 32 percent in the South, and 31 percent in the Midwest. About new single-family homes sold in 2024, up 3 percent on an annual basis. Last year, new homes constituted 16 percent of all single-family home sales, the largest portion since 2005 and higher than the 12 percent averaged annually since 2004. Home sales also grew in response to price cuts and other incentives from homebuilders. According to a May 2025 survey by NAHB, 61 percent of builders offered some kind of sales incentive and 34 percent reduced prices outright. The median sales price of new Single-Family Starts Median Size of Single-Family Starts (Right scale) Source: JCHS tabulations of US Census Bureau, New Residential Construction. Rents Rise Slowly but Vary by Market The increased supply of multifamily units has helped to suppress rent growth. Asking rents in the professionally managed apartment sector rose 0.8 percent year over year in the first quarter of 2025, according to RealPage. While up from the 0.2 percent annual change posted a year ago, rent growth remains down from the same quarter in 2022, when rents rose a record-breaking 15.3 percent year over year. Across property classes, rents increased more for higher-quality apartments as growing numbers of more affluent renters were priced out of homeownership. Asking rents rose 1.8 percent in Class A apartments and 0.9 percent in Class B apart­ ments year over year. Rents in lower-quality Class C apartments dropped by 0.7 percent. But despite recent slowdowns, average monthly rents have trended up 32 percent since the same quarter in 2019 to $1,830. Meanwhile, rents for single-family homes picked up early in the year. According to Cotality, single-family rents rose by 2.9 percent annually in February 2025, though still down from a peak increase of 14.0 percent in early 2022. The Consumer Price Index (CPI) for rent of primary residence, which is slow to reflect changes in rent levels, decelerated to 4.0 percent annually in April 2025. This is a substantial decline from the 8.8 percent peak in 2023. quence of development. Generally speaking, rent growth slowed or rents declined outright in areas with more apartment completions. Conversely, regions with faster rent growth had fewer new completions. Relative to the same quarter in 2019, strong rent growth pushed asking rents up 41 and 39 percent, respectively, in the Midwest and Northeast; 33 percent in the South; and 26 percent in the West. Vacancies Remain Elevated Amid Strong Demand Last year’s influx of new multifamily supply helped sustain elevated vacancy rates, even amid histor­ ically strong demand. According to the Census Bureau’s Housing Vacancy Survey, the nationwide rental vacancy rate rose by 0.5 percentage points to 7.1 percent between the first quarters of 2024 and 2025. This reading is consistent with rates averaged in the five years before the pandemic and higher than the 5.6 percent recorded in 2021. While vacancies rose nationwide, they fell in the professionally managed apartment sector, where demand has been especially strong and which frequently houses renters with higher incomes. The number of households living in these apartments rose by annually in the first quarter of 2025, according to RealPage. This is the strongest growth on record excepting 2022 and outpaced even the robust apartment completions. Simultaneously, apartment vacancy rates in this sector declined by 0.9 percentage points annually to 5.0 percent. Even with these declines, vacancy rates remained well above the record low 2.5 percent seen in early 2022. Within the professionally managed sector, vacancy rate declines were geographically widespread at the beginning of the year, ranging from drops of 0.7 percentage points year over year in the Northeast to 1.0 percentage point in the South. But overall vacancy rates remained highest in the South (5.9 percent), where multifamily construction was strongest and rent declines most common, and lowest in the Northeast (3.7 percent), where less new supply has come online. In the West and Midwest, apartment vacancy rates were 4.7 percent and 4.5 percent, respectively. The decline in apartment vacancies extended to most markets. Of the 150 large markets tracked by Real­ Page, 89 percent recorded a drop in vacancies in the first quarter of 2025, a sharp turnaround from just 10 percent the year prior. Such widespread declines in the vacancy rate are an early indicator that rental markets are beginning to tighten in the face of strong rental demand. Stimulating Supply Remains Important Substantial supply shortages endure despite recent increases in housing construction, owing largely to underbuilding following the Great Recession. Esti­ mates of the housing shortfall vary from 1.5 million units according to NAHB to Freddie Mac’s 3.7 million. In any case, the underlying message is clear: the US faces a significant housing shortage, especially in the single- family market. The result has been rent growth that strains household budgets and home price apprecia­ tion that pushes homeownership further out of reach. Persistent underbuilding has also slowed economic growth, reducing gross domestic product (GDP) by trillions of dollars, according to NAR. Residential fixed investment—an indicator of the sector’s economic activity, including new housing production and invest­ ments in the existing stock—accounted for about 4.1 percent ($1.2 trillion) of GDP in 2024. This is lower than the historical average of 4.8 percent from 1960 to 2007. Producing at this long-run average, the sector would have contributed an additional $200 billion in GDP and started about more housing units just last year. Reducing and removing barriers to new construction would spark substantial economic activity. However, there are numerous obstacles to building more housing. According to a January 2025 NAHB homebuilder survey, 91 percent of builders identified elevated interest rates as an impediment to increased development. Other constraints included rising infla­ tion (80 percent), buyer affordability expectations (77 percent), and the cost and availability of land (63 percent). Development may also be restricted by regu­ latory barriers, which can account for up to 41 percent of total multifamily development costs, according to a joint study by the National Multifamily Housing Council (NMHC) and NAHB. Another challenge for residential developers is the shortage of construction workers. For the latest 12-month period ending in February 2025, the industry averaged job openings. Although down from a year earlier, the volume of unfilled positions remains historically high, with just openings averaged before 2020. Reduced immigration could shrink the already-thin labor pool. According to Center tabulations of the ACS, a third of construction workers are foreign-born, about twice the rate of the overall labor force. The rising cost of materials has further complicated efforts to build more housing, and proposed tariffs raise concerns that pressures may increase in 2025. The price of building materials grew by 36 percent between February 2020 and February 2025, according to the Bureau of Labor Statistics."}, {"role": "assistant", "content": "Tariffs are expected to esca­ late these costs, considering that roughly 7 percent of construction materials are imported. According to one estimate by John Burns Research and Consulting, the tariffs will likely add $12,800 to $25,500 to the cost of building a new single-family home. Meanwhile, home­ builders anticipate that such tariffs will push up new home prices by $10,900, as reported in a NAHB survey released in April."}]}
{"messages": [{"role": "user", "content": "The Outlook Rising home prices, high interest rates, and limited inventories have kept home sales hovering near three-decade lows. While modest increases in single- family homebuilding have given homebuyers more options, ample new supply is needed to alleviate affordability pressures. Moderating interest rates could spur construction and induce sellers to put their homes on the market, increasing opportuni­ ties for potential buyers. But heightened economic uncertainty and low consumer confidence cloud the path ahead. DEM O G R A PH I C DR I V ER S Household growth has slowed from pandemic-era highs as surges in immigration and household forma­ tions by younger adults recede. The result is a steep decline in both the primary source of population growth and a major source of household growth. At the same time, domestic mobility has dropped to a historic low. Baby boomers continue to boost the ranks of older adults, transforming household compo­ sition while ushering in a long-term slowdown in population growth as mortality rates rise. Additionally, the strong economic growth and tight labor markets that supported robust housing demand over the past decade are threatened by rising economic uncertainty. Household Growth Is Retreating In 2024, the number of US households increased by 1.56 million to 131.7 million, according to the Housing Vacancy Survey. Though this rate of growth is histori­ cally high compared to average levels since the 1990s, it is down slightly from the 1.61 million households in 2023 and far lower than the pandemic-era surge of 1.93 million households averaged annually between 2019 and 2022. :1 Note: Estimates for 2020 and 2021 are omitted due to data collection issues experienced during the pandemic. Source: JCHS tabulations of US Census Bureau, Housing Vacancy Surveys. The slowdown is at least partially attributable to the end of an era of unusually accelerated growth among households headed by a younger adult. In a reversal of recent trends, in 2024, the annual increase in the number of households under age 45 slowed to . The outsized level of household growth among younger adults was largely due to an inherently temporary return of “missing” households whose formation was delayed by the Great Recession. These new house­ holds helped grow both the younger adult headship rate—the share of adults under age 45 who head a household—and household growth by an additional 1.0 million households, or per year between 2019 and 2023. The remaining additional younger adult households per year were due to the increase in the younger adult population. In 2024, however, the rebound in young adult headship rates ended, with formations among younger adults entirely driven by underlying population growth. Drop in Immigration Dampens Population Growth After a three-year surge, immigration plunged in early 2025, slashing an increasingly crucial source of popu­ lation and household growth as the native birthrate slows. From 2022 to 2024, immigration averaged a massive 2.3 million people per year, up from immigrants annually throughout the previous decade, according to the Population Estimates Program (PEP). Meanwhile, gains from natural changes (births minus deaths) in the resident population averaged just people per year between 2022 and 2024, as compared to an annual average of 1.2 million people from 2011 through 2020. As such, immigration has become the primary source of population growth in both the nation and an increasing number of communities, helping to bolster growth in some areas and stem losses in others. Of these, immigration was the lone source of popula­ tion growth in 8 states and 557 counties, ranging from larger areas with over 1 million residents, including Palm Beach County, Florida, and Cuyahoga County, Ohio, to smaller ones, such as Bernalillo County, New Mexico, and Albany County, New York. Immigration was also the sole driver of growth in nearly a quarter of counties outside metro areas, most of which are rural."}, {"role": "assistant", "content": "Meanwhile, natural growth in the resident popula­ tion is expected to fall further. As the large baby boom generation ages, deaths are projected to rise substantially. Absent any equivalent rise in the number of births, the natural increase in population will slow and then turn negative. The Census Bureau projects Natural Population Change Net Immigration -0.5 3.5 Projected Note: Natural population change is the difference between births and deaths. Source: JCHS tabulations of US Census Bureau, Population Estimates Program and 2023 National Population Projections."}]}
{"messages": [{"role": "user", "content": "that annual deaths will outnumber births by 2038. From that point forward, the only growth in population would come from immigration. The rate of population growth would then depend on whether immigration levels are sufficient to override native-born losses. New household growth projections from the Center suggest an impending slowdown over the next two decades, primarily driven by the underlying weak­ ening of population growth. Under the Census Bureau’s main population projection, 8.6 million net new households will form between 2025 and 2035 and another 5.1 million households from 2035 to 2045, assuming that net foreign migration over the next two decades resembles the post-1990 historic average of roughly immigrants annually. If, however, immigra­ tion levels follow the Census Bureau’s projection that assumes an annual average of people, the forecast changes significantly. In this low-immigration scenario, household growth is projected to total just 6.9 million households in the next decade and a scant 3.2 million from 2035 to 2045. Regardless of age, householders of color are projected to account for over 95 percent of net household growth from 2025–2035 and all of the growth from 2035–2045. At last measure in the 2023 ACS, households of color constituted roughly 37 percent of all households, led by Hispanic households (15 percent), followed by Black households (12 percent), Asian households (5 percent), and all others (5 percent). Notably, shares vary by age. Roughly 44 percent of householders under age 45 were people of color, compared to 38 percent of householders age 45–64 and only 25 percent of householders age 65 and over."}, {"role": "assistant", "content": "As younger house­ holders replace older ones, racial and ethnic diversity will increase; the share of households headed by a person of color is projected to grow to 40 percent by 2035 and 44 percent by 2045."}]}
{"messages": [{"role": "user", "content": "Residential Mobility Is Declining In 2024, household mobility rates were the lowest on record since the 1970s. According to the Current Population Survey (CPS), approximately 8.3 percent of households (10.9 million) reported moving over the past year, unchanged from a year earlier and down from 9.8 percent (12.6 million) before the pandemic in 2019. The overall decline in residential mobility is evident in the recent moderation of interstate migration. In North Carolina, Tennessee, and nine additional states, primarily in the South, migration from other states was the largest source of population growth in 2024 and constituted an average of two-thirds of statewide JOINT CENTER FOR HOUSING STUDIES OF HARVARD UNIVERSITY THE STATE OF THE NATION’S HOUSING gains, according to the PEP. But even then, net gains from migration fell in some of these states in 2024, down 17 percent in North Carolina and 20 percent in Tennessee, relative to a year earlier. Economic Uncertainty Constrains Housing Demand The combination of strong economic growth and tight labor markets has supported robust housing demand over the past decade. Despite setbacks during the pandemic, real household incomes rose 12 percent between 2013 and 2023, according to ACS data. Median personal incomes also jumped by an inflation- adjusted 20 percent per the CPS, helping to fuel housing demand. Personal income growth was fastest for young adults, with incomes up 24 percent for those aged 25–34. This trend was particularly beneficial in supporting the rebound over the previous decade in household formations by young adults. Other key metrics of household financial well-being also improved markedly over the past decade. The household poverty rate declined, dropping from 14.3 percent in 2013 to 11.2 percent in 2023, according to the CPS. And aggregate household wealth has almost doubled in the past decade, from $82 trillion in fourth- quarter 2014 to $160 trillion in fourth-quarter 2024, according to the Federal Reserve. However, fully 71 percent of this growth was among the top 20 percent of households by income. The top 1 percent gained more than $18.8 trillion, while the aggregate wealth for the bottom 60 percent grew by $13 trillion, driven by two extended periods of exceedingly tight labor markets. However, as of early 2025, uncertainty is growing regarding the future direction of the economy. The Index of Consumer Sentiment, conducted by the University of Michigan to measure attitudes toward the economy, tumbled in early 2025 over worries about the economic impact of tariffs. Continued and deepening economic uncertainty itself is seen as a leading indicator of economic performance and could undercut housing demand by inspiring people to postpone household formations, residential moves, home purchases, remodeling projects, and similar outlays. Such defer­ rals would contribute to and be compounded by a slowdown in the housing market and an actual economic downturn. Affordability challenges could further dampen demand by hindering household forma­ tion, especially among younger adults and people of color, two populations that have fueled demand in recent years. The slowdown in household growth will be felt unevenly around the country, depending on natural population changes and net domestic and international migration. As other sources of population growth contract, domestic migration will become an even more important driver of changes in population and household growth. The substantial increase in the number of older adult households will have important implications not only for household composition but also for the housing stock, which generally lacks the accessibility features required to meet the changing needs of older householders. 04 HO M EO W N E RS H IP The recent surge in homeownership has stalled. The homebuying boom has slowed, and homeownership rates have dropped for the first time in eight years in response to ever-increasing home prices, elevated interest rates, and an extremely limited supply of inventory. Rising insurance premiums and property taxes are pushing up the number of cost-burdened homeowners, especially among those with low incomes, including many older adults. Still, home equity levels remain near record highs, a testament to both the potential wealth benefits of homeownership and the urgent need to ensure widespread access by addressing the affordability crisis. Homeownership Rates Are Faltering The growth of homeowner households slowed sharply in 2024. The past year’s gains were roughly half the 1.25 million added in 2023 and the lowest annual increase since 2016. JOINT CENTER FOR HOUSING STUDIES OF HARVARD UNIVERSITY THE STATE OF THE NATION’S HOUSING Homeowner Households Homeownership Rate (Right scale) Note: Estimates for 2020 are omitted due to data collection issues experienced during the pandemic. Source: JCHS tabulations of US Census Bureau, Housing Vacancy Surveys. Homebuyer Costs Continue to Rise Homebuyer costs increased again in 2024 as sustained home price appreciation and stubbornly high interest rates pushed homeownership further out of reach for millions of households. Nationwide, the median existing single-family home sales price rose 4.7 percent in 2024 to according to NAR. Meanwhile, interest rates remained elevated, further driving up homebuying costs. The interest rate on the 30-year mortgage began 2024 at 6.6 percent and temporarily dropped to 6.1 percent in September in anticipation of a rate cut by the Federal Reserve. However, by January 2025 the rate had jumped to 7.0 percent as inflation fears persisted. The high costs of homebuying are felt in metro areas across the country. Total monthly payments on the median-priced single-family home grew between the first quarter of 2024 and the first quarter of 2025 in 86 percent of markets covered by NAR. In these metros, the average increase was 6 percent over the past year and 74 percent since the first quarter of 2021. These substantial increases over the past four years have Notes: Closing costs assume a 3.5% downpayment and 3% additional fees. Mortgage payments are based on a 30-year fixed-rate loan. Other costs include 1.15% property taxes, 0.35% property insurance, and 0.55% mortgage insurance fees. Required annual income assumes a 31% debt-to-income ratio. Source: JCHS tabulations of Freddie Mac, Primary Mortgage Market Surveys; NAR, Existing Home Sales. been widespread across all metros, ranging from 39 percent in Peoria, Illinois, to fully 127 percent in New Bern, North Carolina. Buyers can reduce their monthly mortgage payments by providing larger downpayments. But as home prices have risen, so, too, have downpayments, further constricting access to homeownership. Continuing with the lending scenario described in the previous paragraph, a first-time homebuyer would need to provide $26,800 in cash to cover the downpayment and 3 percent closing costs. Roughly 12 percent of renters can meet this requirement, according to the 2022 Survey of Consumer Finances. Should the buyers wish to make a 20 percent downpayment, they would need to provide $95,000 in cash—an amount only 4 percent of renters possessed in 2022. Perhaps it is unsurprising, then, that a quarter of first-time buyers in 2024 reported using a gift or loan from family or friends to afford their downpayment, according to NAR. In this environment, first-time homebuying remained constrained to older, higher-income households in 2024. According to the Urban Institute, the number of first-time homebuyer loans originated in 2024 dropped by 18 percent from the pre-pandemic level of 2019 and 32 percent from the recent peak in 2021. Concurrently, the median age of a first-time homebuyer hit a record- high 38 in 2024, and the median annual household income of first-time buyers was $26,000 higher than it was just two years earlier, according to the NAR 2024 Survey of Buyers and Sellers. According to Freddie Mac, the average annual home­ owner insurance premium grew by 14 percent ($211) in 2024 alone and by 57 percent ($636) over the past five years, to $1,761 in 2024. That said, coverage costs vary widely by market, with the highest premiums associ­ ated with the areas most at risk of weather-related disasters. Premium rates range widely, from $2.90 per $1,000 of coverage in Las Vegas to $17.20 per $1,000 in Miami, according to the ICE Mortgage Monitor. For a median-priced Miami home purchased in the first JOINT CENTER FOR HOUSING STUDIES OF HARVARD UNIVERSITY THE STATE OF THE NATION’S HOUSING Property tax payments are also up, a consequence of rising home values. Nationwide, average property tax payments increased 12 percent ($455) between 2021 and 2023 to $4,380, with state average increases ranging from 5 percent (Rhode Island) to 37 percent (Wyoming), according to the ACS. Likewise, statewide average annual property tax payments varied widely, from $1,100 (Alabama) to $10,100 (New Jersey) in 2023, with effective tax rates between 0.4 percent (Hawaii) and 2.1 percent (New Jersey) of estimated property values. As with insurance premiums, these increases can strain household budgets. Property Insurance Property Taxes Miami Boston Dallas Oklahoma City Las Vegas United States Note: Costs are based on applying metro area property insurance and tax rates to the metro area median sales price for single-family homes in 2025:1. Source: JCHS tabulations of ICE Mortgage Monitor, March 2025; NAR, Existing Home Sales; US Census Bureau, 2023 American Community Survey 1-Year Estimates. As of 2023, nearly a quarter (24 percent) of all homeowners are cost burdened. That year alone, the number of burdened homeowner households rose by to 20.3 million. This latest annual increase confirms the reversal of a nearly 10-year trend of consistent declines in homeowner cost burdens between 2010 and 2019. The number of burdened homeowners is now up by 3.6 million households since 2019 and the cost-burden rate is 2.5 percentage points higher. The recent growth in owner cost burdens has been widespread across metros, with increases since 2019 in 93 of the 100 largest metro areas. Much of the most significant growth was in areas that have tradition­ ally been more affordable. Metros such as Milwaukee, Scranton, and Oklahoma City, which had homeowner burden rates under 20 percent in 2019, saw their share of burdened homeowners grow by greater than 5 percentage points between 2019 and 2023, more than twice the national rate during the same period. Still, burden rates generally mirror home prices: highest in the costliest markets, lower in more affordable ones. As of 2023, homeowner cost burdens in Miami, one JOINT CENTER FOR HOUSING STUDIES OF HARVARD UNIVERSITY THE STATE OF THE NATION’S HOUSING Burdens are also rising sharply among older households. Between 2019 and 2023, the number of cost-burdened homeowners age 65 and over rose by 1.7 million to 7.9 million households. This increase lifted the cost-burden rate for older adult home­ owners from 24.2 percent in 2019 to 27.6 percent in 2023. Because older adults are more likely to live in older homes that require more maintenance, those who are cost burdened may not be able to maintain the upkeep, thus jeopardizing their health, safety, and ability to remain in their communities as they age. JOINT CENTER FOR HOUSING STUDIES OF HARVARD UNIVERSITY THE STATE OF THE NATION’S HOUSING All Homeowners $75,000 and Over $45,000––44,999 Under $30,000 Household Income Notes: Household incomes are adjusted for inflation using the CPI-U for All Items. Cost-burdened households spend more than 30% of income on housing and utilities. Source: JCHS tabulations of US Census Bureau, American Community Survey 1-Year Estimates. Some Owners Have Secured Massive Gains Even as an increasing number of homeowners are cost burdened, many others are growing wealthier. Rising home values have helped millions of homeowners build a significant amount of home equity. In the fourth quarter of 2024, homeowner equity averaged a near-record high of $35 trillion, or roughly per household. Nationwide, aggre­ gate homeowner equity is now more than double the aggregate mortgage debt level of $13.3 trillion. Many homeowners are also benefiting financially from the historically low interest rates available in 2020 and 2021. In the fourth quarter of 2024, the average market rate for a 30-year fixed-rate mortgage was 6.63 percent. Yet 77 percent of outstanding mortgages during that period carried interest rates of 5 percent or lower, including 45 percent with rates of 3.5 percent or lower, according to the Urban Institute. Although some of these lower-rate loans enabled purchases by borrowers who could not afford a home at higher rates, many more were refinances by homeowners who capitalized on the opportunity to lower their mort­ gage costs. Indeed, the large volume of refinances drove down the median homeowner housing costs by 2 percent in real terms between 2013 and 2023, better positioning them to manage the recent increases in property taxes and insurance premiums. Equity levels, too, remain highly uneven among home­ owners, especially by race and ethnicity. According to the 2022 Survey of Consumer Finances, median home equity for white homeowners was fully percent) higher than for Black homeowners, and percent) higher than for Hispanics. JOINT CENTER FOR HOUSING STUDIES OF HARVARD UNIVERSITY THE STATE OF THE NATION’S HOUSING Aggregate Home Equity 0 40 Aggregate Mortgage Debt Note: Homeowner equity and mortgage debt are adjusted for inflation using the CPI-U for All Items Less Shelter. Source: JCHS tabulations of Federal Reserve Board, Financial Accounts of the United States. In this environment, delinquencies among financially vulnerable borrowers are inching upward. In 2024, loan performance declined for both Federal Housing Administration (FHA) and Veterans Affairs (VA) loans, mortgage products more heavily used by borrowers with lower incomes and credit scores. According to the Urban Institute, serious delinquency rates on FHA loans rose from 3.5 to 4.4 percent between May and December 2024, while those for VA loans jumped from 2.1 to 2.6 percent during the same period. Both loan portfolios now have serious delinquency rates greater than the FHA’s 3.5 percent and the VA’s 1.9 percent from the fourth quarter of 2019. Meanwhile, the ever-increasing costs of homeowner­ ship will further strain the millions of homeowners who are already cost burdened, particularly older home­ owners and those with limited incomes."}, {"role": "assistant", "content": "Projected growth in the number of older homeowners will likely increase the number who struggle to afford, main­ tain, and adapt their homes to address their changing needs, including potential accessibility modifications."}]}
{"messages": [{"role": "user", "content": "05 REN TA L H O U S I N G As the number of renters facing affordability challenges climbs, cost burdens hit another record high in 2023. Lower-income renters have ever-less money to pay for non-housing essentials. Nevertheless, rental demand remained strong last year, particularly among higher-income households unable to transition to homeownership. Still, the dwindling supply of low-rent units limits more affordable options. Some relief could come from the recent wave of multifamily completions. However, persistent operating challenges and high interest rates are slowing multifamily starts. Consequently, the share of renters with afford­ ability challenges has increased significantly, up 3.2 percentage points since 2019 and 9.0 percentage points since 2001. Half (50 percent) of renters were burdened in 2023, including 27 percent with severe burdens. This is just shy of the record-high 51 percent of renters who were cost burdened in 2011 in the after­ math of the Great Recession. As rental unaffordability has worsened, cost burdens have become more prevalent nationwide. Between 2019 and 2023, the share of burdened renters increased in states and in 89 of the nation’s 100 largest metro areas. As a result, more than 50 percent of renters are cost burdened in 13 states and in exactly half of large metro areas. Affordability challenges are most common in Florida and Western states, home to some of the biggest rent increases in recent years. Among the 100 largest metro areas, the 5 markets with the highest renter burden rates are in Florida, including Cape Coral (65 percent) and Miami (63 percent). Burdens are also exceedingly high (57-58 percent) in New Orleans, Riverside, and San Diego. Even in the metros where burden rates are lowest—Des Moines, Pittsburgh, and Wichita—42 percent of renters were cost burdened, as were 39 percent of renters in non-metro areas with significantly lower housing costs, reflecting the scope of the affordability crisis. Renter Cost Burdens Move up the Income Scale Though widespread, affordability challenges remain especially pervasive for renters with lower incomes. As of percent of renters earning under $30,000 are cost burdened, up 1.5 percentage points since 2019 and 5.2 percentage points over the past two decades. Among these households, two-thirds (67 percent) have severe burdens. That said, burdens have risen most dramatically for renters toward the middle of the income scale as housing costs have grown faster than income. Additionally, cost burdens have doubled to 45 percent since 2001 for households earning $45,000 to $74,999. Even many higher-income renters have felt the strain of growing costs. In percent of renters with incomes of $75,000 and over were burdened, up considerably in recent years. Steady employment also increasingly fails to buffer against the increasing costs. Fully 36 percent of renter households headed by someone working full time—at least 35 hours per week for 50 weeks in the prior year—were cost burdened in 2023, up from 25 percent in 2001. Still, affordability challenges disproportionately impact more vulnerable renters, including those with disabili­ ties, who are less likely to secure full-time work, and older adults, who are more likely to live on a fixed income. In percent of renter households headed by someone with a disability were cost burdened, compared to 47 percent of those without. Likewise, 58 percent of renters age 65 and older were cost burdened, compared to 46 percent of those aged 25–54. Cost burdens are also disproportionately high for renter households headed by a person of color, due at least in part to discriminatory policies and practices in housing, education, and employment. As of percent of Black renter households are burdened, as are 53 percent and 50 percent of Hispanic and multiracial renters, respectively. Burdens are generally less common but still pervasive among Native Amer­ ican (43 percent), Asian (45 percent), and white (46 percent) renters. JOINT CENTER FOR HOUSING STUDIES OF HARVARD UNIVERSITY THE STATE OF THE NATION’S HOUSING Moderately Burdened Severely Burdened All Renter Households $75,000 and Over $45,000––44,999 Under $30,000 Household Income Notes: Household incomes are adjusted for inflation using the CPI-U for All Items. Moderately (severely) cost-burdened households spend more than 30% (more than 50%) of income on housing and utilities. Source: JCHS tabulations of US Census Bureau, American Community Survey 1-Year Estimates. Nearly two-thirds (65 percent) of working-age renters cannot cover their non-housing necessities, according to a Center analysis using spending estimates from the Economic Policy Institute. Many households are forced to make tough trade-offs to pay the rent, spending less on healthcare and food or relocating to unsuitable housing or neighborhoods far from transit, employ­ ment, or social networks. -60 10 Household Income Under –and Over Notes: Household incomes and residual incomes are adjusted for inflation using the CPI-U for All Items. Households that are not required to pay rent are excluded. Data for 2020 are based on 2019 and 2021 values due to data collection issues experienced during the pandemic. Source: JCHS tabulations of US Census Bureau, American Community Survey 1-Year Estimates. Rental demand was especially strong in the profes­ sionally managed apartment sector, where the growth in renters outpaced new construction. According to RealPage, an additional households moved into professionally managed apartments in 2024, triple the that relocated to such units in 2023. This signifies the sector’s biggest year of growth on record dating back to 2000, except the 2021 boom. The number of apartment renters continued to grow substantially through the first quarter of 2025. :Note: Estimates for 2020 and 2021 are omitted due to data collection issues experienced during the pandemic. Source: JCHS tabulations of US Census Bureau, Housing Vacancy Surveys. According to Center tabulations of the latest ACS, the number of renter households earning at least $75,000 increased by 7.8 percent (1.1 million households) in 2023, continuing a longer-term trend briefly inter­ rupted by the pandemic. These higher-income renters represented a record-breaking 33 percent of all renter households in 2023, up from 26 percent in 2013, after adjusting for inflation. While much of the most recent growth among renter households is among people who traditionally would be transitioning to homeownership, renter household growth has been strongest for older and younger renters over the past five years. Between 2019 and 2023, the number of renter households age 65 and older increased by 8.1 percent as baby boomers continued to age into older adulthood, and those under age 35 increased by 6.4 percent as Gen Z renters entered peak years for forming households. By contrast, the number of renter households aged 35–44 grew much more slowly, by 3.7 percent during the same period, while those aged 45–64 dropped by 2.6 percent. The Higher-Rent Stock Is Growing The number of higher-rent units has increased dramatically in response to the growing population of higher-income renters, the limited rental supply, and the wave of new construction targeting the higher- end market. In 2013, units renting for $1,400 to $1,999 were 14 percent of the stock and those renting for at least $2,000 were 8 percent. Ten years later, these higher-rent units accounted for 24 percent and 20 percent of all units, respectively. During this period, the number of units renting for at least $1,400 after JOINT CENTER FOR HOUSING STUDIES OF HARVARD UNIVERSITY THE STATE OF THE NATION’S HOUSING adjusting for inflation more than doubled, including 5.5 million additional units renting for at least Contract Rent Under and Over Notes: Rents are adjusted for inflation using the CPI-U for All Items Less Shelter. Units that are occupied but do not receive payment are excluded. Contract rents exclude utility costs. Source: JCHS tabulations of US Census Bureau, American Community Survey 1-Year Estimates. To be profitable, most of these units must command steep rents due to the high prices for land, building materials, and labor. According to the Census Bureau’s Survey of Market Absorption, the median asking rent for apartments completed in the fourth quarter of 2024 was $1,900, affordable to a household earning $76,000 annually. Over two-thirds of new apartments (68 percent) had asking rents of at least $1,650, including 41 percent with asking rents above $2,050. Absent subsidies, only higher-income renters can afford to live in these units. metro areas (compared to half of single-family construction), including 39 percent in denser core counties (compared to just 16 percent of single-family construction), according to the NAHB Home Building Geography Index. As investor activity in the single-family rental market increases, observers have voiced concerns that would-be homebuyers are losing the chance to purchase these properties. According to Cotality, investors bought nearly a third of single-family homes sold in the first quarter of percent), much higher than the 19 percent purchased in the same quarter of 2019. Individuals struggle to compete with large investors that can buy homes with cash or more easily secure financing, close deals quickly, and purchase several properties in a single trans­ action. Such investors target modestly priced homes and have been especially active in growing Sun Belt markets. In response, lawmakers across several states have proposed legislation to prioritize sales to individuals. Operating Challenges Strain Apartment Owners The combination of high interest rates, increasing expenses, and the slowdown in rent growth has created challenges for many apartment owners. For example, operating expenses rose further in 2023, according to the National Apartment Association. Insurance costs remained a substantial driver of the growth, up 26 percent year over year and twice the previous year’s rate. Other cost increases include repairs and maintenance (12 percent), administra­ According to Cotality, investors bought nearly a third of single-family homes sold in the first quarter of 2025. Nevertheless, operating incomes continued to rise modestly."}, {"role": "assistant", "content": "According to the National Council of Real Estate Investment Fiduciaries (NCREIF), net oper­ ating incomes increased 5.5 percent annually in the first quarter of 2025. This is slightly above the pace averaged over the past two years but well below the robust 24.6 percent growth experienced in 2021. Apartment prices declined, though more slowly than in recent years. According to Real Capital Analytics, prices fell 0.9 percent annually in March 2025 after dropping 7.5 percent a year earlier. Falling apartment values also reflect rising capitalization rates as inves­ tors expect a greater return on equity to compete with growing treasury yields. According to NCREIF, cap rates for apartments rose from 3.7 at the start of 2023 to 4.4 in early 2025. However, they remain below other commercial real estate assets, such as offices and retail, signaling investors’ willingness to accept a lower annual return from the multifamily market because of lower perceived risk."}]}
{"messages": [{"role": "user", "content": "Against this backdrop, transactions are subdued and loan refinancing is less readily available. Consequently, multifamily mortgage delinquencies increased again. The 30-day delinquency rate on commercial mortgage-backed securities (CMBS) rose year over year in the fourth quarter of 2024, from 4.30 percent in late 2023 to 5.78 percent in late 2024, according to the Mortgage Bankers Associa­ tion. Because CMBS tend to hold shorter-term loans, they are at greater risk of default in the face of rising interest rates. Still, delinquencies have also risen for mortgages held by the GSEs, though less swiftly, because their loans have longer terms and are thus less susceptible to the recent rate increase. The current environment is also hindering new construction. Among developers experiencing delays in starts in the first quarter of percent cited economic feasibility and 33 percent the availability of construction financing as a cause, according to a NMHC survey. By contrast, these challenges accounted for 18 percent and 7 percent, respectively, of delays in the first quarter of 2022, when interest rates were lower and competition from new development was more limited. 06 HO U SI N G C H A LLENG ES The nation’s housing challenges are growing in urgency. Affordability has continued to erode for renters and homeowners, and a record-high number of people are unhoused. While increasing the housing supply will help to reduce the national shortage, modestly priced homes are especially needed. Affordability and supply problems are exacerbated by the increasing frequency and intensity of disasters. The pullback in federal resources amid rising economic uncertainty will only intensify these challenges and hamper state and local governments’ already-constrained efforts to address housing needs. Preserving Rental Assistance Renters with lower incomes face steep affordability challenges. Because rental assistance is not an enti­ tlement, millions of income-eligible renter households go unassisted. At last measure in 2021, about 5.1 million renter households earning no more than 50 percent of area median income received some form of rental assistance. That left about 14.2 million, or three out of every four, income-eligible renter households without help. This included a record-high 8.5 million unassisted renter households that were severely cost burdened or lived in severely inadequate housing. Despite current shortfalls, federal resources have not increased enough to cover existing programs, and cuts to funding and staff may be on the horizon. Already, the continuing resolution passed in March that funds the federal government through September did not budget enough to cover renewals for all 2.3 million households that receive Housing Choice Vouchers."}, {"role": "assistant", "content": "With rents projected to keep rising, the current funding level is expected to result in a net loss of 32,000 vouchers, despite the budget reflecting a slight increase over the previous year. In rural areas, the loss of USDA Section 515 units is an additional concern. The program finances apartments that are home to households. Loans for new developments have not been issued since 2011, existing loans are nearing maturity, and prepayments are removing units from this stock. The Housing Assistance Council (HAC) estimates that about 2,000 units will exit the program each year through 2027, at which point the losses will increase to 16,000 units annually. Absent a substantial preservation effort, HAC estimates that all units will exit the program by 2050."}]}
{"messages": [{"role": "user", "content": "An unprecedented people were chronically homeless in 2024, nearly double the 2016 low. This count included people who have a disability and who have been homeless for at least a year or have experienced episodic homelessness during the last three years. The number of unhoused people staying in places not intended for human habitation also hit an all-time high of after increasing each year since 2015. Nationwide, there are more than 800 state and local housing trust funds financing affordable housing, as well as more than 350 rental assistance programs."}, {"role": "assistant", "content": "In 2024, eight localities passed ballot initiatives to levy lodging taxes in support of affordable housing, while three others increased or extended real estate transfer taxes. Additionally, bond issuances can fund affordable housing projects and assistance programs. Last year, voters approved more than $640 million of these bonds. Multifamily private activity bonds can further boost financing for affordable homes and are often used in conjunction with LIHTC allocations. Such bond issuances hit a new record high of $17.9 billion in 2022, according to the Council of Development Finance Agencies. compensation over $1 million and is expected to raise about $50 million annually to support the work of the Seattle Social Housing Developer. And Mont­ gomery County, Maryland, has empowered its public housing agency to issue $100 million in bonds to seed a revolving construction loan fund that will finance at least 6,000 new mixed-income units. Atlanta and Chicago are following a similar blueprint. Cities are also revisiting land-use policies. The Cambridge city council approved a zoning ordinance that allows four-story multifamily buildings by right in all residential areas. Austin enabled higher-density housing construction by reducing minimum lot sizes for single-family homes and adopting an inclusionary zoning ordinance that grants density bonuses for projects with affordable unit set-asides. Additionally, New York City approved broad upzoning and reduced parking minimums with its City of Yes plan, which is expected to allow for an additional 80,000 homes over 15 years."}]}
{"messages": [{"role": "user", "content": "One important component of federal resources for disaster recovery is FEMA’s Individuals and House­ holds Program, which funds hotel or short-term lodging reimbursements and home repairs, among other things, in affected areas. For disasters declared from 2019 to 2024, the program funded more than $14.1 billion in assistance to 5.1 million households. JOINT CENTER FOR HOUSING STUDIES OF HARVARD UNIVERSITY THE STATE OF THE NATION’S HOUSING –2019 Number of Disasters Total Cost (Right scale) 1990–––Note: Costs are adjusted for inflation using the CPI-U for All Items. Source: JCHS tabulations of National Oceanic and Atmospheric Administration, Billion-Dollar Weather and Climate Disasters. The federal spending bill also included $12 billion for disaster recovery through Community Development Block Grant Disaster Recovery (CDBG-DR) funds, which support longer-term rebuilding efforts as well as relo­ cation and rental assistance. While CDBG-DR funds are crucial for helping communities rebuild, the March continuing resolution did not include additional appro­ priations for disaster recovery. With most disaster policy focused on recovery after events, more resources are needed to minimize future losses. Nationwide, more than 61 million homes are located in areas with at least moderate hazard risk. FEMA supports a suite of programs that help commu­ nities increase resilience, reduce the risk of damage to properties, or voluntarily relocate. At $2 billion annu­ ally, these programs cost much less than recovery efforts and yield greater savings over the long term. Because of rising costs and more limited coverage options, the number of homeowners going without insurance has almost certainly increased from the esti­ mated 6.1 million households in 2021. Indeed, insurers have declined to renew some policies following major disasters, leaving even more households without coverage. To proactively confront this threat, California issued a one-year moratorium on insurance cancella­ tions after the Los Angeles wildfires. Overcoming Barriers to Homeownership Rapid home price growth and high interest rates have made it harder for first-time homebuyers to break into the market. One major obstacle to homeowner­ ship is the downpayment. Inability to afford a down­ payment is the primary reason renters continue to rent, according to the Federal Reserve’s most recent Economic Well-Being of US Households report. The Urban Institute identified nearly 1,700 downpayment assistance programs nationwide that help lower this hurdle, typically by offering a second mortgage with a loan forgiveness component. But navigating the complex web of programs can be difficult, and demand often exceeds funding. Interest rate subsidies can also bring down the cost of homebuying. In a survey conducted by John Burns Research and Consulting in February 2025, home­ builders in many markets underscored the impor­ tance of rate buydowns in closing new home sales to consumers across a spectrum of incomes. The Federal Home Loan Banks also offer lower-rate mortgages for households with modest incomes. In 2024, FHLB Des Moines and FHLBank Boston both launched permanent rate buydown products that reduce interest rates by about 2 percentage points."}, {"role": "assistant", "content": "The private sector will also need to innovate to deliver more affordable homes more quickly in a changing landscape. The mounting uncertainty around broader economic instability, including the extent and dura­ tion of tariffs, will likely deter significant investments in off-site construction techniques. Deportations could reduce the already-strained construction labor force. And declining consumer sentiment could slow housing demand."}]}
{"messages": [{"role": "user", "content": "A year ago, we projected that 2025 would “show continued economic resilience fueled by consumer spending and easing inflation,” while cautioning that “policy-driven headwinds, particularly those related to immigration and tariffs, could drive up inflation and tighten labor market conditions in the following years.” Most economists believed at the time that the “soft landing” would carry into 2025 if inflation continued to ease, and that the Federal Reserve could begin gradually cutting rates. That outlook began to shift as 2025 unfolded. Economic momentum slowed; real GDP growth declined from 2.8% in 2024 to roughly 2.1%, and real consumer spending flattened out. The labor market softened after April, when job growth stalled, unemployment rose to around 4.3%, and employment growth became increasingly concentrated in the healthcare and public services sectors. Meanwhile, manufacturers cut jobs, and construction leveled off. Two policy changes defined the year. First, tariffs: the effective rate of 2% jumped to double digits. Moody’s says that the increase could add about 1.3 percentage points to inflation and subtract about one percentage point from GDP once it is fully passed through. Second, immigration restrictions have made labor force expansion even more difficult. The number of foreign- born workers decreased by more than a percentage point, resulting in an estimated two million fewer workers than a year earlier. These factors raised costs, limited capacity, and lowered the “break-even” job growth rate to about 50,000 per month, meaning even modest hiring shortfalls now lead to higher unemployment. The Federal Reserve initiated a cautious easing cycle, reducing rates by 25 basis points in September and again in October; however, monetary policy was simply slightly less restrictive, rather than fully accommodative. Fed Chair Jerome Powell described the late-year cuts as “risk management moves” and emphasized that future adjustments would proceed cautiously, with rates now near the neutral range (3.75%–4.0%). The Fed also paused balance-sheet runoff, opting instead to replace maturing mortgage-backed securities with Treasury bills — a technical move to maintain liquidity rather than a signal of policy change. Long-term yields hovered between 4% and 4.5%, while wide mortgage spreads continued to weigh on housing. As 2025 winds down, the U.S. economy stands at a crossroads, balancing the benefits of modest monetary easing against the drag from restrictive trade and labor policies."}, {"role": "assistant", "content": "Growth is expected to hover near its historical trend, though it is shifting toward more investment- and productivity-led gains as consumer momentum eventually fades. Investment trends are becoming increasingly bifurcated, with AI-driven sectors expanding while traditional industries lose momentum. The labor market remains tight but is gradually cooling, and ongoing fiscal and trade uncertainty continues to shape inflation, interest rates, and corporate strategy. While we are not forecasting a recession, it remains a credible risk if policy missteps, renewed supply pressures, or tighter financial conditions disrupt momentum. The year ahead will test the nation’s ability to sustain growth amid elevated borrowing costs, policy uncertainty, and accelerating technological change."}]}
{"messages": [{"role": "user", "content": "Consumer Spending Will Drive GDP Growth Following the tariff-induced downturn in 2025, GDP is expected to modestly rebound in 2026, primarily fueled by stronger consumer spending. Easing financial market conditions will help lift household outlays, supported by solid growth in real disposable income, a modest savings rate, and a likely pickup in mortgage refinancing. Moreover, retroactive provisions in the One Big Beautiful Bill Act (OBBBA) —eliminating taxes on tips and overtime, restoring state and local tax deductions, and expanding child tax credits — are expected to produce larger- than-usual early-year tax refunds, temporarily boosting consumer spending. Labor Constraints and the “Jobless Expansion” In 2026, the U.S. is likely to experience a “jobless expansion,” with growth persisting despite limited job creation. Immigration restrictions and an aging population are slowing labor-force growth, allowing payroll gains of less than per month to coexist with a stable unemployment rate, but leaving little margin for disruption. Ongoing worker shortages in construction, logistics, healthcare, agriculture, and hospitality will keep wages and operating costs high. Demographic changes, deportations, and the steep new H-1B visa fee will further restrict labor availability, pushing companies to adopt automation and efficiency-enhancing technologies to bridge workforce gaps. Monetary Easing Amid Fiscal Constraint The Fed is expected to cut rates gradually through 2026, aiming for a 3% funds rate by year-end. However, persistent inflation could delay or limit monetary easing, while a sharper slowdown in hiring might prompt more aggressive cuts. At the same time, fiscal deficits and debt exceeding 100% of GDP are likely to continue exerting upward pressure on Treasury yields and long-term rates, even as policy loosens. Markets increasingly alert to deficit risks are reviving a degree of bond vigilance that could influence rate expectations and investor sentiment throughout the year."}, {"role": "assistant", "content": "Bifurcation of the Economy The U.S. economy continues to resemble the pronounced diverging lines of a K-shaped pattern, a trend that has deepened since the pandemic and is expected to persist into 2026. The divide between higher- and lower-income households remains evident, with affluent consumers benefiting disproportionately from the One Big Beautiful Bill Act, alongside wealth gains from strong equity markets and appreciating home values. Meanwhile, lower-income households continue to face higher living costs, limited savings, and a cooling job market. This widening economic divide will continue to shape overall consumer behavior and spending patterns in 2026."}]}
{"messages": [{"role": "user", "content": "Policy Shifts Reshaping Inflation Trajectory Headline inflation is expected to ease modestly through 2026, though sticky core services prices are likely to keep inflation well above the Fed’s 2% target. The “last mile” of disinflation will be the most challenging, especially if tariffs or wage pressures reemerge midyear. Any escalation or expansion of tariffs could trigger further global retaliation, disrupt supply chains, and weigh on key investment sectors such as manufacturing and technology that rely on international trade and imported components."}, {"role": "assistant", "content": "U.S. Commercial Real Estate Market 02 U.S. Commercial Real Estate Market After several years of uncertainty, 2026 could mark a turning point for the U.S. commercial real estate sector. A broad rebalancing of fundamentals is underway as financing conditions stabilize, occupier demand strengthens, and confidence returns. Leasing and sales are gaining momentum as capital re-engages and pricing expectations move closer to equilibrium. With investors and lenders adapting to a more disciplined yet steady environment, the industry can enter the year with renewed energy and a clearer path toward growth."}]}
{"messages": [{"role": "user", "content": "The office sector is nearing its bottom as employers and employees settle into more balanced work-life routines. Vacancy rates are approaching their cyclical peak, signaling stabilization on the horizon. In contrast, the industrial and multifamily markets are both moving toward equilibrium as new construction moderates and demand realigns with sustainable growth."}, {"role": "assistant", "content": "Developers in both are showing greater discipline, and absorption is once again aligning with long-term fundamentals, helping restore balance after several years of volatility. Retail continues to be resilient because of selective expansion, experiential formats, and the strength of well-capitalized tenants. Disciplined growth and limited new supply have made retail one of the most stable performers in commercial real estate. Long-term changes underway in certain sectors of the economy are directly affecting real estate planning. For example, momentum in the digital economy remains strong, but exceptional growth in data centers fueled by AI and cloud computing is spurring mounting challenges in power, water, and zoning availability, creating new pressures. While policy uncertainty, persistent inflation, and labor constraints will continue to influence decisions, the commercial real estate sector appears to be entering 2026 with greater clarity and growing confidence. Inflation is likely to remain above the Federal Reserve’s long-term target, and workforce challenges such as skilled labor shortages and tighter immigration policies will continue to test growth and efficiency. Higher for Longer Despite the Fed’s pivot toward easing, long-term rates remain stubbornly high. Five cuts since late 2024 have barely dented borrowing costs, as fiscal concerns and heavy Treasury issuance keep yields anchored. With the 10-year Treasury projected to stay above 4%, elevated financing costs will continue to test deal feasibility and reinforce disciplined underwriting. Prolonged Decision Paralysis Policy uncertainty may remain a defining feature of 2026. Tariffs, immigration reform, and an evolving monetary landscape may cause corporate leaders and investors alike to continue delays in strategic planning, capital deployment, and expansion. For the real estate sector, uncertainty may lead to extended transaction timelines, more conservative underwriting standards, and restrained development. Many firms will favor flexibility and optionality over long- term commitments, slowing deal flow and muting investment until greater policy clarity emerges. Artificial Intelligence Acceleration Artificial intelligence will continue to be one of the most powerful transformative forces shaping business strategy and investment decisions in 2026. Adoption is shifting rapidly from pilot projects to enterprise-scale integration as organizations chase efficiency, cost savings, and competitive advantage. Across industries, AI adoption will progress unevenly, widening the gap in productivity, profitability, and wage growth between technology leaders and sectors slower to adopt innovative technologies. Secondary and Tertiary Market Momentum People and capital are expected to continue migrating to high-growth secondary metros in 2026. Markets such as Phoenix, Nashville, Raleigh-Durham, and Columbus continue to benefit from strong population inflows, relative affordability, and business-friendly policies that attract both employers and investors. Meanwhile, emerging tertiary markets like Boise, Greenville-Spartanburg, and Reno are attracting institutional capital seeking higher yields and long-term growth potential beyond traditional gateway cities. Cap Rate Segmentation Will Widen The Fed has eased rates, and capital is readily available. The past cycle has driven market-level cap rates for industrial and multifamily properties closer together. Investors will focus on risk-adjusted returns and inherent underlying local dynamics, resulting in a widening of cap rate spreads between markets. Reemergence of Cross-Border Capital International investment in U.S. real estate has run at record lows as a share of total volume. Private capital has been the dominant source, but this will begin to change in 2026. Reset pricing will appeal to international buyers, opening opportunities for portfolio acquisitions and trophy office assets. Pricing Across most asset classes and quality levels, pricing has found a floor, and values are rising again. Gains will continue in 2026, though with borrowing costs and cap rate spreads remaining tight, don’t expect a value pop. Low- to mid-single-digit gains are expected for most asset classes. Office Regaining Traction Office has led all asset classes with volume and price growth in 2025, and selective larger deals are occurring. These trends may repeat in 2026 if improved fundamentals, compelling pricing, and renewed interest from institutional and cross-border capital continue. Hospitality in the Workplace The influence of hospitality on office design is not only evolving but will accelerate into 2026. To foster both productivity and collaboration, there is a sustained shift toward spaces that blend residential warmth with workplace functionality. Tenants increasingly want the comfort and flexibility of a home office, using natural lighting, abundant greenery, and adaptable furniture configurations. As this trend gains momentum, offices in 2026 will likely feel even more inviting, personalized, and conducive to employee well-being. New Owners Bringing New Opportunities As loan maturities and refinancing pressures mount, sales to new owners are reshaping the office market. Many owners have chosen to return properties to lenders or sell them at deep discounts, while allowing well-capitalized investors to reposition assets. Investing in upgrades, hospitality-focused amenities, and launching rebranding strategies, new owners are transforming underperforming buildings into lively, mixed-use environments. In 2026, this reinvestment trend is expected to revitalize these office properties as new ownership has funds to finance new lease transactions. Rethinking the Corporate Campus Hybrid work continues to redefine corporate real estate strategy, pushing companies to reimagine large, traditional campuses by consolidating space and creating adaptable, tech-enabled environments for flexibility and sustainability. Open layouts, collaborative zones, and energy-efficient systems are replacing static office models, aligning space with culture and ESG goals. In 2026, workplaces will begin to serve as engagement tools — designed to attract talent, inspire innovation, and reflect a company’s values. This evolution, however, will bring excess space to the market, inviting creative redevelopment and new adaptive reuse opportunities. “Leasing momentum and fundamentals are continuing to tighten and pushing the outlook for the U.S. office recovery. Activity is at post-pandemic highs and is expected to accelerate through 2026 as tenants capitalize on expiring leases and limited new supply.” Matt Gannon Executive Managing Director & Market Leader |Washington, D.C. Region, Head of Agency Leasing | U.S."}]}
{"messages": [{"role": "user", "content": "Vacancy The U.S. office vacancy rate is projected to fall 30 basis points, to below 18%, by the end of 2026, driven by rising demand in key markets. The constrained construction pipeline is contributing to more leasing in existing properties, helping to lower vacancy rates in well-located buildings. Some vacant and obsolete properties will be gradually removed from inventory for conversion to alternative uses. Lease Rates Asking rents stabilized at the end of 2025, as many markets adjusted pricing."}, {"role": "assistant", "content": "In 2026, a modest 1%–2% increase in asking rents is anticipated, driven by tightening vacancy rates, limited new construction, and reduced availability in the top-tier segment. Concession packages now at record levels could gradually decline as markets approach balance."}]}
{"messages": [{"role": "user", "content": "Demand Leasing increased in 2024 and 2025 to the highest levels post-pandemic in most U.S. markets. More than 12M SF was absorbed in the first nine months of 2025."}, {"role": "assistant", "content": "This is expected to continue into 2026 as tenants begin occupying leased space and more transactions occur. Many companies are actively seeking better agreements in the near term, with recovery progressing in various markets. Construction The construction pipeline was down to 31M SF as of the end of 2025, deterred by high material, labor, and financing costs in 2024 and 2025. However, new development is expected to pick up in 2026, with deliveries completing in 2028, as large tenants face limited options while developers pursue selective speculative projects amid rising demand. The U.S. Industrial Market is Approaching Its Next Growth Cycle Despite broader uncertainty, industrial user demand and new supply are becoming increasingly aligned, though at varying speeds across markets. Industrial space under construction has fallen 62%, almost at its bottom before the next development wave begins. A more balanced industrial market lies ahead, supported by pent-up demand and strong fundamentals which point to steady, sustainable growth. Industrial Occupiers are Shifting As in recent years, third-party logistics, trucking, and transportation firms are expected to comprise roughly one-third of new bulk occupancies in 2026, with Asia- based 3PLs continuing to gain share. Manufacturing, data center, tech, and R&D users are also projected to expand, while e-commerce is expected to remain subdued, having declined to below 3% of new bulk occupancies in 2025. Reshoring and CHIPS Act initiatives have pushed manufacturing construction spending nearly 200% higher since 2020, though growth could level off in 2026. In contrast, data center construction spending is forecast to continue its rapid ascent, up nearly 400% since 2020. Global Supply Chains are Being Restructured Industrial occupiers will continue to reshape global supply chains in 2026 because of geopolitical, labor, technological, sustainability, and operational pressures. Companies are diversifying sourcing strategies and relocating production closer to end markets to reduce dependence on any single region. U.S. imports from Mexico surpassed those from China in 2023, as Mexican labor costs fell below China’s. At the same time, Latin America and lower-cost Asian nations are emerging as key manufacturing hubs amid persistent U.S.–China trade tensions and a fragmented semiconductor supply chain. Innovation is Accelerating but Constrained by Infrastructure Limits Warehouse automation and AI are expanding rapidly across supply chains, but growth is limited by power and data infrastructure. Data center demand is expected to rise by 10%–12% annually, but faces mounting challenges from power, land, cooling, and connectivity constraints. In many major markets, limited grid capacity has become the top obstacle to the next wave of industrial and digital innovation."}]}
{"messages": [{"role": "user", "content": "“The U.S. industrial market is nearing an inflection point as construction bottoms out and demand strengthens, setting the stage for the next phase of renewed expansion.” Stephanie Rodriguez National Director, Industrial Services U.S. NATIONAL INDUSTRIAL FORECAST Vacancy Industrial vacancy has been rising in the U.S. for the past three years and could peak near 7.6% in early 2026 as demand strengthens and new supply remains limited. Over the past year, vacancy rates have decreased in 14 markets, six in the Midwest and five in the South. Even in markets where vacancy rates top 10%, increases have slowed and are nearing a cyclical peak. Excess new supply in these markets, however, will delay a return to historical vacancy levels. Demand After a slow 2024, net absorption remained sluggish in the first half of 2025 before surging in Q3 to its highest level since early 2023."}, {"role": "assistant", "content": "Stronger leasing in all building sizes signals rising demand heading into 2026, with net absorption expected to exceed 220M SF, 37% higher than 2025 projections. Combined with high proposal volumes, industrial users are showing renewed confidence, revisiting supply chain strategies, and moving forward on leasing. Construction Since peaking at 711M SF in 2022, space under construction has fallen 63%, to 270M SF, the lowest level since 2018. Build-to-suit projects are increasing, but speculative construction will remain more measured until vacancy recovers and the gap between replacement- cost rents and market rents narrows. Stabilizing demand fundamentals will usher in the next wave of development."}]}
{"messages": [{"role": "user", "content": "Lease Rates Rent growth has slowed sharply from the double-digit gains of 2021–2023. Warehouse and distribution rents increased only 2% over the past year and have retreated in several markets that had the steepest increases, falling from their highs a couple of years ago."}, {"role": "assistant", "content": "In 2026, rent growth is expected to remain modest, at 1%–4%, unless strong local conditions prevail. Oversupplied markets may have even slower growth as tenants gain leverage. The Great Space Squeeze Higher construction and financing costs, plus rising cap rates and tariffs, continue to suppress retail development. With costs outpacing achievable rents, most new projects are limited to pre-leased pads or mixed-use ground-floor spaces. As speculative activity stalls, the supply-constrained pipeline is expected to sustain long-term performance despite uneven near-term demand. AI Gets Accountable Retailers will continue to invest in AI to boost efficiency and future-proof operations, but expectations are shifting from innovation alone to measurable impact. Retailers will prioritize AI that clearly enhances productivity, reduces costs, and delivers tangible returns."}]}
{"messages": [{"role": "user", "content": "Vacancy Vacancies are forecast to remain unchanged through 2026 because of the balance between limited new supply and steady tenant demand."}, {"role": "assistant", "content": "Smaller formats, freestanding stores, and in-line spaces are expected to drive most leasing. At the same time, renewed interest in larger footprints signals selective expansion by retailers seeking prime locations in a still supply-constrained market. Lease Rates Market rents are projected to rise by approximately 1.5% in 2026 as space availability remains steady and retail sales growth moderates. Southern and Western metros, such as Austin, Dallas, and Orlando, are expected to outperform, with gains of 3%–5%. In contrast, rents are expected to lag behind in legacy and supply-heavy markets in the Northeast and Midwest."}]}
{"messages": [{"role": "user", "content": "Demand Retail demand is projected to remain positive through 2026, supported by healthy leasing velocity and limited new supply. The median time to lease has reached a historical low of under seven months, with prime spaces filling in less than five."}, {"role": "assistant", "content": "While some malls and shopping centers may have periods of negative absorption, steady demand for general retail is expected to keep overall net absorption positive. Sales Volume Leader, Yet Again Multifamily has led investment sales volume since 2015, and there are no signs of this changing. However, its share of total volume is expected to ease somewhat as investors allocate more capital to office, data centers, and retail. Distress Plays Increase CMBS delinquency has increased over the year, signaling emerging stress. Anecdotal feedback suggests that special servicers remain busy and anticipate more assets coming to market. Transitional assets and those underwritten at the top of the market are facing refinancing challenges. More of these deals are expected to come to light over the next year. U.S. NATIONAL MULTIFAMILY FORECAST Occupancy Fundamentals have held up remarkably well given the multi-decade-high level of development across markets. Several metros still face sizable pipelines, but that pressure is easing quickly. As long as the job market remains stable, occupancies are expected to improve in 2026, setting the stage for stronger performance in 2027 and 2028. Lease Rates A midyear slowdown briefly softened rental momentum, though the effect is expected to be temporary. With improving fundamentals, rent growth in 2026 is expected to exceed that of 2025, and in a greater number of markets. Demand Absorption is anticipated to ease from recent highs. Strong support for rental demand includes rent-to-income ratios, elevated home prices, a less certain job market, and attractive concessions. Construction Few projects are moving forward today, allowing the market time to recalibrate. Starts are likely to bottom out in 2026, before fundamentals drive the need for more product in 2027 and beyond. Historically slower-growing markets in the Midwest are among the leaders for rent growth, attracting investor attention. Meanwhile, strong demographic markets are expected to rebalance in short order, keeping a focus on the Sun Belt.” David Goodhue Head of Multifamily Capital Markets | U.S., Executive Managing Director | Boston 23 No Signs of a Slowdown With nearly every quarterly earnings report, tech companies report that demand is outpacing available capacity, driving higher capital expenditures. Billions of dollars are being invested throughout the value chain, and this trend is expected to continue in 2026. NIMBY Gains Traction Friction is building as communities push back on data center development. A few projects have already been abandoned, and more are expected to be shelved in 2026. Power Breakthrough The scale of proposed data center expansion is unprecedented. Collaboration between local, state, and federal governments to expedite power capacity, along with direct power investment, has made headlines. Further advancements in technology and supportive legislation are expected to unlock new opportunities in 2026. U.S. NATIONAL DATA CENTER FORECAST Vacancy Vacancies are anticipated to remain at, or near, all- time lows in 2026. Preleasing is strong, although spec development is expected to put upward pressure on the market. However, vacancies are likely to remain at historically low levels. Decentralization of Care and the Impact on Rural Health Hospital systems and healthcare providers are expected to further accelerate the construction of facilities closer to patient populations in 2026. The expansion of medical office buildings (MOBs), urgent care centers, stand- alone emergency departments, ambulatory surgery centers, and other off-campus facilities will continue to drive community-based convenience and accessibility. This trend underscores a strategic movement toward decentralized healthcare delivery, with timely local services reducing reliance on traditional hospital campuses. This will have a significant impact on rural healthcare, as nearly 14% of rural hospitals are at risk of closure in 2026."}]}
{"messages": [{"role": "user", "content": "Increased Investor Demand MOBs remain one of the most sought-after assets in healthcare, combining stable occupancy with reliable long- term income. Average occupancy reached 92.5% in 2025, with several markets surpassing 95%, driven by strong demand from hospitals and physicians. Investor demand is supported by aging demographics; the population aged 65 and above is projected to grow from 61 million in 2024 to 70 million by 2030, driving healthcare spending toward $2 trillion."}, {"role": "assistant", "content": "With limited new supply and rents rising nearly 2% year-over-year, MOB fundamentals remain exceptionally strong, ensuring continued investor momentum throughout 2026. Increasing Role of Technology The integration of AI-assisted diagnostics, intelligent lighting, and climate control systems is significantly improving both design and operational efficiency and the patient experience. A growing number of healthcare systems are incorporating AI technology into back-office operations to boost efficiency as they offset the workforce shortages. In the coming years, AI is expected to continue advancing in patient care by analyzing lab and imaging results, streamlining communication between providers and patients, and powering surgical robots."}]}
{"messages": [{"role": "user", "content": "U.S. NATIONAL HEALTHCARE FORECAST Vacancy The U.S. vacancy rate for MOBs remains below 8% and is expected to stay steady in 2026. An aging population is accelerating demand for care, prompting many providers and practices to expand operations."}, {"role": "assistant", "content": "Lease Rates Rent growth, which has averaged 0.8% per quarter since the start of 2022, is anticipated to persist due to sustained high demand and limited new supply. The difference between new construction and existing inventory, around $10/SF in most markets, is expected to remain significant in the short term; however, it will begin to narrow as availability diminishes. Demand Health systems and provider practices are consistently leasing space, and this trend should continue in 2026. Although there may be adjustments at the submarket level as they transition towards residential areas, the overall leasing volume is anticipated to remain robust. “Healthcare continues to be resilient. Providers are driving growth in the outpatient arena, delivering higher-acuity services and meeting patients’ desires for convenience. Investors recognize the strength of healthcare fundamentals and seek to deploy capital into the sector.” Shawn Janus National Director, Healthcare Services 29 Onshoring Momentum Continues In 2025, billions in domestic investments were announced by firms such as AstraZeneca, Eli Lilly, Johnson & Johnson, and Biogen. This onshoring momentum is expected to continue in 2026 because of strategic, economic, and policy factors, including rising global tariffs, supply chain vulnerabilities exposed by the COVID-19 pandemic, national security concerns, and evolving federal incentives and regulations."}]}
{"messages": [{"role": "user", "content": "Favorable Leasing Conditions for Tenants In many of the major life science hubs, tenants seeking space will be well positioned to do so. Double-digit vacancy rates are common in many cities due to an overhang of speculative supply and a decline in demand. As a result, many landlords are competing for tenants, giving potential tenants greater leverage. Vacancy A vacancy recovery could gain steam in 2026. At the end of 2024, the Major Market Aggregate vacancy rate neared 19%. More deliveries in 2025 placed upward pressure on vacancies nationwide; however, most of the construction wave has passed, and new product will not have the same impact moving forward."}, {"role": "assistant", "content": "If absorption can regain its footing, more landlords could begin increasing occupancy. “Despite historically high vacancy rates driven by newly delivered lab space and sublease availability, the fundamentals for Life Sciences real estate are improving. Slowed new deliveries, accelerating scientific innovation, growing utilization of AI, increased VC and M&A investment, and tariff-driven onshoring are contributing to an improved outlook for the sector in 2026.” Joe Fetterman Executive Vice President | National Life Sciences Steering Committee 32"}]}
{"messages": [{"role": "user", "content": "Upper Upscale & Luxury Property Segments Outperform High-income earners — households earning the top 10% of incomes — will drive demand for hotel rooms in 2026."}, {"role": "assistant", "content": "Since these travelers are affluent, revenue for Upper Upscale and Luxury properties is expected to outperform that of more economical brands. Inflation has hit lower-income households the hardest, with the price of goods higher relative to their wages. Travelers with lower incomes are moving away from global destinations and toward domestic value destinations, which will help occupancy at economy and midscale hotels."}]}
{"messages": [{"role": "user", "content": "Generative AI Will Change How Hotels Are Booked When online travel agencies (OTAs) emerged, that changed how consumers selected lodging, and by extension, how hotels allocated their advertising. Widespread access to generative artificial intelligence (AI) has started a new revolution; the use of AI tools for travel planning almost doubled from 2024 to 2025, increasing from 10% to 18%, according to Oxford Economics, led by Millennials and Generation Z. As consumers increasingly use AI for trip planning, AI-integrated platforms and hospitality marketers have a growing opportunity to capture market share. Demand Green Street expects 1.3% quarterly growth in demand next year, likely driven by Upper Upscale and Luxury properties, although it could come at some cost to Average Daily Rate (ADR), as hotel operators moderate pricing to attract value-conscious travelers. Oxford Economics warns that hotels in markets heavily reliant on international travelers, such as New York, San Francisco, Los Angeles, and Miami, will have higher vacancy rates next year due to negative sentiment about tariff policies and political uncertainty. Net Operating Income (NOI) Hotel properties are likely to see declining NOI growth next year, from -3.6% in Q1 to -1.2% in Q4, according to Green Street."}, {"role": "assistant", "content": "This trend is expected to temper investment pricing if capitalization rates remain steady. Continued stabilization in the rate environment, combined with greater economic clarity, could help rebuild investor confidence and encourage more active capital deployment in strategic markets."}]}
{"messages": [{"role": "user", "content": "Average Daily Rate ADR growth was largely flat in 2025 as hotel operators faced more competition for increasingly price-sensitive travelers, which could continue into 2026. According to Oxford Economics, 90% of consumers cited “value for money” as their primary travel decision factor in 2025, rising from 83% in 2024 and underscoring sustained demand for midscale and economy brands, packaged offerings, and loyalty-based pricing strategies."}, {"role": "assistant", "content": "“Hotel performance in 2026 will hinge on luxury and value-conscious consumer behavior. The industry will have to navigate softer foreign tourism, and embrace AI-driven bookings—where resilience lies not in chasing yesterday’s search habits, but in adapting to tomorrow’s preferences. Rising investor appetite and debt capital availability may compress cap rates, cushioning valuation declines in cashflow constrained assets.” Mark Owens Vice Chair, Hospitality Practice Group Leader 35"}]}
{"messages": [{"role": "user", "content": "01 EX ECU TI V E S U M MAR Y Across the US, persistent affordability challenges and rising economic uncertainty are hurting housing markets. Weakening labor markets and plummeting immigration have dampened household growth and mobility. Sales of existing homes sit at three-decade lows and inventories are rising in the face of high homebuying costs. In the multifamily segment, rents fell, demand slipped, and vacancies rose. Although markets are struggling to absorb a wave of new deliveries, cost burdens have hit another record high for renters and worsened for homeowners, and assistance remains profoundly underfunded. In response to federal retrenchment on numerous housing policies, states and localities are seeking new tools to bring down costs and protect their most vulnerable residents. Drivers of Housing Demand Are Weakening Household growth, a key driver of housing demand, slowed for the third consecutive year in 2025. After surging to an annual average of 2.0 million house­ holds in 2020 and 2021, household growth was just 1.1 million in 2025, consistent with the more modest levels averaged across the 2010s. In 2025, the US added jobs. This is the smallest amount in a non-recession year since 2002, according to the Bureau of Labor Statistics (BLS), and contributes to an increasingly stagnant, “low-hire, low-fire” economy. At the same time, student debt obligations have Source: University of Michigan, Surveys of Consumers. returned in force since the pandemic-era pause on federal student loan payments was lifted. The share of student loan debt that is at least 90 days overdue jumped from less than 1 percent in the fourth quarter of 2024 to 10 percent at the end of 2025, according to the New York Federal Reserve. Many young adults cannot afford to form new households, instead doubling up or living with family. Other young adults may be reluctant to form households due to uncertainty. Confidence in the financial prospects of both households and the broader economy was near a record low in 2025, according to the University of Michigan’s Consumer Sentiment Index, and has declined further this year amid worsening expectations of inflation with the onset of the conflict in Iran. Uncertainty and slowing job markets also affect resi­ dential mobility, another driver of housing demand that is also falling. The share of households that relo­ cated dropped to a record low of 11.2 percent in 2024, according to the American Community Survey (ACS). Net international migration halved in 2025. The Census Bureau projects that it will plummet another 75 percent in 2026 to just people, roughly a third of the averaged annually from 2001 to 2019."}, {"role": "assistant", "content": "The impact of plunging immigration on household growth will likely be substantial and increasingly evident over time, further slowing population growth and damp­ ening household formation."}]}
{"messages": [{"role": "user", "content": "Construction Activity Stalls as Vacancy Rates Rise New housing construction softened again in 2025, reflecting weakening demand and rising inventories. Single-family starts fell 7 percent as high homebuying costs stifled demand and unsold new homes accumulated. Builders responded by cutting prices, buying down interest rates, and pivoting toward smaller homes, townhomes, and smaller lots to reduce costs. Still, new home sales slipped 1 percent, reducing the need for development. In this environment, builders increasingly found customers in the build-to-rent single-family market, a segment that constituted 11 percent of completions in 2025, nearly three times its historical average. Slowing construction threatens recent progress toward bolstering the nation’s housing supply. The degree of relief, however, varies by region depending on local construction levels, and the market remains tight overall. The nationwide homeowner and renter vacancy rates are still below historic averages, at 1.1 percent and 7.3 percent, respectively, implying that at least several hundred thousand additional units are needed to overcome shortages. A Failure to Provide Low-Cost Housing The most serious and intractable housing shortage involves units affordable to households with low and moderate incomes. According to the National Low Income Housing Coalition (NLIHC), 11.0 million house­ holds with extremely low incomes competed for 3.8 million affordable and available rental units at last measure in 2024. For Rent For Sale For Rent Historical Average For Sale Historical Average Notes: Vacancy rates exclude units rented or sold but not yet occupied. Historical averages are from 1990 to 1999. Source: JCHS tabulations of US Census Bureau, Housing Vacancy Surveys. Meanwhile, rather than being replenished by units filtering down to lower rents, the existing stock of low-rent units is shrinking. The number of units renting for less than $1,000 per month in inflation-adjusted terms dropped by more than 30 percent between 2014 and 2024, reducing the low-rent stock by more than 7 million units. The supply of higher-rent units grew by 46 percent during the same period, espe­ cially those renting for more than $2,000 per month. And many more units are at risk, as rent restrictions on over half a million units financed with Low-Income Housing Tax Credits (LIHTC) are slated to expire in the coming decade. High Costs Impede Homeownership The high cost of homeownership is constraining home sales and suppressing homeownership rates, despite a slowdown in home price growth. Annual home price appreciation dropped to just 0.7 percent in February 2026, down from 4.0 percent last year and a far cry from the record-high 20.7 percent in 2022. The slow­ down was widespread. Indeed, 41 of the top 100 metros experienced outright price declines in early 2026. Still, since 2020, home prices have increased by 54 percent nationwide and more than 50 percent in 73 of the nation’s 100 largest markets. Prices in smaller markets in the South and the Northeast remain most elevated relative to 2020 levels, led by Knoxville (84 percent), Fayetteville (82 percent), and Syracuse (81 percent), but all top markets have seen prices rise by at least 18 percent. As a result, the median sales price in 2025 for an existing single-family home was nearly five times the median household income, dramatically exceeding the price-to-income ratio of 3.2 averaged throughout the 1990s. Home sales have stagnated, homeowner household growth is sluggish, and homeownership rates are falling. In 2025, existing home sales were unchanged from 2024 at 4.1 million, stuck at a 30-year low that is two-thirds of the 6.1 million sales in 2021. Increasing by just in 2025, the number of homeowner households experienced its slowest rate of growth in a decade. The US homeownership rate fell for the second year in a row to 65.2 percent last year. Homeowner Cost Burdens Rising Alongside Expenses For many homeowners, increases in non-mortgage expenses, including insurance premiums, energy bills, and property taxes, are straining household budgets. According to the ICE Mortgage Monitor report for March 2026, property taxes rose 31 percent nation­ wide between 2019 and 2025. During the same period, average monthly insurance premiums increased 72 percent to $201. In markets most susceptible to natural disasters, like Texas and Florida, premiums were even higher. Homeowner cost-burden rates have subsequently increased. According to the ACS, 20.7 million home­ owner households (24 percent) were cost burdened at last measure in 2024, spending more than 30 percent of income on housing. This is an increase of 4.0 million households since 2019 and includes an additional 2.5 million severely burdened homeowners, bringing the number that spend more than half their income on housing to 9.6 million households. More encouragingly, many homeowners have expe­ rienced substantial home equity gains in recent years. Aggregate homeowner equity totaled $34 trillion in the fourth quarter of 2025, up 88 percent and an astounding $16 trillion since 2019. According to Cotality, the average homeowner has in home equity. Given this potential upside, increasing access to homeownership for more moderate- income households is a public policy priority. Even in the difficult homebuying conditions of the past year, thou­ sands of moderate-income households purchased homes through housing counseling and homebuyer assistance programs that could be extended with additional resources and funding. Rents Tick Down, yet Affordability Challenges Persist After two years of stagnant growth, apartment rents declined nationally, down on an annual basis by 0.5 percent in the first quarter of 2026, according to RealPage. Rents fell in many, but not all markets. The strongest decreases were in Sunbelt markets that previously had rapid rent increases and substantial new apartment construction. Rents continued to rise fastest in supply-constrained places like San Francisco (up 9 percent) and Honolulu (7 percent) and in smaller markets in the Northeast and the Midwest. As new rental units continue to come online, weakening demand has also contributed significantly to declining apartment rents. After renter household growth peaked in the second quarter of 2025, the annual rate dropped 61 percent nationally through the first quarter of 2026. All regions saw a steep deceleration, with the slow­ down ranging from 54 percent in the Northeast to 63 percent in the South. Against this backdrop, renter cost burdens reached a new high. In million renter households (49 percent) were cost burdened, including 12.1 million (26 percent) with severe burdens. Nationwide, the number of cost-burdened renters is up by 2.3 million since 2019. Affordability challenges disproportionately affect Black, Hispanic, and multiracial renters, due in part to a history of discrimination in housing, employment, and education. Fully 83 percent of renters earning less than $30,000 are cost burdened, and 67 percent are severely burdened. Cost-burden rates for this group exceed 70 percent in every state, reaching over 90 percent in some. Residual incomes for lower- income renters have fallen sharply, leaving little money to cover other needs after paying for housing. Some renters, especially younger ones, are skipping meals or delaying medical care to pay rent. Absent concerted efforts by all levels of government, more households will face overlapping material hardships that heighten the risk of housing instability. Moderately Burdened Severely Burdened All Renter Households $75,000 and Over $45,000––44,999 Under $30,000 Household Income Notes: Household incomes are adjusted for inflation using the CPI-U for All Items. Moderately (severely) cost-burdened households spend more than 30% (more than 50%) of income on housing and utilities. Source: JCHS tabulations of US Census Bureau, American Community Survey 1-Year Estimates. The shortfall in assistance leaves the lowest-income households with severe cost burdens, putting them at even greater risk of housing insecurity. Homeless­ ness has reached record levels, with more than unhoused people counted on a single night in January 2024. This was a 33 percent increase since the start of the pandemic. While expanded shelter capacity for migrants in certain states temporarily inflated sheltered homelessness, the more enduring trend is rising unshel­ tered and chronic homelessness, especially in West Coast states with severe affordable housing shortages. Note: Costs are adjusted for inflation using the CPI-U for All Items. Source: JCHS tabulations of National Oceanic and Atmospheric Administration, Billion-Dollar Weather and Climate Disasters. Events over the past year have underscored the threat to the housing stock of more frequent weather- and climate-related disasters. The Federal Emergency Management Agency’s (FEMA’s) Individuals and Households Program and HUD’s Community Devel­ opment Block Grant Disaster Recovery (CDBG-DR) funds have provided substantial short- and long- term recovery assistance. But proposed changes to federal disaster management strategies would shift more burden to state and local governments. Already, FEMA tried to cancel the two largest hazard mitigation programs in 2025, a move that delayed grant disbursements as legal challenges proceeded. At the same time, the 2025 federal budget reconcili­ ation law prematurely ended Inflation Reduction Act tax credits that supported energy-efficiency retrofits to the aging housing stock, despite steep increases in electricity costs and widespread energy insecu­ rity. Federal programs like Weatherization Assistance and Low Income Home Energy Assistance (LIHEAP) still deliver critical efficiency upgrades and assis­ tance paying utility bills to millions of low-income households. Nevertheless, some states and cities are advancing their own electrification and retrofit initiatives to cut emissions and reduce household utility bills. The Outlook The US faces interlocking housing crises—affordability, homelessness, climate change, and discrimination— that demand coordinated action across federal, state, local, private, and nonprofit actors. The bipartisan 21st Century ROAD to Housing Act reflects rising recognition that some of these challenges are growing in magni­ tude and urgency. However, the federal government’s simultaneous pullback from social programs, disaster recovery, and housing enforcement creates funding gaps, uncertainty, and administrative disruption that strain lower levels of government and hinder long- term planning and progress. Nationwide, state and local governments across the political spectrum are reforming zoning and building codes and deploying a range of financing tools to encourage more devel­ opment, especially mixed-income and affordable housing projects. These initiatives offer replicable models and proofs of concept that can inform a more comprehensive national response to the country’s severe, widespread, and urgent housing challenges. However, they cannot replace the scale, scope, or resources of the federal government, whose commit­ ment is imperative to ensuring equitable access to safe, affordable housing for all. 02 HO U SI N G S U PPLY Construction slowed in 2025 amid a growing number of unsold units and rising vacancy rates. Yet a substantial shortage of low-cost housing remains, made worse by increasing unit losses and rising development costs. Growing numbers of state and local governments are reforming zoning codes and approval processes to promote development and lower costs, and private sector actors are innovating new approaches. But to reduce housing costs enough to adequately serve those with the lowest incomes, greater public assistance at the federal level is required. Inventory of Completed New Units For Sale New Home Sales Note: New home sales are a 12-month rolling average of seasonally adjusted estimates converted to a monthly rate. Source: JCHS tabulations of US Census Bureau, New Residential Sales. Even as homebuilders sought to increase affordability, new home sales slid 1 percent in 2025 to . With sluggish demand from individual buyers, home­ builders have increasingly relied on demand from the build-to-rent market. In completed single-family homes were built for rent, representing 11 percent of single-family completions. This was nearly three times the 4 percent (38,000 units) averaged annually in the 2000s and 2010s. Remodeling Activity Bolstered by Aging Housing Stock As construction of new units slowed, owner improve­ ments rose by just over 1 percent in 2025, supported by an aging housing stock in need of repairs and improvements. As of 2024, owner-occupied homes have a median age of 42 years, up from 33 years in 2010. The median age of rental units is even higher, at 43 years in 2024, up from 36 years in 2010. Typically, older homes necessitate more spending on maintenance and improvements than newer units, and repairing and preserving older units is both a growing priority and a growing share of construction spending. According to the 2023 American Housing Survey, owners living in homes built before 1940 spent an average of $6,700 per year on improvements and repairs, about 50 percent more than those occu­ pying homes built in 2010 or later. Consequently, as the median age of the housing stock has increased, so, too, has spending on improvements. Over the last 10 years, owner improvement spending grew by 153 percent, far outpacing growth in spending on new multifamily (84 percent) and single-family develop­ ment (90 percent), according to Census data. This outsized increase raised the share of total construc­ tion spending on owner improvements to 41 percent in 2025 from 34 percent in 2015. Last year, owner spending on improvements ($376 billion) rivaled that on single-family development ($419 billion). Progress Toward Reducing the Housing Shortage Varies by Market The pandemic-era construction surge produced a wave of supply additions, particularly of multifamily units, that is now helping to lift vacancy rates from historic lows. Nationwide, the homeowner vacancy rate was 1.1 percent in the first quarter of 2026, up from a 70-year low of 0.7 percent in the second quarter of 2023, according to the Housing Vacancy Survey (HVS). Meanwhile, the renter vacancy rate rose to 7.3 percent in the first quarter of 2026 from a 40-year low of 5.6 percent in the second quarter of 2022. Vacancy rates are up from pandemic-era lows in all regions, though the size of the increase varies by area, depending largely on supply growth. The largest rebounds for both homeowner and rental vacancy rates are in the South and the smallest are in the Midwest, mirroring regional production levels. On the one hand, the nationwide rise in vacancy rates signals progress in alleviating supply shortages. Indeed, abnormally low vacancy rates in recent years have been a key indicator of the housing shortage. Throughout the 1990s (the last relatively stable period), the for-sale and for-rent markets averaged vacancy rates of 1.6 percent and 7.7 percent, respectively. On the other hand, vacancy metrics are national in scope and housing shortages are local. A new unit in Atlanta does not help to alleviate a shortfall in Miami. As such, national measurements obscure the situa­ tion in any single market. RealPage finds that between 2021 and 2025, the apartment vacancy rate increased 5 percent in Austin and 0.5 percent in Chicago, and decreased 0.2 percent in San Francisco. During the same period, the number of active for-sale listings more than tripled in Austin while falling over :For Rent For Sale Notes: Excess vacant units is the difference between the current number of vacant units and the number of vacant units expected given historical averages from 1990 to 1999. Vacancy rates exclude units rented or sold but not yet occupied. Source: JCHS tabulations of US Census Bureau, Housing Vacancy Surveys. 20 percent in Chicago, according to Realtor.com. So, while the national vacancy rate reflects an easing of the housing shortage, the shortfall remains substan­ tial in certain markets. New Construction Is Not Providing Low-Cost Housing Although rising vacancy rates suggest some progress in reducing the housing shortage overall, a massive deficit remains of units affordable to low-income households. In million households with extremely low incomes, defined as up to 30 percent of area median income, competed for just 3.8 million rental units that were both affordable and available, according to the NLIHC. This translates to about 35 units per 100 extremely low-income households. JOINT CENTER FOR HOUSING STUDIES OF HARVARD UNIVERSITY THE STATE OF THE NATION’S HOUSING Under –––and Over Contract Rent Notes: Rents are adjusted for inflation using the CPI-U for All Items Less Shelter. Units that are occupied but do not receive payment are excluded. Contract rents exclude utility costs. Source: JCHS tabulations of US Census Bureau, American Community Survey 1-Year Estimates. The price of land has also risen sharply. Standardized lot values increased 52 percent between 2020 and 2024, according to the American Enterprise Institute’s Land Price Indicator. And 62 percent of builders list lot availability as a significant challenge they expect to face this year, according to the HMI from January 2026. Another potential obstacle to development is building codes. State and local governments are seeking to strike the right balance. For example, some are considering permitting multifamily buildings with a single stairwell, rather than the two more commonly mandated by fire codes. According to a 2025 report by the Pew Research Center, single stairway buildings provide more space for units, cost 6 to 13 percent less to construct than similar two-stairway buildings, and may be just as safe given today’s other mandatory fire safety equipment. To fully capitalize on these public sector reforms, the private sector must also innovate. Productivity in the homebuilding industry has long lagged the rest of the economy, increasing only 15 percent between 1993 and 2023. In comparison, the overall economy registered a 49 percent productivity increase, according to a 2025 report by Ivory Innovations. Advancements in the use of artificial intelligence by the building trades JOINT CENTER FOR HOUSING STUDIES OF HARVARD UNIVERSITY THE STATE OF THE NATION’S HOUSING The Outlook The construction slowdown is likely to continue as the underlying drivers of affordability and economic uncertainty linger. The conflict in Iran has pushed up interest rates and gas prices, placing upward pressure on inflation, which could increase costs for builders and would-be renters and homebuyers, and further dampen consumer sentiment. These increases will also further impede efforts to address the substan­ tial shortage of low-cost units, which persists even as overall vacancy rates for market-rate units rise. As is evident, the private market cannot single-handedly provide the necessary supply of low-cost housing. Governments at all levels must continue to innovate new ways to reduce development costs for market- rate units, grow the supply of lower-cost housing options, and increase subsidies for people the markets cannot serve. 03 DEM O G R A PH I C DR I V ER S Household growth is declining, especially among young adults, as many key drivers of housing demand deteriorate. The job market has weakened and consumer confidence is down sharply. Record-low house­ hold mobility is undercutting demand as elevated costs and economic uncertainty discourage moves by both homeowners and renters. Immigration plummeted in 2025, suppressing population growth. At the same time, the age distribution of the population is shifting older, slowing household growth while increasing demand for remodeling and repairs to address the needs of older households. Household Growth Is Still Slowing Last year, household growth slowed for the third consecutive year, falling by 16 percent according to the HVS. Even so, the recent pace is on par with that of the 2010s, bringing the total number of US households to 132.8 million in 2025. Note: Estimates for 2020 and 2021 represent averages from 2019–2021 due to data collection issues experienced during the pandemic. Source: JCHS tabulations of US Census Bureau, Housing Vacancy Surveys. Between 2020 and 2022, young adults took advantage of rising incomes and record-low interest rates to form households at a faster pace than at any point since the 2008 reces­ sion, according to the ACS. Indeed, 33.0 percent of adults aged 18–34 were householders in 2022, compared to 30.3 percent in 2019. This brought the JOINT CENTER FOR HOUSING STUDIES OF HARVARD UNIVERSITY THE STATE OF THE NATION’S HOUSING As interest rates, home prices, and rents have climbed in the aftermath of the pandemic, however, many young adults have been unable to afford to create new households. Consequently, beginning in 2024, household formation among this group has slowed, contributing to the decline in overall household growth. Because household growth and housing demand move in lockstep, this has weakened housing demand. Economic Headwinds Are Undermining Housing Demand Like the slowdown in household growth, the increas­ ingly stagnant job market is undercutting housing demand. Job growth remained tepid in early 2026. With fewer new jobs come fewer opportunities to increase earnings, making it harder to form households or transition to homeownership. The labor market has also lost much of its usual churn. The unemployment rate ticked up from a monthly average of 4.0 percent in 2024 to 4.3 percent in 2025, where it remains as of April 2026, according to the BLS. Additionally, the average monthly hiring rate was 3.3 percent in 2025, the lowest since 2012, and the average monthly layoff and discharge rate was 1.1 percent in 2025, below the historical average of 1.4 percent from 2001 to 2025. This “low-hire, low-fire” economy limits job mobility and wage gains, further suppressing household formation. Households are also facing the added strain of debt, especially from student loans. The pandemic-era pause on federal student loan payments ended in late 2023, and the renewed pressure of payments on household budgets has recently become evident. In the fourth quarter of 2024, the effects of the pause lingered, with less than 1 percent of student loan debt 90 or more days past due. But, by the fourth quarter of 2025, the share that was seriously delinquent had skyrocketed to 10 percent, according to the New York Federal Reserve, nearly back to the 11 percent rate that existed prior to the pause. The challenges of repay­ ment disproportionately affect young adults. At the end of 2025, student loans accounted for 27 percent of debt held by individuals aged 18–29, compared to 7 percent for those age 30 and over. Uncertainty about the economy is further undermining broader housing demand. Consumer confidence in the financial prospects of both households and the broader economy was near a record low in 2025, according to the University of Michigan’s Index of Consumer Sentiment. By December 2025, this index was 29 percent lower than a year earlier. Sentiment remains down year over year in early 2026 amid wors­ ening expectations of inflation with the onset of the conflict in Iran. In such an environment, people may opt to postpone moves or home purchases. Household Residential Mobility at a Record Low The share of households that have relocated in the past 12 months fell to 11.2 percent in 2024, according to the ACS, lower than any point in the 20-year history of the survey. About 14.8 million households moved in 2024, down from 15.0 million in 2023. This decline was driven entirely by a decrease in homeowner mobility, while renter mobility was essentially flat. The decline in overall homeowner mobility was at least partially a result of interest rate increases in recent years that gave a high share of homeowners with mortgages a strong disincentive to move. The average weekly rate on a 30-year fixed-rate mort­ gage was above 6.5 percent in both 2024 and 2025, according to the Primary Mortgage Market Survey. Yet as of late 2025, half of all outstanding mortgages have an interest rate below 4 percent, according to the National Mortgage Database. Therefore, many homeowners likely have elected not to move, rather than take out a new mortgage with a higher interest rate. In contrast, renter mobility held steady around 22.5 percent in 2023 and 2024, hovering above the pandemic-era low of 22.0 percent set in 2022, according to the ACS. Historically high levels of multi­ family housing came online in 2024, prompting moves for many renter households as housing options expanded. But a rising share of renters also renewed leases in 2024, according to RentCafe, offsetting some of these new moves. While overall mobility became depressed, millions of households continued to relocate, shaping regional population growth. Domestic migration accounted for about a third of population growth in the South in 2025, despite a 10 percent decline in net inflows from 2024, according to the Census Bureau’s Population Estimates Program (PEP). Although 2025 marked the first year of net inflows to the Midwest in at least two decades, domestic migration accounted for only 7 percent of its regional growth. Domestic migration has also been fueling population growth in rural communities with the persistence of elevated net in-migration, a trend that began during the pandemic. Non-metropolitan counties had a net inflow of people from 2021 to 2025 that reversed the previous net domestic outflow of people from 2016 to 2020, according to the PEP. In a third of these rural counties, net domestic inflows from 2021 to 2025 were high enough to avert population loss by offsetting negative natural change (more deaths than births). Drop in Immigration Slowing Population Growth Population growth is declining, driven by plummeting immigration. Net international migration fell by more than half, from 2.7 million in 2024 to 1.3 million in 2025, according to the PEP. The Census Bureau has projected that immigration will fall further to a mere people in 2026, which will substantially suppress population growth, especially in states that have relied on immigration. Between 2021 and 2025, immigration prevented aggregate population loss in 14 states, including Ohio, Pennsylvania, and Michigan, and accounted for more than half of all growth in another 12 states. These states are concentrated in the Northeast and the Midwest, and on the West Coast. Many other states in the Sunbelt and the Mountain West received high numbers of immigrants as well. Often, though, they also benefited from strong domestic in-migration and natural growth."}, {"role": "assistant", "content": "As with population growth, household growth will likely slow with declining immigration. However, the full effect will be delayed because new immigrants typically need time to gain the economic footing required to form households. In percent of immigrants aged 25–34 who arrived that year were householders, compared with 32 percent of their counterparts who arrived in 2023, and 41 percent who arrived in 2022. Therefore, the decline in immigration in 2025 will likely impact household growth over the next few years."}]}
{"messages": [{"role": "user", "content": "In the housing market, this slowdown in foreign- born household growth will mostly impact the rental segment. Recent immigrants overwhelmingly form renter households. As of percent of foreign- born householders who had lived in the US for less than five years are renters, according to the ACS. Recent immigrants also accounted for two-thirds of overall renter household growth in 2024. As such, the recent curtailment of immigration is expected to meaningfully suppress rental demand. Aging Population Undercutting Future Housing Demand Older adults are becoming an increasingly large share of the population. This demographic shift has several implications, including slower population growth, an increased need for accessible housing, and more aging-related household dissolutions. From 2015 to 2025, the number of adults age 65 and over rose from 48 to 65 million, according to the PEP, increasing their share of the population by 4 percentage points to 19 percent. During the same period, the number of adults age 80 and over grew from 12 to 15 million. The Census Bureau projects that the number of adults age 65 and over will rise to 71 million by 2030, including 19 million age 80 and over. At that point, older adults will represent 21 percent of the population. As older adults become a larger share of the population, the number of older adult households will correspondingly increase. According to Center projections, the number of households headed by Under Age of Householder 25–29 30–34 35–39 40–44 45–49 50–54 55–59 60–64 65–69 70–74 75–79 80 and Over Source: JCHS 2024 Household Projections."}, {"role": "assistant", "content": "someone age 65 and over is expected to grow 26 percent between 2025 and 2045, to 49.7 million."}]}
{"messages": [{"role": "user", "content": "The growing number of householders age 65 and over is fundamentally reshaping housing by increasing demand for accessible units. This could expand the market for housing with relevant features or for remodeling services to improve the accessibility of existing units. More than half of all professional remodelers were involved in home modifications to support aging in place in 2024, according to the NAHB. The aging of the population is also driving an emerging dynamic that is slowing household growth: increasing household losses due to death or consolidation. Between 2023 and 2024, the number of households headed by someone in the baby boom generation (aged 62–80 in 2026) dropped by households, according to the ACS, as householders died or moved out of their residences to live with other people or in a managed care facility. During the same period, the preceding generations (age 81 and over in 2026) lost households. These aging-related household dissolutions are poised to increase dramatically. The cohort of householders age 65 and over in 2025 is projected to shrink by 1.4 million annually between 2025 and 2035. In comparison, the cohort of householders who were age 65 and over in 2014 shrank by 1.2 million annually between 2014 and 2024."}, {"role": "assistant", "content": "Conversely, younger generations like Gen Z (aged 17–31 in 2026) are expected to form a large number of households in the coming years, though not enough to prevent household growth from slowing. Adults under age 35 in 2025 will form an additional 2.4 million households annually on net between 2025 and 2035, according to Center projections. This is down from the 2.7 million households formed from 2014 to 2024 by adults who were under age 35 in 2014."}]}
{"messages": [{"role": "user", "content": "Nevertheless, the substantial size of Gen Z will help to sustain relatively high levels of new household formation. In 2025, this generation included 68.7 million people, according to the PEP, surpassing the 68.3 million millennials (aged 32–46 in 2026). The strong expected household growth from these young adults will bolster housing demand, especially in the rental sector."}, {"role": "assistant", "content": "The Outlook A number of headwinds threaten to undercut housing demand. In the near term, the slowdown in household growth is expected to persist. The weakened labor market and volatile economic conditions will likely continue to contribute to record-low consumer confi­ dence and, in turn, undermine household formation, mobility, and homebuying. Already, the acute decline in immigration is suppressing population growth and will constrain renter household growth in particular in coming years. Over the longer term, the increasing number of older adult households will dramatically reshape housing demand, eventually acting as a major depressant on household growth as dissolu­ tions become more widespread. Household formation among young adults will continue to support new housing demand but will not be sufficient to prevent a slowdown in household growth due to increased dissolutions of older households."}]}
{"messages": [{"role": "user", "content": "Affordability has hovered near record lows, pricing out potential buyers, depressing homeownership rates, and limiting home sales. Meanwhile, homeowners are grappling with rising non-mortgage costs like property taxes, energy bills, and insurance premiums. Still, owning a home remains a good deal financially for most households able to do so. Growth Is Slowing, Though Home Prices Are Still High Home price growth has slowed substantially in recent years. After adjusting for inflation, prices have declined annually for nine consecutive months, falling 1.5 percent in February. Prices fell year over year in 41 of the nation’s 100 largest markets in February 2026, compared with 9 markets in 2025. Conversely, prices rose year over year in 59 markets. However, even in appreciating metros, the rate of year-over-year home price growth slowed in 55 markets and dropped below 3 percent in 39 of them. Regionally, home prices declined most often and most sharply in the South and the West. Year-over-year prices fell most significantly in Austin (down 4.5 percent), JOINT CENTER FOR HOUSING STUDIES OF HARVARD UNIVERSITY THE STATE OF THE NATION’S HOUSING Despite the recent slowing, home prices remain exceedingly high. Prices are up more than 54 percent— almost 25 percent after adjusting for inflation—since January 2020. They have also risen considerably in most large markets. Between early 2020 and 2026, prices jumped more than 50 percent in 72 of the nation’s 100 largest markets and by at least 18 percent in all of them. However, prices actually rose most dramatically during this period in midsize markets in the South and the Northeast, including in Knoxville (84 percent), Fayetteville (82 percent), and Syracuse (81 percent). For the fifth straight year, the median sales price for an existing single-family home hovered near five times the median household income, falling slightly from the all-time high of 5.0 in 2022 to 4.7 in 2025. By comparison, this ratio was 4.1 in 2019 and averaged 3.2 throughout the 1990s. With prices so high, home sales have slowed to a trickle. And there is no sign of a turnaround. Home sales aver­ aged just a 4.1-million-unit pace in the first quarter of 2026. Source: JCHS tabulations of National Association of Realtors (NAR), Existing Home Sales. In March million existing homes were for sale, up 5 percent from the previous year and 49 percent from record-low inventories in 2022. To cycle through the present supply would take 4.2 months, double the 2.0 months in 2022. The increase in inventories has been geographically widespread. According to Center tabulations of data from Realtor.com, active inven­ tories grew year over year in March 2026 in all but five states and by more than 20 percent in Washington (29 percent), Vermont (21 percent), and Wisconsin (20 percent). Many Potential Buyers Are Priced Out High home prices and elevated interest rates have priced many potential buyers out of homeownership. According to estimates from Moody’s, the median sales price for an existing single-family home was in the fourth quarter of 2025. Assuming a 3.5 percent downpayment and a 30-year fixed-rate mortgage at 6.23 percent, the monthly mortgage payment on that home is $2,420. This is a tick below the $2,480 mortgage payment from a year earlier and consistent with the record-high payments in early 2025. By comparison, payments on the median-priced home were $1,240 at the end of 2020, when home prices and interest rates were much lower. Note: Monthly payments are on the median-priced home and assume a 3.5% downpayment on a 30-year fixed-rate loan, 0.55% mortgage insurance, 0.35% property insurance, and 1.15% property tax rates. Source: JCHS tabulations of Freddie Mac, Primary Mortgage Market Surveys; NAR, Existing Home Sales; Moody’s Analytics estimates. Homeownership Rate (Right scale) Annual Change Note: Estimates for 2020 and 2021 are omitted due to data collection issues experienced during the pandemic. Source: JCHS tabulations of US Census Bureau, Housing Vacancy Surveys. According to the 2025 Profile of Home Buyers and Sellers from NAR, just 21 percent of homebuyers between mid-2024 and mid-2025 were first-time homebuyers, an all-time low. Meanwhile, the median age of first-time homebuyers rose to 40, an all-time high. Those able to purchase homes in this market are affluent. The median income for all homebuyers was last year, including $94,400 for first-time buyers. Higher-income homebuyers are making large downpayments. In 2025, the median down­ payment was 19 percent overall and 10 percent for first-time homebuyers. This is the highest rate for first-time buyers since 1989. Sizable shares of home­ buyers rely on money from friends and family to cover this cost. According to a 2025 Redfin survey of 2,000 recent homebuyers, 10 percent used an inheritance for a downpayment, while 13 percent used a cash gift from family. Homebuyers have also adapted to higher interest rates and the resulting higher monthly costs by fore­ going financing. According to NAR, a record-high 26 percent of homebuyers paid cash. This high share reflects not only the uptick in affluent buyers who can self-finance, but also the large number who purchase a home using the equity accumulated from selling their previous one. Homeowner Cost Burdens Continue to Rise Existing homeowners are also experiencing rising costs. This is an increase of Share with Cost Burdens (Right scale) Severely Cost Burdened Moderately Cost Burdened Notes: Moderately (severely) cost-burdened households spend more than 30% (more than 50%) of income on housing and utilities. Estimates for 2020 are omitted due to data collection issues experienced during the pandemic. Source: JCHS tabulations of US Census Bureau, American Community Survey 1-Year Estimates. Nearly a quarter (24 percent) of homeowners are cost burdened, up 2.7 percentage points since before the pandemic. Of those, 11 percent are severely burdened, a 2.0 percentage point increase over five years. Rising cost burdens have been driven largely by growing housing costs, especially non-mortgage expenses such as property taxes, energy bills, and insurance premiums. According to the ICE Mortgage Monitor report for March 2026, property taxes leapt 31 percent between 2019 and 2025. At the same time, average monthly insurance premiums skyrocketed 72 percent to $201. Insurance costs are even higher in markets susceptible to natural disasters, like Texas and Florida. Lower-income households have been especially susceptible to rising costs. The share of cost- burdened homeowners earning under $30,000 climbed 5.7 percentage points between 2019 and 2024, to a record-high 75 percent. This increase has been driven entirely by lower-income homeowners with severe cost burdens. Among this group, the share with severe burdens grew 7.2 percentage points to 57 percent. While homeowner cost burdens are concentrated among those with low incomes, burdens are climbing up the income scale, increasing among households with moderate and higher incomes. About 45 percent of homeowners earning $30,000 to $44,999 are cost burdened, up 2.7 percentage points from 2019 to 2024. Similarly, cost burdens among homeowners earning $45,000 to $74,999 rose by 2.8 percentage points to 31 percent during the same period. Just 10 percent of homeowners earning $75,000 or more were cost burdened, but even this is a 1.8 percentage point increase since 2019. As older adults reach retirement age, work hours and income tend to fall. Accordingly, households headed by someone age 65 and over have the highest cost- burden rates (28 percent). Younger adult households under age 35 also have relatively high burden rates (27 percent) because they are earlier in their careers, newer to homeownership, and more likely to have a mortgage. Indeed, homeowners with a mortgage (29 percent) are considerably more likely to be cost burdened than homeowners without a mortgage (16 percent). Meanwhile, homeowners aged 35–64 generally have higher earnings and lower burden rates (21 percent). Homeowners of color are burdened at especially high rates. Historically, many people of color have lacked access to equal opportunities in education and the workforce, suppressing income. In 2024, nearly a third of homeowner households headed by a Black person (32 percent) had cost burdens, as did 29 percent of Hispanic, 27 percent of Asian, and 25 percent of Native American households. Meanwhile, 22 percent of white homeowners were burdened. Market Reveals Benefits and Risks of Homeownership Despite the growing challenges, owning a home finan­ cially benefits most who have been able to do so. The flipside of rising home prices is substantial home equity gains. Aggregate homeowner equity totaled $34 trillion in the fourth quarter of 2025, up 88 percent and an astounding $16 trillion since 2019. According to Cotality, the average homeowner had in home equity at the end of 2025. But homeowners also face potential risks. While overall negative equity rates remain low, many home­ owners who purchased homes in recent years have experienced only modest price increases or even outright declines. According to the ICE Mortgage Monitor, about 2.1 percent of mortgage holders (1.1 million households) have balances that are higher than the home value. This is the highest share since 2018 and up from 1.3 percent at the start of last year. Rates are higher for Federal Housing Administration (FHA) and Veterans Affairs (VA) loans at 5.7 percent and 9.6 percent, respectively. Serious delinquencies have also risen. According to the ICE Mortgage Monitor, loans are 90 days past due or in foreclosure as of February 2026, the highest number since mid-2018 aside from a brief pandemic-induced spike. Serious delinquencies rose fastest for FHA and VA loans, which slightly surpassed pre-pandemic rates. The Outlook Affordability is likely to remain the primary challenge for both homebuyers and homeowners. With home prices dramatically eclipsing income, home sales and homeowner household growth will probably remain muted for some time and will further limit oppor­ tunities to expand homeownership, especially for younger adults and households of color. Since the start of the year, interest rates have risen in response to the conflict in Iran, reversing the decreases of late 2025. However, if interest rates resume their decline, home price growth holds steady, and incomes rise at a healthy clip, affordability could improve, though even then, only modestly. For current owners, costs are likely to increase even more and may further strain household budgets, especially for the growing number of older adults with lower incomes. 05 REN TA L H O U S I N G Rental markets are cooling. Demand has weakened amid growing economic uncertainty and constrained immigration. In many parts of the US, rents are flat or falling modestly as vacancy rates have ticked up, boosted by a wave of new construction. Meanwhile, rents continue to climb in markets with less multifamily development. Despite slower rent growth, affordability remains a primary concern across the country. The number of renter households with cost burdens has hit another record high. Though affordability challenges are concentrated among lower-income households and households of color, burdens are rising for many different groups of renters. Asking rents fell in most Southern and Western markets. Indeed, rents dropped in 65 percent of markets in the South and 59 percent of those in the West, leading to overall regional rent decreases of 2.1 percent and 0.4 percent, respectively. Meanwhile, rents continued to JOINT CENTER FOR HOUSING STUDIES OF HARVARD UNIVERSITY THE STATE OF THE NATION’S HOUSING The strongest rent decreases were in previously hot Sunbelt metros where rents rose most quickly during the pandemic. Recent declines were steepest in Florida markets, including Cape Coral, Naples, and North Port, where rents fell by at least 9 percent annu­ ally, and in supply-heavy markets like Austin (down 7 percent) and Denver (down 6 percent). Meanwhile, rents continued to rise fastest in supply-constrained coastal cities like San Francisco (up 9 percent) and Honolulu (up 7 percent), and in smaller markets like Champaign, IL (up 6 percent). Nevertheless, rents remain persistently high relative to pre-pandemic levels. By the first quarter of 2026, asking rents for professionally managed apartments had risen 29 percent since 2020, outpacing non-housing inflation, which grew 25 percent during this period. And these substantial increases were widespread. Apart­ ment rents were 41 percent higher in the Midwest, 38 percent higher in the Northeast, and up by 28 percent in the South and 23 percent in the West. Rental Vacancy Rates Are Ticking Up Vacancy rates are rising, which has helped to place downward pressure on rents. In the first quarter of 2026, the national rental vacancy rate hit 7.3 percent, according to the HVS. This is up substantially from the 5.6 percent registered in 2022, the lowest vacancy rate in over four decades. In the professionally managed apartment sector, vacancy rates have grown from record lows. The national apartment vacancy rate inched up to 5.1 percent in the first quarter of 2026 from 5.0 percent the year prior, according to RealPage. By comparison, vacancy rates were just 2.5 percent in early 2022. Across both professionally managed apartments and the broader rental stock, vacancy rates are rising in response to the higher levels of apartment deliv­ eries beginning in 2023 and, more recently, softening demand amid mounting economic headwinds. Apartment vacancy rates have increased in every region except the Midwest, where vacancies were stable. However, they are highest in the South (6.0 percent) and the West (4.9 percent), where rents have declined the most and new supply has been particularly concentrated. Meanwhile, vacancy rates remain lower in the Northeast (3.8 percent) and the Midwest (4.3 percent), sustaining upward pressure on rents in these regions. Vacancy rates have also climbed in an increasing number of markets. Of the 150 large markets tracked by RealPage, vacancy rates rose year over year in 84 in the first quarter of 2026, compared to just 16 a year earlier. Renter demand has also cooled substantially across the broader rental market. According to the HVS, though the number of renter households rose by a robust 1.1 million year over year in the first quarter of 2025, it plunged to by the end of the year. The slowdown continued into 2026, with the number of renter households increasing by just year over year in the first quarter. However, strong renter household growth in recent years has been largely driven by higher-income households. Between 2019 and 2024, the nation gained 2.0 million renter households. Fully 1.5 million of these households (76 percent) had an annual income of at least $75,000 in inflation-adjusted terms. longer-term trend. Between 2014 and 2024, the number of higher-income renters increased from 12.2 million in 2014 to 16.3 million in 2024, and from 28 percent to 35 percent of all renters. Still, in 2024, the median household income for renters was $53,700, roughly half that of homeowners ($99,800). Renters also possess less wealth than their homeowning counterparts, who can build home equity. Renter households have a median net wealth of $10,400, as compared to for homeowners, according to the 2022 Survey of Consumer Finances. and Over $45,000––44,999 Under $30,000 Household Income Note: Household incomes are adjusted for inflation using the CPI-U for All Items. Source: JCHS tabulations of US Census Bureau, American Community Survey 1-Year Estimates. The rapid rise in rents in the early 2020s has driven up the share of cost-burdened renters. Fully 49 percent of renters were burdened in 2024, up 3.1 percentage points since 2019. Moreover, 26 percent of renters were severely cost burdened, an increase of 2.3 percentage points since before the pandemic. These affordability challenges are geographically widespread. In 12 states, more than half of renters are cost burdened, led by Florida (59 percent), Nevada (57 percent), California (54 percent), and Connecticut JOINT CENTER FOR HOUSING STUDIES OF HARVARD UNIVERSITY THE STATE OF THE NATION’S HOUSING Severely Cost Burdened Moderately Cost Burdened Share with Cost Burdens (Right scale) Notes: Moderately (severely) cost-burdened households spend more than 30% (more than 50%) of income on housing and utilities. Estimates for 2020 are omitted due to data collection issues experienced during the pandemic. Source: JCHS tabulations of US Census Bureau, American Community Survey 1-Year Estimates. Rates are also high in many of the nation’s markets, with the majority of renter house­ holds cost burdened in 48 of the 100 largest metros. Most of these markets experienced notably steep rent growth without a proportionate rise in incomes, such as Miami, Las Vegas, and Orlando, where 60 percent or more of renters were burdened in 2024. Even in lower- rent large markets like Des Moines and Wichita, where burden rates were lowest, 39 percent and 41 percent of renters were cost burdened, respectively. More than half of Black (57 percent) and Hispanic (54 percent) renters were cost burdened in 2024, as were half of multiracial renters. These rates far exceed the share of Asian (44 percent) and white (45 percent) households living in unaffordable housing. Native American renters (44 percent) also have lower burden rates, reflecting their relatively low rents and greater likelihood of living outside metropolitan areas and in substandard housing. Unaffordability Is Worst for Lower- Income Renters While affordability challenges are widespread, they are concentrated among renters with lower incomes. In percent of renters earning under $30,000 were cost burdened, up 1.1 percentage points since 2019. Of these, more than two-thirds (67 percent) have severe burdens, a substantial increase of 4.8 percentage points since just before the pandemic. The share of lower-income renters with burdens has been persistently high for over two decades, with 78 percent of renters cost burdened as far back as 2001. Lower-income renters have difficulty finding housing they can afford in every state in the country. At least 70 percent of households earning under $30,000 are cost burdened in each of the 50 states. But cost burdens are highest in Western and Sunbelt states, where rents have risen most rapidly in recent years. In Nevada, for example, a stunning 92 percent of renters with lower incomes are cost burdened, the highest rate in the country. Likewise, Texas, Utah, California, and Florida have burden rates of 87 percent or more among these households. While cost burden rates are especially high for renters with lower incomes, affordability challenges have increasingly hit households up the income scale, with cost burdens rising fastest in recent years among those with moderate incomes. The share of burdened renters earning between $45,000 and $74,999 increased by 9.5 percentage points to 49 percent between 2019 and 2024. For those earning $30,000 to $44,999, the share grew by 3.8 percentage points to 72 percent. Mean­ while, just 14 percent of higher-income households were cost burdened, up 4.1 percentage points during the same period. With so little remaining each month, renters are forced to make difficult trade-offs, especially renters with the greatest affordability challenges. Severely cost-burdened renter households in the lowest expenditure quartile (a proxy for lower income) spent 50 percent less on food and 37 percent less on healthcare than unburdened households, according to the 2024 Consumer Expenditure Survey. A majority of severely burdened renters are households with children, or those headed by an older adult or an individual with a disability. For these groups, reduced spending carries particularly serious consequences, whether due to the critical role of nutrition in child­ hood development or the greater care needs of older adults and people living with disabilities. Rising Costs Are Straining Apartment Owners Apartment owners are grappling with higher operating costs amid softening rents and rising vacan­ cies. According to data from Yardi Matrix, operating expenses in market-rate properties increased 2.0 percent annually in the 12 months ending March 2026. While this rate of increase is down from 3.9 percent a year earlier and a peak of 8.8 percent in 2023, oper­ ating costs have risen enormously in recent years. Between 2019 and 2026, operating expenses jumped nearly 37 percent, from $6,950 per unit to $9,510. Rising costs have been driven in part by growing insurance premiums. According to Trepp, the cost of multifamily property insurance nearly doubled between 2019 and 2024. For operators of affordable properties, insurance costs and other expenses can be even higher. Simultaneously, softening rents have placed down­ ward pressure on operators’ bottom lines. According to Yardi Matrix, expenses rose faster than incomes for the third consecutive year, pushing down net operating income growth. Through early 2026, net operating income grew a modest 1.3 percent, down from 2.3 percent in 2025 and a fraction of the 9.5 percent peak in 2023. After declining annually for more than three years, apartment prices are essentially flat. According to MSCI, apartment prices declined for 38 consecutive months year over year through early 2026, the longest such streak on record. But prices have recently stabilized, rising a minuscule 0.03 percent in March 2026. Mean­ while, apartment capitalization rates—net operating income divided by apartment prices—have held at 4.4 over the past year, according to the National Council of Real Estate Investment Fiduciaries. The Outlook In the near term, economic uncertainty and a stalling labor market will place downward pressure on rental demand, even as the high costs of homeownership keep some more affluent households renting for longer. Slowing household growth and rising vacancies are likely to suppress rent growth or even force down rent levels in some markets. At the same time, rising apartment operating costs may place upward pres­ sure on rents. Given that cost burdens are persistently high, unaffordability will remain a major challenge for many renters, especially those with lower incomes. Rental Assistance Falls Short of Need The underfunding of rental assistance has left millions of households with severe housing challenges, and recent increases in some forms of assistance will not fully resolve the shortfall. At last count in million renter households had very low incomes, generally making them eligible for federal rental assistance. Yet just over one in four (5.4 million households) received help. Among the 13.8 million unassisted households, 8.5 million were severely cost burdened or lived in housing with severe structural inadequacies. This is an increase of more than 3 million households with worst case housing needs since 2003, despite a decline of 62,000 households from the 2021 peak. The legislation also lowered the threshold to automatically receive the 4 percent non-competitive credit from 50 percent of project financing via tax-exempt private activity bonds to 25 percent. Together, these provisions could produce as many as 1.2 million additional units by 2035, according to Novogradac. Vouchers are often used to make these units afford­ able to the lowest-income renters. However, funding for vouchers has not increased at the same rate as LIHTC allocations. Indeed, tenant-based assistance through the Housing Choice Voucher program has stagnated at about 2.3 million households since 2020. Other rental assistance programs through HUD have stalled. The public housing program, which serves about renter households, is facing budget reductions, even as about 10,000 public housing units are lost annually to disrepair. The Rental Assistance Demonstration program has facilitated the conver­ sion of more than public housing units to the project-based Section 8 platform since 2012, enabling housing authorities to leverage private capital to finance redevelopment. But $169 billion is required to preserve the chronically underfunded public housing stock, according to the Council of Large Public Housing Authorities."}, {"role": "assistant", "content": "At the same time, the already-dwindling USDA Section 515 stock is at risk. Section 515, which finances rental properties that are home to households, has not issued loans for new development since 2011. About 2,000 units are expected to exit the program annually through 2027 due to loan maturities and prepayments, according to the Housing Assistance Council. After that, the pace of losses will increase to 16,000 units annually, with nearly all units exiting by 2050 in the absence of a sizable preservation effort."}]}
{"messages": [{"role": "user", "content": "Major changes to federal rules that govern subsidized housing could put assisted households at greater risk of housing instability. HUD has proposed a new rule that would make families with mixed immigration status ineligible for rental assistance. Under current policy, these households can receive assistance at a reduced rate based on the number of eligible family members. If finalized as currently written, the new rule would affect nearly 80,000 mixed-status families and impose more burdensome verification requirements on US citizens. A second proposed rule would allow public housing authorities to time-limit rental assistance or make work requirements a precondition. The change could affect as many as 3.7 million people, according to the Center on Budget and Policy Priorities (CBPP). In response to growing calls for renter supports, more state and local governments are exploring limits on rent increases, despite arguments that these policies will slow development, shrink the rental stock, and lead to disinvested properties. In 2025, Washington became the third state, following California and Oregon, to cap rent hikes. Each generally enables rents to rise 5 to 7 percentage points above inflation and substantially exempts new units to address concerns that these policies will dampen new construction. At the end of last year, the Los Angeles City Council tightened the existing rent stabilization ordinance, limiting rent increases to 4 percent on apartments built before 1978. Beyond rent stabilization, 29 states and 51 localities passed some form of tenant supports in 2024 and 2025, according to the NLIHC. Some limit fees or require greater transparency. Others guarantee right to counsel or establish just cause eviction standards. Simultaneously, the social safety net has shrunk, and the cost of other necessities has increased dramatically from inflation and tariffs. Recent federal policy challenges will further strain households’ ability to balance housing costs against other needs. Especially affected will be the 15.6 million low-income households that receive assistance from the Supplemental Nutrition Assistance Program (SNAP) and the 33.2 million that receive Medicaid. The 2025 federal budget reconciliation law reduced SNAP benefits by expanding work requirements and limiting program eligibility."}, {"role": "assistant", "content": "About 4 million people are expected to lose this vital food subsidy as a result, according to CBPP, and states will have to determine how to cover increased administrative expenses. The reconciliation law also included cuts that will reduce Medicaid and Affordable Care Act (ACA) marketplace coverage. This, combined with expiration of the enhanced ACA premium tax credits at the end of last year, could lead to the loss of health insurance for an estimated 15 million people over the next decade."}]}
{"messages": [{"role": "user", "content": "U.S. home sales held firm at the tail-end of 2025 following a sluggish year, and are projected to further improve in the coming months. The house price-to-income ratio in the U.S. has remained near historic highs for the last three years. Even though house price inflation has decelerated, the U.S. is the only developed market (DM) outside of Japan that did not see house prices fall during the recent tightening cycle. More recently, the impact of higher mortgage rates has been exacerbated by a labor market hiring rate that has slowed to near recession lows. “This has restricted an important channel that typically spurs both supply and demand in the housing market, as people with jobs and low mortgage rates are now further disincentivized from moving,” Lupton added."}, {"role": "assistant", "content": "“Lower adjustable-rate mortgage rates and builder buydowns could be enough, along with a rising wealth effect, to shift demand higher while supply increases subside. Consequently, we expect home prices to stall at 0% nationally in 2026.”"}]}
{"messages": [{"role": "user", "content": "U.S. home sales held firm at the tail-end of 2025 following a sluggish year. Sales of existing homes in December grew by 5.1% (seasonally adjusted) to reach a nearly three-year high, while sales of new homes in September and October also exceeded expectations. Looking ahead, home sales are expected to further improve gradually, with mortgage purchase applications ticking up in early January. That said, housing affordability remains a challenge: the National Association of Realtors’ affordability index was still 35% below its pre-COVID level in November. “We will be closely watching upcoming pending home sales data, which lead existing home sales by one to two months, to gauge whether positive momentum will be sustained in the months ahead,” Feroli added."}, {"role": "assistant", "content": "There could also be other implications for the rental market if the policy successfully drives a meaningful increase in for-sale housing activity. “Our early thought is that the impact on landlords is small — perhaps less than a 1% annual headwind to net operating income (NOI) for a couple of years, in isolation,” observed Anthony Paolone, co-head of U.S. Real Estate Stock Research at J.P. Morgan."}]}
{"messages": [{"role": "user", "content": "However, this policy might once again have limited impact on the housing market. According to J.P."}, {"role": "assistant", "content": "Morgan Global Research, the $200 billion purchase accounts for just ~1.4% of the approximately $14.5 trillion mortgage market, and will likely reduce 30-year mortgage yields by only 10–15 bp at most. “Secondly, most homebuilders already offer potential buyers mortgage rate buydowns of 100 bp to as much as 200 bp below the prevailing mortgage rate,” Rehaut said. “As a result, we do not believe a modest lowering of the market mortgage rate will have a material impact on demand.” This material (Material) is provided for your information only and does not constitute: (i) an offer to sell, a solicitation of an offer to buy, or a recommendation for any investment product or strategy, or (ii) any investment, legal or tax advice. The information contained herein is as of the date and time referenced in the Material and J.P. Morgan does not undertake any obligation to update such information. J.P. Morgan disclaims any responsibility or liability, whether in contract, tort (including, without limitation, negligence), equity or otherwise, for the quality, accuracy or completeness of the information contained in this Material, and for any reliance on, or uses to which, this Material, is put, and you are solely responsible for any use to which you put such information. Without limiting any of the foregoing, to the fullest extent permitted by applicable law, in no event shall J.P. Morgan have any liability for any special, punitive, indirect, or consequential damages (including lost profits or lost opportunity), in connection with the information contained in this Material, even if notified of"}]}
{"messages": [{"role": "user", "content": "Macroeconomic volatility and policy uncertainty may put the CRE industry recovery on pause, but not for good I n last year’s commercial real estate outlook, we anticipated that 2025 could mark a recov- ery for the global CRE industry—buoyed by an expected return of deal activity, more favorable lending terms, greater industry collaboration, and advances in artificial intel- ligence. As we write a year later, it hasn’t exactly played out that way, largely due to an unpredictable global macro environment, which may affect how soon, and to what degree, the industry could fully recover in the next 12 to 18 months."}, {"role": "assistant", "content": "Navigating a pause in the recovery Results from Deloitte’s 2026 commercial real estate outlook survey help us confirm what macroeco- nomic conditions are likely of most concern to global owners, investors, and the CRE industry overall, as well as how they think their businesses, strategies, and technologies might be impacted. The survey collected input from over 850 global chief executives and their direct reports at major real estate owner and investor organizations across 13 countries (see methodology). 3 2026 commercial real estate outlook We noticed a similar pattern around expectations for CRE funda- mentals. Many respondents still expect all conditions surveyed, like rental rates, leasing activity, vacancies, and cost of capital, to improve through compared with last year (68%). Despite macroeconomic uncertainties, CRE fundamentals don’t change overnight, and growth is still expected across most asset classes and most geographies. The index measures what degree of optimism or pessimism our survey respondents identified for revenue, expense, and CRE fundamental expectations at their organizations over the next 12 to 18 months on a scale from 0 (weakest sentiment) to 100 (highest sentiment). Source: Deloitte Commercial Real Estate Outlook Surveys 2022 through 2026."}]}
{"messages": [{"role": "user", "content": "5 2026 commercial real estate outlook Selective, flexible capital commitments could determine success in the property market comeback as early-mover advantages appear to wane Increasing global investment returns and volumes may indicate the pendulum has swung The commercial real estate property markets have seemingly turned a corner on recent performance downturns. Globally, investment volume declines reduced for six consecutive quarters, and in the first quarter of 2025, notched the first year-over-year increase since mid-2022. Through late June, the one-year total return for the S&P Global property index (14.1%), a measure of the global investable universe of publicly traded property companies, outpaced both the S&P 500 (11.7%) and the S&P World equities index (13.8%). And for private real estate, following two years of negative results, total returns have been positive for three consecutive quarters.6 5 Our survey results indicate that many leaders still see CRE as a potential safe investment, given its performance during similar periods of uncertainty in the past."}, {"role": "assistant", "content": "Increase significantly 16% Increase slightly 58% Neither increase nor decrease 19% Decrease slightly 6% Decrease significantly 1% What is the greatest reason why your company is looking to increase its level of investment in real estate assets for the coming 12 to 18 months? Hedge against potential inflation increases 34% Diversification with other held financial asset types 26% Returns are more stable than other financial asset types 15% Potential tax benefits 13% Greater returns than other financial asset types 7% Portfolio balancing with other held financial asset types 4% Notes: The responses for reasons to increase investment levels are from those who chose “increase slightly” or “increase significantly” as their responses to the question on change in their investment levels. Percentages may not total to 100% due to rounding. Source: Deloite 2026 Commercial Real Estate Outlook Survey."}]}
{"messages": [{"role": "user", "content": "The United States remains a top investment market for 2026, but investors are also looking elsewhere Through the end of June 2025, property sales activity in the Americas remained on the recovery trajectory that began at the end of last year—up 12% year over year.7 European markets were likely more heavily impacted by shifts in bond rates and trade policy, dropping by 15% annually. Sales declines in Asia Pacific have been the largest year to date, dropping 27% compared to last year. The pipeline of potential deal closings in the region also shrank in the wake of increasing trade uncertainty."}, {"role": "assistant", "content": "7 2026 commercial real estate outlook Note: Responses indicating their home market as the greatest opportunity have been excluded. Source: Deloitte 2025 and 2026 Commercial Real Estate Outlook Surveys. Australia Canada France Germany India Japan Mainland China Mexico Singapore Spain The Netherlands The Netherlands Spain United Kingdom United States United States 11% Canada 12% United Kingdom 10% India Germany Australia 9% Singapore 8% Japan France 7% Mexico Mainland China Despite inbound capital dipping in recent quarters, the United States remains the top source of outbound global investment capital, with activity in the first quarter of 2025 returning numbers slightly ahead of the five-year average.10 This trend could strengthen in 2025 and 2026, as US asset managers have ample dry powder11—prop- erty sales are up year over year, and a new executive order could allow individual retirement accounts to invest in private markets, potentially unlocking US$12 trillion in capital.12 Globally, 75% of European and Asia-Pacific respondents expect to increase real estate investment in the next 18 months, especially in India (86%), Canada (80%), and France (78%). 8 2026 commercial real estate outlook Global fundraising through early 2025 is also on track to surpass totals in the previous two years.13 Notably, private credit strategies have drawn significant fundraising interest, accounting for a third of new capital raised.14 With relatively high interest rates and debt set to mature in the next few years, investors and asset managers may look to capitalize on emerging opportunities in the real estate debt markets. European respondents expressed the most optimism, with about 70% expecting improvements in leasing, capital markets, and lend- ing. In North America, 25% expect conditions like rent growth, vacancies, and cost of capital to remain flat year over year—reflect- ing a more neutral outlook. Asia-Pacific respondents appear more cautious this year: Sixty-three percent expect fundamentals to improve in 2026, but 19% and 20% foresee worsening cost of capital and capital availability, respectively. 9 2026 commercial real estate outlook Data centers remain a top-two property type for opportunity in four of our past five annual outlooks. Demand for data center locations exceeds supply, with fierce competition for space, and are often leased before completion.15 In nine major global markets, 100% of the new construction pipeline is already pre-committed.16 As power constraints may limit growth in some key areas, new markets like Central Washington,17 Berlin,18 and Singapore are emerging owing to advantages such as favor- able power costs (Central Washington), available land (Berlin), and established connectivity and infrastructure (Singapore). Meanwhile, the industrial sector may be nearing an inflection point in the real estate market cycle. The pace of leasing activity has slowed slightly— potentially impacted in part by short-term trade uncertainties as users reassess global supply chain routes.19 However, structural demand patterns for industrial facilities should support measured long- term growth and users seeking specific needs have established a robust built-to-suit development pipeline.20 The continued trend of onshoring and nearshoring of high-value manufacturing is likely to continue and increase demand for specialized manufacturing facilities and advanced logistics. 21 As organizations seek flexibility in their supply chains, short-term overspill space for rerouted shipments may shift traditional logistics facility demand patterns. 3. Consider alternatives or sub-asset types that could be best positioned for a lower-growth environment. Outside of the core four (office, retail, industrial, and multifamily), sectors like health care, grocery-anchored retail, and housing stay in demand even in downturns, likely attracting tough competition. A shift toward alternative or nontraditional property types appears already underway, particularly for properties in the telecommunications, health care, and data center subtypes. The value of alternative property types in commercial portfolios has grown by 10% annually since 2000. We expect this shift to accelerate over the next decade. commercial real estate outlook Upside may be on the horizon as renewed capital and the return of traditional lenders help breathe life into CRE debt markets, even as distress persists L ooking ahead, CRE lending seems to be a tale of two markets: existing loans are often stressed by refinancing and defaults, while new loans often come with better terms and valuations. For leaders, success will likely depend on how well they mitigate loan risk within their existing portfolios while also taking advantage of improved new-loan conditions. Pressure on legacy loans The commercial real estate industry has likely not yet reached the summit of the loan-maturity moun- tain. Over 50% of respondents report that their companies are facing property loan maturity in the coming year. In the United States, there are over US$1.7 trillion in commercial mortgages—many already delayed through “extend-and-pretend” deals that simply push out due dates.25 Whether those proceedings end with the property reverting to the lender is uncertain, as lenders have been as interested as their borrowers to seek out loan resolu- tions.26 Only 21% of respondents expect to be able to pay off their upcoming maturity in full—led by leaders at housing (26%) and retail-focused orga- nizations (24%) (figure 6). commercial real estate outlook Shorter-term loans that were originated in 2022 comprise the largest portion of those set to mature over the next several years.27 And they were underwritten when the average commercial mortgage rate was as low as 3.9%, at nearly the lowest levels over the past two decades and 270 basis points under the 6.6% rate as of the first quarter of 2025.28 This surge in borrowing costs will likely put pressure on debt-service coverage for many borrowers, especially for loans with floating rates or upcoming resets."}]}
{"messages": [{"role": "user", "content": "Global CRE refinancing risk is typically concentrated, not wide- spread. Germany and France have the greatest share among European countries at almost 20% each. Only 6% of UK loans are estimated to face refinancing gaps due to early property-value corrections.29 In Asia Pacific, markets did not experience as extreme a debt-fueled boom as other parts of the world, with the trajectory of interest-rate movement varying by country—Japan’s ultra-low rates have eased refinancing, while Australia’s elevated rates have put lenders under pressure.30 New lending opportunities Amid the legacy loans turmoil, a brighter story may be emerging for new CRE debt origination. With property values stabilizing and lenders demanding more robust deal structures, new loans are often originating on more manageable terms. Investors and lenders who have fresh capital, unburdened by yesterday’s troubled loans, could have an opportunity to strategically invest in CRE debt markets. Through the beginning of 2025, new loan volume increased by 13% from the end of 2024 and over 90% from the same time last year—a recovery in lending activity to levels not seen since early 2023.31 Commercial mortgage loans spreads also tightened by 183 basis points, enabling sponsors to potentially pursue early refinancings and debt for property purchases.32 Renewed availability of debt capital Access to debt capital has improved and could become even more robust going forward.33 Property-value resets have helped unlock liquidity, prompting some lenders and borrowers to reengage. All property sectors have seen an increase in active lenders."}, {"role": "assistant", "content": "Alternative debt sources appear to have been the driving force behind this resurgence. Lenders such as private credit funds or high-net-worth individuals often add to the global pool of available debt capital as they target diversification through high-yielding real estate assets. These sources accounted for 24% of US CRE lending volume last year, exceeding the 10-year average of 14%.34 The global private credit market reached US$238 billion in 2024, and is expected to reach US$400 billion in assets under management (AUM) by the end of the decade.35 As of August 2025, US$585 billion in CRE dry powder is poised for deployment.36 Lenders of all types are often more selective than in previous cycles, targeting stable returns, net operating income growth, and sound property fundamentals for capital preservation. This has heightened competitiveness for high-quality, income-generating assets, likely fostering a more dynamic environment for price discovery. Some traditional lenders are making a cautious return Lenders like banks and commercial mortgage-backed securities (CMBS) lenders are cautiously reentering an evolved CRE debt market following a few years of inactivity. CMBS lending recorded a 110% year-over-year jump driven by single-borrower deals through early 2025.37 Banks are often caught between caution and opportunity, offsetting potential losses from legacy loans with yield opportunities from new loan growth.38 This is reflected in the latest Federal Reserve Senior Loan Officer Opinion Survey, with underwriting standards becoming more relaxed compared to the last few years.39 As of June 2025, just 9% of banks are tightening their lending standards as compared with 30.3% in April 2024, and 67.4% in April 2023.40 Reduced tightening of lending standards has been a reliable precur- sor to capital value improvements in commercial real estate.41 Bank loan loss provisions coming under previous estimates and lower- than-expected net charge-offs both also point toward the improving health of banks’ CRE loan portfolios.42 Lending activity in Europe is also set to grow through the remainder of 2025 and into 2026, with nearly 80% of surveyed lenders plan- ning to boost their loan-origination volumes.43 Moreover, European insurance companies and investment banks are expecting stronger growth in originations, compared to traditional banks.44 About 25% of Asia-Pacific investors increasing their real estate allocation reported doing so to potentially lower debt costs. This measured resurgence appears to be driven by companies wanting to restructure balance sheets, replacing underperforming real estate loans with better-structured, lower-leverage opportunities.45 Actionable guidance to consider 1. Proactively manage new financing (and refinancing) opportu- nities with alternative debt sources. Compared to traditional debt sourcing, commercial real estate owners and investors from our survey plan to work more with private debt (up 4%), private equity (up 2%), and banks (up 2%) for property transaction financing, while potentially dealing less with CMBS lenders (down 10%). commercial real estate outlook 2. Reset investment strategies and underwriting assumptions. CRE leaders should recalibrate how they evaluate deals, properties, and their debt strategies; factor in higher financing and exit cap rates in underwriting; and determine if selling and repurposing projects may be wiser than holding. 3. Strengthen risk management and transparency. Leaders should stress-test property portfolios for adverse scenarios including interest-rate hikes or further dips in property values; identify which loans or assets would be at greatest risk and have contingency plans; focus on improv- ing the underlying fundamentals of potentially distressed properties; and share plans with lenders and investors on how they plan to recover asset value. Some investors are increasingly seeking private markets for their growth potential and low correla- tion with public markets. Structural trends such as low supply in many property types could bolster real estate fundamentals.47 The quest for yield and diversification is likely propelling these partnerships, which can help position them as attractive alter- natives to traditional M&A during this period of elevated interest rates."}]}
{"messages": [{"role": "user", "content": "Leaning on operating partners Some investors are increasingly focusing on operational real estate sectors such as specialized housing and data centers as income level and growth are driving returns.49 This may be especially true for larger organizations. According to our 2026 outlook survey results, for almost 24% of larger organizations with AUM worth over US$15 billion, gaining access to property types that require more specialized knowledge was the primary motivator for considering joint ventures or partnership agreements, while smaller organi- zations with AUM of less than US$5 billion are also looking for partners to help access new markets (figure 8)."}, {"role": "assistant", "content": "Some investors are seeking equity ownership in local operating partners with specialized knowledge to help enhance execution and achieve greater returns from equity positions. For instance, Ontario Teachers’ Pension Plan partnered with two specialist real estate investment management companies both as a shareholder in the operating companies and as a capital partner for geographic expansion into Europe. Meanwhile, GIC, the Singaporean sovereign wealth fund and the world’s largest investor by capital deployed in real estate, is actively seeking to add to its existing 400 global partners to help deploy capital into new markets and sectors.50 Note: We have categorized small organizations as those with assets under management less than US$5 billion, medium organizations between US$5 billion and US$15 billion, and large organizations as those with US$15 billion and over. Source: Deloitte 2026 Commercial Real Estate Outlook survey. Access to property type that requires more specialized knowledge Large Medium Small Operational expertise Developing or accessing new technologies Access to markets where we have less expertise Building scalability Risk- or cost-sharing As demand for digital infrastructure surges, some data center oper- ators are forging deeper cross-industry partnerships with energy suppliers and technology firms to help secure reliable power and manage rising costs. Several data center real estate investment trusts (REITs) are actively partnering with energy suppliers to implement hybrid microgrid solutions and are exploring unconventional energy sources such as geothermal, parabolic solar, and on-premise natural gas production.51 Some hyperscalers are bundling microgrid main- tenance costs into simplified energy supply agreements and are also looking at energy hedging costs and derivative contracts. For exam- ple, data center REIT Equinix has partnered with Bloom Energy for on-premises natural gas generation,52 and some data center develop- ers are even engaging with microgrid developers such as Enchanted Rock and RPower to help accelerate power deployment.53 Some real estate funds are diversifying their limited partner base Diverse sources of capital are often part of the new playbook for some fund managers, insurance firms, retirement accounts, and wealth management organizations, with private real estate serving as a key beneficiary. Thriving annuity markets,54 aging demograph- ics across regions, and broader sectoral trends like convergence between retirement solutions providers and wealth management55 have led some organizations in private markets to seek out strategic partnerships. The appetite for private assets appears to be growing globally. On average, 82% of wealth managers plan to increase allocations to private equity, venture capital, private credit, and private real estate over the next three years.56 The trend is especially pronounced in the Asia-Pacific region, where 92% of managers anticipate boost- ing their exposure.57 Interest in real estate among high-net-worth individuals is holding at 19%—a level not seen since 2006, when allocations peaked at 24%.58 Some new-age investors are diver- sifying their portfolios compared to prior generations, turning to private market assets to help optimize returns and manage risk.59 The “Great Wealth Transfer” estimates suggest that about US$84 trillion will likely be transferred through 2045, and younger gener- ations such as Generation X and millennials are expected to inherit US$72 trillion of that total.commercial real estate outlook The relationship between alternative asset managers and the insur- ance sector could be shifting. In May 2025, a UK-based insurance organization acquired a 75% stake in real estate investor Proprium Capital Partners to expand its private market investments.61 Blackstone has four strategic relationships and 20 separately managed accounts with insurance companies.62 Asset managers are likely to continue to evaluate and commit capital across the financial services industry, and may seek investments not only in retirement-related balance sheets but may also invest or partner with non-retirement vehicles, such as life and non–life insurers, which could help broaden and diversify the investor base. Some REITs are actively pursuing partnerships with private capital providers In a market often defined by rising competition and evolving inves- tor demands, some publicly traded REITs appear to be increas- ingly turning to partnerships with private capital providers, such as pension funds, sovereign wealth funds, and other institutional organizations, to help scale up, diversify income, and navigate a real estate market in flux. These collaborations often take the form of joint ventures and co-investment vehicles, with REITs serving as general partners. For example, Ventas Investment Management (or VIM) is Ventas’ third-party institutional capital management platform which includes, among other activities, the open-ended Ventas Life Science & Healthcare Real Estate Fund (the “Ventas Fund”) and their ongoing life science development partnership with GIC.63 Investments are focused on core and core-plus assets in life science, outpatient medical, and senior housing real estate assets across North America."}]}
{"messages": [{"role": "user", "content": "2."}, {"role": "assistant", "content": "They should also carefully evaluate where it makes sense to ally with strategic partners to help expand market share, capabilities, access to new markets or property types; weigh their options (M&A, joint ventures, and other partnership agreements); and review interest-rate expectations and central bank stance. commercial real estate outlook The path to turning AI promise into success likely runs through reliable data and application readiness Early days with measured progress According to the 2026 CRE outlook survey results, 19% of respondents believe their organizations are still in the early stages of their AI journey. Interestingly, 27% are experiencing challenges with AI implementation, including technical issues, lack of expertise, or resistance to change (figure 9). commercial real estate outlook An AI revolution extends far beyond chatbots Smaller, more efficient AI models, with increased sector-specific specializations, seem to be gaining traction across the industry. Most voice and chat assistants are not novelties; they’re often becoming common tools for engaging prospects and qualifying leads. Survey respondents appeared enthusiastic about different emerging AI tech- nologies, such as multimodal capabilities, multi-agent systems, small language models, AI-powered digital twins, large action models, and agentic AI. No one option for AI technology development was selected by less than 40% of survey respondents. This wide-rang- ing interest suggests that many real estate leaders likely see AI as a transformative force, and could be poised to help reshape everything from property operations to client interactions and decision-making. But do organizations have the right data—not just to train AI models, but to feed inputs for valuable outputs? Volume alone doesn’t guarantee utility for AI. The challenge is often finding usable, significant data without extensive extract, transform, load efforts. Generating synthetic data was highlighted as an area of most interest almost 50% of the time, in our survey. Real estate data often includes sensitive information, including bank account and social security numbers, tenant names, and mortgage loan payment statuses, which cannot be fed into the models for training and may require synthetic data creation. However, generating synthetic data is often tough, needing data science expertise and rigorous quality control to ensure artificial data is both realistic and useful. Targeted deployments and early wins Some CRE organizations are shifting away from broad, scattershot strategies in favor of more targeted AI deployments in areas with the greatest potential for impact. Survey responses indicate that tenant relationship management, lease drafting, and portfolio management are top priorities for the next 12 to 18 months (figure 10). However, AI effectiveness in real estate operations varies. Some companies that are seeing limited effects and challenges with implementation highlighted property operations and management and marketing as being particularly problematic. Notes: The classification of these focus areas is based on the analysis of data received in responses to the question on overall experience with AI integration in figure 9. For business functions where organizations are seeing positive results, respondents answered “incremental operation- al improvements” or “transformative impact.” For those seeing challenges, respondents answered “challenges with implementation” or “limited impact.” Source: Deloitte 2026 Commercial Real Estate Outlook Survey. commercial real estate outlook can improve over time with human intervention. Fine-tuning these models could help add extra layers or optimize prompts to guide model responses. Many real estate firms are likely to use a portfolio of smaller, pretrained models for operational tasks rather than training large models in-house. Rather than focusing on one large monolithic large language model (LLM) that alone acts as the data store, computa- tion layer, and interface to a system, organizations across sectors are likely to explore use cases or build AI agent systems that break the problem apart or orchestrate smaller AI models.65 About 22% of survey respondents globally are leveraging industry-specific software platforms like Integrated Workplace Management Systems or Computer Aided Facilities Management, and another 20% are using publicly available LLMs (figure 11). Public LLMs can be fine-tuned to create smaller, more efficient models tailored to specific real estate tasks, enabling faster infer- ence.66 Fine-tuning takes effort, but human input helps. Alternatively, organizations can develop small language models from scratch by training them on targeted, domain-specific data sets, which can help ensure the models are optimized for unique operational needs. Open source LLMs customized to the unique needs of the real estate sector may also be popular, especially with public REITs. Small language models, which are built with fewer parameters, could offer a powerful advantage. Instead of relying on massive, general-purpose AI models, real estate organizations can train smaller models using highly curated, industry-specific data—such as property listings, transaction records, and local zoning regula- tions—to help address targeted business challenges directly on their platform, delivering faster, more relevant results without heavy computing needs.67 Actionable guidance to consider 1. Have a risk management plan for all new tools in conjunction with your Sarbanes-Oxley (SOX) and internal audit teams. commercial real estate outlook audit oversight from the outset, companies can more effectively identify and address potential compliance gaps, safeguard data integrity, and optimize their control environment, which can help make modernization efforts both more secure and sustainable. The opportunities are real T he next chapter for commercial real estate could be best suited for prepared realists. Some of the head- line risks, like macro volatility, policy whiplash, and higher-for-longer rates are real, but so are the openings our 2026 survey and analysis unearthed for the next 12 to 18 months: repriced, better-structured loans; a cautiously reawakening lender pool alongside deep private credit; and selective strength in digital infra- structure, logistics, and office. METHODOLOGY The Deloitte Center for Financial Services conducted a survey of more than 850 C-level executives (chief executive officers, chief financial officers, and chief operating officers) and their direct reports at commercial real estate owners and investment companies with assets under management of at least US$250 million. The survey was conducted in June and July of 2025. Respondents were asked to share their opinions on their organizations’ growth prospects and workforce, operations, and technology plans for the coming 12 to 18 months. We also asked about their investment priorities and anticipated changes for commercial real estate fundamentals. commercial real estate outlook Endnotes 1. Nick Timiraos, “Fed Lowers Rates by Quarter-Point, Signals More Cuts are Likely,” WSJ, September . 2. Jonathan Traub and Anna Taylor, “A closer look: Inside the new tax law,” Deloitte, July 8, 2025. 3. Nicol Dynes, “MSCI: Recovery in European CRE market stalled in Q1 2025,” Real Asset Insight, May 2, 2025. 4. Harry Tan and Leo Chung, “Japan senior living–Capitalizing on structural trends,” Nuveen, Aug. . 5. MSCI RCA Global Volumes standardized download, accessed June . 6. Nuveen, “Q3 2025 Global trends and tactics: Real estate opportunities and risks in the current environment,” accessed Sept. . 7. MSCI RCA Global Volumes standardized download. 8. Ibid. 9. Ibid. 10. Ibid. 11. CRE Daily, “Billions in dry powder poised to hit CRE market in late 2025,” July . 12. Miriam Gottfried, Dylan Tokar, and Matt Wirz, “Trump executive order to help open up 401(k)s to private markets,” The Wall Street Journal, July . 13. Colliers, “Global capital flows: June 2025,” June 2025. 14. Ibid. 15. Cushman & Wakefield, “Global data center market comparison,” May 7, 2025. 16. Ibid. 17. Ibid. 18. CBRE, “Global data center trends 2025,” June . 19. Cushman & Wakefield, “Waypoint: Global industrial dynamics 2025,” June 2025. 20. Ibid. 21. JLL, “Global real estate perspective, August 2025,” accessed Sept. . 22. Cushman & Wakefield, “Midpoint 2025 | U.S. economic & CRE outlook,” accessed Sept. . 23. Nathan Florio, Mark Wojteczko, and Tim Coy, “Next generation leaders may accelerate real estate investment in alternative properties,” Deloitte Insights, April . 24. Ibid. 25. Ciara Long, “Colliers: Loan extensions hit new high of $384B,” Bisnow, March . 26. Ibid. 27. Real Capital Analytics, “The slate of maturing US property loans and extensions,” April . 28. Real Capital Analytics, Debt metrics standardized download, data as of May . 29. Natixis Investment Managers, “AEW research shows European real estate debt funding gap reduces to €86 billion as refinancing challenges ease,” Nov. 9, 2024. 30. Ibid. 31. CBRE, “Commercial real estate lending activity increases in Q1 2025 despite market volatility; Banks top non-agency deals,” May . 33. Savills, “Impacts: Credit where credit’s due in the real estate debt market,” June . 34. Real Capital Analytics; US leading value for non-agency CRE loans. Alternate lenders include private and investor-driven. 35. Henri Vuong, “Private real estate credit: Navigating opportunities in a shifting landscape,” PREA Quarterly, 2024. 36. Lauro Ferroni, “Dry powder for investment,” JLL, accessed Sept. . 37. Orest Mandzy, “CMBS issuance jumps 110% in 1Q 2025, driven again by single-borrower deals,” Trepp, May 7, 2025. 38. Erik Sherman, “Banks tiptoe back into CRE lending, but the game has changed,” Globest, June 3, 2025. 39. Board of Governors of the Federal Reserve System, “Federal Reserve senior loan opinion survey on bank lending practices,” accessed Sept. . 40. Mike Sobolik, “What will happen to commercial real estate values in 2025?” Invesco, June . 41. Ibid. 42. Jarred Schenke, “Banks’ CRE comeback fueled by maneuvering bad loans off their books,” Bisnow, May . 43. Hilde Rusnes, “European lending activity expected to rise, according to new CBRE survey,” CBRE, June . 44. Ibid. 45. Sherman, “Banks tiptoe back into CRE lending, but the game has changed.” 46. Wellington Management, “Wellington, Vanguard, and Blackstone to collaborate on investment solutions combining public and private assets,” press release, April . 47. Ibid. 48. Navigate Affordable Housing Partners, “Executive order includes housing affordability reform,” Feb. 3, 2025. 49. PGIM Real Estate, “2025 Global outlook: Generating resilient income growth amid uncertainty,” May 2025. 50. Evelyn Lee, “GIC Real Estate’s Goh: ‘We will always need new partners’,” PERE, Feb. . 51. Melissa Farney, “The power play: How data centers and utilities are reinventing energy strategies,” Data Center Frontier, March . 52. Bloom Energy, “Bloom Energy expands data center power agreement with Equinix surpassing 100MW,” press release, Feb. . 53. PR Newswire, “Enchanted Rock Bridge-to-Grid solution addresses power demand growth from AI and electrification,” May . 54. Susan Rupe, “Life insurance and annuity sales: What’s ahead for 2025?” Annuity News, Jan. . 55. Fred Barstein, “Is the convergence of wealth and retirement at work insurmountable?” Wealth Management, June . 56. Dhruv Sharma, Joseph Wickremasinghe, Raina Oberoi, and Alex Kokolis, “Emerging trends in wealth management,” MSCI Wealth, accessed Sept. . 57. Ibid. 58. Capgemini, “Sail the Great Wealth Transfer,” accessed Sept. . 59. PR Newswire, “BofA Private Bank study of wealthy Americans finds generational divide in investing, giving and preserving wealth,” June . 60. James Royal, “An $84 trillion wealth shift is underway, and you may soon inherit a piece of it. Here’s what to expect” Bankrate, June . David Ricketts, “L&G acquires real estate group Proprium to fuel private markets push,” Financial News, May . 62. Blackstone Inc., Q1 2025 earnings call, April . commercial real estate . Ventas, “Ventas 2024 annual report,” accessed Sept. . 64. Jim Rowan, Beena Ammanath, Costi Perricos, Brenna Sniderman, and David Jarvis, “Now decides next: Generating a new future—Deloitte’s State of Generative AI in the Enterprise quarter four report,” Deloitte, January 2025. 65. Katherine Noyes, “Small language models: Bringing generative AI to the edge,” The Wall Street Journal, Nov. . commercial real estate outlook Acknowledgments The authors wish to acknowledge Matt Allison, Parul Bhargava, and Gaurashi Sawant for their extensive contributions to the develop- ment of this report. About the Deloitte Center for Financial Services The Deloitte Center for Financial Services, which supports the organization’s US Financial Services practice, provides insight and research to assist senior-level decision-makers within banks, capital markets firms, investment managers, insurance carriers, and real estate orga- nizations. The center is staffed by a group of professionals with a wide array of in-depth industry experiences as well as cutting-edge research and analytical skills. Through our research, roundtables, and other forms of engagement, we seek to be a trusted source for relevant, timely, and reliable insights."}]}
{"messages": [{"role": "user", "content": "2 Job Growth Takes a Breather The downside-surprise March jobs report, featuring a net gain of nonfarm payrolls and downward revisions totaling 69,000 jobs in the prior two months, reinforced a loss in momentum already witnessed in other recent data, including consumer spending and manufacturing. Weakness was broad-based, including rare declines in manufacturing and construction payrolls—the first in each industry since 2013. Another notable was mining employment (which includes oil and gas extraction), which fell 11,000 (due primarily to a monthly loss of 10,000 support jobs) for the second straight month, and the loss in the industry may linger in coming quarters. For the entire first quarter, monthly job gains averaged a one-year low. The unemployment rate held at 5.5 percent as a drop in the labor force offset a weak gain in household employment. The unemployment rate averaged 5.6 percent in the first quarter, one percentage point below the level a year ago, and we expect the rate to move lower gradually, averaging 5.2 percent in the fourth quarter. The silver-lining from the report was a pickup in average hourly earnings of 0.3 percent. While the year-over year rise of 2.1 percent showed no signs of a break-out from its trend over the past two years, its three-month annualized growth ending in March surged to 4.0 percent annualized, the biggest gain yet in this expansion. Other labor market indicators have remained upbeat. The Job Openings and Labor Turnover Survey (JOLTS), reported with a one-month lag to the jobs report, showed that the job opening rate rose in February to 3.5 percent, a 14-year high. The number of unemployed workers per available position has fallen to 1.70, approaching the pre-recession low of 1.45, suggesting that employers no longer have the pick of the litter to fill open positions. Notably, the job opening rate for the construction industry surged to 2.5 percent during the month, the highest rate since March 2007. The quit rate, a gauge of workers’ confidence in the labor market, ticked down to 1.9 percent from its expansion-recession high of 2.0 percent in the prior month. The trend in a high-frequency indicator of labor market activity—initial jobless claims—also points to healthy conditions, with the four-week average in early April declining to the lowest reading in nearly 15 years. Consumer confidence remains elevated. The Conference Board Consumer Confidence Index rebounded in March, reversing half of the February drop from its expansion-high in January. According to data from the Federal Reserve Financial Accounts of the United States, household net worth—the value of assets minus liabilities—rebounded in the fourth quarter from a slight drop the previous quarter, thanks to solid gains in both financial and housing wealth. In addition, the Federal Reserve’s measure of the debt-service burden, which calculates the share of household debt service payments out of disposable personal income, remains near its record low over the 25-year history of the series. These factors should help support consumer spending going forward. Manufacturing Downshift Continues Weak global demand, the run-up in the U.S. dollar, and the West Coast port shutdown have taken a toll on the factory sector. While declining oil prices since last fall have helped reduce input prices for manufacturers, they have also led to declining drilling activity and spending on oil-related investment. Shipments of core capital goods, an input used to estimate business equipment investment, posted just a modest rise in February, suggesting another quarter of weak"}, {"role": "assistant", "content": "Declining oil prices also have led to a pullback in nonresidential investment in structures spending, especially those related to oil, and this condition should continue in the current quarter. Thus, we expect weak growth in overall nonresidential investment at least through the first half of this year. Trade Deficit Narrows Those factors that have stymied manufacturing activity also impacted the trade deficit, which narrowed sizably and unexpectedly in February, as imports nosedived more than exports. While declining oil prices helped push the value of petroleum imports down to the lowest level in a decade, and weak demand abroad and a strong dollar discouraged U.S. exports, it is likely that the port disruptions played an important role in depressing overall trade volume during the month. It is difficult to assess how much of the recent weakness in manufacturing, exports, and imports stemmed from the port disruptions and how much was a result of softening underlying domestic and global demand and ongoing strengthening of the dollar. We expect export and import volumes to rebound in March as the port issue was resolved at the end of February, though we expect the real trade deficit to widen and thus net exports will likely drag on growth in 2015. Spring Selling Season Is Underway Declining homebuilding activity and private residential construction spending in February point to anemic growth in real residential investment in the first quarter. Total housing starts were flat in January and plunged in February, posting the largest monthly decline in four years, and home builders’ confidence dropped in March for the third consecutive month. Existing home sales rose modestly in February after a sharp drop in the prior month. Even as sales volumes faltered at the outset of the year, inventory remains tight, helping to support home price growth. Most home price measures continued to show solid gains. For example, the CoreLogic national home price index increased for the second consecutive month in February, rising by 1.1 percent on a non-seasonally adjusted basis. The 5.6 percent year-over- year increase in February was the largest gain in six months."}]}
{"messages": [{"role": "user", "content": "4 New home sales fared much better than existing home sales, surging in February, marking the third consecutive monthly gain. If improved new home sales volumes stick through typically large revisions, a pickup in builder confidence and building activity should follow. In addition, pending home sales, which record contract signing of existing home sales and thus act as a forward-looking indicator for existing home sales, also jumped in February, reaching the highest level since the summer of 2013, before the “taper tantrum” led to a surge in mortgage rates that restrained home sales. Following a pullback in February, purchase mortgage applications, another leading indicator of home sales, rebounded sharply, rising in early April for the third consecutive week, reaching the highest level since July 2013. The spike in purchase applications—the second one this year after a sizable surge in January—suggests a strong spring-summer buying season amid continued low mortgage rates. Following the weak March jobs report, the contract interest rate for 30-year fixed-rate mortgages fell four basis points to 3.66 percent in early April, according to the Freddie Mac weekly survey. As we mentioned earlier, a potential increase in interest rate volatility constitutes a headwind for the housing market. At the same time, the survey showed a marked deterioration in consumers’ assessment in some key areas for the housing market amid a recent dip in confidence regarding personal finances and income growth. Notably, the share of respondents who said they would buy a home if they were to move fell 5 percentage points to 60 percent—a new all-time survey low. On the bright side, the share of consumers who believe now is a good time to sell a home reached a new survey high of 46 percent, narrowing the gap with those reporting it is a good time to buy, perhaps signaling increased inventory of homes available for sale."}, {"role": "assistant", "content": "5 Anecdotally, inventory remains very tight at the lower end of the market, making it difficult for potential first-time homebuyers. As home equity continues to recover, we may see an increased supply of entry-level homes as would-be move-up buyers become more confident that they can extract equity for their next down payment and, therefore, put their current home on the market. Increased inventories of starter homes will go a long way to help renters make a move to owning and spur organic move-up home buying activity, which has been sluggish so far. For all of 2015, we expect housing starts and home sales to rise about 13 percent and 5 percent, respectively—little- changed from the prior forecast. However, we revised higher our projected purchase originations as we downgraded our assumption of the share of cash sales. In addition, we upgraded our forecast of refinance originations due to higher incoming volume in early 2015 than we had expected, especially in the government segment. We project that total single- family mortgage originations will rise nearly 15 percent in 2015 to $1.35 trillion before declining modestly in 2016. The refinance share should fall from 45 percent in 2015 to 35 percent to 2016. Single-family mortgage debt outstanding edged up 0.2 percent annualized in the fourth quarter of 2014 from the third quarter but fell 0.2 percent from a year ago. We expect it to post a modest rise this year, the first annual gain in eight years, and pick up further in 2015. April Economic & Strategic Research (ESR) Group For a snapshot of macroeconomic and housing data between the monthly forecasts, please read ESR’s Economic and Housing Weekly Notes. Although the ESR group bases its opinions, analyses, estimates, forecasts and other views on information it considers reliable, it does not guarantee that the information provided in these materials is accurate, current or suitable for any particular purpose. Changes in the assumptions or the information underlying these views could produce materially different results. ESR Macroeconomic Forecast Team Doug Duncan, SVP and Chief Economist Orawin T. Velz, Director Brian Hughes-Cromwick, Economist Mark Palim, VP Richard Koss, Director Hamilton Fout, Director Frank Shaw, Business Analyst"}]}
{"messages": [{"role": "user", "content": "2 Lower Energy Prices = Good News for the National Economy Lower oil prices are actually a net stimulus to the national economy, particularly for energy-importing metros. Because lower fuel prices allow consumers to enjoy more immediate disposable income, Moody’s Analytics estimates that the recent oil price decline will add anywhere from 0.25 percent to 0.75 percent to this year’s Gross Domestic Product, meaning that an impressive $165 billion is now available for consumers to spend in ways other than filling up the tank."}, {"role": "assistant", "content": "Potential Winners from Low Oil Prices As seen in the chart below, the metro areas that are expected to benefit from lower oil prices are a diverse set. Some metros, including Atlanta, Philadelphia, and Boston should benefit because it will be less expensive to heat and/or cool buildings and homes. Other metros should benefit because consumers will now have more disposable income, allowing for a stimulus in tourism, in places like Phoenix, Tampa, and Orlando. Potential Losers from Low Oil Prices Among major U.S cities, Houston has the most to lose from lower oil prices and is the only primary metro in the U.S. that is expected to be negatively impacted in a meaningful way. As the energy capital of North America, its economy will be hit with the most direct impact of the shock. Fortunately, that hit is not expected to be devastating since Houston has diversified its local economy in very important ways since the oil bust a few decades ago, which should end up blunting the anticipated drag on overall job growth. 3 There are several smaller metros that may not be so lucky and are expected to encounter significant economic turbulence and out-right job losses. These metros include Williston, ND; Oklahoma City; and Midland-Odessa, TX; which have been among the fastest growing metros in the country over the past several years, as they have been riding the wave of growth related to new oil well drilling. In addition, New Orleans will likely be negatively impacted, albeit to a lesser extent. As seen in the table below, there are several metros with nominally large but proportionally small oil industry operations— like Denver, Dallas, and Williamsport, PA—that could see a negative impact on their local economies. However, the positive aspects of low oil prices, like enhanced consumer spending and marginal expansion of manufacturing due to lower energy costs, are expected to balance out any negatives in these metros. Not Much Multifamily in Impacted Metros While housing may be in for a period of decline in fundamentals in certain metros with a disproportionate dependence on oil extraction, in truth, few of these metros have any significant concentration of multifamily housing. Nationally, approximately 18 percent of housing units are in multifamily structures. As seen in the table above, of the 33 metros listed that have a higher-than-average concentration of jobs in the oil and gas industry, just six metros have a concentration of multifamily housing exceeding 18 percent. And of those six metros, the only one with both an unusually high concentration of oil and gas jobs (24.8 percent) as well as a high concentration of multifamily housing (18.1 percent) is Midland, TX. Houston is headed for a slowdown, no doubt about it. However, there is little agreement about the severity of the slowdown. Fortunately, none of the major macroeconomic and commercial real estate data providers expect the Houston economy to fall into recession. The general consensus is that Houston’s job market will slow from being one of the fastest- growing in the nation, to one that achieves just national average growth rates. For example, Moody’s Analytics is forecasting that Houston’s 2015 job growth will be about half of what was previously expected, but still viable enough to produce an estimated 63,000 new jobs in 2015. Commercial real estate data provider Axiometrics has a slightly more optimistic forecast: 73,000 new jobs in 2015, down from 93,000 prior to the oil price decline, or about 20 percent fewer jobs than previously expected."}]}
{"messages": [{"role": "user", "content": "Prior to the recent decline in oil prices, the apartment supply surge was well on its way in Houston."}, {"role": "assistant", "content": "After several years of apartment market tightening, Houston was already expected to see some easing in rent growth and occupancy levels this year, as new supply hits the market. Now, with the anticipated slowing down of job growth, there is likely to be a short- term oversupply of units over the next 12 to 24 months."}]}
{"messages": [{"role": "user", "content": "Previous Undersupply Will Help Houston Now There are about 18,000 new apartment units underway in Houston, with expected completions occurring over the next two years. With job growth anticipated at about 2 percent, that should produce demand for about 13,000 units, which would appear to create a supply/demand imbalance. Mitigating this condition, however, is the fact that Houston has been undersupplied over the past several years: Only 22,500 units were completed since 2011 but more than jobs were added, creating estimated demand for about 50,000 multifamily rental units. Worthy of note is that sections of Houston will actually benefit from low oil prices. The metro’s east side submarket has been seeing a surge in construction of chemical and manufacturing plants that are taking advantage of low natural gas prices."}, {"role": "assistant", "content": "This is expected to continue, and possibly expand, if oil prices remain low. Now with an extended period of low oil prices, the Williston metro area and the entire state could fall into a recession. While extraction costs are estimated to be lower here than in some areas, the combined cost of construction of new wells and transportation of crude oil to refineries located on the coasts of the Gulf of Mexico and the Mid-Atlantic will likely make new investments in the area uneconomical."}]}
{"messages": [{"role": "user", "content": "As seen in the chart below, as the price of oil declines, the state’s active rig count also declines—and as of February 2015, it has only worsened. The state’s active rig count has declined to 121, down from 190 a year ago, according to data from the North Dakota Department of Mineral Resources. This means that the state is now unable to produce its previous output level of about 1.2 million barrels per day. In addition, of these active rigs 115 are concentrated in just four counties—Dunn, McKenzie, Mountrail, and Williams—all of which are located in the most prolific section of the Bakken formation. 5 Williston’s Multifamily Sector Likely Impacted Williston has a fairly large multifamily inventory considering its rural setting and relatively small population size. The influx of workers coming to the oil fields has resulted in a significant housing shortage and a sizeable inventory of temporary housing. As of 2013, there were about 6,000 multifamily housing units in Williston, according to a recent City of Williston/NDHFA Housing Study. Multifamily housing, which likely includes this sizable inventory of temporary dwellings, represents 49 percent of all housing stock, with about 9 percent consisting of mobile homes and another 40 percent consisting of single-family homes."}, {"role": "assistant", "content": "Rents already appear to be declining and concessions commonplace. For instance, a review of one rental apartment website reveals concessions of $550 being offered on a $1,800 monthly rental, or about -2.5 percent—significantly above the national average of just -0.9 percent. Williston’s multifamily sector is expected to see further decreases in rent and higher concession rates if the rig counts continue declining over the next few months—a likely scenario, we believe."}]}
{"messages": [{"role": "user", "content": "This has been driven by the oil economy in the region, which has accounted for an estimated 40 percent of the 45,000 jobs created since 2009. Yet, during this period, apartment development has been unexpectedly muted. Since 2009, just 10 apartment projects have come online, accounting for 2,400 units. For context, there are an estimated 20,000 multifamily units in the Midland-Odessa area. With falling oil prices, Midland-Odessa is poised for a significant slowdown, though calamitous conditions in the job and apartment markets are not expected. Moody’s Analytics estimates that job growth in the area will remain positive, slowing to a still-respectable 2.2 percent this year compared to an enviable 5.6 percent in 2014, as seen in the chart below."}, {"role": "assistant", "content": "Moody's Analytics provides an additional forecast that keeps oil prices low longer than expected, and even in that forecast Midland-Odessa’s job market is forecasted to contract by just -1.2 percent in 2015, with job growth rebounding to 2.4 percent in 2016. 6 The base forecast for Midland-Odessa’s job market results has real estate research firm Reis, Inc., anticipating that the metro’s apartment market will see vacancy rise to 7.0 percent by year-end 2015, up from 6.1 percent in 2014, and rent growth remaining positive—though slowing—to an enviable 6.8 percent for 2015, down from 7.8 percent for 2014."}]}
{"messages": [{"role": "user", "content": "Keeping an Eye on Some Metros Other mid-sized metro areas that have a concentration of oil jobs and could have some more trying times ahead include Lafayette, LA; Corpus Christi, TX; Oklahoma City; Shreveport, LA; and Bakersfield, CA. All of these metro areas have seen oil drilling jobs enhance their local economies over the past several years, and are poised to see that additional job growth diminish if oil prices remain low, especially over the long-term. The fall in oil prices would be felt more acutely in just a few geographical areas and in certain local jobs. Fortunately, for most of these areas, the stimulus from oil production has simply enhanced an already healthy economy. The slowdown resulting from the drop in oil prices should not result in large-scale, metro-wide job losses, but rather should impact clusters of oil-dependent jobs."}, {"role": "assistant", "content": "Local apartment markets, many of which were already poised for a rise in vacancy and an easing of rent growth, will likely see some additional softening, but this is not expected to be a significantly negative event for the nation’s multifamily sector."}]}
{"messages": [{"role": "user", "content": "2 Inventory investment also subtracted from growth in the second quarter as it slowed slightly from the robust pace in the first quarter, but remained at an elevated pace. We see the second quarter pace of real inventory buildup of $110 billion as a negative for growth in the second half of this year."}, {"role": "assistant", "content": "Since 1947, real inventory investment exceeded $100 billion only eight times, and we believe that the unsustainable stockpiles built will come at the expense of growth in the current quarter as a potentially significant drawdown will likely occur. As a result, we trimmed our forecast of growth for the current quarter by 0.6 percentage points to 2.5 percent annualized, with consumer spending, again, being the biggest driver. Consumer Spending Expected to Be a Reliable Growth Engine While real consumer spending picked up to 2.9 percent annualized in the second quarter from 1.7 percent in the first quarter, as we had anticipated in our July forecast, the monthly trajectory suggests that our expectation of further strengthening in the current quarter may be too optimistic. While real personal income continued to grow, rising 0.2 percent in June, real consumer spending was unchanged following a 0.4 percent increase in May. Flat real consumer spending at the end of the second quarter set up a soft trajectory for consumer spending heading into the third quarter. However, auto sales were robust in July, rising 3.3 percent to 17.6 million annualized units. Sales have been at 17 million units or more in four of the past five months, suggesting that consumers remain confident enough to purchase big-ticket items. Meanwhile, consumer confidence took a hit to begin the third quarter after jumping in June. Both the Conference Board’s Consumer Confidence Index® and the University of Michigan Consumer Sentiment Index pulled back in July, with the former dropping 8.9 points to the lowest level since September 2014 and the latter falling 3.0 points. While the Conference Board noted that uncertainty and volatility in financial markets stemming from the situations in Greece and China might have played a role in eroding confidence, the University of Michigan concluded that survey results showed virtually no impact of such international events on the index. Job Creation Remains Steady Nonfarm payrolls rose in July. The increase was comparable to the average monthly gain of registered during the first half of 2015. The July total employment count was 2.7 percent above the pre-recession high and, importantly, the number of full-time workers is now just 0.2 percent shy of the previous peak. Manufacturing employment showed signs of life, as factory payrolls rose 15,000, the second biggest gain this year. Mining employment declined for the seventh consecutive month, but at a more moderate pace, suggesting fading negative impact from past declines in oil prices. However, a renewed decline in oil prices raises concerns for employment in the industry, though continued losses in the mining sector won’t have a significant impact on overall employment. Wage pressures remain muted, as average hourly earnings for all workers rose 0.2 percent from June and 2.1 percent from July 2014. Since late -month average hourly earnings growth has fluctuated within a narrow band of 1.8 percent and 2.3 percent."}]}
{"messages": [{"role": "user", "content": "The estimated national vacancy level appears to have declined to an estimated 4.75 percent as of June compared with an estimated 5.0 percent at the end of 2014. Estimated effective rents increased again, at 1.5 percent since the fourth quarter of 2014, marking 21 consecutive quarterly increases, as illustrated in the chart below."}, {"role": "assistant", "content": "Despite the increase in new apartment construction starting to come online in a number of submarkets across the country, demand persists and underlying fundamentals remain healthy."}]}
{"messages": [{"role": "user", "content": "2 Most Vendors’ Vacancy Estimates Show a Similar Trend Most of our data vendors’ estimates regarding vacancy directional trends showed a decline, although there was a difference of opinion regarding the amount of the decline. Only one vendor showed the vacancy rate remaining at the same level at the end of the second quarter of 2015 as that of the previous quarter. Axiometrics is one of the vendors showing a quarter-over-quarter decrease in the vacancy rate, and it was fairly significant, tumbling 50 basis points to 4.7 percent in the second quarter of 2015 from 5.2 percent in the first quarter, and down from 5.3 percent in the fourth quarter of 2014. (formerly Property & Portfolio Research) also is estimating that the multifamily vacancy rate decreased during the second quarter of 2015, but by slightly less, from 40 basis points to 3.7 percent, compared with 4.1 percent in the first quarter of 2015. CBRE Econometric Advisors estimates that vacancy levels also decreased but only by 20 basis points to 4.3 percent, compared with 4.5 percent in the first quarter of 2015. In comparison, Reis, Inc. is once again bucking the trend, estimating that the vacancy rate stayed the same as in the first quarter of 2015 at 4.2 percent, which also is the lowest level of all the data vendors. Interestingly, Reis’ estimated multifamily vacancy rate has been stuck between 4.2 percent and 4.3 percent since early 2013. Positive Net Absorption Up Reis is reporting that net absorption – the net change in occupied rental units – was estimated to be quite healthy during the first half of the year, rising by more than 77,000 units. Despite the increase in new construction and supply coming online, the pace of net absorption has held firm, reflecting ongoing demand for multifamily on a nationwide basis. While the number of completions has been slowing down over the past few months, an anticipated new units are expected to come online this year alone, a rate well above an anticipated absorption rate of units, based on year-to-date estimates. Vacancy Rates Still Declining in Some Metros, but Rising in Others Clearly, demand for rental housing of all types remained healthy in the second quarter of 2015, but there was an increase in the number of metros with rising vacancy rates, according to preliminary data from CBRE Econometric Advisors. The real estate research firm estimates that the vacancy rate fell in 43 out of 62 metros during the second quarter, compared to 51 out of 61 metros during the first quarter of 2015. Also, vacancy rates rose in 15 metros in the second quarter of 2015, compared with only seven in the first quarter. Some of the metros with the biggest declines in vacancy rates included Salt Lake City, Memphis, Richmond, Jacksonville, Las Vegas, Phoenix, Fort Worth, Orlando, and Indianapolis. The metros with the most significant increases in vacancy rates were Pittsburgh, Oklahoma City, Albuquerque, and St. Louis – all saw year- over-year increases of 50 basis points or more."}, {"role": "assistant", "content": "Multifamily Demand Expected to Remain Stable in 2015 Although the first half of 2015 has reflected strong fundamentals for the multifamily sector, some slowing ahead is expected, at least in certain submarkets where there is an abundance of supply coming online in a short period of time. Fortunately, this scenario is not anticipated to last very long. On a national level, projected employment growth coupled with solid demographic trends and low homeownership rates are expected to keep rental household formations quite healthy over the next 12-18 months. This, in turn, is expected to help the multifamily rental sector remain stable, with annualized rent growth remaining positive, likely in the 2.5 percent to 3.0 percent range for 2015."}]}
{"messages": [{"role": "user", "content": "Another sign of caution among consumers in the current quarter is essentially flat revolving consumer credit (largely credit card debt) in October after a string of healthy gains. However, consumers have not shied away from borrowing for big- ticket items, as non-revolving credit (largely student and auto loans) continued to post gains similar to the average monthly increase over the past year."}, {"role": "assistant", "content": "November auto sales remained at 18.2 million annualized units for the third 2 consecutive month, thanks to positive consumer fundamentals as well as growth in the driving-age population. In addition, lending standards continued to ease, according to the latest Federal Reserve Senior Loan Officer Opinion Survey. Separately, data from the Fed on the terms of credit showed that the average maturity of new car loans rose to a record 65.5 months during the third quarter of this year. Overall, economic, demographic, and lending conditions are positive for auto sales, which are poised to post an annual record high. We expect the slowdown in consumer spending growth to be temporary. Positive fundamentals, including tightening labor market conditions and declining gasoline prices, should support consumers going forward. We expect real consumer spending growth to pick up next year from the expected 2.4 percent annualized pace in the fourth quarter, but stay below the pace seen during the third quarter. The November jobs report revealed continued upbeat news, with nonfarm payrolls increasing . Upward revisions of 35,000 total in the prior two months boosted the average job gain over the past three months to the best showing since July. The unemployment rate was unchanged at 5.0 percent amid the favorable backdrop of the first rise in the labor force participation rate since May. While the annual gain in average hourly earnings decelerated to 2.3 percent from 2.5 percent the prior month, it remains near the upper-end of the range observed over the past several years. Survey data also indicate a tightening labor market. The National Federation of Independent Business (NFIB) November survey showed that a net share of 20 percent of small businesses plan to increase compensation over the next three months, the highest reading in nine years. Meanwhile, the share reporting fewer or no qualified applicants for job openings remains elevated at 47 percent."}]}
{"messages": [{"role": "user", "content": "One bump on the road for consumers was the summer’s stock market swoon. The Fed’s Financial Accounts of the United States for the third quarter showed household net worth fell from a record high in the second quarter—the first drop in four years—as the decline in stocks outweighed gains in the value of real estate and other financial assets. Stocks have regained most of their lost ground, however, so the decline in net worth is likely to be an aberration. ...Against Headwinds An increase in manufacturing output in October, the only gain in the past six months, provided a tentative sign of a manufacturing turnaround. However, surveys of purchasing managers were downbeat in November. The Institute for Supply Management (ISM) manufacturing index dipped below the 50-mark threshold, indicating contracting activity for the first time in three years. The November jobs report corroborated the weakness in the ISM index, showing that manufacturing payrolls fell for the third time over the past four months. Elsewhere in the goods-producing sector, the energy industry continued to shed jobs, with mining and logging employment declining 11,000 from October and (about 14 percent) from last November. Driven by a sharp drop in oil and gas rig counts, mining investment (which includes gas and oil extraction) continued to decline in the third quarter, weighing on overall nonresidential investment in structures. However, the pace of decline has moderated significantly over the past year. Outside of oil and gas drilling structures, investment has been strong for commercial and healthcare structures and manufacturing facilities. Business spending on equipment also has softened over the past year, but, similar to the decline in investment in structures, the weakness is concentrated in commodity-producing industries."}, {"role": "assistant", "content": "3 Trade will likely be a drag on growth again in the fourth quarter. The real trade deficit widened in October as real exports fell more than real imports. We expect the strong dollar and lackluster growth abroad to continue to weigh on exports while stronger domestic growth should support import demand. We expect that net exports will continue to be a drag on growth through 2017, although to a diminishing extent over time. Conditions Support a Gradual Pace of Tightening, Starting Now If the Fed hikes the fed funds rate at the December Federal Open Market Committee meeting, its policy will diverge from that of other major central banks. For example, at its December meeting, the European Central Bank lowered its deposit rate and extended quantitative easing until at least March 2017. In addition, the Bank of Japan and the People’s Bank of China are expected to ease further within the next few months. How this policy divergence will impact currencies and capital flows remains to be seen. A large shock to financial markets, especially in emerging markets, similar to that experienced during the “taper tantrum” presents some risk to the outlook, but we believe the odds of a sizable disruption are small. After the liftoff is out of the way, attention will shift to the path of interest rates. Fed officials have communicated that the pace of tightening will be gradual. We expect three fed funds rate hikes in 2016 followed by two more increases in 2017. Shrinking the Fed’s balance sheet, which contains more than $4 trillion of securities, is also an important aspect of normalizing monetary policy. The Fed has said that it plans to allow its balance sheet to deflate naturally by ending its reinvestment program at some point after the first rate hike. Based on the Federal Reserve Bank of New York’s October Survey of Primary Dealers, the consensus among the Fed's primary securities dealers is that the program will end nine months after liftoff. The longer the Fed holds onto securities in its portfolio, especially Treasuries, the longer it will exert downward pressure on long-term rates. We expect to have more clarity on this issue in the near future."}]}
{"messages": [{"role": "user", "content": "Housing Roundup Recent housing data support our view that residential investment will help fill the void created by other struggling segments in the economy. Private residential construction spending started the fourth quarter on a strong note, posting a solid gain in October for both the single-family and multifamily segments. However, home sales, which also affect residential investment through broker commissions, were mixed during the month. Existing home sales posted a steep drop, while new home sales rebounded sharply amid sizable downward revisions in prior months. Home price growth has continued to strengthen. For example, the CoreLogic home price index, which is the Fed’s preferred measure, showed the biggest year-over-year gain in October since last June. Strong home price appreciation has helped boost the value of home equity. The Financial Accounts of the United States showed that homeowners’ equity as a share of the value of real estate rose by 0.6 percentage points in the third quarter to 56.7 percent. While the share has risen substantially from its record low of about 37 percent in 2009, it still remains below its pre-recession peak. A limited inventory of homes for sale, which puts upward pressure on prices, may also be partially responsible for the recent softening in home sales. Inventory has been extremely low partly because of a slow supply response in the single-family segment. Several factors contribute to the sluggish single-family building activity. While builders’ access to credit has improved over the years, it remains historically tight, especially for the purchase or development of land. This has driven up the price of the remaining lot inventory and prevented large-scale speculative construction in many markets. Labor shortage also is 4 a primary factor, as many construction workers found jobs in other industries during the downturn or left the workforce altogether, resulting in a loss of many skilled workers. After reaching a record low of in July 2012, the number of new homes for sale has gradually risen, but still remains historically low. The lack of inventory is more problematic for the existing home market. The for-sale inventory has increased on a year-over- year basis only twice this year, and the drop of 4.5 percent in October was the largest in over two years. One reason for lean inventories is that institutional investors are holding housing units as rentals, thanks to high rental demand. We do not expect the inventory crunch to ease substantially next year, and the situation could get worse if geographic mobility declines or if homeowners are locked in with low interest rate mortgages in a rising rate environment. Home sales will likely remain subdued in the near term. After posting two consecutive monthly declines, pending home sales, which typically lead closings by one to two months, were little changed in October. The recent trend in purchase mortgage applications—another leading indicator of home sales—reinforces the pending home sales data, as the average monthly reading for October fell for the third time over the past four months. Despite recent volatility, home sales are poised to increase 7.4 percent this year to 5.8 million units, the best performance since 2007."}, {"role": "assistant", "content": "Housing demand is looking up going into next year, however. Purchase mortgage applications rose every week in November, except for one week when they fell slightly. The rebound in purchase applications supports our forecast that sales will pick up in the first quarter of next year after a slight pullback this quarter. Given our expectation of a slow pace of Fed tightening and continued monetary easing in major central banks abroad, mortgage rates should move up only slowly, with the yield on 30-year fixed-rate mortgages averaging 4.1 percent during the final quarter of 2016, the same as in our previous forecast, up from 3.9 percent this quarter. For all of 2016, we expect total home sales to rise 3.9 percent, more moderate than this year’s increase. Our 2016 sales outlook is shaped by our expectations of a gradual rise in interest rates, continued healthy home price gains, and moderate income growth. Continued easing of mortgage lending standards, combined with a positive household formation outlook, should help the housing sector to expand further. Our mortgage production forecast is the same as in the prior month. We project that total mortgage originations will rise approximately 32 percent this year to $1.71 trillion, before declining 18 percent and 1 percent in 2016 and 2017, respectively. The refinance share is expected to trend down from 46 percent this year to 32 percent in 2016 and 28 percent in 2017. December Economic & Strategic Research (ESR) Group For a snapshot of macroeconomic and housing data between the monthly forecasts, please read ESR’s Economic and Housing Weekly Notes. Although the ESR group bases its opinions, analyses, estimates, forecasts and other views on information it considers reliable, it does not guarantee that the information provided in these materials is accurate, current or suitable for any particular purpose. Changes in the assumptions or the information underlying these views could produce materially different results. ESR Macroeconomic Forecast Team Doug Duncan, SVP and Chief Economist Mark Palim, VP Orawin T. Velz, Director Frank Shaw, Analyst Hamilton Fout, Director"}]}
{"messages": [{"role": "user", "content": "While these smaller investors still represent a large segment of the market, institutional investors have entered the fray and changed the single-family rental landscape. Why the sudden interest? In short: An imbalance between supply and demand. More Single-Family Renters than Multifamily Renters According to the 2014 American Community Survey, there are more than 43.2 million rental units in the U.S. The majority of these are composed of one- to four-family properties, as seen in the table to the right. Approximately 53 percent of all renter households – about 23 million – reside in one- to four-family homes. About 18.3 million households live in a multifamily rental property with five or more units, which is about 42 percent of all renter households. The remaining 5.0 percent of renter households live in either manufactured housing rental units (about 2.0 million) or in other rental housing, such as a boat, recreational vehicle, or van (about 41,000 units). Growth in Single-Family Rental Sector It is important to note that much of the growth in rental properties since 2005 has been in single-family detached structures, as illustrated below. Interestingly, despite the more than 1.6 million estimated new multifamily units added to the nation’s rental stock since 2007, its share of rental households has not changed much over that timeframe. Instead, the growth in rental housing can be attributed primarily to the large number of former homeowners who lost their homes to foreclosure since the beginning of the housing crisis."}, {"role": "assistant", "content": "And that is why we have seen the sudden interest in single-family rental properties from institutional investors and the proliferation of single-family rental real estate investment trusts (REITs). Bumpy Rent Growth for Single-Family Rentals Although 52 percent of renter households reside in single-family homes compared to just 42 percent in multifamily rentals, rent growth in the single-family sector has not kept pace with the robust rent growth experienced in the multifamily sector. As seen in the chart at the bottom right, across the U.S. single-family rents for a three-bedroom home have only grown by about 5.3 percent since 2010. This has resulted in a current average rent level of about $1,525 per month compared to $1,495 in early 2010. In contrast, rents for institutional investment-quality multifamily rental properties have surged by more than 16 percent over the same period. Ongoing demand for multifamily rentals has boosted multifamily rent growth on an uninterrupted basis each quarter since the first quarter of 2010. As a result, asking rents for multifamily properties climbed to an estimated $1,156 a month as of the second quarter of 2015, compared to just $995 as of the first quarter of 2010. Going forward, single-family rentals are expected to produce steady rent growth. Moody’s Analytics predicts that single-family rents will grow at about 3.0 percent annually over the next five years, slightly outpacing inflation. However, multifamily rent growth is expected to continue outpacing single-family rentals due primarily to anticipated demand from Millennials forming new households and preferring to rent multifamily properties."}]}
{"messages": [{"role": "user", "content": "3 Not All Markets Are Equal Not all metros will experience the same patterns of rent growth in single-family rentals. Indeed, a number of metros most likely have already seen their best single-family rent growth days. As seen in the chart below, Moody’s Analytics predicts that San Jose, Austin, and Denver – three high-tech metros that have seen tremendous job growth over the past five years – will see a significant slowdown in rent growth."}, {"role": "assistant", "content": "But other metros are expected to see improved rent growth over the next five years, including Atlanta, Las Vegas, and St. Louis. Outlook Stable for Single-Family Rentals The single-family rental sector has benefitted from the convergence of solid underlying fundamentals over the past few years. On the supply side, due to rising foreclosures, the housing bust produced cheap inventory for institutional investors to purchase. On the demand side, slow but steady job growth helped increase household formations in the rental segment, including demand for single-family housing from homeowners displaced by foreclosed, who are less likely to rent apartments. In addition, the rise of institutional investors in this segment of the rental housing market has likely helped produce better- quality and better-managed single-family homes, which in turn has made these properties more attractive for many of these displaced homeowners, as well as other renters. As Moody’s Analytics stated, institutional investors helped “professionalize the industry.” All these factors are expected to continue contributing to demand for single-family rental homes. 5 Location and Millennials Impact Outlook The level of demand for single-family rental homes is expected to differ depending upon the region of the country. Extrapolating based upon current housing rental trends, there is likely to be more demand in the western and southern regions of the country and less in the northeastern and Midwestern regions. Longer-term future demand for single-family rental housing hinges upon the Millennials. As seen in the chart below, the 20- to 34-year-old cohort, which makes up the bulk of today’s Millennials, is expected to continue increasing over the next decade or so. Then, even after a slight dip, this age cohort is expected to start picking up steam, reaching nearly 71 million people by 2040."}]}
{"messages": [{"role": "user", "content": "Provided there is no major change to trade policy, a big question mark, rising supply growth will be the market’s greatest short-term risk—and not a huge one, given that vacancy rates are at historic lows."}, {"role": "assistant", "content": "U.S. e-commerce sales forecast to rise by a 9.3% annual average over the next five years RETAIL Consumer spending and e-commerce will maintain healthy growth rates in 2017. Retailers and landlords will continue to innovate in their efforts to attract customers—particularly in delivering shopping experiences centered on entertainment concepts, dining and technology. Rising demand for non- traditional brands and venues will continue to encourage new leasing structures that account for greater risk to both landlords and tenants. The strongest rent growth is expected in markets with the strongest job growth."}]}
{"messages": [{"role": "user", "content": "National retail rents forecast to grow at a 1.7% annual average over the next five years MULTIFAMILY Expect slower rent growth and rising vacancy in 2017."}, {"role": "assistant", "content": "The current cycle’s development peak will likely occur in 2017, and oversupply is the market’s most prominent near-term risk. High-end development, prevalent in recent years (particularly in downtowns and gateway markets), may be approaching a turning point, as fundamentals for these newer buildings have slowed considerably. Suburban growth is outpacing urban in an increasing number of markets, resulting in strong suburban rent and occupancy growth, as well as public and private efforts to reproduce downtown amenities in the lower-cost setting. Nearly multifamily completions expected in 2017 HOTEL Economic conditions promise continued demand for the hotel industry, leaving the sector’s prospects for 2017 largely to local market fundamentals."}]}
{"messages": [{"role": "user", "content": "Nationally, the year-over-year changes in supply and demand are converging, but conditions vary by market. The greater opportunity will be found in markets with significant investment in infrastructure or private capital projects, while the greater risk will be in markets facing oversupply."}, {"role": "assistant", "content": "U.S. ADR expected to grow by 3.3% in At 2:29 a.m. on November 9, 2016, the announcement that Donald Trump would be the 45th president of the United States surprised the world. The immediate reaction of global markets to Mr. Trump’s election resulted in sharply falling stock market futures, lower bond yields, higher gold prices and other indicators of negative sentiment. But by the end of first day of trading, it was business as usual, and by November 11 the mood had shifted completely from uncertainty to optimism. At least two important economic changes occurred on November 9. The first is that with the election of Mr. Trump, combined with Republican control of Congress, most economists revised their U.S. growth expectations for 2017 upward by 50 to 75 basis points (bps) because of the president-elect’s proposed policies of lower taxes, less regulation and increased infrastructure spending. While we expect to see more fiscal stimulus, increased growth of 50 to 75 bps is optimistic from our point of view due to the time it takes for Congress to enact legislation. We think the bigger impact is likely in 2018. This, combined with Mr. Trump’s expected pro-business attitude, has positively shifted growth expectations and investor sentiment."}]}
{"messages": [{"role": "user", "content": "In this 2017 U.S. Market Outlook, we balance this post-election market optimism with the understanding that market conditions have softened for many major asset classes. Old-school notions of commercial real estate supply and demand still matter and are the primary driver of our forecasts. Neither do we ignore the massive secular changes that are underway, especially with respect to technological advances that impact job growth."}, {"role": "assistant", "content": "Market optimism and the prospect of stronger economic growth have recently led to a substantial spike in interest rates, which raises the specter of rising cap rates. At the time of this writing in early December, the market has shown some immediate concern, manifested by lower loan-to-value ratios, some owners delaying refinancing decisions, and additional buyer-seller negotiation on price. We will track changes in interest rates closely in 2017 and have taken these factors into consideration in our forecasts."}]}
{"messages": [{"role": "user", "content": "Please read on and learn more from our 2017 market forecast. We encourage you to reach out to your local CBRE professionals for their up-to-the minute view of market conditions, which, as the events of the past month have demonstrated, can change at any moment."}, {"role": "assistant", "content": "2017 ECONOMY The election of Donald Trump as the 45th U.S. president has the potential to change the economic landscape for years to come. Until Mr. Trump has settled into office, it will be difficult to know the exact form his policies will take or how the Republican Congress will react to his proposals. Several of his campaign proposals have the potential to give the economy a boost later in the year, just as growth may be slowing. Others are more concerning and may manifest drags on growth over the longer term."}]}
{"messages": [{"role": "user", "content": "2017 ECONOMY POTENTIAL GROWTH: INFRASTRUCTURE Among Mr. Trump’s campaign proposals, higher investment in infrastructure holds the greatest potential to benefit the economy. It has been several decades since the country has upgraded and replaced aging infrastructure at a sufficient pace to keep things running smoothly. Mr. Trump has promised to spend a trillion dollars over a decade to fix, repair and update many of these structurally deficient areas. If this spending is done in a well-considered manner—contrasting the rushed transportation bill passed by Congress during the financial crisis of —it has the potential to raise GDP growth by 50 to 75 basis points (bps) annually. If Congress and the president take the time to do this properly, the spending won’t contribute to GDP growth until 2018, just when the economy may be slowing. This would boost GDP without causing inflationary pressures, since the economy would have begun to slow. President-elect Trump has promised to simplify the tax code while cutting tax rates. Several members of Congress have also addressed this issue. If this is done well, a simpler tax code with lower rates has the potential to boost GDP growth. Any tax reform takes time, so this likely wouldn’t go into effect until 2018, just as the economy might be poised to slow. The added spending power it would grant consumers might be just what is needed for the economy."}, {"role": "assistant", "content": "2017 RISKS: TRADE POLICY AND IMMIGRATION Two potential risks to the economy are trade policy and immigration. As the president has considerable latitude on trade and immigration policy, Mr. Trump could cancel or suspend compliance with NAFTA and the World Trade Organization, as he has promised. During the campaign, Mr."}]}
{"messages": [{"role": "user", "content": "Trump called for the imposition of tariffs on imports from Mexico and China, but he has moderated his position since then. Were he to move forward on trade policy as he has proposed, it could negatively impact GDP growth by 50 to 75 bps over the next few years. Mr. Trump’s election and the recent U.K. vote on Brexit have shined a light on the concerns many people have about free trade’s impact on domestic jobs. The Trans-Pacific Partnership (TPP), which might have boosted GDP growth by 25 bps, will not be submitted for congressional approval. If Mr. Trump follows through with his tariff promises, we would expect higher prices on foreign-made goods and U.S.-made goods made largely of foreign parts. There also is the potential for retaliation in the trading sphere, particularly from China, dampening U.S. exports and possibly resulting in a trade war. A change in the EB-5 program could raise the cost of capital for certain projects, or prevent them from getting financing."}, {"role": "assistant", "content": "This could impact construction job growth, cap rates and movement of skilled labor into the U.S. 2017 CAPITAL MARKETS The 2017 outlook for the U.S. capital markets—encompassing debt and equity investment activity, pricing and performance, as well as investment strategy—is largely favorable. Acquisitions activity should remain high, if slightly lower than 2016. International capital flows into the U.S. will likely remain very strong, with China again the leading source. Most types of debt capital should remain widely available. As asset appreciation abates, investment returns are likely to decline, but nevertheless still achieve favorable levels. The year is likely to start slowly as buyers and sellers await the new administration’s policies. 2017 INTEREST RATES AND CAP RATES The interest rate environment is one of the largest influences on the capital markets. With the U.S. economy continuing to expand, the Federal Reserve Board is likely to engage in two rounds of monetary tightening, increasing short-term rates in 2017. Longer-term interest rates, however, should remain stable or increase only modestly, as they have already jumped nearly 50 bps in the two weeks since the election. The 10-year Treasury yield will likely remain between 2.25% and 2.75% throughout 2017. Investor demand for the inherent safety of U.S. debt should continue to offset upward pressure on long-term yields from the Fed and the prospect of higher inflation. Slightly higher bond yields will have a limited impact on capitalization rates, thanks to strong economic and commercial real estate fundamentals, in addition to solid demand from foreign investors. The spread between cap rates and Treasurys—a proxy for the additional returns commercial real estate is expected to yield relative to low-risk government bonds—is wide enough that the incremental moves the Fed appears poised to make will not necessarily result in higher cap rates. We expect CRE cap rates to remain steady in the markets where fundamentals are still improving. Similarly, commercial real estate values should remain steady during this period."}]}
{"messages": [{"role": "user", "content": "FOREIGN CAPITAL Although accommodative monetary policy has kept bond yields low relative to their historical levels, a comparatively strong economy and a scarcity of high returns elsewhere has kept the U.S. a favorite destination for foreign capital."}, {"role": "assistant", "content": "This is particularly true of commercial real estate, which has performed well during the current economic expansion. As of Q3 2016, total deal volume for all CRE property types was down 2% from a year earlier; however, the volume of foreign capital remains robust, with more than $80 billion invested in U.S. CRE in the past 12 months. Plans for expansionary fiscal policy with the incoming presidential administration have raised expectations for economic growth and inflation, both of which make investment in real assets like CRE more attractive. As a result, we expect foreign institutional investors and sovereign wealth funds to increasingly look to the U.S. to fill their real estate portfolios in 2017. The preference for liquidity will keep highly sought-after properties in gateway markets popular, but secondary markets such as Dallas/Ft. Worth and Atlanta are poised to attract a greater portion of foreign capital as investors become more comfortable investing outside of premium core product. For example, foreign investors in multifamily may look to secondary markets with better fundamentals, since rental growth has turned negative in some gateways, such as San Francisco and New York. DEBT CAPITAL ABUNDANT; SOME CLOUDS ON THE HORIZON Capital for financing commercial real estate in the U.S. (where debt, on average, represents roughly two-thirds of total investment) should continue to be widely available in 2017. CAPITAL MARKETS We expect CRE cap rates to remain steady in the markets where fundamentals are still improving. Similarly, commercial real estate values should remain steady during this period. 2017 The CMBS market fell in 2016. Volatility in the bond markets during Q1 and a changing regulatory environment led to substantially lower levels of issuance (about $75 billion, versus 2015’s $101 billion) and a smaller number of CMBS shops. The CMBS industry will likely adapt adequately to the risk-retention rules taking effect in late 2016; however, the new rules will add costs to the conduit lenders, and it is not yet clear how those costs will be absorbed. Another 2017 challenge for CMBS— though it is difficult to predict—might be periods of high volatility in the bond market. Such volatility can create pricing uncertainty in CMBS, and make conduit loans less attractive to borrowers. 2017 OFFICE CONSTRAINED EMPLOYMENT TO SLOW DEMAND The U.S. office market is poised for a moderate slowdown in 2017, due to a combination of softer tenant demand and an increase in new supply. Firms are finding it increasingly difficult to find qualified workers, which is reflected in the low unemployment rate, the near-record number of job openings, a steady increase in the number of “quits” (an indicator of worker confidence), and real wage growth. Given the labor force constraints, we expect 2017 to register a lower net gain in office-using jobs: —down from 2016’s anticipated and the annual average of . Meanwhile, we expect more than 50 million sq. ft. of office space completions in 2017—the most since 2009. Though this will be low compared to previous cycles, the introduction of new product at a time of anticipated slow demand will likely result in a modest increase in the vacancy rate (our forecast indicates 30 bps, to 13.3% from 2016’s 13.0%). Rents will likely increase by about 1.5% over the year, continuing to slow from the rates of 4.0% to 4.5%, the current cycle’s fastest growth."}]}
{"messages": [{"role": "user", "content": "Metro Office Supply and Demand Completions and Net Absorption (MSF) Vacancy Rate (%) Completions (L) Net Absorption (L) Vacancy Rate (R) Source: CBRE Econometric Advisors, Q3 2016. Absorption Completions Vacancy Forecast DOWNTOWN MARKETS TO SOFTEN The suburban office market, which has lagged the downtown market during this cycle, will likely outperform in 2017, although this will vary significantly according to each submarket’s unique demand drivers, quality of office product and live-work-play environment."}, {"role": "assistant", "content": "We expect the suburban vacancy rate to increase by just 10 bps in 2017, to 14.5%, with rent growth to exceed 2%. With demand in some of the largest downtown office markets beginning to slow in 2016, the national downtown market will likely soften further in 2017, due in part to nearly twice as much new supply coming online in 2017 as did in 2016. We expect the vacancy rate to increase by 30 bps for a second consecutive year, to 10.9%—still well below the suburban vacancy rate."}]}
{"messages": [{"role": "user", "content": "Downtown rent growth is expected to slow further as higher vacancy shifts bargaining power in the direction of tenants."}, {"role": "assistant", "content": "2017 OFFICE TECH REMAINS A CRITICAL DRIVER Growth in the tech sector will be critical for continued office- using job growth and demand. The high-tech industry accounts for nearly one-fifth of the major office leasing activity since 2014. As CBRE’s Tech Thirty 2016 report notes, however, tech employment growth slowed to 4.0% in 2016, significantly below the past five years’ annual average of 7.3%. As the pool of high-tech workers shrinks, the industry relies more heavily on recent graduates and foreigners on work visas. With competition for talent particularly acute in the tech industry, finding skilled labor will be critically important to the tech sector’s continued expansion and to office demand, both in established tech hubs such as the San Francisco Bay Area and Manhattan and in emerging, lower-cost markets such as Phoenix, Atlanta and Portland. The promotion of innovation and an entrepreneurial spirit are cornerstones of the U.S. tech sector, and this is true of startups and established companies alike. Expanding STEM program enrollment, facilitating the flow of high-skilled tech workers into the U.S. and fostering an environment that supports innovation will reinforce the U.S. high-tech sector’s global strength and thus support demand for office space domestically. Given the uncertainty in the wake of the recent U.S. presidential election, we will continue to monitor policy actions that relate to these growth drivers and to report on their potential impact on the tech sector and office demand."}]}
{"messages": [{"role": "user", "content": "2017 SHRINKING TENANT FOOTPRINTS We expect markets in the South and West to see the strongest office-using job growth in 2017; these include many that have been slower to recover during this cycle, such as those in Florida. Many of these have little or no new supply underway, which will limit options for tenants interested in the most desirable submarkets and the highest-quality buildings, and give owners greater leverage. These markets may offer attractive development and investment opportunities as tight market conditions push rents up further."}, {"role": "assistant", "content": "Tenants’ increasing efficiency in their use of space is a trend that will continue to broadly affect demand, yielding less absorption for each job created than occurred in previous cycles. Many tenants are using their greater space efficiency to trade a larger footprint for higher-quality space, offering employees a more appealing work environment. This will become increasingly important as the competition for talent intensifies. Buildings whose infrastructure is capable of handling higher employee headcounts will likely benefit from this trend, while older, non-renovated buildings in less desirable locations will struggle. 2017 DEMOGRAPHICALLY DRIVEN DEMAND As an asset class, medical office buildings (MOB) are recession- resistant. Their tenant demand is fueled by demographic trends, rather than economic growth. Throughout the current cycle, MOB has been a strong segment, and a bright spot in many markets where improvement in other office-using sectors has been slower. Within the broader U.S. office market, it should remain an attractive niche in 2017 and through the long term, benefitting from demographic trends, increased healthcare utilization and spillover from ongoing expansion in the life sciences industry."}]}
{"messages": [{"role": "user", "content": "Investment volume has trended down slightly over the past year, but the 2016 average through Q3 is still 45% above the 10-year quarterly average, according to Real Capital Analytics (RCA)."}, {"role": "assistant", "content": "Moreover, competition for quality MOB investments remains high, and cap rates have fallen to record lows this year. Cross- border investment has been a growing source of capital in this segment, and MOB assets are well-positioned to capture more foreign dollars in 2017 as buyers seek out higher-yield—but still relatively safe—investment opportunities. The healthcare industry continued to see marked consolidation activity in 2016, including mergers among major health systems, hospitals acquiring physician and specialist practices, and small physician groups combining their practices to save on real estate and overhead costs. This trend will continue in 2017 as providers of all sizes stay focused on cost-cutting in the face of declining reimbursement rates from both Medicare and private insurance companies. On the whole, this should be a net positive for real estate investors, as the credit profile for medical tenants strengthens in line with their growth and diversity. 2017 CONSOLIDATION DRIVES CONSTRUCTION Consolidation has been the major driver of new MOB construction in recent years, as many markets have lacked the necessary large blocks of space to meet the requirements of newly expanded healthcare providers, particularly in proximity to hospitals. With merger and acquisition activity expected to increase, tenant demand for smaller medical office space is likely to weaken. This market dynamic will benefit MOBs that can accommodate large practices, and will likely improve tenant retention."}]}
{"messages": [{"role": "user", "content": "Over the long term, the wave of aging baby boomers will drive rising demand for healthcare services, irrespective of any regulatory changes. U.S. Growth in this sector correlates strongly with expected population growth, particularly of older residents."}, {"role": "assistant", "content": "Among large metros, the strongest EHS employment growth is expected in the South and West, whose markets, with their moderate climates and affordable costs of living, are attractive places for relocating retirees and working professionals. The metros with the weakest expected EHS employment growth are in the East and Midwest—big cities whose retirees tend to move to warmer climates. However, many of these slow-growth metros also have the highest concentrations of healthcare employment relative to the total employment base, and their well-established healthcare networks and infrastructure will remain appealing to both landlords and investors."}]}
{"messages": [{"role": "user", "content": "Growth in Healthcare Employment (%) (MSF) MOB Space Under Construction Healthcare Job Growth Source: CBRE EA/Dodge Pipeline, BLS, Moody’s Analytics, 2016. Location Quotient, Bottom 10 (R) Top 10 Markets by Forecast Job Growth in Education and Health Services Bottom 10 Markets by Forecast Job Growth in Education and Health Services"}, {"role": "assistant", "content": "2017 COMPETITION FOR TALENT DRIVES INNOVATION Attracting and retaining talent remain leading enterprise priorities, though the enduring slow economic growth has prompted many occupiers to renew their focus on containing costs. We believe this focus will persist through 2017 as companies are likely challenged further, given continued economic uncertainty across industries. Talent attraction and engagement will continue rising in importance as demographic shifts affect in-demand skillsets. Although millennials are the largest and fastest-growing contingent of the workforce, it is important to recognize that they, Gen Xers and baby boomers each make up roughly one-third of the workforce. Occupiers will continue to consider this diverse workforce as they implement workplace enhancements that maximize their competitiveness. Today’s highly skilled and flexible workforce values a well-designed workplace; space for private, focused work; and services and amenities that align with their lifestyle. 2017 solutions. Activity-based floor plates are currently among occupiers’ most piloted efforts; we believe their adoption will likely increase. Alongside the trend toward creating more modern, user- focused work environments, increasing workplace amenities has become the norm. Occupiers now aim to provide more than a pleasing aesthetic; the goal is a multi-faceted environment that provides users with an unmatched experience, connecting their personal and professional personas and improving their well-being. Many office workers now expect the workplace to incorporate wellness considerations and experiences, such as access to green space. Responding to this trend, 91% of corporate real estate executives expect their level of engagement in health and wellness to increase. Health and wellness is no longer an afterthought; rather, how it might be built into a workplace is deliberated as early as the site-selection stage. Significant advancement in CRE technology has dramatically raised the efficiency and effectiveness of a mobile workforce, and real estate strategies are now being devised in response. Technology is affecting not just how occupiers use space, but how they manage it. Real estate technology firms are growing rapidly in both number and value as a consequence. The trend is pervasive, affecting everyone from brokers to CRE executives, to everything from office to residential. Effective use of occupier-related applications will allow managers to produce and collate data that can be instrumental in more efficiently assessing and deploying real estate strategies. From smart buildings to space utilization, technology’s uses and implications for real estate are boundless. 2017 A VERY STRONG YEAR Entering 2016, the general expectation for the U.S. industrial & logistics real estate market was that it would transition into a slower-growth phase. This was based on a combination of broad economic uncertainty and the inevitability of a slowdown after such a long period of expansion. The market has continued to confound expectations, however, with a year that has been among the strongest in a decade. From a capital markets perspective, the sector is favored, with record-level acquisition pricing and widespread low cap rates. For both users and investors, pricing is at record highs across the board. New entrants to the market should expect rents to continue rising next year at roughly the same rate as the past few years. For investors, the news is that cap rates and investment prices are showing signs of stabilization."}]}
{"messages": [{"role": "user", "content": "Our view, however, is resolutely positive: Industrial market conditions will remain favorable through 2017. Our position is rooted in how the industrial sector is uniquely positioned to benefit from both cyclical and structural changes throughout the coming year. On the cyclical side, although a global economic downturn and Brexit rattled the U.S. outlook, perceived economic risks have dissipated over the course of the year. The industrial sector handled the early-2016 slowdown in trade and manufacturing without a hitch, thanks to unwavering consumer demand with household confidence and spending near post-recession highs. These tailwinds bode well for both traditional retailers and distributors, as well as those focused on e-commerce. TECHNOLOGY CONTINUES TO INCREASE DEMAND On the structural side, new technologies continue to reshape the logistics landscape. In particular, e-commerce continues to have far-reaching implications, prompting manufacturers, suppliers and distributors to adapt their supply chains to meet the new service demands it creates. U.S. e-commerce sales are forecast to rise by 9.3% annually over the next five years, to $523 billion in 2020, according to research firm Forrester. For industrial real estate, this growth represents a huge opportunity. E-commerce users require three times more space on average than traditional warehouse users. Further, growth in e-commerce sales causes growth in demand for additional warehouse and distribution space: For every $1 billion in new e-commerce sales, an additional 1 million sq. ft. of new distribution space is needed, according to CBRE’s Global Supply Chain Practice. Given current forecasts of e-commerce growth, this translates to an annual average of 40 million sq. ft. The supply side is growing in response to user demand. One of the most notable features of the current cycle has been the relatively tepid development market, adding new logistics product at a slow pace. Since 2010, for example, demand in the United States (as measured by net absorption) has outpaced supply by a factor of two, despite rapidly growing rents and shrinking vacancy. On the whole, the discipline shown by developers has been healthy and has allowed for steady rental growth, bringing many markets to or near full recovery. Industrial Rent vs. Prior Peak ($) F 2017 F Actual Prior Peak Source: CBRE Econometric Advisors, Q3 2016. 2017 supply side also represents the greatest risk to the market. If demand were to slow at a greater rate than expected, or if the economy were to experience an unexpected shock, the sudden addition of new, vacant space could slow growth more than any slowdown imposed by external economic forces. However, while this risk is real, the overall impact of such a slowdown would be tempered by the fact that vacancy rates are at historic lows, both at a national level and at the local level in many major markets. The addition of new space would be a welcome change in key markets such as Los Angeles and Oakland, both of which have vacancy rates below 2%. TRADE POLICY The biggest external concern for industrial expansion is the potential impact of changes in federal government policy on international trade. Congress has granted presidents considerable latitude on trade policy, and President-elect Trump’s stated desire to unilaterally cancel existing trade deals like NAFTA may be the biggest wild card in determining the trajectory of the U.S. and global economies. During the campaign, Mr. Trump called for the imposition of tariffs on imports from Mexico and China; combined, the two countries accounted for more than $735 billion in trade with the U.S. Industrial Supply and Demand As a percentage of stock (%) Completions Net Absorption Source: CBRE Econometric Advisors, Q3 2016."}, {"role": "assistant", "content": "2017 CONSUMER SPENDING GROWTH TO CONTINUE APACE Consumer spending in 2017 is expected to repeat the growth it recorded in 2016, with retail and food-service sales (excluding motor vehicles and gasoline) forecast to rise by 4% to 5%."}]}
{"messages": [{"role": "user", "content": "Although the new presidential administration brings the potential for significant legislative changes, the fundamental metrics driving consumer spending—job growth, wage growth and consumer confidence—are unlikely to change in the next 12 months. Luxury retailing is more dependent on global economic forces and will face challenges from the strong U.S."}, {"role": "assistant", "content": "dollar and lower tourist spending by Asian and Latin American luxury shoppers. E-commerce retail sales are expected to grow by an additional 15.5%—on pace with recent years—and to account for approximately 9.2% of total retail sales by the end of 2017. INVESTING IN EXPERIENCES Categories and retailers that focus on a brick-and-mortar experience are expected to benefit from an increasing share of spending growth. Recent growth in the food & beverage category, and increased tenant demand for entertainment concepts, will continue. In slower-growing soft goods categories like apparel, both new and established retailers will seek to expand their in-store experience offer through workshops, new technologies and services. As more retail sales shift to e-commerce, success in physical retail will increasingly depend on the experience and services offered to customers. 2017 ”ROGUE RETAILING” DRIVING DEMAND FOR NEW LEASE TERMS The rapid rise of non-traditional retail brands and venues— such as pop-ups, food trucks and other formats that operate outside of typical retail real estate spaces—is driving changes in leasing structures. Although landlords have historically preferred long-term leases with creditworthy national or multi-national brands, there is a growing willingness to work with shorter-term and non-national tenants. The greater financial risk associated with such agreements is driving more flexibility in lease terms and, in some cases, deeper financial partnerships between landlords and tenants. These partnerships may take the form of equity stakes, percentage rent or greater contributions to store fit-outs. As 2016 saw a strong rise in rogue retailing for brands both large and small, 2017 will see much more integration of these concepts in traditional mall and real estate spaces, where efforts to deliver experiences may benefit from their flexibility. RENT GROWTH CONCENTRATED IN JOB-GROWTH MARKETS Over the next five years, we expect national retail rents for neighborhood, community & strip centers to grow at an annual average rate of around 1.7%, with large variation across markets. For markets that have historically shown strong growth in both employment and rent, we expect continued rent growth: San Francisco and Denver, for example, with annual rent growth of 4%. Markets that have shown strong employment growth over the past five years, but that have lagged in rent growth, are expected to catch up over the next five years: Orlando and Atlanta, for example, with annual rent growth of 3% or higher. The rest of the top 30 U.S. 2017 A QUESTION OF BALANCE Hotels’ financial performance depends upon leisure and business travelers having the resources and the comfort level to travel. Income and wealth determine the former, and absence of fear the latter; both conditions will be met in 2017, notwithstanding any unforeseen political and economic disturbances. Among households and most businesses, balance sheets appear sound, and although profit growth is thin, corporations have plenty of cash. Working households are experiencing stronger wage growth each year and the probability of recession remains low."}]}
{"messages": [{"role": "user", "content": "We expect to see year-over-year growth rates for the demand and supply of U.S. hotel rooms come into balance in 2017. Across the six market segments, six location types and 60 city markets covered in CBRE’s Hotel Horizons forecast, the two are balanced in varying degrees; where there is imbalance, some locations present opportunity while others carry excessive risk."}, {"role": "assistant", "content": "2017 IMBALANCE—OPPORTUNITY IN 2017 Notwithstanding new proposals for infrastructure spending, fixed capital investment is increasing in cities across the U.S. Airports are a good example: Placing new airports in major metropolitan areas creates economic realities that give rise to large-scale airport expansion projects. The city of Atlanta and Delta Airlines will invest $6 billion into a variety of terminal, runway and maintenance facility improvements over the next 10 years, for instance. Opportunities to own and operate hotel real estate around many such ongoing airport expansions will become increasingly available in 2017. Private investment has Nashville, Charleston and Reno ripe with hotel real estate opportunity. Nashville is transforming into a regional center with strong professional employment growth, due in large part to the expansion of automobile manufacturing in the region. Charleston’s economy will be a direct beneficiary of automobile-manufacturing-plant development. In Reno, sparks of growth are apparent 20 miles east of the city. Hotels positioned in the path of growth created by large private capital placements should be considered one of 2017’s dominant hotel investment themes."}]}
{"messages": [{"role": "user", "content": "Occupancy and Change in Supply and Demand, Q1 2006 – Q2 2016 Y-o-Y Change (%) Occupancy Level (%) Supply Change Demand Change Occupancy (4-Quarter Moving Average) Source: CBRE Hotels’ Americas Research, STR, Q3 2016."}, {"role": "assistant", "content": "2017 IMBALANCE—RISKS IN 2017 Local oversupply is currently the biggest risk to profitable hotel investment. Markets deemed oversupplied—such as Seattle, Charleston and San Jose—are those where the number of new rooms slated to come into service during 2017 exceeds the number forecast to be needed. Some notable markets— such as Philadelphia, Minneapolis and Orlando—will receive too few new hotel rooms in 2017, given their fundamentals. The implications of these conditions for dividend growth and potential appreciation are apparent."}]}
{"messages": [{"role": "user", "content": "The current cycle’s up-phase may have a gray beard, but nowhere has it been proven that downturns occur a certain number of years into a recovery and expansion. U.S. hotel markets could continue to expand for an extended period."}, {"role": "assistant", "content": "Hotel income and appreciation growth are slowing, but investors’ ability to place capital in hotel real estate for excess returns will persist as long as local supply growth remains in check. Deals involving upscale hotel property around selected airport locations and within growth corridors created by large-scale public and private investment should be carefully screened over the coming year. 2017 As the multifamily sector has progressed in this cycle, a few market dynamics have taken center stage: the supply pipeline, rental affordability and the emergence of what we call the “quiet giants”—suburban multifamily markets. 2017 SUPPLY CHALLENGE Supply will be the most prominent near-term challenge for the U.S. multifamily market. Completions outpaced demand in 2016 for the first time since the recession, and we expect the same in 2017. These two years will likely be the peak of this development cycle, and 2018 should bring noticeably fewer deliveries."}]}
{"messages": [{"role": "user", "content": "Although market conditions remained healthy in 2016, strong supply numbers have affected markets across the U.S., moderating rent growth and reversing the downward movement in vacancy. These trends are expected to continue through 2017, with annual rent growth projected to slow to 1.2% and vacancy expected to rise 80 bps to 5.5%. Multifamily Outlook Units (000s) (%) Completions (L) Net Absorption (L) Vacancy (R) Source: CBRE Research, CBRE Econometric Advisors, Q3 2016."}, {"role": "assistant", "content": "2017 MULTIFAMILY HOW MUCH MORE CAN TENANTS AFFORD?"}]}
{"messages": [{"role": "user", "content": "As the trend in high-end development continues to rise nationwide, renters’ budgets are feeling the squeeze and landlords—especially those in gateway markets—are asking “How much more can our tenants afford?” Half of renter-occupied households in the U.S. are now cost-burdened, according to the National Low Income Housing Coalition. That is, they spend more than 30% of their household income on rent—and the numbers are worsening."}, {"role": "assistant", "content": "For the assets built over that period, fundamentals have slowed considerably, with properties built since 2011 consistently experiencing lower rent growth and occupancy and higher concessions than any cohort of older buildings. 2017 MULTIFAMILY SUBURBAN GROWTH The 2014 American Community Survey of the U.S. Census (the most recently available annual data) shows that 2.8 million people moved from the suburbs to urban cores that year, while 4.6 million people moved from urban cores to suburbs. The trend was consistent across age cohorts, levels of educational attainment and professions."}]}
{"messages": [{"role": "user", "content": "Broad-based migration to the suburbs has helped fuel strong rent and occupancy growth in suburban apartment markets, particularly in recent years. The percentage of markets with annual suburban rent growth exceeding their respective urban rates by more than 100 bps has consistently increased—from 22% in Q2 2012 to 63% in Q3 2016.1 For most of the past two years, the suburbs have significantly outperformed urban cores in more than half of these markets—a pattern that we haven’t seen in the past."}, {"role": "assistant", "content": "With strong development pipelines squarely focused on downtown Class A product, lack of affordability is expected to remain a challenge for the overall apartment market, especially in the more urban areas. As such, the shift toward the suburbs is projected to continue, and suburban apartment markets will likely continue to perform well relative to urban cores."}]}
{"messages": [{"role": "user", "content": "1CBRE Econometric Advisors tracks 51 markets that have both urban and suburban apartment submarkets."}, {"role": "assistant", "content": "2017 WILL CLOUD SERVICE PROVIDER DEMAND CONTINUE? Globally over the past two years, cloud service providers (CSPs) have largely replaced colocation providers2 as the largest consumers of multi-tenant wholesale data-center space in core data-center markets.3 In the U.S., absorption in 2016 is on pace to equal or match the previous year’s record occupancy gains, though a large portion of this activity dates back several quarters to pre-leasing of yet-to-be-completed projects. Leasing volume has showed signs of slowing in the second half of 2016, which sets the sector up for potential oversupply in 2017. There will be a lot riding on the accuracy of hyperscale CSPs4 internal forecasts of customer demand, and how they have provisioned capacity to align with these projections. With most hyperscale providers leasing space while also building their own facilities, there is a short-term risk that they will pivot away from multi-tenant leasing in the near-term if their demand forecasts prove to have been too high. If projections prove to be accurate, subdued leasing volume will likely result in less absorption than the past two years’ historically high levels. With added scrutiny from investors who are new to evaluating and understanding the fundamentals of the asset class and data center REITs, there is a risk that such a slowdown would be perceived as a pullback—potentially affecting access to capital and investment opportunities. 2017 IS THERE RISK OF OVERSUPPLY?"}]}
{"messages": [{"role": "user", "content": "However, several core markets—Silicon Valley, Ashburn/ Northern Virginia and Chicago in particular—are currently extremely supply-constrained, with vacancy rates for existing/ commissioned capacity ranging from 4% to 6%. While demand from enterprise users is unlikely to match the recent size of CSP deployments, the commissioning of new high-quality facilities will likely help facilitate market activity and increase deal flow in many markets that recently have been supply-constrained or underserved by existing inventory. In certain markets, the next 12 months will also see an increase in legacy corporate data centers becoming available at or below replacement costs. While these assets don’t pose any imminent supply-side risk to the multi-tenant market, the appetite for DATA CENTERS them during 2017 could go a long way toward predicting momentum in data center investment trends over the next few years. There is already enormous demand for sale-leaseback opportunities in facilities with in-place tenants and longer lease terms; however, to date, interest in legacy assets in non-strategic locations or with high vacancy has been limited."}, {"role": "assistant", "content": "For the foreseeable future, corporate demand for computing power and information storage will continue to grow at nearly double-digit rates annually. However, a transformative shift is underway that will have a meaningful impact on demand in the sector. 2017 Historically, enterprise computing and storage needs were satisfied in facilities owned and operated by the user. Today, most enterprise users are shutting down their owned facilities and migrating their requirements to cloud and third-party colocation providers, who can handle considerations like security, compliance standards, and physical proximity and access to network and cloud providers with greater cost efficiency. Typical enterprise demand will likely evolve to require smaller, hybrid solutions that incorporate elements of wholesale and retail data center leasing as well as public and private (on-premise) cloud solutions, and will prove to be a strong, steady growth channel for data center operators going forward."}]}
{"messages": [{"role": "user", "content": "Demand is also being re-shaped by a growing need among large enterprises and content and cloud providers to locate some IT infrastructure as near as possible to “the edge” of the network or to end users in order to reduce latency, better manage data traffic and provide the best user experiences. As a consequence, interconnectivity is emerging as a key growth engine, and data center operators developing their network/connectivity and cloud services offerings are poised to capture significant demand."}, {"role": "assistant", "content": "Moreover, with the increased adoption of latency- sensitive, data-intensive technologies—running the gamut from mobility (devices, wireless networks, etc.), the Internet of Things and content delivery/distribution to future technologies like self-driving cars and augmented/virtual reality applications—well-connected real estate near critical population centers is poised to enjoy above-average demand and pricing. 2017 LIFE SCIENCES With its companies developing everything from over-the-counter medications to gene therapy cures, life sciences is among the world’s most impactful industries. And like most industries in today’s ever-changing world, it is undergoing significant changes. Heated competition among these companies for both talent and specialized lab space has become an important determinant of the type, quality and location of commercial real estate that this industry demands. Cost too remains a factor; the industry’s subdued demand for manufacturing and conventional office space persists as life sciences companies seek lower-cost alternatives. 2017 CHANGING SPACE NEEDS AND MARKET CLUSTERING The traditional large-scale pharmaceutical campus is increasingly unrepresentative of the industry’s current state. As firms seek to acquire brands and product innovations via mergers and acquisitions, they are also divesting their capital infrastructure holdings in order to become more efficient and agile. It was typical of larger entities to control product chains from concept to realization, marketing and distribution, but now many components of product development and distribution are being outsourced to companies that specialize in specific parts of the process. This allows life science firms to concentrate on the competencies they know best, while minimizing labor and occupancy costs. This trend toward specialization is observed not only among established firms, but also newer companies exploring the cutting edge of medical science. Development of multi-tenant facilities with specialized lab build-outs has begun in the hottest markets. These buildings are specifically geared toward smaller companies that do not wish to own their real estate, but also do not want to be stand-alone lab-oriented occupiers in a sea of regular office users. Established firms are also seeing a new wave of talent that does not mind sharing lab space and being more collaborative. The sharing of equipment not only lowers the required footprint, but also significantly lowers costs for furniture, fixtures and equipment, which outpace occupancy costs substantially."}]}
{"messages": [{"role": "user", "content": "Despite the estimated national vacancy level increasing slightly, it remains near its historic low level. Estimated effective rents appear to have increased again, albeit it at a slightly slower pace, making for 19 consecutive quarters of increases as illustrated in the chart below."}, {"role": "assistant", "content": "Despite new apartment construction starting to come online in a number of submarkets across the country, demand persists, with underlying fundamentals remaining healthy. Vendors’ Vacancy Estimates Trending Upward With just one exception, data vendor estimates regarding vacancy directional trends showed an increase. The amount of quarterly movement ranged from no change to an increase of 50 basis points during the last quarter of the year. Axiometrics has one of the higher-range estimates, with an anticipated quarter-over-quarter increase of 30 basis points in its estimated national multifamily vacancy rate, climbing to 5.2 percent as of the fourth quarter of 2014 compared to 4.9 percent as of the third quarter, but still down from 5.6 percent a year ago (as of the fourth quarter of 2013). CBRE Econometric Advisors is estimating that vacancy levels also increased, but only by 10 basis points to an estimated vacancy rate of 4.4 percent in the fourth quarter, compared to 4.3 percent in the third quarter. That is still far below CBRE Econometric Advisors’ estimate of 5.0 percent in the fourth quarter of 2013. (formerly Property & Portfolio Research) also estimates that the multifamily vacancy rate increased during the fourth quarter of 2014, but with the largest increase among the vendors at 50 basis points – bringing its estimated vacancy rate to 5.1 percent, compared to a revised 4.6 percent as of the third quarter of 2014. In addition, is one of two data vendors estimating a year-over-year increase from the fourth quarter of 2013. ’s estimated vacancy rate for the fourth quarter of 2013 was 4.7 percent, resulting in a year-over year increase of 40 basis points. In comparison, Reis, Inc. is bucking the trend, estimating that there was no quarterly change in the national multifamily vacancy rate during the fourth quarter, staying at 4.2 percent. In addition, Reis estimates a slight year-over-year increase of just 10 basis points from the estimated level of 4.1 percent in the fourth quarter of 2013. Positive Net Absorption Surged at Year End Reis reports that net absorption – the net change in occupied rental units – was quite healthy again during the fourth quarter of 2014, rising by about 45,027 units, which was the most units absorbed in a quarter since the fourth quarter of 2013. It brings the year’s total to an estimated units absorbed, which is the highest total since 2011. Rental Demand Positive but Slowing None of the data vendors reporting rent estimates seem to agree on the directional trend of rents. Reis estimates an increase of just 0.6 percent during the fourth quarter of 2014, bringing the total for the year to 3.5 percent. is estimating no real change in rents again – the same as in the third quarter – with the 2014 total rent growth estimated at just 2.6 percent. But it is Axiometrics that is showing an actual decrease in rent, with a negative turn of -0.3 percent during the fourth quarter of 2014, but with an annual rent growth of 4.7 percent – the highest by far among the data vendors. Lastly, CBRE Econometric Advisors estimates a fourth quarter 2014 year-over-year rent growth of 2.8 percent. Vacancy Rates Ticking Up in Some Metro Areas Clearly, demand for rental housing of all types was quite healthy in 2014. Despite the increase in new multifamily construction, with about new multifamily units expected to have come online in 2014, fundamentals for rental demand remain stable – for the most part. Unsurprisingly, vacancy rates are starting to inch up in some metros that have had ever-increasing multifamily construction pipelines for the past few years. For example, according to preliminary data from CBRE Econometric Advisors, some of the metros that have started to see an increase in their vacancy rates include Austin, with an increase of 20 basis points during just the fourth quarter of 2014 alone, although its estimated vacancy rate remains a very low 4.3 percent. New York was another example, also with an increase of 20 basis points, bringing its estimated vacancy rate to a higher-than-average 5.4 percent – but that is for the greater New York metro area, not just the five boroughs. 3 While some markets and submarkets are likely to experience a slowdown in rent growth and an increase in vacancy levels during 2015, it is not expected to be long-lasting. For example, Washington, DC saw its estimated rent growth turn positive in 2014, reversing a negative trend experienced in late 2013, despite a plethora of new apartment rentals coming on the market during last year. On a national level, projected employment growth coupled with solid demographic trends and low homeownership rates is expected to keep rental household formations quite healthy over the next 12-18 months. This, in turn, is expected to help the multifamily rental sector remain stable, with annualized rent growth remaining positive, but with a projected slight increase in vacancy levels during 2015."}]}
{"messages": [{"role": "user", "content": "1 Growth Stalls as Underlying Demand Stumbles Consumer and business spending as well as net exports came in below expectations in the first quarter of 2016, causing us to lower our economic growth estimate to 1.2 percent annualized. In recent years, the first quarter appears to have suffered from residual seasonality issues—the display of seasonal patterns in data that have already been seasonally adjusted. We do not view weakness in the first quarter as the start of deteriorating economic activity and expect slightly better growth this quarter."}, {"role": "assistant", "content": "Our view for growth for the rest of the year is little changed, as we expect full-year 2016 growth to register 1.9 percent. Financial conditions, which deteriorated earlier in the year, have largely reversed course, with rebounds in major stock indices and commodity prices, narrowing risk spreads, and a decline in the trade-weighted value of the dollar. Because weakness in manufacturing largely reflects the impacts of the stronger dollar and declining energy prices, these improvements, if sustained, should help turn the factory sector around. However, because of the lagged impact of the dollar on trade, even if the dollar were to continue weakening, net exports should still subtract from growth through the rest of the year. Growth Weakens Despite a Resilient Labor Market Fourth quarter annualized gross domestic product (GDP) grew at a 1.4 percent pace. Thus, over the past two quarters, the economy grew at just above stall speed. Corporate profits dropped for the second consecutive quarter, and fell 11.5 percent from the fourth quarter of 2014. Profits from domestic industries posted the largest quarterly drop since early 2011, which bodes poorly for business spending and the hiring outlook. So far this year, hiring has been solid despite weak economic activity, which underscores the ongoing problem of lackluster productivity growth. During the current expansion, annual productivity growth has averaged less than 1.0 percent, the worst performance for any expansion in the past 60 years. Our material downward revision for first quarter real GDP growth largely stemmed from a sizable downward revision in consumer spending. Income growth was higher than spending growth, pushing the saving rate up to 5.4 percent, the highest reading in a year. Incoming data for March were bearish, as auto sales dropped sharply to the weakest pace in more than a year. These developments led us to downgrade our estimate for real consumer spending for the first quarter to 1.7 percent annualized from 3.0 percent in the March forecast. However, we look for consumer spending growth to pick up somewhat over the rest of the year given healthy labor market conditions and an elevated saving rate. Full-year real spending growth is expected to moderate to 2.2 percent from 2.7 percent in 2015. Payroll employment increased by a solid in March, despite weakness in the manufacturing and mining industries. The most positive aspect of the jobs report came from the household survey, which showed the labor force participation rate reached 63 percent after the fourth consecutive monthly increase. Since last September, the participation rate has risen 0.6 percentage points, the largest six-month increase since the early 1990s, as 2.4 million people on net joined the labor force. Most of the increase in the participation rate has occurred among prime age workers, those between 25 and 54 years old, who saw a 0.7 percentage point gain over the past six months. At the same time, the unemployment rate '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 KR-CRB Spot Commodity Price Index: All Commodities (1967=100) Nominal Trade-Weighted Exch Value of US$ vs Major Currencies (Mar-73=100) Manufacturing Headwinds Should Slowly Dissipate U.S. Dollar Weighted Exchange Value Commodity Price Index (Right Axis) '48 '54 '60 '66 '72 '78 '84 '90 '96 '02 '08 '14 Corporate Profits (SAAR, $, Year-over-Year % Change) Double-Digit Declines in Profits during Expansions Are Rare 2 was just 0.1 percentage points higher. Expansion of the labor force amid solid job growth has helped arrest the decline in the unemployment rate, and, combined with anemic productivity growth, may help explain the failure of wages to accelerate more rapidly. The rise in the participation rate is consistent with Fed Chair Yellen’s view that meaningful slack remains in the labor market. This view suggests the normalization of monetary policy will be gradual. The February factory orders report included a downward revision and argued for a lower estimate for first quarter economic growth. Core capital goods shipments — a proxy for the business equipment spending component in GDP — fell more than previously estimated. The leading indicator for shipments, core capital goods orders, also received a downgrade. Since reaching an expansion high in September 2014, when crude oil prices began their descent and the dollar started to surge, core capital goods orders have fallen by 9.5 percent, sending a gloomy signal regarding the outlook for business capital spending. Recent trends in core orders suggest that business equipment spending likely declined in the first quarter for a second consecutive quarter, which would mark the first back-to-back drops since mid-2013. Results from purchasing manager surveys were more upbeat, however. The Institute for Supply Management manufacturing survey showed activity moved into expansionary territory in March for the first time in six months. The new orders component posted the biggest jump since August 2009. Despite the survey’s improving outlook, we believe that it is premature to declare that manufacturing has turned the corner. In addition to weakening consumer and business capital spending, trade, inventory, and business investment in structures likely weighed sizably on first quarter GDP. Incoming data on inventory investment also underscored the painful correction process from last year’s unsustainable inventory accumulation, but less inventory build in the first quarter also suggests better prospects for growth in the second quarter. While crude oil prices are off their lows, with West Texas Intermediate oil prices hovering near $40 per barrel at the time of this writing, non-residential investment in mining exploration, shafts, and wells will likely remain a drag on growth for some time through lingering pass-through from still low oil prices. The number of active rotary rigs fell 60.8 percent at an annual rate in the first quarter, and more declines are expected in the current quarter, albeit at a more modest pace. Combined, net exports, inventory investment, and non- residential investment in structures should shave more than 1.0 percentage point from real GDP in the first quarter. The Fed Proceeds Slowly The minutes from the March 15-16 Federal Open Market Committee meeting highlighted downside risks to global economic and financial developments as well as lower inflation expectations as reasons for a cautious approach to rate hikes. An April rate hike is off the table as several members were concerned that it would convey an inappropriate “sense of urgency.” Recent speeches by Fed officials, including the Chair and New York Fed President William Dudley, struck a '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 Nondefense Capital Goods Orders ex. 3 dovish tone, noting that the risks to the outlooks for growth and inflation are tilted to the downside. The uptrend in the labor force participation rate and subdued wage pressure suggest Fed leadership feels less urgency for the second fed funds rate hike. While core inflation has picked up recently, the Fed will look for more concrete evidence that such firming will be sustained. The downward pressure on inflation from commodity prices is fading. However, the increase in the rent components of consumer prices, which were the single-biggest contributors to accelerating core inflation in the past year, should moderate going forward as new supply mitigates a shortage of rental housing. We now expect only one rate hike in 2016, most likely in September, compared with an expectation of two hikes in our March forecast. The vote on the U.K. referendum to leave the European Union, which will occur only a week after the June 14-15 Federal Open Market Committee meeting, presents meaningful event risk. Thus, we believe a June rate hike is highly unlikely given the Fed’s emphasis on global stability. Fed funds futures do not price in a 25 basis point hike until the second half of 2017. Housing Affordability Constrains Housing indicators continue to be mixed. On the negative side, existing home sales dropped sharply in February, and new home sales rebounded only modestly following a steep decline in January. Over the past year, new home sales have moved sideways after gradually trending up in the prior years. Home builders’ sentiment, which has declined from a recent peak last October, held steady in March at the lowest reading since May 2015. The forward-looking component, sales expectations over the next six months, fell sharply in March to the lowest reading in a year. On the positive side, housing starts rose in February for the first time in three months, driven by strength in the single- family segment, which has been trending up over the past year. Meanwhile, multifamily starts have been moving lower since reaching an expansion high in June 2015. Overall, the trend in the multifamily segment remains positive, especially in some of the energy-dependent metropolitan areas, which have seen elevated levels of new supply complete and come online just as some of these local economies are getting hit by lingering low oil prices. Some of the softness in home sales likely reflects the lack of supply of homes for sale, especially in the lower-priced segment. The inventory of completed new homes remains extremely low by historical standards, which may have restrained buyer traffic. While single-family housing completions have gradually trended up since reaching their lows in 2010, the increase has been concentrated in large, less affordable homes. For existing homes, inventory at the lower end is also quite lean. Listings are not keeping pace with demand, which has boosted lower-tier home prices by more than for higher-end homes, according to data from CoreLogic and Case-Shiller. '11 '12 '13 '14 '15 '16 SA, Thousands Home Builders Index SA, All Good = 100 Builders’ Outlook for Home Sales Continues to Dip as Sales Trend Sideways Single-Family Sales: Next Six Months New Single-Family Home Sales (Right Axis) Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Housing Starts (SAAR, Thousands of Units) Single-family Starts Gradually Trend Up Single-Family Mulitfamily (Right Axis) '73 '76 '79 '82 '85 '88 '91 '94 '97 '00 '03 '06 '09 '12 '15 Single-Family Housing Completions by Square Feet of Floor Area (Thous.) New Home Construction Is Skewed towards Larger Homes Under 1,600 ft. ft. ft. ft. 3,000 ft. or More 4 Despite historically low mortgage rates, strong home price appreciation is eroding home purchase affordability for potential first-time homebuyers, whose income gains lag behind home price appreciation. A great deal of pent-up housing demand exists among young adults, many of whom still live with their parents. These young adults will likely rent rather than buy when they can afford to establish their own households. We noted earlier that rent increases are poised to moderate going forward, taking some pressure out of core inflation. This is especially true for rents in Class A properties, which have a substantial supply pipeline. However, supply is tighter for more affordable Class B and Class C properties, which will likely command higher rent increases than Class A properties, especially for new tenants. Elevated rental cost burdens will hurt purchase affordability by inhibiting renters’ abilities to save for down payments. Labor market news has been positive for potential first-time homebuyers. Employment among those aged 25 to 34 years old has increased at a healthy pace, and their employment as a share of total labor force has risen to the highest reading since 2002, though part of the increase is attributable to the large number of young adults as a share of the population. A sustained increase in income among young adults, more construction of starter homes, and continued introduction of new loan products geared towards those with low down payments would go a long way toward bringing more potential homebuyers into the housing market. More first-time homebuyers should lead to more trade-up buyers, spurring organic housing demand amid declining investor and international demand. Our forecasts for mortgage rates, housing activity, and mortgage originations are little changed. We expect total mortgage originations to decline about 9.0 percent in 2016 to $1.56 trillion, with a refinance share of 40 percent. We expect total originations to decline further in 2017, as a drop in refinance originations should outpace an increase in purchase originations. We project total production volume to be $1.43 trillion in 2017 with the refinance share dropping to 31 percent. April 8, 2016 Economic & Strategic Research (ESR) Group For a snapshot of macroeconomic and housing data between the monthly forecasts, please read ESR’s Economic and Housing Weekly Notes. Although the ESR group bases its opinions, analyses, estimates, forecasts and other views on information it considers reliable, it does not guarantee that the information provided in these materials is accurate, current or suitable for any particular purpose. Changes in the assumptions or the information underlying these views could produce materially different results. ESR Macroeconomic Forecast Team Doug Duncan, SVP and Chief Economist Mark Palim, VP Orawin T. Velz, Director Frank Shaw, Analyst Hamilton Fout, Director '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 Inventory of Homes by Price Tier (Year-over-Year Change, %) Housing Inventory Is Tight, Especially for Lower- Tier Homes Tier 1 Tier 2 Tier 3 Tier 4 Note: Tier 1: 0-75% of median, Tier 2: 75%-100% of median, Tier 3: of median, Tier 4: 125% + of median '00 '02 '04 '06 '08 '10 '12 '14 '16 Percent Employed Between 25 to 34 Years Old as Share of Total Labor Force Employment for Key First-time Homebuyers Group Has Recovered Well"}]}
{"messages": [{"role": "user", "content": "In mid-2014, a dramatic fall in oil prices brought a shock to global economic markets. Conditions stabilized with a modest price recovery through the first half of 2015, but by year’s end we saw a repeat of 2014. The cause of the most recent decline was generally the same as the cause of the initial slump. An increase in North American oil production coupled with continued high levels of output from the traditional oil-producing nations was met by a slowdown in demand from China and a lackluster world economy, producing a global oil supply glut."}, {"role": "assistant", "content": "This time around, however, oil prices are not expected to rise dramatically anytime soon. The general consensus is that oil prices will recover modestly in 2016 – from a current price of about $40 per barrel – and perhaps rise to $50 per barrel over the next 12 to 24 months. Prices below $60 levels present more of a problem for North American producers than foreign producers, because the cost of extracting oil in North America is generally higher than in traditional oil-producing nations. While lower oil prices may make many commuters happy, they do raise concerns for some parts of the economy – including U.S. multifamily investors. Declining investment in oil exploration and a contraction in the number of oil-producing rigs have brought job losses, and they present a high likelihood of more losses to come."}]}
{"messages": [{"role": "user", "content": "Nationally, job market growth slowed slightly from 2.1 percent in 2014 to 2.0 percent in in 2015, according to Moody’s Analytics. Houston, the metro with the largest energy-centric economy in the country, saw a more pronounced slowdown, though it did not experience net job losses. As the chart below shows, its total job growth declined to 0.9 percent in 2015 from 3.7 percent in 2014. Moody's Annual Job Growth (Historical and Forecast) - Select Energy Metros Among the larger energy metros, only Tulsa experienced a net job loss in 2015 – a slight 0.1 percent decrease. Smaller energy metros, however, felt a greater impact. As the table on the next page shows, Lafayette, LA, lost the highest number of jobs among metros with a concentration of mining jobs. But many metros with mining job concentrations – including Houston, Dallas, and Oklahoma City – actually managed to post positive job growth results despite the impact of falling oil prices late in the year. Of the many cities whose job markets did weaken in 2015, only a small number have larger-than- average apartment markets. Nationally, about 18 percent of housing units are in buildings with five or more units. The table on the next page shows that only eight of the 50 metros with mining job concentrations have an above-average concentration of multifamily housing units. 3 National Outlook – Pain in Energy Metros, Steady National Economy Moody’s expects national job market growth to slow moderately in 2016 – to 1.7 percent, down from 2.0 percent for 2015. Even so, as they did last year, low oil prices should provide a net benefit to the national economy. They provide consumers with more disposable income every time they go to the gas pump. And in the business sector, low oil prices reduce operating costs and create a more profitable industrial production process. Moody’s expects oil prices to rise modestly during 2016. However, it says that if prices stayed at the $35-a-barrel level, the national economy would actually produce more jobs this year than if prices rose modestly. Using the general ratio of five new jobs producing demand for one additional apartment rental unit, lingering $35 per barrel oil prices could possibly increase the demand for new apartments nationally by as many as 56,000. Despite Diversification, Impact on Energy-Dependent Regions Still Negative Nevertheless, persistently low oil prices would certainly have a negative impact on several energy-dependent economies around the country. But it is important to recognize that today’s energy markets are not the same places they were during the oil bust of the 1980s. Since then, the national economy has diversified in many important ways, and so have these metros. As the table above shows, all of the states except North Dakota have seen a significant decrease in the portion of their jobs that are in the mining sector – which includes oil exploration and extraction, and the mining of coal and other natural resource, but not office support services and equipment manufacturing. Taking a closer look at Houston – the nation’s energy capital – shows that it too has seen a significant decrease over the past three decades in the importance of oil to its overall economy. For example, in 1982, mining and manufacturing jobs (including non-oil and energy-related jobs in those sectors) accounted for a combined 20 percent of Houston’s job market. At the end of 2013, that portion was just 12.5 percent. More importantly, Houston can expect continued diversification over the next decade. And Houston is not alone. Dallas has seen an even more pronounced change in its local economy. In 1982, mining and manufacturing jobs accounted for 21 percent of the jobs in the Dallas metro. By 2013, they had declined by more than half, accounting for just 9.1 percent. Overall, Texas has managed to slog through the fall in oil prices better than would have been expected. In 2015, total job growth in the state was 1.5 percent, only slightly below the 2.0 percent national rate. Texas still has very solid demographics supporting its housing markets. Its population grew 1.8 percent in 2015 – well above the 1.0 percent national average. According to Moody’s, home prices are rising in all of the state’s major metro areas. In Louisiana, by contrast, low oil and natural gas prices have weakened economic conditions. In 2015, while regional construction kept Baton Rouge steady, job markets were weak in Shreveport and Lafayette, though not as weak as in 2014."}, {"role": "assistant", "content": "4 Lafayette’s economy swung from a 2.5 percent contraction in 2014 to a net gain of 1.0 percent in 2015. Shreveport saw more significant trouble in 2013 when natural gas prices declined precipitously and its economy contracted by 5.8 percent. The area managed to find its way back to positive territory in 2015 when it experienced 2.0 percent economic growth. The economies of both metros – as well as the state’s – is expected to continue to lag in 2016. Houston – Softening, Not Collapsing Houston is among the metros that will likely be seeing new multifamily housing supply increase significantly in 2016, just as its economy slows noticeably from recent trends. Planning for these new developments occurred when Houston was growing at twice the national average, and before declining oil prices took their toll. As a result, Houston should expect to see softening of its apartment market. This year, it is expected that Houston will have no appreciable rent growth and its vacancy rate could potentially increase by 200 basis points. Houston was already poised for a slowdown this year – even before falling oil prices muted prospects for the metro’s job market. Now, a surge in new rental supply will be coming online at a time when there is weaker-than-expected market demand. Once these conditions subside, Houston’s multifamily market is expected to start growing again – but that should occur further out in the forecast, as noted the chart above. Oklahoma – Slowing but Not Breaking Oklahoma’s two largest metropolitan areas – Tulsa and Oklahoma City – both benefitted from the oil boom, but Tulsa felt more pain from 2015’s drop in oil prices than Oklahoma City. Job growth plummeted to essentially zero last year in Tulsa from a quite healthy 2.3 percent increase in 2014. In Oklahoma City, by comparison, the slowdown was modest, with job growth falling slightly to 1.6 percent from 1.8 percent in 2014. The apartment markets in both metros are expected to remain fairly stable – with a slight increase in vacancies and positive, though slightly slower rent growth, as noted in the charts below. While the two metros face more modest growth in oil and mining jobs going forward, both are expected to see their education, health and professional and business services jobs grow at above national average rates over the next five years, supporting apartment demand."}]}
{"messages": [{"role": "user", "content": "2 As it turned out, we were wrong in our economic growth projection. Instead of strengthening, real gross domestic product (GDP) growth is poised to come in about 0.5 percentage points weaker than the 2.5 percent rate in 2014. Despite lackluster output, job creation was strong. The diverging GDP and job numbers imply continued feeble productivity growth. For the housing market, employment and income trends have more weight than GDP. By the end of 2015, the unemployment rate declined five percentage points from its cyclical peak. Reduced labor market slack helped push wages and personal income higher. Combined with low inflation, real average hourly earnings and real personal income picked up in 2015 from 2014, though the trend weakened toward the end of the year. Stronger income growth over the past year helped boost household formation and housing demand. When all of the 2015 housing data come in later this month, we expect to see the best housing market since 2007, as we had projected at the start of the year. Second Half Growth Disappoints The final estimate of third quarter economic growth came in at 2.0 percent annualized following a robust 3.9 percent rate in the prior quarter. The unwinding of an unsustainable pace of inventory investment during the first half of the year was the biggest drag on GDP. However, real inventory investment remained elevated in the third quarter, and recent data suggest that the painful but necessary inventory correction continued late last year, thereby also suppressing GDP growth in the final quarter of 2015. The strong dollar and soft overseas growth also weighed on net exports. However, domestic consumer and business demand, as measured by real final sales to private domestic purchasers, grew a solid 3.2 percent annualized in the third quarter. Incoming data point to anemic headline and underlying economic growth for the fourth quarter, with consumer spending the biggest source of disappointment. So far, consumers have saved rather than spent the windfall from the decline in gasoline prices. Oil prices tumbled further in early January, with West Texas Intermediate oil declining to around $31 per barrel at the time of this writing. While this presents good news for consumers, it presages more pain for the energy sector. Real consumer spending rebounded 0.3 percent in November following a flat reading in October. Spending likely ended 2015 on a weaker note, as chain store sales data for the holiday shopping season fell short of retailers’ expectations, and auto sales declined 4.7 percent in December, the biggest drop in 2015 following three consecutive strong monthly gains. Despite the decline in December, auto sales posted a record high average pace of 17.4 million in 2015, thanks to easy access to credit and low gasoline prices. We estimate that real consumer spending came in at 2.2 percent annualized in the fourth quarter, at odds with declining gasoline prices and strong labor market conditions during the quarter. On the plus side, the buildup in savings late last year should help support spending in the near term. The December jobs report provided a much-needed strong finish for 2015. With nonfarm payrolls rising in December and positive revisions to prior months, the three-month average monthly gain of marks the strongest pace of job growth since January 2015. Notably, construction payrolls rose 45,000 following a 48,000 gain in November. The 1.4 percent jump in construction employment between October and December was the second biggest two-month gain in the past decade. The payback may come this month as the weather has returned to more normal winter patterns. The one weak link in the December jobs report was the absence of a monthly increase in average hourly earnings (not adjusted for inflation); however, the year-over-year gain of 2.5 percent was at the upper end of the range witnessed during '90 '95 '00 '05 '10 '15 Total Light Vehicle Retail Sales (Annual Average, SAAR, Mil. Units) 2015 Marks Best Year Ever for Auto Sales '12 '13 '14 '15 Change in Total Nonfarm Employment (SA, Thousands, 3-Month MA ) 3-Month Average Job Gains End the Year with the Best Showing Since January 3 the recovery, and, as noted previously, real earnings growth was relatively strong during 2015. The December unemployment rate was unchanged at 5.0 percent, but the lack of improvement was for the right reason as the labor force participation rate ticked up to 62.6 percent. However, the participation rate is little changed from a year ago and remains well below the rate of 65.7 percent registered at the start of the expansion. The employment-to-population ratio edged up to 59.5 percent in December, an expansion high but still well below the rate prior to the recession. The upbeat December jobs report should allay worries generated by other incoming data, which have been weak and have sparked concerns that the troubles in China and other emerging markets could derail the U.S. economic expansion. Both the Dow Jones Industrial Average and the S&P 500 plunged more than 6 percent during the first week of 2016, each marking the worst first five-day start of any year. Manufacturing data continued to show malaise for the sector. Factory orders fell in November for the third time in four months. Core capital goods orders—non-defense capital goods excluding aircraft—also fell during the month following a slight gain in October, suggesting business capital investment growth will weaken in the current quarter. A near-term turnaround in manufacturing appears unlikely. The Institute for Supply Management (ISM) indicated that the manufacturing sector contracted in December for the second consecutive month. The last time this occurred was when the economy was emerging from the recession in 2009. The ISM survey for the service sector showed that activity continued to expand outside of manufacturing, albeit at a slower pace. The strong dollar and weak global growth reduced exports of goods and services in November by more than 7 percent compared with a year ago, the worst performance since 2009. Imports also fell over the past year but at a more moderate rate of about 5 percent. We expect net exports to remain a drag on growth in 2016, but that the impact will be smaller than in 2015. Housing Roundup Home building activity picked up in November, as both single-family and multifamily starts surged. However, construction spending only posted a modest rise during the month, with single-family construction outlays edging up and multifamily construction spending declining. Meanwhile, existing home sales posted a double-digit drop in November, falling to the lowest level since April 2014. The new TILA-RESPA Integrated Disclosure (TRID) rule, which requires lenders to give buyers more time to review loan documents, may have delayed closings that otherwise would have occurred in November. If this is the case, we should see a sizable rebound in December. New home sales increased in November but on the heels of substantial downward revisions, putting the three-month moving average well below the recent peak of earlier this year. The poor performance of November residential construction spending, combined with weak broker commissions implied by home sales, suggests much lower residential investment growth than we had expected in the prior forecast. Leading indicators of home sales were mixed: The pending home sales index fell in November for the third time over the last four months, while purchase mortgage applications rebounded in November and rose further in December. At its December meeting, the Federal Open Market Committee (FOMC) raised the fed funds target rate 25 basis points, the first rate hike since 2006. So far, this first move has had a minimal impact on mortgage rates. In our view, the FOMC’s dovish statement and minutes confirmed our expectations of a gradual pace of monetary policy normalization. We expect three fed funds rate hikes in 2016, one more than the fed funds futures market implies, but one less than the number indicated by the median projection of the FOMC members. Given the strong December jobs report but muted inflationary pressures and a strong dollar, the next rate hike will likely occur in March 2016. Based on current Fed guidance, we expect the reinvestment of the Fed’s securities portfolio to continue for at least another year. Because of the expected slow pace of U.S. monetary policy normalization and continued easing by major central banks around the globe, we project that the 30-year fixed mortgage rate will rise from 3.90 percent in the fourth quarter of 2015 to just 4.15 percent in the final quarter of 2016. While our base forecast points to a gradual rise in mortgage rates, a rate spike remains one of the downside risks for the housing market this year. Home price appreciation remains strong. For example, the Case-Shiller national house price index rose 5.2 percent in October from a year ago, the biggest gain since July 2014. The CoreLogic national index advanced 6.3 percent in November from last year, also the biggest rise since July 2014. In addition to the overall indices, CoreLogic provides trends of four individual home-price tiers calculated relative to the median national home price. The low-price tier has appreciated most rapidly in recent months, increasing 8.2 percent year over year in November. Of the four segments, this low-price tier is the only one with prices surpassing their pre-bubble peak. Given that most potential first-time homebuyers will focus more on this segment of the market, where price gains continue to be robust and inventory is extremely lean,"}, {"role": "assistant", "content": "4 they will likely encounter more difficulty in finding a home they can afford even if mortgage rates edge up only gradually this year as we expect."}]}
{"messages": [{"role": "user", "content": "However, we do expect a slowdown in net absorption levels to lead to an uptick in vacancies, and rent growth could ease slightly."}, {"role": "assistant", "content": "We expect continued demand for multifamily rental units in 2016 based on a number of key fundamentals including positive job growth, solid demographic trends, and continued renter household formations."}]}
{"messages": [{"role": "user", "content": "The ongoing demand for multifamily rental units remained healthy throughout 2015, despite an estimated new units coming online, according to Dodge Data & Analytics. Rent growth was not only positive but likely ended the year at about 3.0 percent, well above the pace of inflation, which was at just 0.5 percent at the end of November 2015. Indeed, net absorption likely remained steady at an estimated units, which is down from 2014’s estimated units absorbed, according to Reis, Inc."}, {"role": "assistant", "content": "We expect net absorption in 2016 to remain positive, although at a lower level than last year, possibly falling to fewer than units absorbed based on 2015 trends. Vacancy Levels Expected to Rise National multifamily vacancies should rise as the supply from an influx of new completions outpaces demand, especially over the next few years. For example, as illustrated in the above chart, real estate research firm shows the national vacancy rate beginning to increase this year and the upward trend continuing until 2020."}]}
{"messages": [{"role": "user", "content": "According to the Dodge Data & Analytics Pipeline, which distinguishes between apartment and condo units, there were around apartment unit completions in 2015, with another units underway, of which about are expected to come online in 2016. At a national level, the addition of that amount of new multifamily units to the existing stock is not unreasonable. Moody’s Analytics expects to see job growth of 1.9 percent in 2016, or the addition of 2.6 million new jobs. That amount of job growth could suggest multifamily rental demand closer to units, but we believe that amount of absorption is not likely to happen because most of the new supply is located in only about 12 metros, and most of that is further concentrated in certain submarkets. This year’s job growth and accompanying demand is not expected to be concentrated in just those 12 metros, which is why we expect supply to outpace demand."}, {"role": "assistant", "content": "Rent Growth Expected to Ease Slightly Rent growth has been exceptionally strong since 2011 and has remained in the 3.0 percent range over the past two years, only starting to slow down slightly in 2014. Rent growth is expected to be positive once again in 2016, but it is expected to ease slightly into the 2.5 to 3.0 percent range, down slightly from 2015."}]}
{"messages": [{"role": "user", "content": "As seen in the chart below, multifamily concessions for all property classes remain at very low levels, which suggests that supply and demand have been out of balance for a while now. With the advent of new supply, concession rates should return to more normalized levels and to even higher levels in those metros with concentrated supply."}, {"role": "assistant", "content": "3 Source: Axiometrics Job Growth Forecasts Mixed Depending Upon Metro Although all of the nation’s major metros are expected to see positive job growth this year, not all of them are expected to experience the same level of employment growth, as illustrated in the two charts below. Although Moody’s Analytics’ baseline 2016 forecast is for a national employment growth rate of 1.9 percent, a number of metros are not expected to come close to the national estimate, including Baltimore, Houston, Boston, and even New York and Washington, DC."}]}
{"messages": [{"role": "user", "content": "of 4 Prolonged Uncertainty Weighs on the Outlook We upgraded our expectations for second quarter 2016 economic growth by three-tenths to 2.4 percent, mainly reflecting the surprisingly strong pickup in consumer spending through May. Our forecast for second-half economic growth of about 2.0 percent is the same as in the prior forecast. The full-year real gross domestic product (GDP) growth forecast is revised one-tenth higher to 1.8 percent, reflecting the slight upgrade in first quarter growth in the government’s third estimate and our improving view for the second quarter."}, {"role": "assistant", "content": "Heightened uncertainty and financial volatility associated with Brexit, as well as the uncertainty ahead of the U.S. presidential election, point to elevated downside risks to our forecast and will likely reinforce the Fed’s cautious stance. Brexit’s Direct Economic Impact on the U.S. Is Likely Limited Financial markets were surprised and reacted swiftly to the U.K.’s decision to leave the European Union (EU). Global stock indices plummeted, risk spreads widened, market volatility indices surged, and the dollar appreciated sharply against the British pound and, to a lesser extent, against the euro. Strong safe-haven flows into Treasuries led to a decline in long-term yields. This has been reinforced by the decline in short-term rates resulting from the expected slower path of Fed hikes and by investors’ search for yield amid low and negative rates in Europe and Japan. The 10-year Treasury yield fell to a record low intra-day of 1.32 percent on June 6 and closed at 1.37 percent. The 10-year yield was little changed after the surprisingly strong June jobs report on July 8, but moved up to slightly more than 1.5 percent at the time of this writing. Increasingly flat yield curves are another reflection of investors’ concerns. The spread between the 10-year and the 2-year Treasury yields is at its narrowest since 2007. Investment-grade U.S. corporate bond yields and mortgage rates have declined as well. Some of the adverse conditions have since unwound, but some, including the depreciation of the British pound and downward pressure on long-term Treasury yields, have persisted. Because the U.K.’s actual exit from the EU will occur in 2019, the two-year window for negotiations will result in heightened uncertainty in the financial markets regarding the economic impact of the exit. In terms of Brexit’s economic impact, a moderate recession in the U.K. is likely as the resulting uncertainty affects businesses’ hiring and investment decisions. This is especially important for large multinational companies and financial institutions that use London as a base of operations to serve the EU market. Some of these organizations are now likely to relocate their activities to cities on the Continent. Economic growth in the Eurozone, which is about 30 percent of the world economy, will likely slow as well. Countries around the globe are also adjusting the amount of credit exposure they will have in the U.K. Moody’s estimates that the U.S. banking system's total exposure to the U.K. is $920 billion, which dwarfs its exposure to other major European countries, including France and Germany."}]}
{"messages": [{"role": "user", "content": "From a direct trade perspective, the economic impact of the U.K.’s exit on the U.S. should be limited because the U.K. accounts for less than 5.0 percent of U.S. exports. However, the Eurozone accounts for 15 percent of U.S. exports, making it the third biggest market behind Canada and Mexico. Slower global growth, combined with a stronger dollar, suggests worsening net exports; however, exports account for only about 12 percent of U.S. GDP. Barring concerns that will lead to a significant tightening of financial conditions, the negative impact of Brexit on the U.S. economy will likely be small."}, {"role": "assistant", "content": "of 4 One of the downside risks of Brexit is the potential instability in the Chinese Yuan. The currency depreciated 1.5 percent during the last week of June and the first week of July to the lowest level since November 2010. So far, China’s financial markets have responded reasonably well compared to the stock market turmoil of last August, but there is evidence that capital flight has accelerated. The biggest risk of Brexit may be that other countries might be emboldened to leave the EU as well. It is also possible that Scotland will push for a referendum in 2019 before the U.K. formally leaves the EU and vote to leave the U.K. Other risks include tensions in the Italian and German financial sectors, which have come under more pressure since Brexit. Estimates of loan delinquencies in the Italian banking sector run to 17 percent. At least one German bank is at risk. EU troubled bank treatment rules will get a test."}]}
{"messages": [{"role": "user", "content": "Fed Keeps Target Rate Low for Longer Prior to the U.K. referendum, concerns regarding the marked slowdown in job growth and the outcome of the Brexit vote contributed to the Fed’s decision to remain on hold in June. Post-referendum, global headwinds from increased financial- market volatility and heightened uncertainty have reinforced the case for a cautious approach in the removal of monetary policy accommodation, which has been reflected by more dovish recent Fed communication. Prior to the Brexit vote, our expectation had been that the Fed would raise interest rates once this year, with the timing likely in September. However, in the aftermath of the vote, the risks are skewed toward an even slower rate hiking cycle."}, {"role": "assistant", "content": "We now believe that the next rate hike will likely be in June 2017. The fed funds futures market is not fully pricing in an increase until the end of 2018. Major central banks, including the European Central Bank and those in Japan, the U.K., New Zealand, Australia, China, and India, are in easing mode. Many other central banks abroad will likely engage in additional quantitative easing and monetary stimulus. About 13 trillion U.S. dollars equivalent of global debts now have negative rates, and this total will likely grow substantially during the second half of the year. Near-term monetary tightening in the U.S. would lead to increased divergence between the Fed and central banks in other advanced economies, which would strengthen the dollar again after its downtrend earlier in the year. This Fed is unlikely to want to increase the force of that headwind."}]}
{"messages": [{"role": "user", "content": "The headline and core personal consumption expenditures (PCE) deflators, the Fed’s favored measures of inflation, showed muted price pressures in May, supporting the Fed’s gradual approach amid increased downside risks. The core PCE, which excludes food and energy, was up 1.6 percent on a year-ago basis, the same as the prior month’s gain."}, {"role": "assistant", "content": "Spending may have cooled in June, however, as auto sales dropped 4.5 percent, putting second quarter sales below the first quarter’s pace. Even with the drop in auto sales, real consumer spending growth likely accelerated to 4.2 percent '09 '10 '11 '12 '13 '14 '15 '16 Personal Consumption Expenditures (SAAR, Chn.2009$, M-o-M % Change) Solid Gains in Consumer Spending Help Lift Q2 2016 Economic Growth ¥6.00 ¥6.10 ¥6.20 ¥6.30 ¥6.40 ¥6.50 ¥6.60 ¥6.70 ¥6.80 ¥6.90 '10 '11 '12 '13 '14 '15 '16 Price of 1 $USD in Yuan (Inverse Scale) The Chinese Yuan Depreciates to a Six-Year Low against the U.S. Dollar"}]}
{"messages": [{"role": "user", "content": "of 4 from the lackluster 1.5 percent annualized in the first quarter. This would be only the fourth time during this expansion that real spending growth has exceeded 4.0 percent."}, {"role": "assistant", "content": "We expect real consumer spending growth to moderate to about 2.3 percent in the second half of the year, with labor market conditions key to the forecast."}]}
{"messages": [{"role": "user", "content": "Strong Rebound in Payrolls Isn’t a Game Changer The sharp rebound in nonfarm payroll employment, which rose in June, helped to allay recession worries but has not changed the outlook. The large gain came on the heels of a downward revision to May payrolls to a gain of just 11,000. While the hiring trend picked up in June, with the three-month moving average rising to from in May, it has slowed substantially from at the start of the year. The household survey showed the unemployment rate rose two- tenths to 4.9 percent, as a large increase in the labor force outpaced a small increase in household employment. For the second quarter, it appears that consumer and government spending contributed to GDP while net exports was neutral. Business investment, inventory investment, and housing should be a drag, with the latter likely to be a payback from a very strong performance in the first quarter. The last time residential investment subtracted from GDP was in the first quarter of 2014. For all of 2016, consumer spending is expected to drive growth, with some support from government spending and residential investment. Nonresidential investment, inventory investment, and net exports will drag on growth. Housing Roundup Brexit should be a positive for the housing and mortgage market in the near term because it has helped bring down U.S. long-term interest rates. Home sales through May point to continued modest housing expansion. New home sales pulled back 6.0 percent from April, but the drop was a payback from a double-digit surge in the prior month, with the end result being that May sales remained elevated at the second-best level of the expansion. Existing home sales rose 1.8 percent from April to the highest level in more than nine years. The number of homes for sale fell 5.7 percent from a year ago, marking the largest year-over-year drop since last October. of 4 Year-to-date new and existing home sales through May were 7.1 percent and 5.6 percent, respectively, higher than sales over the same period in 2015. Leading indicators for existing home sales presented a mixed picture of sales in the summer. Pending home sales fell 3.7 percent in May from a decade high reached in April and posted a year-over-year drop for the first time in almost two years. On the other hand, after a drop in May, average purchase mortgage applications for June rose to the highest monthly reading since April 2010, boosted by the surge during the first week of the month. Purchase applications dropped in the last three weeks of June but rebounded during the first week of July."}, {"role": "assistant", "content": "One downside risk for housing is single-family homebuilding, which appears to have lost momentum in the second quarter. Spending on new single-family construction fell in May for the third consecutive month, and single-family permits declined for the second time over the last three months. By contrast, multifamily permits rose in May for a second consecutive month. Without relief from new construction, single-family housing inventory will likely remain tight, boosting home prices and constraining affordability."}]}
{"messages": [{"role": "user", "content": "Census Bureau Starts Up but Expected to Slow The Census Bureau’s estimated multifamily starts – which include condominiums – were up 10 percent year-over-year as of May 2016, compared to 1.3 percent in April. Starts in May were at an annualized rate of units. Moody's forecasts that multifamily starts (2+ units) will increase in 2017 to about units and dip slightly in 2018 to about units. The overall level of multifamily construction starts continues to be well above the historical average annual rate of units, but it remains well below the record 1 million multifamily starts in 1973 and more than starts in 1985."}, {"role": "assistant", "content": "Austin is also concerning. The vast majority of its new stock is for Millennial high-tech workers who want to live downtown. But some of the new jobs the local economy generates in the next few years may not be in the high-tech sector and may not pay enough to support Austin’s escalating asking rent levels. As a result, its apartment market is expected to see some volatility, and a decline in occupancy levels and rents – especially if there is a slowdown or disruption in the high-tech sector. Estimated Multifamily Units Completed and Underway – Select Metros Thousands Apartments Condos - Thousands Beyond National Condo and Apartment Completions and Units Underway Source: Dodge Data & Analytics, June 2016 * Anticipated completions Source: Dodge Data & Analytics, June 2016"}]}
{"messages": [{"role": "user", "content": "of 5 Outlook Remains Firm, But With Rising Downside Risks We previously forecasted that economic growth would slow moderately in the first quarter before picking up during the rest of the year, resulting in full-year 2018 growth of 2.8 percent. However, we now estimate that first quarter growth slowed to 1.7 percent annualized compared to our previous forecast of 2.1 percent. At the same time, the government revised higher its final estimate of fourth quarter real gross domestic product (GDP) growth four-tenths to 2.9 percent. Despite the marked deceleration in first quarter economic growth, we still expect activity to pick up substantially during the rest of the year, and thus have lowered our projected GDP growth for all of 2018 by just one tick to 2.7 percent. Fundamentals support our strong outlook. Income growth remains healthy, consumers and businesses are optimistic, and fiscal stimulus from the tax cut and new federal budget should help boost demand through the rest of the year. While our 2018 growth forecast is little changed, downside risks are rising. The Administration has pledged to cut the U.S. trade deficit, which widened sharply in recent months to the worst showing since October 2008 in February and likely dragged on first quarter economic growth for the second consecutive quarter. Earlier this month, the Administration announced a 25 percent tariff on $46 billion of Chinese imports, on top of the steel and aluminum tariffs imposed in March. After China announced retaliatory tariffs of equal size, the Administration raised the possibility of levying tariffs on another $100 billion of Chinese imports. It is uncertain how much of the proposed tariffs are simply a negotiating tool and how much will actually go into effect. Negotiations might result in an agreement that preempts tariff imposition by either country; however, even Treasury Secretary Mnuchin conceded that there is the “potential of a trade war.” The increasingly heated rhetoric on trade has already led to volatile movements in stock prices over the past month. If the threats and counter-threats on trade continue, they could also lead to a significant loss in consumer and business confidence. If the United States actually deploys trade restrictions and China responds with aggressive retaliations (e.g., reciprocal tariffs, a reduction in Treasury bond holdings, restrictions on services trade and market access for U.S. companies), the trade war could reverse much of the positive impacts of the fiscal stimulus or could trigger an even worse outcome—recession. The marked growth slowdown during the first quarter was not alarming per se. Since the end of the recession, economic growth has usually slowed between the fourth and first quarters because of lingering seasonality issues, before strengthening during the remainder of the year. Between 2010 and 2017, the average increase in real GDP in the first quarter was 1.2 percent annualized, at least one percentage point below the average growth during the other three quarters of the year. We expect this pattern to continue this year. Consumer Spending Is Poised to Rebound We had expected first quarter real consumer spending growth to slow from an unsustainable pace in the fourth quarter, which was partly boosted by replacement demand for vehicles damaged by the hurricanes. However, actual spending was even worse than expected. Real consumer spending was flat in February, and January’s data were revised lower by one-tenth to show a 0.2 percent decline. Meanwhile, real personal income rose 0.2 percent in February, and the nominal disposable personal income gain outpaced the nominal consumer spending increase for the second consecutive month, pushing the saving rate up two-tenths to 3.4 percent—a six-month -$70 -$65 -$60 -$55 -$50 -$45 -$40 -$35 -$30 -$25 -$20 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 Trade Balance: Goods and Services (BOP Basis, SA, Bil.$) The Trade Deficit Widens Substantially Over the Past Year '11 '12 '13 '14 '15 '16 '17 '18 Dow Jones Industrial Average Close Price (Thous.) Dow Jones Industrial Average Index Shows Heightened Volatility Q1 Q2 Q3 Q4 Real Annualized GDP Growth (Quarterly Average, Economic Growth Tends to Decelerate During the First Quarter We expect consumer spending to improve in March and in coming months. By March, tax refunds had caught up to historical norms and most households had realized lower withholdings due to the Tax Act. Consumers also appeared to loosen their purse strings in March, as auto sales rose 2.4 percent, marking the first rise in three months from February’s six-month low. Sales of light trucks, which include sport utility vehicles, were solely responsible for the gain, as they rose to a 12-year high amid a sixth consecutive monthly drop in car sales to an eight-year low. Even with a rebound in spending in March, we expect real consumer spending growth to moderate to just 1.1 percent annualized in the first quarter from 4.0 percent in the fourth quarter before strengthening to nearly 3.0 percent in the second quarter. Labor Market Is Not Immune to Volatility The March jobs report stepped back from many of the strengths of the prior month, showing that labor market conditions were not immune to the volatility seen lately in other sectors. Nonfarm payrolls increased the worst showing since last September, following an upwardly revised gain of in February, the biggest monthly rise since October 2015. However, job gains were revised sharply lower for January, resulting in a downward revision for the prior two months of 50,000, on net. Despite the net downgrade, the monthly gain during the first quarter averaged well above the average monthly gain of in 2017. Weather may have played a role in the February-March hiring swing, as evidenced by weather-sensitive industries. For example, after increasing by a decade-best 65,000 in February, construction employment fell in March by 15,000, the largest drop in three years. Retail trade payrolls also swung substantially, declining 4,000 in March following a gain of 47,000 in February. Weather didn’t tell the whole story, however. Generally, the average workweek drops during a period with significant weather disruptions, but the March workweek held on to February’s increase, remaining at 34.5 hours. Average hourly earnings, which is closely watched as an indicator of wage inflation, picked up 0.3 percent from February, while the annual increase of 2.7 percent remained within the narrow band seen since late 2017. However, the annual wage increase for nonsupervisory workers, who account for roughly 80 percent of the private workforce, remained unchanged at 2.4 percent for the fourth consecutive month. of 5 Without broad-based increases, wage gains are unlikely to surge in the near term. In addition, the National Federation of Independent Business (NFIB) Small Business Economic Trends Survey showed that the net share of small business owners planning to raise worker compensation fell in March for the second consecutive month to the lowest reading since last November, although the level remains elevated. The household survey component of the March jobs report showed that the unemployment rate remained at 4.1 percent for the sixth straight month as the labor force participation rate fell one tick to 62.9 percent, the first drop since last October. The broadest measure of labor underutilization, the U-6 unemployment rate, fell two-tenths and returned to its expansion low of 8.0 percent, thanks to a decline in the number of discouraged workers and others marginally attached to the labor force. Business Investment Remains Key to the Outlook One key factor underlying our outlook is strong business equipment investment growth, which would help spur productivity growth and keep unit labor costs and inflation contained amid ongoing fiscal stimulus. Recent trends in core (nondefense excluding aircraft) capital goods shipments, a proxy for capital investment, and core orders, a forward-looking indicator, suggested a slowdown in business capital investment growth in the first quarter, albeit from a strong average pace of roughly 11 percent annualized during the second half of 2017. Recent business surveys have raised concerns over whether robust capital expenditures growth will continue this year. The Survey of Business Executives (SBE) conducted in February by the Atlanta Fed in conjunction with academics showed that roughly three-quarters of executives made no changes to their capital expenditures plans in either 2018 or 2019 in response to the passage of the Tax Act. Comparing results from the February 2018 survey for 218 firms that also responded to a similar survey in November 2017, it appears that firms have revised lower their capital expenditures plans for 2018. Results from the March NFIB survey were in line with the SBE survey. The share of small businesses planning capital expenditures fell in March, erasing the improvement seen since November 2017. '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 Total Nonfarm Employment Construction (SA, MoM Change, Thous.) Weather Likely Caused Recent Wild Swings in Construction Employment '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 Average Hourly Earnings (SA, Year-over-Year % Change) Annual Wage Gains for Nonsupervisory Workers Have Moved Sideways Total Private Industries Production and Nonsupervisory Industries '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 NFIB Small Business Survey (SA, %) The Net Share of Small Businesses Planning to Raise Worker Compensation Declined Sharply Net Share Planning to Raise Worker Compensation in Next 3 Months Share of Respondents Who Said Capital Expenditures Would... of 5 The Fed Expected to Raise Rates in June The Summary of Economic Projections released at the March Federal Open Market Committee (FOMC) meeting indicates that the Fed is more optimistic about economic growth and employment in 2018 while its view on inflation is unchanged. However, the statement following the meeting shows that the Fed appears more confident that inflation will move toward the 2-percent target, noting that members expect that annual inflation will move up “in coming months,” as opposed to “this year” in the prior statement. In February, the annual increase in the Fed’s favored measure of inflation—the Personal Consumption Expenditures (PCE) deflator— picked up to 1.8 percent after holding at 1.7 percent for three consecutive months. Following an increase of 1.5 percent for four straight months, the annual rise in Core PCE (excluding food and energy) accelerated one tick to 1.6 percent, boosted by health care service prices, which jumped 2.2 percent from last February, the biggest annual gain since 2010. Annual PCE inflation likely strengthened in March, as a result of the base effect. That is the plunge in communication services prices (i.e., cellphone contracts) last March is no longer weighing down the change in the index. With inflation trending up toward the target amid continued labor market improvements, we expect the Fed to raise interest rates for the second time this year in June before hiking once more later this year. In the prior forecast, we noted that risks tilted toward four rate increases this year. However, with headwinds from trade protectionism emerging over the past month, we can’t rule out that the Fed may ultimately raise rates only twice this year. At his first press conference, Fed Chair Powell said that several FOMC members had voiced concerns over trade policy, and he noted that trade has become a bigger downside risk to the outlook. Housing Roundup Incoming data support our view that real residential investment declined during the first quarter following strong 12.8 percent annualized growth in the fourth quarter. New home sales fell in February for the third consecutive month, while existing home sales partially recovered from January’s drop. Total home sales during the first two months of the year were flat compared with the same period last year. Total housing starts fell in February, while nominal residential construction spending posted an anemic gain in February for the second consecutive month. Main measures of home prices—the S&P CoreLogic Case-Shiller, CoreLogic, and Federal Housing Finance Agency home price indices—continued to show strong annual home price gains of 6.1 percent to 7.3 percent for the nation in January. The near-term outlook for home sales is mixed. While pending home sales rebounded in February, partly regaining the sharp drop in January, purchase mortgage applications fell sizably in February and only partially recovered in March. We continue to expect total home sales to rise nearly three percent in 2018 amid increasing household income, a gradual rise in mortgage rates, and continued lean inventory. The for-sale inventory of existing homes continued to decline from year- ago levels. While the number of new homes for sale has continued to trend up, the increase has been concentrated in incomplete units. Ongoing tightness in the inventory of completed new homes for sale should continue to restrain sales."}, {"role": "assistant", "content": "of 5 Our mortgage rate and mortgage volume forecasts for 2018 are essentially the same as in our March forecast. We expect total mortgage originations to fall about 8 percent from 2017 to $1.69 trillion in 2018, with a refinance share of 29 percent, nearly 10 percentage points below the share in 2017. Although the ESR group bases its opinions, analyses, estimates, forecasts and other views on information it considers reliable, it does not guarantee that the information provided in these materials is accurate, current or suitable for any particular purpose. Changes in the assumptions or the information underlying these views could produce materially different results."}]}
{"messages": [{"role": "user", "content": "Key stat: U.S. cap rates have compressed by 5 to 20 bps over the past year (Q3 2017) OFFICE U.S. office market growth should continue in 2018, but at a slower pace, due to higher completions and the tight labor market’s impact on tenant demand. Older buildings lacking the amenities preferred by today’s workforce and the infrastructure to handle evolving technologies could struggle, particularly in markets where large volumes of high-quality product are being delivered. Meanwhile, suburban submarkets that offer a range of housing choices and urban amenities—including retail and restaurant options, public transit and walkability—are well positioned to capture demand from the maturing millennials."}, {"role": "assistant", "content": "Key Stat: 32 million sq. ft. of positive net absorption is expected in 2018 OCCUPIER Labor remains the primary challenge facing corporations. Even as they lower their space requirements, many occupiers are reinventing or adapting their workplace standards to meet employee demand for amenity-focused, flexible, technology- driven work environments. Activity-based workplace design is a popular approach to achieving greater space efficiency without impacting functionality. Agility is also a concern, and occupiers are showing clear interest in flexible-serviced agreements and shorter- term offerings. CBRE RESEARCH 4 2018 U.S. THE OUTLOOK FOR 2018 UNITED STATES INDUSTRIAL & LOGISTICS Although we are well along in the economic cycle, in the e-commerce/omnichannel cycle we are not, so demand for high-quality, well-located industrial real estate should not wane anytime soon. In most markets, a lack of quality space options is challenging those seeking to expand their supply chains. Record- level rents are a concern, but the compromises tenants must make on location decisions, which can affect supply chain costs profoundly, are the real issue. As location is paramount, rising rents are not expected to curb demand as long as users continue to find options. Fortunately, supply growth has begun to increase, which should lower the risk of short supply suppressing demand. Key stat: For the first time, industrial real estate is global institutional investors’ most preferred asset class—the top choice for more than a third of respondents in CBRE’s most recent survey of global investors RETAIL Changing demographics, consumer expectations and omnichannel retailing will continue to reshape retail and its real estate environment in 2018. The consumer trend toward off-price and discount retail will continue, with mid-range retailers seeking new ways to limit share losses to lower-priced players. A growing performance gap between prime retail assets and others will create opportunities for investors to capture assets with medium- and long-term growth potential at lower prices. Across retail segments, landlords and retailers will strike up new partnerships to drive traffic and sales. Non-gateway markets should see solid rent growth over the next five years, with urban core redevelopment, a rise in suburban mixed-use projects and strong employment and population growth making these markets especially attractive. Major gateway markets are expected to see rents grow more moderately. Key stat: Annual rent growth of 1.9% expected for neighborhood, community and strip centers in 2018 HOTEL Forecasts for continued U.S. economic expansion portend a favorable year ahead for the U.S. lodging industry, with forecasts of income and employment growth—coupled with slowing supply growth— promising increased demand for hotels. Prospects for the sector in 2018 will depend largely on local market fundamentals and property-specific demand mix. With household income and balance sheets strengthening across several demographic strata, the dominant hotel guest profile is being reshaped from one of business to one of leisure. Over the medium term, profitable hotel investment opportunities will generally favor properties that cater largely to leisure travelers. A few important city markets must contend with elevated risk from exposure to fluctuations in international travel. CBRE RESEARCH 5 2018 U.S. THE OUTLOOK FOR 2018 UNITED STATES DATA CENTERS The U.S. wholesale data center market continues to thrive, with sustained record-setting absorption levels for the past three years. Our outlook for data center demand remains bullish, fueled by ever-increasing data consumption, storage, compute power and the rapid evolution of technology—from self-driving vehicles, to networked homes, to advancements in mobile, interconnectivity and content delivery. Transformation and flexibility are the key themes in the multi-tenant data center space in 2018. Key Stat: Across the primary data center markets tracked by CBRE, nearly 300 megawatts are scheduled for delivery in 2018 LIFE SCIENCES The greater health care needs of an aging population and quickening advancement in software and computing power have prompted strong biotech employment growth, with demand surges in most major markets and double-digit rent growth in some. But with the unsustainable rise in health care costs, the industry is under pressure to identify new, more effective, less costly solutions. The sector’s vibrancy in any given market is largely a function of the depth and caliber of the local scientific talent pool, and of the market’s access to capital. Fundamentals are strong, but growing supply in the hottest markets should be closely monitored, as should the flow of venture capital, which recently plateaued. Key Stat: Approximately 25% of all NIH funding goes to California and Massachusetts, contributing to the premier status of lab centers in Cambridge and San Francisco MEDICAL OFFICE The direction of health care policy and payment mechanisms may remain uncertain, but rapid growth in the older population will remain a significant tailwind for medical-office demand in the years ahead. This will be particularly important in smaller, slower-growth markets where “eds and meds” are likely to be the primary growth driver over the next decade. The bigger risk may be from large health care systems continuing to acquire smaller physician groups and solo practices, potentially dampening demand for smaller medical office buildings and condos. Employment trends reflect the movement of health care services into lower-cost locations to reduce costs and to improve accessibility. Investment trends reflect strong medical-office market fundamentals and a broadening pool of interested investors. Key Stat: An aging U.S. population will continue to fuel demand for medical office space SENIORS HOUSING The seniors housing market improved modestly in 2017 and is set to improve further in 2018, largely due to lower construction levels. For the most part, the traditional segments of seniors housing—independent living, assisted living, memory care and nursing care—are not yet benefiting from baby boomer demand. However, the active adult segment will play an increasing and exciting role in the seniors housing industry in the coming years, as seniors housing continues to evolve. Property-level operating costs are investors’ primary concern, and investor appetite for this type of property is strong. CBRE RESEARCH 6 2018 U.S. Despite continued economic growth, the outlook for commercial real estate in 2018 is cloudy as the cycle enters its late stages, with policy uncertainty—particularly regarding corporate tax reform and the direction of interest rates—looming large. In times like these, “agility” is more important than ever for investors and occupiers. INDUSTRIAL: AGILE BY ASSET TYPE Big-box warehouses are in their golden era, from tenant and capital demand perspectives. The good news is that all megatrends point to this continuing, but it has gotten to be very expensive to build or buy big-box. The better news is that the golden era of industrial is now expanding into smaller, last-mile facilities near high-density urban centers, and this opportunity is only now garnering institutional attention. Institutional-grade industrial real estate doesn’t have to be big-box anymore. It can be a strategically located box and, with omnichannnel, it may not be “industrial” at all, but a hybrid retail/ industrial facility."}]}
{"messages": [{"role": "user", "content": "OCCUPIER: AGILE BY PORTFOLIO FLEXIBILITY Large occupiers need to think about agility in both individual-market and portfolio terms, including the length of leases, options to expand or contract space, and the availability of talent. Double down on commercial real estate in those submarkets where you expect to attract, retain and create pools of talent for your business. The current labor shortage in the U.S. is only going to get worse. The very low national unemployment rate is 50% lower in many of the high-skill trades. While agility protects your downside risk/cost overall, don’t put all your eggs in the “save money” basket. Rather, put many of your scarce resources into the “make money” basket of markets with deep talent pools."}, {"role": "assistant", "content": "CBRE RESEARCH 7 2018 U.S. ECONOMY CBRE RESEARCH 8 2018 U.S. ECONOMY Despite all the noise from Washington, our forecast hasn’t changed significantly from a year ago. We still expect moderate economic growth with slowing employment gains in 2018, and an economic slowdown in 2019 brought on by minor supply/ demand imbalances throughout the economy. Our alternative economic scenarios are particularly relevant at present, given the wider range of possible economic outcomes.1 Below are several factors that could lead to greater or lesser economic growth in 2018."}]}
{"messages": [{"role": "user", "content": "POTENTIAL GROWTH: TAX REFORM, INFRASTRUCTURE, CAPITAL SPENDING Corporate tax reform, which appears likely to be enacted, could stimulate the economy overall, but not necessarily in 2018. A lot depends on how corporations, which are the primary beneficiaries of the current bill, spend the money from tax savings and tax repatriation. Infrastructure policy is more likely to produce significant growth in the near term. It has been several decades since the country upgraded and replaced its aging infrastructure at a pace sufficient to spur economic growth. If Congress and the president were to craft an infrastructure spending bill that is well-considered—unlike the rushed transportation bill passed by Congress during the 2008 financial crisis—it could potentially raise GDP growth by 50 to 75 bps annually. GDP Growth (%) Baseline Upside Downside Severe Downside See our Insights articles for more detail."}, {"role": "assistant", "content": "CBRE RESEARCH 9 2018 U.S. looking at multilateral pacts rather than bilateral agreements, so getting them to prioritize negotiations with the U.S. may be challenging."}]}
{"messages": [{"role": "user", "content": "Just as important to the economy is immigration. Without immigration, U.S. population and labor force growth are barely positive. In the House and Senate, there are currently several proposals to cut current immigration levels in half, which could lower GDP by 50 to 75 bps and exacerbate the current skills mismatch in the labor market. This might encourage tech firms to grow in Canada, rather than the U.S."}, {"role": "assistant", "content": "CAPITAL MARKETS CAPITAL MARKETS easing stance and a “flight to safety” increases the U.S.-bound flow of global capital. Once growth resumes, rates begin to normalize, with yields on the 10-year slowly increasing to around 3% by 2027. • Under these conditions, cap rates slowly adjust to higher interest rates in 2018 and then continue to increase during the slowdown, driven by widening risk premiums and lower expectations for net operating income (NOI) growth. Growth then resumes and cap rates increase by 30 to 120 bps by the end of 2023, with the exact magnitude varying by market and property type. Rising uncertainty in the macroeconomy has widened the range of potential outcomes facing the capital markets. With sustained growth or an economic slowdown both being plausible scenarios, what can we expect of the U.S. economy, interest rates, CRE cap rates and asset prices in the years ahead?"}]}
{"messages": [{"role": "user", "content": "GDP growth continues in 2018, followed by a short slowdown in 2019. Growth of the economy begins accelerating again in 2020."}, {"role": "assistant", "content": "CAPITAL MARKETS through Q3 2019, as robust economic growth is priced in, but then slowly increase as expectations adjust to slowing growth. By 2023, prevailing cap rates for office, industrial and retail are 50 to 60 bps above current levels. • Apartment cap rates stay relatively flat over this period, with economic growth supporting continued growth in already- high rents. slowdown and robust-growth scenarios, we forecast some degree of upward cap rate movement. Under the stagnation scenario, interest rates and cap rates stay roughly flat. Under none of the scenarios is income growth expected to fully offset the effect of cap rate adjustment. Our analysis implies that CRE values will either remain relatively flat or temporarily decline mildly or moderately, depending on which scenario plays out. Rather, the steady income returns that CRE is likely to generate over the period provide a solid basis for such strategy as investors simply wait out the asset value fluctuations. Our analysis deals with national trends, so a substantial variation in cap rates and asset prices may occur across markets and among individual assets in those markets. • Under this scenario, cap rates either stay flat or increase by 3 to 50 bps over five years, as robust growth expectations dissipate and slow growth is priced in by investors."}]}
{"messages": [{"role": "user", "content": "Commercial real estate will remain an attractive investment over the period and, versus other asset classes, CRE’s steady income-generating/inflation-hedging characteristics may prove very attractive. Once the adjustment is over, asset price growth likely will return and investors can rebalance their strategies accordingly."}, {"role": "assistant", "content": "OFFICE should continue in 2018. Office-using job growth is expected to decelerate, however, slowing net absorption to a projected 32.1 million sq. ft. in 2018—down from 2017’s 50.1 million sq. ft."}]}
{"messages": [{"role": "user", "content": "The scarcity of available qualified workers, reflected in October’s unemployment rate of 4.1% (the lowest since December 2000),2 is a factor."}, {"role": "assistant", "content": "Unemployment will likely remain low next year."}]}
{"messages": [{"role": "user", "content": "Improved U.S. office market fundamentals should continue in 2018, but at a slower pace due to higher completions and the tight labor market’s impact on tenant demand. Older buildings lacking the amenities preferred by today’s workforce and the infrastructure to handle evolving technologies could struggle, particularly in markets where large volumes of high-quality product are being delivered. Meanwhile, suburban submarkets that offer a range of housing choices along with urban amenities—including retail and restaurant options, public transit and walkability—are well positioned to capture demand from the maturing millennials. As firms have focused on maximizing efficiency and productivity in their portfolios, net absorption has been more muted in recent years than in past expansions. s) (%) Office-Using Jobs Added (L) Office-Using Job Growth (R) Forecast or those with a bachelor’s degree or higher, the rate was just 2.0%."}, {"role": "assistant", "content": "Several lagging sectors have increased their shares of office leasing activity in 2017—a positive indicator of demand coming from a wider range of industries. Specifically, prospects for reduced financial industry regulation and oil price stabilization have fueled optimism in the financial services and energy sectors, and markets with concentrations of these industries, such as New York and Houston, should benefit. TECH SECTOR TO REMAIN TOP OCCUPIER The tech sector has been responsible for nearly 20% of major office leasing activity in recent years. In leading tech markets like the San Francisco Bay Area and Seattle, as well as emerging, lower-cost tech hubs like Charlotte and Phoenix, it will likely remain a primary demand driver in 2018. ft. each quarter for the 54 markets tracked by CBRE Research. Source: CBRE Research, Q3 2017."}]}
{"messages": [{"role": "user", "content": ""}, {"role": "assistant", "content": "Completions are expected to outpace net absorption for a second straight year in 2018, driving a modest 20-bps increase in the vacancy rate to 13.2%—only slightly above the cyclical- low of 12.9% in Q3 2017. Given this modest increase in vacancy, we expect overall rent growth to decelerate to 2.0% in 2018 from 2.4% in 2017. The strongest gains in employment, occupancy and rents will likely occur where recovery has lagged during this cycle, and where there is little or no construction underway, including many former housing-bubble markets in the South and West. NEW CONSTRUCTION DELIVIERIES TO FALL IN 2018 Development activity has been limited in recent years, due to an abundance of available space following the 2008 recession, modest rent growth in many markets and high construction costs. We estimate that deliveries will peak at 61 million sq. ft. in 2017, and decrease to 47 million sq. ft. With significant construction activity occurring in Manhattan, San Francisco, Seattle, Washington, D.C. and other large downtown markets, city centers are expected to account for a disproportionate share of new supply in 2018. OCCUPIER OCCUPIER THE AGILITY MANDATE Although there has not been a material shift away from long-term leased office space, occupiers are showing clear interest in flexible-serviced agreements. A spectrum of shorter- term offerings is available to occupiers today—from traditional serviced offices, to enterprise co-working models, to on- demand space offerings. A recent CBRE survey on agility, in collaboration with CoreNet Global, found that while only 16% of respondents consider themselves “highly agile” in their portfolio strategy, 67% believe that “portfolio agility” is critical to their future success.7 The strategies most commonly employed by self-described “agile” companies were shorter- term lease options and use of third-party service space."}]}
{"messages": [{"role": "user", "content": "Corporate policy aside, personal devices and cloud technology have made employees more mobile and have rendered the physical office an optional place to work. This has led employees to seek more choice in workplace locations and employers to pursue greater flexibility in reducing long-term commitments in an uncertain business environment."}, {"role": "assistant", "content": "We expect corporations’ interest in shorter-term leases and third-party space aggregation to grow as these models are more widely tested and understood. LEADING WITH LABOR Labor remains the primary challenge facing corporations, with cyclical low unemployment, technology-driven competition and a widening skills gap. Occupiers are taking a balanced approach to real estate strategy, continuing to pursue space efficiency while reinvesting savings into workplace enhancements that will attract and retain employees. Eighty-six percent of the respondents to CBRE’s 2017 Americas Occupier Survey are either reinventing or adapting workplace standards to meet employee demand for more amenity-focused, flexible and technology-driven environments.4 Occupiers in the financial and technology sectors are leading this charge, but more conservative industries—like legal—are adopting these principles as well. U.S. law firms have lowered their space requirements by an average of 27% over the past 18 months; many have moved into prime office space and implemented improved workplace design.5 These new standards create an attractive destination for employees and foster a sense of place, balancing the additional expenses that some of them create. INDUSTRIAL & LOGISTICS INDUSTRIAL & LOGISTICS From a capital markets perspective, industrial has become institutional investors’ favorite asset type, and the flood of investment capital into the sector is reflected in record-level asset pricing and widespread low cap rates. For users and occupiers, pricing is at record highs across the board. Over the next year, new market entrants can expect rents to continue rising at roughly the rate of the past few years. Investors should be aware that cap rates and investment prices have stabilized, with the pricing gap between Class A and Class B narrowing."}]}
{"messages": [{"role": "user", "content": "The industrial & logistics market remains on solid footing and continues to expand. Demand has slowed a bit from its well-above-average run between 2013 and 2016, but 2017’s quarterly average net absorption of 52.9 million sq. ft. is right in line with the quarterly average over the cycle that began in 2010. Consistent demand for all types of warehouse space, steadily declining availability and a steady rise in rents have been this cycle’s hallmarks, resulting in some impressive milestones: 30 consecutive quarters of positive net absorption, availability at its lowest since 2001, and 24 consecutive quarters of rent growth. The challenge for tenants in this market is obvious: A lack of quality choices in most markets has put users seeking to expand their supply chains in a difficult spot. While record-level rents are a concern, the compromises tenants must make on location decisions—either at the market or submarket level— are the real issue. These decisions can have a profound impact on overall supply chain costs, which are heavily influenced by transportation (both inbound and outbound) and labor costs."}, {"role": "assistant", "content": "On the horizon are new technologies like automated trucks and robotics; these will influence transportation and labor costs and, in turn, change site selection decisions. This will affect all markets and will likely bring less expensive land and real estate into play—sites, on the outskirts of major or secondary markets, that are currently too distant from population hubs. In theory, automated trucks have a one- or two-day service radius—much wider than a non-automated vehicle—that would allow users to operate from farther-flung locations without compromising service quality. This is likely a mid- to long-term change and doesn’t impact our short-term outlook for the market. In our view, although the economic cycle is a bit extended, we are still at a very early stage in the e-commerce and omnichannel cycle. With this type of user requiring up to three times more space than a traditional retail supply chain user, and with e-commerce sales forecast to grow by 10% annually and to top $500 billion by 2020, demand for high-quality, well-located industrial real estate should not wane anytime soon."}]}
{"messages": [{"role": "user", "content": "U.S. demand (as measured by net absorption) has outpaced supply by nearly 2-to-1, despite rapidly growing rents and declining vacancy. In general, the discipline shown by developers has been healthy and has allowed for steady rent growth that has virtually all markets at full recovery. Although the gap between supply and demand narrowed in 2017 to near-equilibrium for the first time in more than a decade, the inability of the supply side to meet demand remains a problem. Users in the last mile of the supply chain are struggling to find adequate prime infill space. Development of traditional warehouse space in infill locations is difficult due to the high costs of building in cities and the lack of large sites that can support warehouses. In response to this problem, a style of warehouse that is common in Asia and Europe—the multi-story warehouse—has begun to emerge in the U.S. Essentially three or more warehouses stacked on each other, with ramps providing trucks access to the upper units, this type of facility allows Class A distribution space to be developed on small sites that could not otherwise support such facilities. The addition of such space would be a welcome change in key markets like Los Angeles, Orange County and Oakland, where vacancy rates are below 2% and last-mile users are trying reach massive urban populations."}, {"role": "assistant", "content": "Effective, precise location decisions are paramount—so much so that users, to this point, have accepted record-high occupancy costs to secure locations from which they can operate efficiently. Location is especially critical within the last mile, where users look to reach their customers as quickly as possible. Ideal locations tend to be urban and infill—close to population clusters, but often devoid of industrial real estate."}]}
{"messages": [{"role": "user", "content": "Intense competition for the real estate that does exist in these areas has driven local availability rates down and rents up, but neither has slowed demand in these prime infill locations. We believe that rising rents, while not ideal for the tenant, are unlikely to curb demand as long as options remain in the primary and better secondary markets and submarkets. In the near term, the greatest risk to a market is an erosion of demand due to a lack of supply. The current fundamental drivers of demand—economic growth, consumer consumption and a growing omnichannel supply chain—are not likely to change next year. However, a lack of quality choices could force users to delay their decisions and could have a material impact on overall net absorption in the market."}, {"role": "assistant", "content": "RETAIL RETAIL medium- and long-term growth potential at lower prices. GROWTH IN RETAILER-LANDLORD PARTNERSHIPS Partnerships between retailers and landlords will increase in 2018. Several factors will contribute to this trend: retailers demanding more flexibility in lease lengths and terms, landlords looking for ways to ensure the long-term viability of their tenants, and both sides seeking new ways to drive traffic and sales in brick-and-mortar stores. As omnichannel continues to evolve in 2018, retailers and landlords will realize that working together through shared data, marketing and other initiatives is more effective than working apart. We expect to see new and more prominent examples of this partnership trend next year, with landlords investing more in new retail concepts through incubator initiatives. Data sharing between retail tenants and landlords—especially in the mall segment— in key areas like traffic and sales will increase, as both sides seek to improve revenue and marketing effectiveness."}]}
{"messages": [{"role": "user", "content": "STRONG RENT GROWTH EXPECTED FOR SOME NON-GATEWAY MARKETS Non-gateway markets like Atlanta, Houston, Nashville and Denver should see rent growth of at least 2.5% over the next five years, as demand outpaces supply. Successful redevelopment in the urban core and a rise in mixed-use projects in the suburbs, together with strong employment and population growth, make these markets especially attractive to investors."}, {"role": "assistant", "content": "Major gateway markets like Washington, D.C. and Chicago, where demographic and demand growth are steady but less robust, are expected to see rents grow, but at a more moderate pace. Changing demographics, consumer expectations and omnichannel retailing will continue to reshape retail and its real estate environment in 2018. As consumer demand for low prices increases, growth in the off-price and discount sector will mark the online and offline retail environments. In the brick-and-mortar space, a growing performance gap between “prime” and “non-prime” assets, driven in part by some increases in retail vacancy, will create opportunities for bullish investors to obtain well-located assets at reduced prices. Across retail segments, the evolving relationship between landlords and retailers will generate new partnerships to drive traffic and sales. Partially insulated from exposure to e-commerce, grocery stores and building material & garden supply centers should continue to perform better than other segments. Topping the national list for forecast rent growth are dynamic, high-population-growth and low- unemployment markets in the South and West, where demand will outpace supply. CONTINUED GROWTH IN DISCOUNT AND OFF-PRICE RETAIL The consumer trend toward off-price and discount retail will continue in 2018, with mid-range retailers seeking new ways to limit share losses to lower-priced players. Since the 2008 recession, greater consumer access to lower-priced goods— especially in key soft-goods categories like apparel and with the expansion of key discount and value retail brands—has shifted consumer spending among all age groups toward lower-priced options. This has placed significant pricing pressures on retailers in the mid-price range, who struggle to compete with the quality and brand cachet of luxury brands and the value offered by low-price players. In 2018, we anticipate many of these mid-range brands to focus on lower prices and discounting in a bid to retain customer share and adapt to new price expectations of consumers. OPPORTUNITIES TO REPOSITION FLAGGING RETAIL CENTERS The performance gap between well-located, prime retail assets and those considered “non-prime” (primarily B markets and below) will continue to grow in 2018, reflected in both rent levels and cap rates. In some markets, however, price declines will create opportunities for investors to capture assets with segments with weak employment-growth forecasts include apparel, sporting goods and electronics, while healthy employment growth is expected for grocery stores and building materials & garden supply stores."}]}
{"messages": [{"role": "user", "content": "Potential demand for each retail center type can be forecast using local retail employment growth projections."}, {"role": "assistant", "content": "Due largely to closures, department store employment dropped by 3% in the past year—a trend that is expected to continue. HOTEL HOTEL weekday ADRs, $120.87 to $118.54. This is not a startling shift, but one that points to leisure travel’s growing importance. The oversized growth in leisure demand is partially explained by shifts in the hotel guest profile and in the spending habits of U.S. age cohorts. In 2015, well-heeled, travel-happy senior citizens contributed the largest share of total spending on lodging. Spending by seniors will likely continue to increase as the last cohort of baby boomers enters the seniors age group. room nights sold. In four other cities—Oahu, San Francisco, Los Angles and Orlando—the contribution from international travel is 25% or more. MULTIFAMILY MULTIFAMILY As of December 2017, nearly 23% of all units under construction in U.S. markets are in urban cores. In the long term, urban core multifamily will perform well, but for the short term, market statistics indicate that the best development opportunities are in the suburbs."}]}
{"messages": [{"role": "user", "content": "New suburban development will focus on areas with a strong live-work-play environment. These are submarkets located outside of the urban core that have characteristics similar to downtowns (e.g., concentrated employment, retail and entertainment amenities, etc.). This focus will bring higher- density, upscale apartment living to the suburbs, and with more millennials starting families, developers are factoring access to superior schools into their site-selection process."}, {"role": "assistant", "content": "Starts will continue to slow in 2018, as banks have scaled back development lending over the past two years. While other sources of development capital have emerged (e.g., debt funds) or reemerged (e.g., HUD financing), the climate for financing new development should remain more conservative, and debt capital costs more expensive. The availability and cost of labor are additional challenges driving the significant rise in building costs. • “Knowledge hubs” that have strong concentrations of employment in high-skill industries; these markets also tend to have a strong academic presence (e.g., Austin, Nashville and Denver)."}]}
{"messages": [{"role": "user", "content": "• Emerging low-cost urban hubs like Dallas and Atlanta that continue to post some of the nation’s largest net in-migration numbers."}, {"role": "assistant", "content": "Knowledge hubs seem to have the strongest fundamentals currently, but while their industry mixes draw well-educated workers and their favorable cost of living is a boon for employment and population growth, many are also facing significant headwinds from the supply side. Demand drivers are strong in the proximate secondary markets too, but the demographic mix in these markets might be less conducive to high-end, high-priced product. Low-cost urban hubs offer strong fundamentals but also face supply challenges like many of the country’s largest cities. Ultimately, to achieve outsized late-cycle returns, today’s investment strategy must find balance among all these trends."}]}
{"messages": [{"role": "user", "content": "Migration drivers fall into one of two categories: push factors or pull factors.9 As push factors work to drive certain demographics out of bigger markets, pull factors draw populations inward from around the country. Together, these dynamics are highly correlated with recent years’ clear outperformance in mid-sized markets and suburban submarkets —a trend that will persist in 2018 and beyond."}, {"role": "assistant", "content": "DATA CENTERS DATA CENTERS For both multi-national enterprise users and hyperscale cloud service providers, data center requirements continue to stretch around the world, with single users often simultaneously focusing on far-flung locations like Tokyo, Portland, Chicago and Amsterdam. To keep up with cloud adoption demand, hyperscale CSPs will continue their focus on cost-competitive solutions to keep cloud pricing low. However, their need to expand rapidly and in multiple markets will continue to fuel their own builds as well as their deployments with third-party data center operators. Perhaps more than any other real estate asset type, the data center sector has emerged as one of the most globally focused."}]}
{"messages": [{"role": "user", "content": "Nearly 300 megawatts are scheduled for delivery next year in the primary data center markets that CBRE tracks.10 We do not foresee any risk of oversupply, since key markets like Chicago, Northern Virginia and Silicon Valley currently have vacancy rates near or below 5%. Furthermore, pre-leasing levels remain high, with nearly 50% of oncoming capacity already committed."}, {"role": "assistant", "content": "DATA SECURITY There have been a significant number of headline-grabbing, data-related outages and breaches in the past year, several of which contributed to third-party data center leases in several markets as concerns about mitigating data security risks reached the C-suite level. We expect this will continue contributing to demand in 2018, particularly as many enterprise users become increasingly sensitive to the risk in owning and operating their own data center facilities, outside of their core business. LIFE SCIENCES LIFE SCIENCES Over the four years ending September 2017, U.S. employment in biotechnology research surged 27.1%, versus 7.2% for all jobs. A staggering pace of technological advancement and an aging population are generating immense opportunity and acute risk in the life sciences industry, which roughly encompasses the pharmaceutical, biotechnology and medical device sectors. Commercial real estate plays a front-and-center role as the industry addresses these dynamic changes, particularly in laboratory space, where the bulk of the industry’s innovation occurs. scrambling to identify solutions that are more effective and less costly. Cost pressures have driven the industry to focus on operating in markets with greater concentrations of scientific talent, and this is reflected in the market dynamics for laboratory space throughout the country. depth of scientific talent, as well as access to capital, have created diverging degrees of vibrancy across markets."}]}
{"messages": [{"role": "user", "content": "Other life sciences markets are more exposed to consolidation in their outsized pharmaceutical and medicine manufacturing bases (New Jersey, Philadelphia, Chicago), but are still experiencing exceptionally strong momentum in select submarkets."}, {"role": "assistant", "content": "As a result, these markets will continue to strengthen, but also reconcile with legacy industry properties."}]}
{"messages": [{"role": "user", "content": "Moreover, the surge of venture capital, which drives significant demand for lab space, has plateaued and therefore also warrants close monitoring."}, {"role": "assistant", "content": "OPPORTUNITIES AND RISKS FOR CRE IN THE LIFE SCIENCES SECTOR Strong demand drivers, rapid technological advances and plentiful capital have most life sciences clusters around the nation experiencing strengthening fundamentals in their laboratory markets. MEDICAL OFFICE MEDICAL OFFICE medical-office demand in the years ahead. Medical providers highly value locations near large patient populations and are willing to sign long-term leases for such properties—another attractive feature for investors. Employment in U.S. education and health services (EHS), of which health care represents nearly 70%, is projected to increase by 1.1% in 2018—a net gain of approximately jobs. The sector is expected to add nearly 1 million jobs over the next five years— the second-highest total among the major employment sectors. Employment trends also reflect the movement of health care services into lower-cost locations, including retail centers, to reduce costs and make these services more easily accessible to The population aged 65 and above is expected to increase by 1.7 million (3.3%) in 2018 and by 9.2 million (18.0%) over the next five years, driving strong short- and long-term demand for medical services. As markets with high concentrations of older residents (many in the North and Midwest) or with fast-growing overall and older populations (many in the South and West) are expected to benefit, this growth will generate opportunities for investment in medical office buildings throughout the U.S. For several years, investment in this product type has been increasing in tandem with the aging population, the insured population and the historical stability of medical office buildings relative to many other types of commercial real estate."}]}
{"messages": [{"role": "user", "content": "TIGHT MARKET CONDITIONS ATTRACTING INVESTOR INTEREST The medical office market has performed well in recent years, registering a lower peak vacancy rate than traditional office properties during the 2008 recession and showing a steady decline in vacancy since that time."}, {"role": "assistant", "content": "Deliveries of new medical space have also been low relative to pre-recession levels, and medical space currently under construction has decreased slightly from the recent Q2 2016 peak. This construction trend is expected to continue in 2018, with tenant demand supporting the amount of new supply and rents remaining stable. Cost pressure has also resulted from an increase in M&A activity in recent years, with large health care systems acquiring smaller physician groups and solo practices. Reimbursement and regulatory pressures, along with the high cost of acquiring and implementing new technologies, have contributed to this continuing trend. Modern, technologically-enabled medical office buildings capable of facilitating communication between multiple teams of providers will likely benefit from the continued growth of large health care systems. Buildings near large patient populations and that are well-equipped to offer specialized services (e.g., dialysis centers, ambulatory surgery centers, etc.) are also poised for strong user and investor interest. continuing to acquire smaller physician groups and solo practices, potentially dampening demand for smaller medical office buildings and condos."}]}
{"messages": [{"role": "user", "content": "Overall, we expect demand for medical office buildings to grow, fueled by continued health care job growth, the aging population, tight market conditions and the relative recession- resistance of these properties. These factors will attract even more investors in the years ahead."}, {"role": "assistant", "content": "Investment trends reflect strong medical-office market fundamentals and a broadening pool of interested investors. DEMOGRAPHICS OUTWEIGH POLICY UNCERTAINTY While uncertainty about health care policy poses a risk to the medical office market, favorable demographic trends point to continued strong health care demand, regardless of any policy changes. MEDICAL OFFICE INVESTMENT VOLUME AND CAP RATES Note: Data includes only closed sales and excludes entity-level transactions. Source: Real Capital Analytics, Q3 2017. SENIORS HOUSING SENIORS HOUSING care—are not yet benefiting from baby boomer demand. Seniors housing occupancy rates will likely edge up in the coming year, and rent growth should stay around the current 2.6% annual rate. MARKET FUNDAMENTALS TO IMPROVE IN 2018 The seniors housing market improved modestly in 2017 and is set to improve further in 2018, largely due to lower construction."}]}
{"messages": [{"role": "user", "content": "After peaking in early 2016, under-construction levels began falling and should further decrease in 2018. Construction starts also declined in the past two years, promising fewer completions in 2018."}, {"role": "assistant", "content": "however, baby boomers are creating demand now, making this segment particularly appealing. CBRE INVESTOR SURVEY REVEALS SUSTAINED INVESTOR APPETITE FOR 2018 Strong investor appetite for seniors housing was evident in CBRE’s fall Seniors Housing & Care Investor Survey,12 with 60% of respondents expecting to increase their exposure to seniors housing next year. Only 6% expected to decrease their exposure. Property-level operating costs eclipsed construction activity as investors’ top concern in the fall survey. Construction activity (supply-demand fundamentals) was the second-highest concern. October, acquisitions totaled $13 billion—up 8.6% from the same period in 2016. Based on investor sentiment and market fundamentals, we expect the volume of seniors housing acquisitions to rise modestly in 2018. If the amount of product coming to market is limited, however, the expected increase may not occur. The dominance of portfolio sales is the other significant variable in seniors housing investment. In 2016 and 2017 combined, 61% of seniors housing investment activity occurred via portfolio sales (compared to 20% for conventional multifamily)."}]}
{"messages": [{"role": "user", "content": "Institutional capital’s interest in the seniors housing sector has been rising for a few years (due in part to higher yields) and its market share rose to about 31% in 2017 from 29% in 2016."}, {"role": "assistant", "content": "While cross-border capital represented only 5% of 2017 investment (based on the year-to-date total through October), it is expected to increase in the years ahead. In particular, we expect Chinese investors—the largest offshore capital source in 2017—to increase their investment in seniors housing over the near term. For health care-focused assets, proposals for health care reform and legislative changes to Medicare and Medicaid generated considerable concern in 2017. These concerns will return to center stage in 2018 should reductions in Medicare and Medicaid funding be re-proposed. The nursing care segment will continue to seek new revenue sources, including expanded rehab facilities."}]}
{"messages": [{"role": "user", "content": "LIHTC Immediately Impacted That important exception is the low income housing tax credit (LIHTC) market. The lowering of overall corporate tax rates has materially changed the LIHTC market, with the value of the tax credits being diminished. As a reaction to the presidential election, and the expectation that the Trump Administration would lower corporate tax rates, prices for LIHTC began to decline in November 2016, according to data from Novogradac & Company, LLP. Put simply, a lower corporate tax rate means the value of the tax credit element of a LIHTC is diminished, along with its pricing, as illustrated in the chart below."}, {"role": "assistant", "content": "Low Income Housing Tax Credit Equity Pricing per Credit (January 2016 – December 2017) Source: Novogradac & Company, LLC As a result, Novogradac believes that since “…2017 tax credit equity pricing was widely based on a 25 percent corporate tax rate underwriting assumption… the enacted 21 percent will lead to an additional decline of about 3 percent in affordable rental home production and preservation. The aggregate decline of housing production and preservation per dollar of tax credits attributable to the decline in the corporate tax rate is anticipated to be about 14 percent.” month moving average"}]}
{"messages": [{"role": "user", "content": "of 3 Another major change for LIHTC projects involves those with foreign owners or affiliates. According to Novogradac, the TCJA resulted in an altered tax scheme for foreign companies, as well as domestic companies with major foreign components: “The alternative tax calculation subjects companies to a potential base erosion and anti-abuse tax (BEAT). The BEAT is intended to establish a minimum tax level for certain foreign investors. The BEAT tax rate is 5 percent in percent in 2019 to 2025, and 12.5 percent after 2025.” For a LITHC investor subject to the BEAT, the BEAT has the potential to erode “the benefit from the LIHTC by up to 20 percent through 2025, and up to 100 percent thereafter” and “roughly one-half of the tax benefits from tax losses.” Thus, the BEAT could negatively impact the appetite of certain LIHTC equity investors."}, {"role": "assistant", "content": "Early Proposals Were Concerning for Multifamily The TCJA impact is expected to be neutral at worst and positive at best for the multifamily sector. While there were early concerns about drastic changes to interest deductibility and depreciation rules, the final reforms were quite marginal, with special consideration for real estate investment being part of the final legislation. And with the overall corporate tax rate having been significantly reduced, investors in commercial real estate should experience mostly positive results. Several of the early tax reform proposals could have upended the multifamily market. One of the most concerning was the potential elimination of 1031 Exchanges. A 1031 Exchange is a tax deferral strategy to delay payment of taxes on capital gains from the sale of property. The rules allow for investors to defer tax payments if sale proceeds are invested in a legally similar asset within a specified time frame. A substantial portion of apartment building sales utilize 1031 Exchanges each year, and its elimination could have caused apartment buildings to be both less liquid from an investment perspective and more expensive to buy and sell due to the taxable event. Fortunately for commercial real estate investors, 1031 Exchanges were unchanged by the TCJA, though they were eliminated for certain non-real estate personal property. Several Positive Changes for Some Multifamily Investors One of the most important changes for the multifamily sector resulting from the TCJA is the change to interest deductibility. While the rules for interest expensing were changed for many corporations, an exception was included that allows companies that are primarily real estate operators to fully deduct the interest they paid from their income. There are conditions that have to be met for real estate companies to qualify for this exception, as well as a requirement that companies use a longer depreciation schedule, but these changes should not dramatically change the cost of owning or operating a rental apartment building. An additional element of the TCJA that should lower the tax bill for multifamily investors is a 20 percent deduction for individuals for qualified business income earned through “pass-through” entities. “Pass-throughs” are common legal structure and includes partnerships, S corporations, and sole proprietorships, structures that can be used by multifamily equity investors. For example, many real estate investment trusts are organized as pass-through entities. And the 20 percent of 3 deduction allows real estate investors to deduct a portion of their commercial real estate income from their individual income taxes. In addition, according to a January report from Goodwin Proctor, LLP, investors in a real estate investment trust (REIT) can also deduct “up to 20 percent of most ordinary REIT dividends and qualified publicly traded partnership income. When the full deduction is available, it reduces the top effective rate on such income (before any additional 3.8 percent Medicare tax) to 29.6 percent.” Other Changes with Potential Impact Other than the impact to LIHTC, there are other TCJA changes that could potentially complicate investing in multifamily. One example is the change to the length of time that an equity investor or partnership manager must hold on to an asset to receive favorable capital gains tax treatment. These “carried interest” investments must now be held for three years before sale, instead of one year, in order to qualify for the lower capital gains tax rates rather than higher ordinary income tax rates. Although this longer hold time should not negatively impact real estate investors with a long-term hold strategy, it will likely affect those investors with assets that gained significant appreciation in just a year or two, as well as “flippers,” those investors that buy properties, renovate them, and then quickly re-sell them at a profit. Conclusion If tax rates had not been reduced, some of the TCJA’s changes could have made it more expensive to be an investor in the multifamily market. But the significant reduction in corporate tax rates will likely overwhelm virtually all of the subtle changes in the underlying economics of apartment building tax strategies. Furthermore, the lack of changes to 1031 Exchange rules likely means that this acquisition strategy should not be significantly altered by the TCJA. While the Internal Revenue Service is expected to issue a substantial amount of rulemaking regarding many elements of the TCJA over the coming months, and there remain lingering concerns regarding the limits on state, local, and real estate tax deductions being scaled back for individuals, the newly-reduced tax rates should result in lower tax bills for the great majority of multifamily investors. Overall, we believe it is unlikely that the TCJA’s reform will negatively impact the income potential for buying, selling, financing, owning, operating, building, or rehabilitating most market-rate multifamily properties."}]}
{"messages": [{"role": "user", "content": "of 5 Economic Growth Expected to Slow and Housing to Stabilize in 2019 The U.S. economy is expected to grow 2.6 percent annualized in the fourth quarter, a slowdown from the 3.5 percent rate of growth in the prior quarter, as growth in consumer spending moderates. For all of 2018 we project economic growth to reach 3.1 percent, the fastest pace of the current expansion, before slowing to 2.3 percent in 2019 as the boost from federal fiscal policies wanes, the trade deficit widens, and growth in business investment slows."}, {"role": "assistant", "content": "In the face of slower economic growth and the absence of a break-out in inflation, we expect both mortgage rates and home sales to stabilize. The rise in for-sale inventories to date should contribute to a moderation in home price appreciation, which we forecast to be 5.4 percent in 2018 and 4.1 percent in 2019. Purchase mortgage originations are expected to climb over 2 percent in 2019 but refinance originations should fall nearly 11 percent, resulting in a small decline in total originations to $1.605 trillion. Increases in government spending and business fixed investment are expected to be positive contributors to economic growth in the fourth quarter. However, our forecast of fourth quarter business fixed investment was revised downward partially in response to softness in core capital goods orders and lower oil prices. Continued growth of business investment is key to sustaining the expansion. Over the fourth quarter, we now expect residential investment to be a drag on the economy as we downgraded our home sales and housing starts projections. We also anticipate that trade will likely drag on growth for the second consecutive quarter. The labor market should continue to improve in 2019, with sufficient job growth to bring the unemployment rate lower than in 2018. Our outlook for mortgage originations suggests that lender margins will remain under pressure in 2019 and we will likely see further consolidation. Key risks to our forecast include the uncertainty from trade negotiations between the U.S. and China, the trajectory of oil prices, and stock market volatility. Consumer Spending Growth Strengthens Consumer spending accounted for the largest contribution to headline gross domestic product (GDP) growth in the third quarter. Incoming data suggest that it will continue to play a leading role in the fourth quarter. Real personal consumption expenditures (PCE) rose by 0.4 percent in October, the largest monthly gain since March, with broad-based gains across durable and non-durable goods as well as spending on services. Light vehicle sales slipped slightly in November following a modest rise in the prior month. Since 2015, sales of light vehicles have remained relatively steady, despite rising interest rates. Looking “under the hood,” the stability in light vehicle sales reflects growth in sales of light trucks amid declining auto sales. Light vehicle sales could come under pressure if short-term interest rates continue to climb, raising financing costs. Consumer confidence remains near an 18-year high, despite a small dip in November. Confidence in the present situation rose to a level that was just shy of the expansion high set in August. However, these gains were offset by a slight dampening in expectations for the next six months. The drop in the expectations component was led by a decline in the net shares of consumers expecting improving business conditions and incomes. These results suggest that the trade tensions between the U.S. and China, as well as stock market volatility, so far have had a minor impact on consumer confidence. Government Spending Will Contribute to Growth Increases in local, state, and federal spending contributed to headline GDP growth in the third quarter. The spending and investment support at the federal government level is due in large part to the Budget Reconciliation Act passed earlier this year. Its positive effects on GDP growth are expected to peak this quarter and wane in 2019 through the first half of 2020 before subtracting from growth in the second half of 2020."}]}
{"messages": [{"role": "user", "content": "of 5 Business Fixed Investment Growth Expected to Tick Up Despite an upward revision in the second estimate of third quarter GDP, business fixed investment growth still slowed markedly. The minutes from the November Federal Open Market Committee (FOMC) meeting revealed that some participants cited anecdotal evidence of higher tariffs and uncertainty about trade policy, slowing global demand, rising input costs, and rising interest rates as possible culprits behind the deceleration in business fixed investment growth. Despite these concerns, encouraging news in the manufacturing sector bodes well for business fixed investment growth this quarter. The Institute for Supply Management manufacturing index rose in November, indicating a faster pace of expansion than in October. Higher readings on new orders, production, employment, and inventories all contributed to the uptick in the headline reading; supplier deliveries was the only subcomponent to register a monthly decline. Small business sentiment has trended down from its record high in August, though it remains historically elevated. Several factors may restrain business fixed investment growth in the near term. Core capital goods orders, the forward- looking indicator of equipment spending, were unchanged in October after two consecutive drops in the prior months."}, {"role": "assistant", "content": "Spending on structures related to oil and exploration will likely be constrained by lower oil prices. Additionally, many of the risks cited by participants at the last FOMC meeting are unlikely to be resolved soon and may delay investment in business projects."}]}
{"messages": [{"role": "user", "content": "By contrast, estimates that there are only 3,100 properties in Los Angeles that have 50 or more apartment units each. However, with the average property containing an estimated 126 units, this relatively small number of larger properties represents about 37 percent of all multifamily units in Los Angeles. Interestingly, units in both types of properties are similar in size, averaging about 800 square feet, according to . Steady Increase in Sales Volume As shown in the chart below, since the end of the Great Recession, the sales volume of small multifamily properties in Los Angeles has been rising slowly but steadily. In 2017, the last full year of data, sales of existing small multifamily properties totaled about $3.3 billion on just under 650 properties, averaging about 21 units per property, according to Real Capital Analytics (RCA). However, while this represents an increase of about 38 percent in sales volume since 2009, it is only a 20 percent increase in the number of sales, reflecting the fact that many of these properties are owned by individual operators who tend to hold on to them as longer term investments."}, {"role": "assistant", "content": "of 6 Sales will likely be incrementally higher this year as the sales volume totaled an estimated $2.9 billion on just over 520 properties for the first nine months of the year. The average sales price per unit has grown by nearly 50 percent since 2010, to about in 2018, reflecting the increasing interest in this asset class by investors in Los Angeles County."}]}
{"messages": [{"role": "user", "content": "Great Variation in Sales Prices Sale prices of individual small multifamily properties sold since January 1, 2017 have varied greatly. Perhaps surprisingly, the highest overall sales price for a small multifamily property was not in Malibu or Beverly Hills, but in the East Los Angeles/Long Beach submarket. According to RCA, Greentek Investments purchased the 47-unit mid-rise 608 Westlake Apartments in June 2018 for $31.5 million. The highest average prices per unit were still found in Beverly Hills, Malibu, and Santa Monica, however. The lowest sales price reported by RCA was for the six-unit 2743 Fairmount Avenue in Los Angeles, which sold for an estimated $1 million."}, {"role": "assistant", "content": "Cap Rates Remain Tight Cap rates for all types of multifamily in Los Angeles have been falling since the end of the Great Recession due to healthy job growth coupled with continued low interest rates. As shown in the chart to the right, cap rates on small multifamily properties fell to 4.1 percent in 2017 from 5.6 percent in 2009. Cap rates for small multifamily properties have generally been slightly below cap rates for larger properties. While cap rates inched up in the first nine months of 2018, they remain low at an estimated 4.2 percent and remain slightly below the 4.4 percent recorded for larger multifamily properties. Share of Los Angeles County Small Multifamily Properties by Investor Type (As of November Source: Real Capital Analytics Note: Properties and portfolios $2.5 million and greater 94% Institutional Private Other <unknown> Q3 2018 Small Multifamily Large Multifamily Small vs. Large Multifamily Average Cap Rates in LA County Source: Real Capital Analytics Note: Properties and portfolios $2.5 million and greater"}]}
{"messages": [{"role": "user", "content": "of 5 Fiscal Policy and the Fed: Stimulus/Response Late last year, the President signed the Tax Cuts and Jobs Act into law. Most economists upgraded their economic growth forecasts when they incorporated the impact of a likely or final tax cut bill. For example, more than 90 percent of economists who participated in the Wall Street Journal monthly survey said in January that the tax cuts would increase economic growth over the next two years, similar to their thinking in earlier months when details of the legislation began circulating. Between October and January, the average forecast for 2018 real gross domestic product (GDP) growth is 0.3 percentage points higher, from 2.4 percent to 2.7 percent. Results from the January Blue Chip survey also showed the same expected growth bump during the same period."}, {"role": "assistant", "content": "The rationale for the improved outlook is that cuts in individual tax rates should help spur consumer spending, while reductions in corporate tax rates and the allowance for equipment investment to be fully expensed for five years are expected to boost business equipment spending. The biggest threat to continued economic expansion cited by Blue Chip respondents is a faster-than-expected rise in interest rates stemming from either higher inflation or a policy mistake by the Federal Reserve. This concern is based on a belief in a tradeoff between employment and inflation—the so-called Phillips Curve. In our view, this tradeoff has little empirical support in recent decades, and thus aggressive monetary tightening intended to preempt inflationary pressure may do more harm than good. History tells us that managing a “soft landing” has been a quite difficult task for policy makers, and the Fed’s reaction to the Tax Act is key to the expansion that is expected to reach its ninth anniversary this June. Thus, our theme for 2018 is “Fiscal Policy and the Fed: Stimulus/Response.” The extent to which stimulative fiscal policy will accelerate growth, and the resulting impacts on the unemployment rate and inflation, are subjects of considerable debate among economists. Although the expansion appears to be late in the business cycle, with the unemployment rate near historical lows, we believe that the labor market contains more slack than suggested by the unemployment rate. The tax bill should create demand for labor, leading to tighter labor market conditions and accelerating wage growth, which should draw more prime-age (25- to 54-year-old) workers into the labor force. The prime-age labor force participation rate has been trending up over the past year but remains well below the pre- recession level, suggesting an untapped reservoir of labor not reflected in the very low unemployment rate. We also expect the tax bill to lead to stronger growth in business equipment investment, which is key to stronger productivity growth. Productivity growth has been anemic on average in the current expansion. However, amid robust growth in equipment investment last year, productivity growth has started to rise from a very depressed rate. Stronger productivity growth, even in the midst of rising compensation, should keep labor costs, core inflation, and inflation expectations contained. Therefore, we believe gradual monetary policy normalization can be consistent with stronger economic growth and a longer expansion. We revised higher our economic growth forecast for 2018 by 0.6 percentage points to 2.7 percent and for 2019 by 0.5 points to 2.3 percent. The improved outlook stems largely from stronger anticipated consumer spending and business equipment investment, which are expected to be partially offset by faster import growth. The unemployment rate is projected to average 3.7 percent in the second half of 2019, three-tenths lower than in the prior forecast and the lowest level in fifty years. However, we expect inflation to remain subdued, due to an anticipated increase in labor supply and a continued pickup in productivity growth from increased capital expenditures that '70 '75 '80 '85 '90 '95 '00 '05 '10 '15 Labor Force Participation Rate (SA, %) Prime-Age Labor Force Participation Rate Has More Room to Run 16 Years and Older 25-54 Year Olds (Right Axis) -2.0% 0.0% 2.0% 4.0% 6.0% '85 '90 '95 '00 '05 '10 '15 Total Nonfarm Productivity (Y-o-Y % Change) Productivity Shows Signs of Life"}]}
{"messages": [{"role": "user", "content": "of 5 should help offset rising worker compensation. We project the annual increase in the Fed’s favored measure of inflation, the Personal Consumption Expenditures Deflator, to remain below the Fed’s two-percent target throughout 2018."}, {"role": "assistant", "content": "The corporate tax cut should be a boon for business equipment investment. During the third quarter, business investment in equipment posted the strongest quarterly increase in three years. Incoming data suggest it ended 2017 on a strong note, setting the stage for continued acceleration this year amid very high business confidence. While small business confidence edged down in December, the average reading for all of 2017 set a record high since the monthly survey from the National Federation of Independent Business (NFIB) began in 1986. The tax bill should encourage businesses to accelerate capital expenditures, especially given that the 100-percent expensing will expire in five years and will be phased out over the subsequent five years. However, the lowering of the corporate income tax rate to 21 percent from 35 percent also makes the deduction less valuable, countering some of the benefits. We expect little investment impact from the one-time repatriation tax on accrued foreign profits, as past experience suggests that repatriated cash will likely be used for dividends and share buybacks. On the individual taxpayer front, because the tax bill also changed deductions (e.g., doubled the standard deduction and placed a $10,000 cap on combined state and local tax (SALT) and property tax deductions), its impact on final tax payments could vary significantly among households across the nation. Meanwhile, taxpayers can choose to spend the increased disposable income, save it, or use it to pay down debt. Thus, it is difficult to estimate how consumers will react to the windfall. Using the impacts of the 2001 and 2008 tax cuts as a guide, we expect real consumer spending growth to pick up by two-tenths in both 2018 and 2019, to 2.7 percent and 2.5 percent, respectively. The saving rate, which dipped three-tenths in November to the expansion low of 2.9 percent, should trend up as a result of the tax bill. Thus, while the tax cut may not boost consumer spending substantially because some taxpayers will choose to save the windfall or use it to pay down debt, it would help provide a savings cushion for rainy days and strengthen household balance sheets. The labor market ended 2017 on a relatively subdued note, with nonfarm payrolls increasing in December, weakening from the strong back-to-back gains following hurricane disruptions. A small net downward revision for the prior two months put the three- month average gain at . The survey of households was also uninspiring. The unemployment rate and the labor force participation rate were unchanged at 4.1 percent and 62.7 percent, respectively, and the broadest measure of labor underutilization, the U-6 rate, edged up one-tenth to 8.1 percent. of 5 Other aspects of the establishment survey also disappointed. The average workweek was unchanged at 34.5 hours, and average hourly earnings rose 0.3 percent from November and 2.5 percent from a year ago, near the lower end of the 2.4 percent to 2.8 percent range witnessed throughout the year. We believe that wage gains will accelerate this year given a shortage of skilled labor. The December NFIB survey showed that the share of small business owners with few or no qualified applicants for open positions surged 10 percentage points to 54 percent—a record high. For all of 2017, the economy added 2.2 million jobs, marking the seventh straight year with over two million jobs created. We expect another year of more than two million in payroll gains this year, with an average monthly gain of about 10,000 more than in our prior forecast. One bright spot in the December jobs report was the biggest monthly rise in residential construction employment of 2017, raising hopes for some supply relief for housing this year."}]}
{"messages": [{"role": "user", "content": "The Fed Will Likely Remain Cautious At the December Federal Open Market Committee (FOMC) meeting, the Federal Reserve raised the fed funds rate 25 basis points. The Fed appears to be counting on modest, synchronized global growth to continue as they attempt to get some distance between a zero percent short-term rate and the current policy rate. The shrinkage of the balance sheet, another measure of monetary policy normalization, continues as expected. The Fed also released its updated Summary of Economic Projections (SEP), which revealed a slight upgrade for growth expectations for 2018 and 2019 and a lower unemployment rate forecast. While final details were not known when the FOMC met in December, the tax bill under consideration at the time was quite similar to the final enacted tax legislation. The updated SEP “dot plot” implied that FOMC members expect three rate hikes in 2018, the same as in the September projections. We believe that the Fed will wait for evidence of increased inflationary pressure before responding with a faster pace of rate increases."}, {"role": "assistant", "content": "We expect the Fed to hike in March and in September of this year; however, a third rate increase this year is quite possible. Housing Roundup The Tax Act will create winners and losers in the housing market. While the individual tax cut should boost housing demand by increasing disposable household income, the tax bill reduces the incentive for homeownership by doubling the standard deduction, reducing the mortgage debt cap on which homeowners may take a mortgage interest deduction to from (with loans made before December 14 being grandfathered in), and limiting SALT and property tax deductions to a total of $10,000. As a result, the bill will lead to substantially fewer itemized returns. Looking back, housing activity through November was upbeat across the single-family segment. Both single-family starts and permits rose in November to the highest levels in more than a decade, while homebuilder sentiment surged to an 18-year high in December. Through the first 11 months of 2017, single-family housing starts were 8.7 percent more than during the same period in 2016. Meanwhile, multifamily building has clearly peaked, as year-to-date multifamily starts through November were 8.2 percent below their 2016 level."}]}
{"messages": [{"role": "user", "content": "multifamily sector has had a solid run since 2010, with increasing rent growth and low vacancies."}, {"role": "assistant", "content": "Key fundamentals have propelled the multifamily sector over the past few years: favorable demographic trends, continued job growth, and increasing renter household formations. There are more than 80 million Millennials, making them the nation’s largest population cohort, according to the Census Bureau, and this is the cohort that is expected to continue driving demand for housing, including multifamily rental housing, over the next few years. Demand remained positive in 2017, but that was not the case everywhere. Too much supply of Class A units in some of the nation’s major metropolitan areas resulted in lower rent growth and rising vacancies. In 2018, the national vacancy rate is expected to increase slightly, and, while rent growth should remain positive, it is expected to grow at a more modest pace. Nevertheless, the outlook for the national multifamily sector is that it should remain fairly stable in 2018."}]}
{"messages": [{"role": "user", "content": "Net Absorption – Continued Slowdown Expected Demand for multifamily rental units remained positive throughout 2017. Net absorption likely totaled about +units absorbed, according to data from . expects net absorption in 2018 to remain positive, although at a lower level than last year, possibly falling to about +units absorbed."}, {"role": "assistant", "content": "Net absorption is expected to improve beginning in mid-2019, as seen in the chart above. of 7 Vacancy Level Expected to Keep Increasing The national multifamily vacancy rate is expected to rise in 2018, primarily due to the onslaught of new supply expected to complete and come online over the next 12 to 18 months. Since most of this new supply is concentrated in a limited number of submarkets in only about 12 metros, supply is expected to continue outpacing demand in these metros, thereby pushing the national vacancy rate upward, as illustrated in the chart above. The vacancy rate is likely to return to more historical levels and then remain fairly stable further out into the forecast, due to ongoing favorable future job growth and demographic projections. multifamily vacancy rate will remain in the 5.5 percent range during the early part of 2018, from 5.25 percent as of third quarter 2017, and could end the year in the 5.75 to 6.0 percent range. This would bring the national vacancy rate nearer its recent historical average of 6.0 percent. Rent Growth Expected to Remain Fairly Stable Rent growth was positive but likely ended 2017 at about 2.5 percent, slightly ahead of the pace of inflation, which grew 2.2 percent year over year as of the end of November 2017. There has been above average rent growth since 2011, and 2017 was the first time since then that the national estimated rent growth was below 3.0 percent. The expectation for 2018 is that rent growth will once again be positive but is likely to moderate and range from 2.0 percent to 2.5 percent."}]}
{"messages": [{"role": "user", "content": "In addition, national Class C rent growth in 2017 was at 2.2 percent according to Axiometrics, compared to just 1.7 percent for Class A, indicating that property owners are offering more generous concessions up front for Class C units to lock in higher rents."}, {"role": "assistant", "content": "As more new supply comes online this year, the national concession rate is expected to increase, and more dramatically in certain metros that are in the midst of an oversupply of Class A units. Yet, some property owners are already starting to forego offering larger concessions and are just dropping asking rents. For example, the New York metro concession rate is well above the national average at -1.3 percent as of December 2017, but its rent growth is also negative at -0.5 percent. And rent growth is even worse for its Class A segment, at -1.0 percent, according to data from Axiometrics. of 7 Multifamily New Supply Expected to Peak in 2018 As seen in the chart on the following page, the amount of multifamily new construction remains elevated, with deliveries expected to peak in 2018."}]}
{"messages": [{"role": "user", "content": "According to the Dodge Data & Analytics SupplyTrack data, which distinguishes between multifamily properties consisting of apartment and condo units, about apartment units were completed in 2017, with another units expected to come online in 2018. In comparison, only about 59,000 condo units came online in 2017 and there are only about 64,000 condo units expected in 2018. The biggest concern for the multifamily sector is that most of the new apartment rental supply underway is believed to consist of Class A units, which command the highest rent level. But in many metros, it is these Class A units that are already starting to experience declining rents. of 7 The reason that level of multifamily rental demand is not likely to occur is because much of the new supply is primarily concentrated in about 10 to 12 metros, as seen in the chart below, and most of that is further concentrated in certain submarkets."}, {"role": "assistant", "content": "And the estimated amount of national job growth, and its anticipated accompanying demand, is not going to be concentrated in just a handful of metros, which is why supply is expected to outpace demand in many of these metros over the next 12 to 18 months. Job Growth Slowing in Some Metros with New Supply Although the nation is expected to see positive job growth this year, that doesn’t mean that all metros will experience the same level of employment growth, as illustrated in the two charts below. The New York metro is expecting the largest amount of new supply, with more than 59,000 units underway, of which 45,000 units are expected this year alone. Based on its lackluster anticipated job growth rate, at best the metro could produce demand for only about 23,000 multifamily rental units. Boston has nearly 21,000 units underway, of which nearly 15,000 units are expected to deliver in 2018. Based on an anticipated job growth rate of just 1.2 percent, potential multifamily demand of about 4,100 units will fall far short of upcoming supply. Washington, DC has more than 21,000 units expected Multifamily Apartment Units Underway – Select Metros - Thousands Beyond Source: Dodge Data & Analytics, January 2018 – Metros with 4,000 or more units underway or completed."}]}
{"messages": [{"role": "user", "content": "of 7 to come online this year, yet anticipated job growth of 1.2 percent will at best produce demand for just 10,000 units."}, {"role": "assistant", "content": "As a result, all three of these metros began experiencing negative rent growth during the latter part of 2017 and will likely continue to do so in 2018. Other Metros Possibly Undersupplied Job growth in other metros is expected to fare better, as seen below. Some of the Florida metros, including Jacksonville, Orlando, Tampa, and Miami, are expected to far surpass the national average. Dallas and Austin are expected to see job growth of more than 2.0 percent due to continued expansion in the professional services, technology, healthcare, and transportation sectors."}]}
{"messages": [{"role": "user", "content": "At 3.2 percent, Jacksonville has one of the highest projected job growth rates in the nation."}, {"role": "assistant", "content": "The metro could easily produce demand for a minimum of 3,600 units, yet fewer than 1,800 units are expected this year. Las Vegas is even more compelling. With expected job growth of nearly 3.0 percent, there could be demand for at least 6,000 units, yet only about 3,000 units are expected to come online in 2018. Phoenix is another “good news” story, with anticipated job growth of 2.6 percent. That could produce demand for at least 10,000 units, yet only about 8,000 units are expected this year. of 7 Cap Rates Likely to Remain Low With multifamily cap rates at historically low levels – currently 5.6 percent, according to Real Capital Analytics – it would seem that they have nowhere to go but up. But with the passage into law of the Tax Cuts and Jobs Act of 2017, will they? Multifamily cap rates have remained in the 5.6 percent range for most of 2017 due to the ongoing influx of capital flows and investor demand. With interest rates also staying low and real estate investment expected to get a boost from the recent tax cut legislation, it seems likely that investors will stay interested in the multifamily sector as well. In fact, according to a November article in National Real Estate Investor, the multifamily sector remains “… a favored property type among commercial real estate investors. When asked to rate the attractiveness of the different core property types on a scale of 1 to 10, [NREI] survey respondents scored multifamily the highest at 7.9….” As a result of this anticipated investor interest, while an uptick in new multifamily construction investment is not expected due to oversupply concerns in many submarkets, investment in existing multifamily properties is expected to remain on par with 2017 levels. Therefore, the projection is that multifamily cap rates are likely to remain stable in 2018. of 7 2018 Outlook: More of the Same The outlook for the multifamily sector in 2018 remains positive but relatively stable. Multifamily mortgage origination volume levels are expected to remain similar to, or slightly lower than, 2017’s activity levels. The Mortgage Bankers’ Association anticipates multifamily originations volume to reach $258 billion, down compared to its estimated $271 billion for 2017."}]}
{"messages": [{"role": "user", "content": "The amount of new supply expected to come online this year is mostly located in about 10 to 12 metros, some of which are likely to experience a slow-down in demand due to upcoming oversupply."}, {"role": "assistant", "content": "While there should be job growth spurring continued rental household formations, this concentrated amount of supply – consisting primarily of Class A units – will likely cause a disruption in underlying fundamentals in certain metros. Rising vacancy levels and reduced or negative rent growth could occur in certain submarkets, which in turn is likely to negatively affect overall trends in the nation’s oversupplied metros. It is important to keep in mind that this slowdown is expected to be short-lived, occurring over the next 12 to 18 months. After that time, we expect that the multifamily sector’s underlying fundamentals will improve, as new supply slows and stable job growth and demographic trends continue, resulting in increased demand."}]}
{"messages": [{"role": "user", "content": "of 5 The Tax Act Boosts Corporate Profits Revisions to gross domestic product (GDP) for the second quarter were uneventful. However, corporate profits, a new piece of data, revealed the improving underlying health of businesses, even absent the recent tax benefits and despite tightening labor markets. Pre-tax profits grew 3.3 percent in the second quarter (not annualized), accelerating from a 1.2 percent gain in the first quarter and marking the strongest quarterly pace in four years. Domestic profits from both the financial and nonfinancial sectors outweighed a decline in overseas profits. On an annual basis, after-tax profits spiked during the first half of this year, a testament to the impact of the large corporate tax rate cut included in last year’s tax act. The biggest quarterly increase in productivity growth in three years of 2.9 percent annualized helped keep unit labor costs contained during the second quarter. However, productivity growth tends to be volatile from quarter to quarter. On an annual basis, productivity grew 1.3 percent during the second quarter, remaining within the tight range of 1.0 percent to 1.4 percent seen since the end of 2016."}, {"role": "assistant", "content": "Going forward, rising labor and material costs, increasing interest rates, and a flattening yield curve will likely compress domestic profit margins. At the same time, a strengthening dollar and moderating global growth should weigh on overseas profits. Strong Labor Market Continues to Support Consumers Hiring improved in August, with nonfarm payrolls increasing . Despite downward revisions totaling 50,000 in the prior two months, the three-month average job gain came in at a solid . The big news in the jobs report was the 0.4 percent jump in average hourly earnings from July and 2.9 percent from last August, the biggest annual rise since June 2009. The household survey showed a flat unemployment rate at 3.9 percent, but the broadest measure of labor underutilization (U6), which includes discouraged workers and those working part-time for economic reasons, fell one-tenth to 7.4 percent, the lowest level since April 2001. Part-time workers for economic reasons as a share of total employment fell to 2.8 percent, below the average of the prior expansion. In a slight setback, the household survey revealed a two-tenths decline in the labor force participation rate, which fell to the bottom of the narrow range of 62.7 percent to 63.0 percent registered since May 2016. While the teenage participation rate, which tends to be volatile during the summer months, pulled down the overall rate, the rate for prime-age workers (25- to 54-year olds) dropped for the first time in three months. Overall, the household survey suggests ongoing diminished labor market slack."}]}
{"messages": [{"role": "user", "content": "Myth Busting: The Truth About Multifamily Renters Multifamily Economics and Market Research With more and more Millennials entering the workforce and forming households, as well as foreclosed homeowners turning to renting, rentership in the U.S. has been increasing. It should then come as no surprise that there has been growing interest in the multifamily rental sector over the past few years, from developers, property owners, lenders, investors, and of course, renters. Alongside that growth, there are anecdotal themes or myths in the multifamily sector regarding renters often accepted as fact but not supported by our research. Overall, these myths portray a stronger long- term interest in renting in general and the multifamily sector in particular than is warranted by our analysis. Therefore, those involved in the U.S. multifamily sector should remain vigilant about separating fact from fiction, and more importantly, identifying fact-based future trends involving the nation’s 44 million renter households to better support their strategies. Some Common Renter Myths What are these misconceptions about renters? Some of the more common ones include: 1. Renters primarily rent multifamily units; 2. Young people mostly rent multifamily apartments; 3. Most multifamily renters, especially Millennials, are not interested in homeownership; and 4. Renters rent because they can’t afford to buy a home. In many cases, these “myths” are simply not true. Others are more complex and contain a kernel of truth but ultimately may cause some to form misleading conclusions. Finding Out What Renters Think – and Want There is quite a bit of data available on the multifamily sector from a wide variety of sources, including vacancy rates, asking rents, concessions, and more – some of which we use here. The NHS is the only large, national, monthly survey of consumers focused primarily on housing. The responses of the nationally-representative sample of 1,000 Americans aged 18 or older each month to about 100 survey questions promptly provide information on a wide range of housing-related topics. For the sample to accurately represent the U.S. population, 70 percent of calls are made to cell phones. The survey results highlighted in this report are from the first quarter 2018 NHS, focusing on four key audiences: All Renters, Single-Family Renters, Multifamily Renters, and All Owners, as illustrated below. So why rent if you can afford to buy? As seen in the chart below, there are a myriad of reasons for households to rent. According to the first quarter 2018 NHS, reasons for renting include: more flexibility in housing choices; less “hassle and stress;” living in a “better neighborhood;” and being protected against falling home prices. The majority of renters, most notably younger renters, are primarily renting to save money to put toward buying a home. But it is not just younger renters; many surveyed single-family renters and older renters are also renting to save money toward buying a home. About 22 percent of renters in 2016 could afford to make the monthly principal and interest payments on a home, if they were not paying more than 30 percent of their household income. When that assumption is increased to 40 percent, then the number of renters being able to afford the monthly principal and interest payments on a home increases to 34 percent."}, {"role": "assistant", "content": "That suggests that, as today’s Millennials age and transition into homeownership, or even rent single-family homes, there won’t be as many new, younger renters to replace them. Additionally, much of the recent multifamily construction expected to deliver in the next decade has been designed with the vacating generation's preferences in mind."}]}
{"messages": [{"role": "user", "content": "Concessions are one of the ways property owners attract tenants in a competitive market. Concessions are enticements with economic value for renters, such as periods of free rent, free utilities, or other amenities. Concessions data from RealPage continues to show that, on a national basis and in most markets around the country, property owners have not increased the value of the concessions they offer to keep units occupied. Instead, concessions have remained near historically low levels over the last five years, though there is occasional volatility. Overall, the value of concessions (for properties that offer concessions) has remained around 6% of annual asking rents for more than six years. Over the past year, concessions have remained generally stable, with the October 2019 level of 5.9% virtually unchanged from the 6% level in October 2018. That’s down significantly from the peak of more than 11% back in late 2009. And as of the end of the third quarter of 2019, just 14.9% of the properties surveyed by RealPage were offering concessions, down from nearly 66% at the end of 2009, as seen in the chart below. National multifamily concession rate Percent of properties offering concessions Source: RealPage and RealPage Investment Analytics, October 2019 The nation’s multifamily markets continue to see a surge in the supply of new apartments. In 2019, the industry expects to complete nearly new apartment units, according to Dodge Data & Analytics."}, {"role": "assistant", "content": "That’s after it added nearly units in 2018, as seen in the chart below. Concessions low, though rising modestly in some major markets Although more than new apartment units are expected to be completed in 2019, these units are not evenly distributed on a national basis. In fact, the majority of the new apartment supply is concentrated in approximately 12 metropolitan areas, and primarily in an even smaller set of submarkets within those metros. The most active metros in the country for apartment development continue to be New York, Washington, D.C., Dallas, and Los Angeles. New York has more than 59,200 units under way, while the other three exceed 22,000 each. Boston, Seattle, and Austin follow with slightly fewer units, and Atlanta, Minneapolis, Orlando, Houston, and Chicago round out the top 12. These 12 major metros have seen an increase in the level of new supply over the past few years. Pent-up demand has helped absorb this wave without property owners having to greatly increase concessions, though there have been some steady but modest increases in several of these metros, as seen in the chart below."}]}
{"messages": [{"role": "user", "content": "Multifamily Concession Rate by Market – Select Metros Source: RealPage, October 2019 For context, a month of free rent is a concession rate of 8.3%. So, although Atlanta has experienced the largest increase in concessions since 2016 among the markets listed above, its concession rate remains a low 5.8%, though that is up from 3.9% in October 2016. Atlanta’s multifamily market remains stable, with a strong underlying economy, vacancy rates moving in the right direction, and asking rent growth positive. But high levels of supply, especially within the Buckhead, Central I-75 West, North Gwinnet, and Midtown submarkets, is likely pushing some landlords to increase concessions. The Dallas and Seattle markets also currently have strong underlying economies and robust new development and have seen a bit of a rise in concessions since 2016, but all remain under one month’s free rent. Orlando and Houston are also in the midst of an economic expansion, coupled with a surge in new apartment deliveries, but these multifamily markets have not seen a rise in concessions. Orlando has seen its concessions rate decline to 4.6% in October 2019 from 5.2% in October 2016. It added around 24,300 units to its market during this period. Houston has had over 33,800 units come online during this same period, and it has seen its concession rate decline to 6.9% from 8.0% over that same time period."}, {"role": "assistant", "content": "National Multifamily Concession Rate by Property Class Source: RealPage, Q3 2019 Over the past three years, concessions for Class B and C properties have generally remained below 4.0%, and both classes’ respective concession levels have remained below the Class A level since the second quarter of 2016. Over the past year, the overall concession level has been stable: Class B concession level for the third quarter of 2019 came in at 2.6%, down slightly from 2.9% for the third quarter of 2018, though Class C concession levels rose slightly, to 3.0% for the third quarter of 2019, up from 2.9% for the third quarter of 2018. Are rising concessions on the horizon? The nation’s multifamily apartment market has remained quite stable for an extended period. Recent job growth has stimulated sufficient demand to absorb the surge of new units being completed, likely due to the overall shortage of housing across the nation. And the level of concessions that are being offered has remained low by historical standards. As some of the nation’s major metro areas are continuing to see more new supply, some of these markets – like Atlanta, New York, and Seattle – have seen a rise in concessions as new units have entered the market, while others – like Orlando and Houston – have experienced a modest decline. We expect that concessions will increase slightly, but primarily for class A units, as the wave of new supply is delivered over the next 12 months. We also expect that the national concession rate will likely remain relatively stable, since the demand for class B and C units continues to be strong, keeping concessions for those classes of units fairly low."}]}
{"messages": [{"role": "user", "content": "Market-rate properties that do not receive support from government housing programs, but generally have more affordable rents than Class A properties, are at another point on the spectrum. These units may be more affordable to low- and moderate-income households due to their age, condition, or location, and are usually referred to as Class B and C units. Unlike rent-restricted units, these Class B and C units are not required to maintain housing costs at affordable levels; therefore asking rents are fluid and based on supply and demand. Vacancy Rates for Workforce Housing Remain Low… Ongoing demand for affordable rental units has kept the estimated vacancy rate very low for the types of apartments affordable to many working renters. As shown in the chart above, vacancy rates for Class B and C properties bottomed out in 2015 at 5.1 percent and have barely budged since. The estimated vacancy rate for Class C apartments, which tend to be Class A Class B Class C Rent-Restricted Source: , Reis, Inc. Note: Class A is approximated by five- and four-star category properties. Class B approximated by three-star category. Class C is approximated by two-star and one-star category data. Rent-Restricted data from Reis. of 8 some of the most affordable, was only 4.9 percent as of the end of 2018, according to . Vacancies at rent-restricted properties were even tighter – only 2.3 percent, according to Reis. These include properties with rent-restricted units that benefit from LIHTC and Project-Based Section 8 programs. Even vacancies at middle-market Class B apartments remained low at 5.5 percent. Only vacancies at Class A units remained elevated at 8.5 percent as of the end of 2018. The discrepancy in vacancies shows the demand for units affordable to workforce renters remains strong. The vacancy rate for the Class B and C segments are 3.0 or more percentage points below that of Class A rentals. …and Are Unlikely to Rise The vacancy rates at apartments affordable to workforce households are unlikely to rise anytime soon. According to Reis, vacancies at rent restricted apartments should remain below 2.1 percent through 2020. According to , vacancies at more affordable Class B and C properties should rise to just 5.7 percent and fall to 4.8 percent, respectively, through 2020, which would still leave them below the historical average of 6.0 percent. By contrast, the vacancy rate at Class A properties could rise to as high as 10.3 percent by the end of 2020, as continuing deliveries meet slowing job growth. New Supply Has Not Benefitted Lower Income Working Renters It is expensive to build new units. Construction costs, including labor and materials, continue to rise. According to Multifamily Cost of Regulation, jointly released by the National Association of Home Builders and the National Multifamily Housing Council in June 2018, regulation imposed by all levels of government accounts for over 30 percent of the average cost of a new multifamily development. In addition, local zoning restrictions may limit density, thereby restricting the number of units built. As a result, not only is most new supply expensive, but delivery of new units is not evenly distributed across the country. Development is now concentrated in only about 10 metros, most of which command higher asking rents, such as New York; Washington, DC; and Seattle. The number of new Class A units has grown by just under 1.4 million units from the end of 2009 to the end of 2018 and now totals about 5.3 million units, according to Reis. A renter household would have to earn almost $89,000 a year to be able to afford the average Class A rent of $2,224 on a newly constructed apartment in 2018. Share of Affordable Class B and C has Declined From 2009 to 2013, an estimated Class B and C units were lost on average annually, primarily due to obsolescence or gentrification. More recently, an estimated units per year are lost on average. The slowdown can be attributed to the strong demand for rentals since the end of the recession. According to the May 2018 Joint Center for Housing Studies (JCHS) of Harvard University’s report, Proactive Preservation of Unsubsidized Affordable Housing in Emerging Markets, gentrifying neighborhoods with strong demand for multifamily rentals ended up having many of their older – and therefore usually more affordable – market-rate properties renovated into more expensive Class A units since that is usually more cost-effective than new construction. As a result, the share of more affordable Class B and C units has declined to about 52 percent of stock as of the end of 2018 compared to an estimated 59 percent as of the end of 2009, as shown above. According to , asking rent growth in the Class B and C segments outstripped the Class A segment over the past few years, as shown in the adjacent chart. Rent growth for the Class C segment, where rents are likely comparable to those for rent- restricted units, grew by an estimated 2.9 percent in 2018 to about $1,034 per month. Rent growth for Class B units was even stronger at 3.4 percent, resulting in an estimated $1,190 per month."}, {"role": "assistant", "content": "Both segments grew well above the pace of inflation, which averaged 2.4 percent in 2018. …and It Is Likely to Continue Going forward, 2019 new supply deliveries are expected to start to spill over to the Class B and C segments thanks to slowing or even negative rent growth on high rent Class A units in some submarkets. This should dampen the rent increases that owners can command on more affordable units. Even so, rent growth for all types of multifamily rentals should remain positive, doing little to improve affordability."}]}
{"messages": [{"role": "user", "content": "CONTENTS 33 16 SECTORS OFFICES Occupier choice starting to expand as market begins to turn."}, {"role": "assistant", "content": "21 RETAIL AND LOGISTICS The growth of ecommerce, combined with economic fundamentals, will be the major driver of performance for the retail and logistics sectors. 29 OPERATIONAL REAL ESTATE Major institutional investors now firmly committed to operational real estate, especially established sectors such as healthcare and student housing."}]}
{"messages": [{"role": "user", "content": "55 ECONOMICS AND POLITICS 2019 IN PERSPECTIVE: A TWO-SPEED ECONOMY Europe failed to maintain 2018’s pace of economic growth, with GDP growth expected to be around 1.3% by the end of 2019, slightly below the long-term average. This can largely be explained by slowing international trade and Brexit-related uncertainty which is weighing on export-demand and industrial output in Europe. The UK, Germany and large parts of central Europe have unemployment rates below 5%; while Italy, Spain and Greece, continue to see double-digit unemployment rates. Despite tight labour markets, Euro area inflation has been persistently weak, prompting the European Central Bank (ECB) to lower the deposit rate further into negative territory and reinstate its net asset purchase programme at a monthly pace of €20bn."}, {"role": "assistant", "content": "Again, aggregate inflation hides local disparities, with countries in central Europe seeing persistently higher inflation. 2020 AND BEYOND IN EUROPE: WEAKER BUT STILL POSITIVE There is still some way to go before international trading arrangements normalise and Brexit-related uncertainties subside, and as such we expect Euro area GDP growth to remain slightly weaker than in recent years, but still modestly positive. While we expect the western economies to show slightly weaker growth for 2020 as a whole, we expect Q4-on-Q4 growth rates to be much the same as 2019. Central Europe is forecast to slow compared with 2019, as the bottoming out of the German industrial sector starts to spill over into those countries that depend on Germany as a source of external demand."}]}
{"messages": [{"role": "user", "content": "Despite the struggles in Europe’s industrial sector, service sector output has been relatively robust, and we expect this to continue into 2020. Employment growth will slow in response to weaker GDP growth, which will have some dampening effect on consumer demand, but this will mostly be reversed as we move into 2021 and the growth outlook starts to improve. INFLATION AND INTEREST RATES: LOW AND LOWER The near-term outlook for inflation is being influenced by two opposing forces. On the one hand, tight labour markets should help to push up wages and prices. Conversely, moderating commodity prices have acted to pull down inflation. In eastern Europe, the tight labour market is passing through into price Weak global trading conditions continue to weigh on European growth, primarily reflecting a struggling manufacturing sector, but with far greater resilience in services. The main risk to Europe is escalation of US-EU trade tensions, with further falls in demand for European exports. Despite this, labour markets remain robust and wage growth has accelerated in several countries providing further support to consumer demand in Europe. Overall, we expect the stabilisation of commodity prices to raise core inflation moderately, but not enough to push inflation above the target in the eurozone for the next few years. With monetary policy in the eurozone remaining accommodative and continued low interest rates globally, policy normalisation is likely a long way off. As such, we do not expect any increases in short-term interest rates in 2020 and 2021. Indeed, the effectiveness of monetary policy may be nearing its end, which would make the European economy increasingly reliant on fiscal policy in the unlikely event of a downturn."}, {"role": "assistant", "content": "Long-term interest rates in Europe, and elsewhere, are likely to drift upwards, but this is largely because of developments in US interest rates, rather than an expectation of higher short rates in Europe. Our view that long rates will drift up is a cyclical phenomenon, and not a structural adjustment back to pre-Global Financial Crisis (GFC) levels. Long-term interest rates are still expected to remain at historically low levels for at least another three years, and particularly through 2020. POLITICS IN EUROPE: BREXIT AND ITALY Political risks in Europe will continue to centre mainly on country-specific issues in the UK and Italy, and the continued geopolitical tensions among the US, China and the EU. Business confidence and investment, particularly in the UK, have been eroded by the Brexit process. With the withdrawal stage of Brexit negotiations expected to complete soon, the UK will move into the ‘implementation period’ during which the UK and EU will enter discussions on their long-term future relationship. This is unlikely to be straightforward and may end up being extended beyond the one year currently provided for. In any event the UK will not have as good access to EU markets as it has now. Given current Fed and ECB attitudes, we expect the accommodative policies of central banks to continue. While their real and long-term impact on the economy can be questioned – Mario Draghi has stated that governments with fiscal space should act to support economic activity – it is clearly reinforcing our scenario of lower interest rates for longer. The ‘lower for longer’ scenario is a favourable one as it supports a comfortable real estate premium over government bonds. Having said that, we see two concerning side effects for real estate: • Lower yields mean investors must reduce their return requirements, starting with value-add strategies, and/or consider higher risks • Yields are converging, narrowing risk premia within property as an asset class Bond yields may have gone negative in parts of Europe but prime property yields appear to be nearing their floors, except for our expectation of some further yield compression for the very best assets in Europe. This is likely to be accompanied by a widening spread between London and other European cities, as long as Brexit uncertainty persists. Some specific markets or asset classes (datacentres, senior/student housing etc.) should also experience yield compression as a result of investors widening their criteria beyond mainstream asset types in search of enhanced returns. In the medium term, we do not expect yields will return to the levels that preceded the GFC, as the equilibrium level of interest rates, for various reasons, is now significantly lower. ‘FORCED’ ELEMENT TO INVESTORS APPETITE FOR REAL ESTATE IN will have seen property investment levels in continental Europe slightly lower than the record year of 2018, down by a mid-single digit percentage, due to supply shortages in certain markets, including Germany. The decline, however, will be more pronounced in the UK, given the continuing uncertainty regarding the timing and impact of Brexit. Looking forward, in the context of strong liquidity maintained by central banks, investors are increasingly favouring real estate in their multi-asset allocations, attracted by its yield compared to other asset classes and the safe haven offered in the face of monetary erosion. One study notes an increase in target allocations to real estate (to 10.6%) for a sixth straight year 1. CAPITAL MARKETS 1 Source: Cornell University Baker’s Program in Real Estate – Hodes Weill & Associates The accommodative policies of central banks are reinforcing our expectation of lower interest rates for longer. Prime yields are nearing their floors, although we still expect some compression for the very best assets to continue into 2020. Investors are increasingly favouring real estate in multi-asset portfolio allocations, so we expect 2020 volumes at least around the 2019 level in continental Europe, with a possible rebound in the UK. With investors faced with entry values that are already cyclically-high, the market’s attraction derives partly from property’s favourable return spread over bonds: in other words, institutional investors (insurance companies, pension funds, etc.) will continue to display an almost ‘forced appetite’ for real estate. BEYOND 2020: MEGA TRENDS AND STRUCTURAL SHIFTS IMPACTING REAL ESTATE INVESTMENT The investment outlook for 2020 contains elements of longer-term shifts in the structure of property investment activity. We are seeing a bifurcation of real estate investment comprising two main elements: • On the one hand, a strong search for capital protection with large flows into core assets in highly liquid markets, often at a very low yield • On the other hand, a search for growth by identifying mega-trends and structural shifts, with the aim of formulating strategies to deploy capital on these themes Among the mega trends that already guide real estate investment choices, ecommerce, urbanisation and the ageing population are among the best identified trends. Others include the shift from home ownership to renting or privatisation of social housing or healthcare. ‘Hotelification’ of real estate is a major structural shift in the industry, impacting income streams and investors’ business models. In the years to come, two other secular trends will need to be embraced by investors, even though timing and impact may still be quite uncertain: • Energy transition and sustainability: now a major societal issue and one where changes imposed by occupiers and their labour force could be imposed on real estate investors earlier than expected; • Technological innovation, including the possible impact of artificial intelligence on labour requirements and thus the quantity and location of real estate expected in the medium term The effects of these shifts could come to impact pricing, strength of occupier demand for specific assets, value gradients and the emergence of new types of asset, all of which investors will need to consider as part of a balanced portfolio strategy. KEY INFLUENCES • ‘Lower for longer’ scenario now the consensus, but spread over bonds supporting high levels of real estate investment. • With growth in leasing activity likely to ease, investors will need to be increasingly selective, picking markets with the strongest rental growth expectations. The response of the real estate and construction sector to this deal has been slow and uneven, but more recently momentum has picked up. This is partly a reflection of the requirements of the agreement itself, but also a growing acknowledgment of the need to respond to the demands of their workforce, particularly younger workers. For instance, ethical business practices and environmental credentials both play a significant part in the role selection of millennial workers, and the issue has gained renewed prominence through the actions of the Extinction Rebellion movement in London and elsewhere. For investors, occupiers, and developers, the common aims of optimising the performance of real estate, people and environment mean that sustainability forms an increasingly integral part of decision-making. Evidence of this can be seen in the fact that 93% of investors include Environmental, Social and Governance (ESG) criteria in investment decisions1, and that 72% of occupiers express some degree of preference for WELL-certified buildings2. The precise consequences of this heightened focus will vary as businesses plan their strategies for 2020 and beyond, but we expect to see a growing occupier preference for sustainable buildings, and rising incidence of impact investing."}]}
{"messages": [{"role": "user", "content": "WHY THE REAL ESTATE SECTOR NEEDS TO DECARBONIZE The construction and operation of buildings contributes to 39%3 of worldwide greenhouse gas emissions: 28% from operational emissions and the remaining 11% emitted during the manufacture, transport and construction of building materials, together with end of life emissions. Embodied carbon has typically been overlooked in the past, but as operational carbon emissions are reduced, embodied carbon will grow in importance as a proportion of total emissions."}, {"role": "assistant", "content": "• Fund/portfolio level – Organisation-level policies are typically translated into fund level initiatives to manage ESG compliance through the adaptation of a portfolio level action The construction and operation of buildings contributes to around 40% of worldwide greenhouse gas emissions. Driven by a combination of regulatory and social pressures, we expect companies to devote more attention and rigour to ESG policies that integrate organisational, portfolio and asset level objectives. Investors, developers, occupiers and advisors, as well as asset, property, and facility managers all have a role to play in this transition. SUSTAINABILITY plan over a period of 3-5 years. Portfolio owners recognise that they are not always in full control of the fulfilment of their targets, but depend on the attitudes and behaviours of their occupiers, investors and other stakeholders. To accommodate this disparity, we expect a growing focus on stakeholder engagement and reporting transparency."}]}
{"messages": [{"role": "user", "content": "17 17 SECTORS OFFICES Office-based employment growth will slow in 2020, with leasing activity starting to turn down and a more balanced, less tech-dependent demand profile emerging. Supply conditions will begin to loosen, with vacancy levels likely to plateau or rise as new development completions accelerate. City-level variations in these trends will, if anything, widen. Look for occupiers to take a more activist approach to their portfolios, with a growing focus on retain-reposition-dispose decisions."}, {"role": "assistant", "content": "21 RETAIL AND LOGISTICS The retail and logistics sectors will continue to be supported by slowing but steady economic growth. Retail sector performance will be country-specific, reflecting the current level and speed of growth of internet sales in each market. The logistics sector will continue to benefit from demand from expanding online retailers."}]}
{"messages": [{"role": "user", "content": "24 MULTIFAMILY The rise in the scale of capital deploying into Europe’s multifamily sector in the last few years has been substantial and is set to increase in 2020 and beyond."}, {"role": "assistant", "content": "This reflects urbanisation and demographic trends, with up to two thirds of the global population expected to live in cities by 2050 according to the UN. Currently uneven, the sector is evolving rapidly, and those looking to deploy need to take their cue from markets where the sector is already more mature. 27 HOTELS Europe is outperforming other global regions in terms of hotel operating performance. Strong trading is encouraging more development activity, but the key European cities look well positioned to absorb this new supply. Institutional investors will increase their hotel exposure, acquiring freeholds and other variable income structures, and partner with sector-specialist operating partners. 29 OPERATIONAL REAL ESTATE Operational real estate will remain a key focus for major institutional investors. Shortage of net-leased stock in regulated sectors will drive cross-border and sector diversification, and in turn harmonisation of pricing and structuring. Technological and cultural change are enabling investors to engage in operations directly, with substantial implications for the market."}]}
{"messages": [{"role": "user", "content": "31 DATA CENTRES Fuelled by growth in the capacity needs of cloud service providers, the European data centre market will continue to grow in 2020. The increased scale of individual end-user deployments will be a key theme in the year ahead and will need to overcome the significant constraints around land and power availability that exist in some of the most popular data centre hubs. Expect further land price inflation, and some displacement, as a result."}, {"role": "assistant", "content": "OFFICES SLOWER OFFICE-BASED EMPLOYMENT GROWTH CONSTRAINS TAKE-UP All the major western European economies experienced a slowdown in economic growth in 2018 and 2019, and all are expected to post still lower levels of growth in 2020. Central European economies, which had been stronger, are now also experiencing a slowdown. In line with this view, office-based employment in the major cities, a key driver of user demand for office space, will also see slower growth: we expect an increase of around 1.2% compared with an estimated 1.6% in 2019 and an average of 1.7% per year in the previous three years. This is already beginning to affect leasing activity. Through three quarters of 2019, office take-up across the main European markets was 2.1% ahead of the same period in 2018, but the rolling 12-month comparison is -1.4%. We expect aggregate take-up for the calendar year 2019 to be down around 1%, with a slightly larger decline of perhaps 2.5% in 2020, with supply shortages in some markets also contributing to this outcome."}]}
{"messages": [{"role": "user", "content": "Behind this overall picture, expect significant variations in the outlook for individual sectors and cities. For much of the recovery period since 2014 leasing markets have relied heavily on the technology sector as a source of demand. Recent data indicates a shift towards a more balanced demand profile. So far in 2019 technology’s share of take-up in the largest markets is down slightly relative to 2018, with financial and business services rising. Geographic variations are also marked, but do not always fall into simple regional groupings. So far in 2019, Central and Eastern Europe (CEE) markets as a group have posted stronger take-up numbers; moving into 2020 this will become more nuanced with Prague, Warsaw and Budapest looking stronger than Moscow and Bucharest. The late-cycle recovery that has boosted take-up levels in Spain and Italy in 2019 seems set to abate. Germany looks likely to be a mixed bag next year, with Frankfurt leading. Occupier choice in some markets is highly constrained by low levels of availability, particularly for large, modern centrally- located buildings. Vacancy has continued to decline across virtually all major European office markets through 2019, and looks likely to end the year at least 0.5 percentage points lower on aggregate. 2020 will be different with the supply side of the market starting to turn and, on our expectations, vacancy levels flat to slightly up over the course of the year, albeit remaining levels under 6% in a number of the larger markets. On balance this is, good news for occupiers as locational choice starts to expand. Owners will need to start to assess supply conditions and income growth prospects more closely."}, {"role": "assistant", "content": "In this environment we expect growth in prime rents across the region to slow from around 4.0% in 2019 to nearer 2.0% in 2020. In real terms, rental growth remains strongly positive in some cities through 2020 (Berlin, Amsterdam, Barcelona and Brussels), while turning negative in the UK and much of CEE. 19 19 SECTORS: OFFICES Source: CBRE Research INCREASING OCCUPIER RIGOUR As well as change arising from the cycle, we also expect occupiers to take a far more activist approach from towards their real estate portfolios in 2020 and beyond. This reflects the convergence of several trends and trade-offs around space utilisation, talent attraction and management, user experience, digital and technology strategies and portfolio agility and flexibility. • Currently tight supply conditions will ease as new development additions rise above the levels seen over the past two years. Rental costs expected to rise more slowly."}]}
{"messages": [{"role": "user", "content": "• With space choice expanding, occupiers respond to trend convergence around skills, digital strategy and user experience by taking a more activist approach to their portfolios."}, {"role": "assistant", "content": "21 21 SECTORS: RETAIL AND LOGISTICS RETAIL AND LOGISTICS PERFORMANCE DRIVERS: ECONOMIC FUNDAMENTALS AND ECOMMERCE GROWTH In 2020, the performance of both the retail and logistics sectors will be driven by economic fundamentals and the growth of ecommerce across Europe. In northern and western Europe, cultural factors such as high credit card usage and a digitally- literate consumer base will foster further internet spend. So the UK will remain Europe’s most mature online market through 2020, followed by the Netherlands. In most southern and central European countries, internet sales will remain at low levels during 2020, but they are catching up."}]}
{"messages": [{"role": "user", "content": "EUROPEAN RETAIL OUTLOOK: CONTINENTAL EUROPE MORE POSITIVE Retail will remain a thoroughly examined and heavily discussed sector in the coming year. Negative retail news, mainly from the UK, will make headlines."}, {"role": "assistant", "content": "UK retail will continue to weather a ‘perfect storm’ driven by a combination of structural (ecommerce), cyclical (GDP growth slowdown) and temporary factors (Brexit, the 2017 business rates revaluation)."}]}
{"messages": [{"role": "user", "content": "So, while prime high street rental values in most cities will either decline or see subdued growth over the year, we expect to see pockets of higher rental value growth in selected markets. These include cities such as Rome, Madrid, Warsaw, Budapest and Stockholm, driven by tourism, lower levels of internet sales, and/or positive GDP growth expectations. Retail investment in continental Europe is declining, and in the third quarter of 2019, it moved below the 10-year average. Negative sentiment from the UK, and the underlying level of uncertainty in the sector, are reducing the number of buyers in the market, mainly in France and Germany. Investors will be more selective in their choice of asset, preferring those that have an experiential, leisure or convenience element to them."}, {"role": "assistant", "content": "Retail yields are expected to either stay flat, or rise slightly, in most European cities."}]}
{"messages": [{"role": "user", "content": "The supply side has been responsive to this trend, although speculative developments are significantly lower than 2009 levels and the average vacancy rate remains below 5%."}, {"role": "assistant", "content": "We expect to see more moderate growth in German and Dutch markets due to lower economic growth expectations and weaker manufacturing output. Supply in the Netherlands is currently limited, but land availability and planning regulations are favourable for development."}]}
{"messages": [{"role": "user", "content": "Low unemployment rates across Europe have increased the importance of this factor. As a result, new and secondary locations, such as the north-east of England and the south of Italy,"}, {"role": "assistant", "content": "are becoming more attractive for developers and occupiers, especially in the ecommerce sector. We expect greater collaboration between city authorities and logistics operators to tackle urban logistics and the last leg of supply chains. Cooperative hubs for environmentally-friendly delivery vehicles will be encouraged by local authorities. Investment in European logistics has been strong during the last seven years. We expect this positive sentiment to continue in SECTORS: RETAIL AND LOGISTICS 2020, as investors will continue to be attracted by the sector’s yield premium versus other traditional property sectors and government bonds. According to CBRE’s 2019 Global Investor Intentions Survey, investors continue to favour industrial and logistics over other commercial property sectors. We expect logistics yields to stay broadly flat in most major European markets but with continuing downward pressure in some, including Dublin and the main German markets. Instances of yield increase are expected to be scarce and small, limited to markets such as Prague and Bucharest. KEY INFLUENCES • The growth of ecommerce, combined with economic fundamentals, will be the major driver of performance for the retail and logistics sectors. • Availability of labour will continue to drive general location preferences among logistics occupiers. • Logistics innovations will continue to flourish in order to increase efficiencies and meet final consumer convenience. SECTORS: MULTIFAMILY MULTIFAMILY POSITIVE MOMENTUM FOR THE SECTOR TO CONTINUE EVOLVING The multifamily sector continued to gather pace throughout Europe over the past year and is set to continue to evolve and increase in popularity in 2020. This momentum is being driven by two related factors: • A fundamental shift in the number of people opting to rent rather than buy residential accommodation in many countries. One fifth of households in Europe already currently rent and the proportions are higher in cities and certain countries, such as Germany where renting accounts for more than 50% of total occupation • A growing pool of both domestic and international institutional capital looking to deploy into this sector with investment in this sector in Europe expected to exceed €64bn by 2021, an increase of over 18% on the 2018 level What was deemed alternative only a few years ago is now increasingly considered mainstream, with many investors attracted by the favourable return profile from a sector that is generally less susceptible to cyclical movements over the medium to long term – a trait that is particularly attractive at this late point in the property cycle. Over the past decade, multifamily has outperformed the retail and office sectors in a number of European markets including Germany, Norway, Netherlands, Sweden and the UK. In Germany for instance, residential returns have averaged 7.4% per year over the past decade, compared with 5.9% for retail and 3.8% for offices (MSCI). We expect to see this momentum continuing in 2020 with a considerable weight of capital and many new entrants looking for opportunities to deploy at scale into the multifamily sector across Europe. The capital base is becoming increasingly diverse with US private equity investors bidding alongside REIT-type vehicles from Canada as well as European institutional investors and fund managers. Investors are targetting both mature markets where residential investment has been established for some time, including the Nordics and Germany; and also emergent markets such as Spain, the UK and Ireland where new purpose-built stock is now starting to emerge with a strong emphasis on design, amenity and customer experience. As the year progresses, we expect to see increased focus on design and amenity as multifamily developers increasingly incorporate best practice from successful schemes in other jurisdictions. Equally, from an operational perspective, we expect to see greater efficiencies coming to the fore as developers and operators alike build up expertise in this sector and as technological solutions continue to evolve."}]}
{"messages": [{"role": "user", "content": "REGULATION FOREMOST AMONG THE INVESTMENT CHALLENGES While investors will be encouraged by the volume of end-user appetite for high-quality rental offering, a number of challenges threaten deliverability in some markets. These include: • The availability of land • Planning issues • Rising build cost inflation However, the single biggest concern among investors around the region is regulation in the form of measures such as rent controls that some governments have implemented or potentially will implement, in an effort to address affordability concerns."}, {"role": "assistant", "content": "However, the sector still suffers from inadequate policy frameworks, and so needs promotion and explanation by sponsors. This will continue to be the case as the sector evolves to include new forms of living such as co-living, micro-living, serviced apartments and later living and becomes increasingly topical in the context of mixed-use development, urbanisation and placemaking. Overall, we remain positive about the prospects for growth and continued investment in the evolving multifamily sector in 2020. • We expect to see new forward-commit and forward-funding structures coming to the fore in 2020 as investors look to deploy in markets where there is limited standing stock available."}]}
{"messages": [{"role": "user", "content": "27 27 HOTELS A STRONG STARTING POSITION The European hotels sector begins the year from a position of strength. Europe significantly outperformed the other key global regions in 2019 in terms of hotel operating performance, according to data from STR."}, {"role": "assistant", "content": "And demand growth is expected to persist. Based on Tourism Economics forecast data, the weighted increase for nights in paid accommodation across European capital and gateway cities in 2020 will be 2.0%. InterContinental Hotel Group and ibis by AccorHotels are proving particularly popular with developers. These limited-service concepts, recognised for their high share of revenue generated through bedroom sales, have established a track record of achieving strong market penetration in a short period of time. They typically have a lean operation, strong profit margin and lower development costs than their full-service counterparts. Most four and five-star projects are limited to gateway cities, outside of which full-service hotel replacement costs often exceed existing asset values. This disparity will continue to be a driver of investor demand for other hotel property types, for example, resorts. INVESTORS MANAGING RISK THROUGH ALLIANCES WITH OPERATING PARTNERS New stock will increase the acquisition opportunities for the growing number of institutional investors considering operational hotel investments. Having invested principally in leased hotel stock in recent years – and therefore not fully benefiting from the improvement in hotel performance – many funds are actively looking to increase their investments in variable hotel income, principally across European cities but also in resort locations. Whilst some institutions have invested indirectly or through debt, and will continue to do so, many are building relationships with operating partners to effectively manage direct investment risk and overcome fund-related challenges including the employment of staff. Schroders acquisition of European hotel management firm Algonquin is an example of ‘bricks and brain’ coming together."}]}
{"messages": [{"role": "user", "content": "Hotel income and capital values are not immune from market events such as recessions or inflation. However, the availability of granular, real time benchmarking data allows owners and operators to identify opportunities and risks at an early stage and act upon them with immediate effect."}, {"role": "assistant", "content": "As operators focus more on the optimisation of real estate to forge alliances with capital sources, expect per square meter to replace the traditional per room measures of reporting and analysis. INSTITUTIONAL CAPITAL TO EXCEED 30% OF EUROPEAN HOTEL DEAL VOLUME Furthermore, operational hotel investments do not have voids, and residual value is protected through ongoing maintenance and capex. The increase in global travel and rising proportion of consumer spending on experiences looks set to endure, and this should offset the period of expected low economic growth which lies ahead. These are key pull factors which appeal to the institutions and we expect them to support hotel investment volumes and yields going forward. In 2020, we expect that institutional capital will account for over 30% of the European hotel deal volume. 29 29 OPERATIONAL REAL ESTATE A UNIFIED EUROPEAN INVESTMENT MARKET? The perception of operational real estate sectors (such as healthcare and student housing, as well as retirement living, education and leisure) as just a niche area for opportunistic investment has changed greatly in recent years. This reflects the emergence of investors with advanced sector knowledge, more sophisticated lease underwriting, in the form of financial reporting requirements and more prudent rent-setting, and a proliferation of specialist advisers. Demand for these assets has increased correspondingly, both from specialist and core funds and private equity. In 2020, operational real estate will remain central to many investment strategies, with new and existing investors active in all major European jurisdictions that offer available stock. Indeed, as we foreshadowed in our 2019 forecast, there has already been a marked increase in the number of major investors taking a cross-sector, pan-European view in developing their investment strategies. This will continue into 2020. HARMONISATION IN PRICING Two consequences flow from this. Firstly, there will be increasing opportunities to drive innovation through new partnership models, underwriting approaches, and real estate structuring. Secondly, we believe it is inevitable that this trend will result in a degree of harmonisation in the pricing of well-let, good quality assets across the more heavily-regulated operational sectors. SECTORS: OPERATIONAL REAL ESTATE KEY INFLUENCES • Major institutional investors now firmly committed to operational real estate, especially established sectors such as healthcare and student housing. • Pricing of prime investments in alternative sectors will continue to harmonise across all jurisdictions where significant stock is available. As always in a climate of yield compression, shortage of investable stock and growing exploration of new sectors, caution is vital: proper underwriting of tenants, physical assets, operational setting, and disparate national commercial and regulatory standards will be more important than ever. Identifying opportunities will require ingenuity, a long-term view, and the right strategic partners. There are signs that this is beginning to erode the established paradigm whereby branding and operational expertise has been separate from capital-intensive real estate and its development. Until recently, real estate investors could not readily act as operators, because they had no access to the end-user. This has changed, and investors are no longer reliant on traditional large, branded operators. This is most obviously the case in the hotels sector, where there is increasing recognition that asset ownership is the best route to income security, but is also becoming a theme at the upper end of the private-pay elderly care and retirement living market. Property investors are already seeking to align with best-in-class operating partners. In response, operators are focusing on the optimisation of real estate, to attract and forge alliances with real estate capital. We expect operating partners to increasingly take on the role of investment manager, drawing on their specialist operational and real estate skills. L&G and AXA’s recent entries into the retirement living market are symptomatic of this trend. These trends will extend into mainstream, unregulated, property sectors – effectively the ‘hotelification’ of real estate. Lease lengths are falling and service levels increasing. As operational assets start to look more core and as core becomes operational, the opportunities to ride yield shifts as markets realign will be a growing opportunity for investors. SECTORS: DATA CENTRES KEY INFLUENCES • Further capacity expansion will continue to attract investment capital. • The sector continues to expand through new development, with the stock of the four largest European markets expected to grow by around 15% in 2020. • User demand in 2020 will continue to be driven by the major, largely US-based, cloud service providers. voltage (HV) power and fibre routes. These factors, along with planning approval and controlling physical risk, are crucial to developing a data centre. However, in established markets, being able to achieve these components will be difficult. In Amsterdam, for example, two municipalities have put a temporary ban on the development of new data centres because of the amount of power required by these facilities in areas where it is already scarce."}]}
{"messages": [{"role": "user", "content": "The effects of these barriers to entry are that data centre developers are either choosing to locate in new, unproven locations or are competing aggressively on price for land opportunities."}, {"role": "assistant", "content": "We expect both trends to be strong features of the market in 2020. These market conditions have led to one particular site in London, because of its unique attributes, being sold for more than £6m per acre. The year saw the announcement of the largest data centre M&A deal on record: Digital Realty’s $8.4bn acquisition of Interxion which is expected to close in 2020. The strong occupational growth story in Europe in 2020 will continue to entice capital from across the globe with infrastructure funds, institutional capital and private money all competing for the same opportunities. However, due to record levels of consolidation through M&A, the pool of viable platforms to purchase will have shrunk considerably, so accessing the sector will become more difficult in 2020. For more information about particular sections of this report or access to our detailed forecasts, please contact: Henry Chin, Ph.D. Available February UK Real Estate 20 Insight into the key trends affecting the UK property market over the coming year."}]}
{"messages": [{"role": "user", "content": "Government Consumption and Investment Net Exports of Goods and Services Change in Private Inventories Residential Fixed Investment Nonresidential Fixed Investment Personal Consumption Expenditures GDP Contribution to Real GDP Annualized % Change Net Exports Are the Largest Contributor to Growth for the First Time of the Expansion Q1 2019 QEuro Area (Chn $2010 EUR) U.S. (Chn $2012 USD) China (Chn $2015 Yuan) Real GDP (SAAR % Change) First Quarter Growth Accelerates Across the U.S., China, and Europof 5 Meanwhile, China grew at 6.9 percent in the first quarter, significantly above its 2019 target of 6.0 to 6.5 percent. Despite a variety of stimuli, including tax cuts, increased government spending, and relaxed bank reserve requirements, downside risks to Chinese manufacturing have emerged and a gauge of Chinese factory activity fell sharply in April, suggesting the policies may not be enough to ensure sustained growth. Additionally, U.S.-China trade tensions escalated in early May when the U.S. unexpectedly hiked an existing 10 percent tariff on $200 billion of Chinese goods to 25 percent and threatened to impose the same tariff on an additional $325 billion in Chinese goods. Equity markets pulled back sharply in response not merely to the U.S.-China disagreement but also out of concern that it might portend a similar escalation in U.S.-Europe trade tensions. Consumer Spending Growth Poised to Pick Up Personal consumption expenditures (PCE) grew just 1.2 percent annualized in the first quarter, the weakest pace in a year. Monthly data, however, showed that real consumer spending ended the quarter on a strong note, posting the largest monthly gain in two years in March. Strong PCE increases amid flat personal income pushed the saving rate eight-tenths lower to 6.5 percent, well below the nearly three-year high of 7.7 percent seen in December. However, consumers were cautious with credit card usage in March: while growth in nonrevolving credit (largely auto and student loans) held steady, revolving credit (largely credit card debt) declined for the first time in three months. Meanwhile, the Federal Reserve Senior Loan Officer Opinion Survey on Bank Lending Practices for the three months ending in April showed that the net share of banks tightening lending standards for credit card loans rose to the highest level since the end of 2009. The March Job Openings and Labor Turnover Survey pointed to an extremely tight labor market, which should support continued strength in consumer spending. The job openings rate rose to 4.7 percent, just shy of January’s all-time high, while the hires rate remained at 3.8 percent. The job openings rate has exceeded the hires rate for more than two years, and the number of openings has exceeded the number of unemployed persons for 12 straight months. The quits rate, a gauge of workers’ confidence in the labor market, held steady at an expansion best of 2.3 percent for the tenth straight month. The April jobs report confirmed the strength in the labor market, with nonfarm payrolls increasing by jobs to continue its rebound from February’s anemic gain. The stronger-than-expected gain helped boost the average monthly job gain for this year to though this remains slightly below the average 2018 gain of . The U-6 rate, a broad measure of labor market slack, held steady for the third straight month at 7.3 percent, the lowest level in 18 years. Other details of the April jobs report, however, were less rosy. The average workweek fell while the annual change in average hourly earnings has moved sideways in recent months after climbing steadily over 2018. The household survey results were mixed: the drop in the unemployment rate to its lowest level since 1969 came only because a drop in household employment was outpaced by a decline in the civilian labor force, pushing the labor force participation rate down to a seven-month low. The first quarter Employment Cost Index, a measure of labor compensation that is free from the influence of employment shifts across occupations and industries, edged down one-tenth of a percent on an annual basis from the expansion high of 2.8 percent as '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 Revolving Consumer Credit Outstanding (EOP, SA, MoM % Change) Consumers Take on Less Credit Card Debt '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 ECI: Compensation: Civilian Workers (NSA, Dec-05=100, Y-o-Y % Change) The Annual Rise in the Employment Cost Index Slows, Suggesting No Significant Wage Pressure '00 '02 '04 '06 '08 '10 '12 '14 '16 '18 JOLTS Rate Job Openings Rate Remains Elevated Compared to Hires Rate, Suggestive of a Tight Labor Market Job Openings (Openings/(Employment+Openings)*100) Hires (Hires/Employment*of 5 growth of the wages and salaries component as well as the benefits component slowed, indicating no significant wage pressure despite the tight labor market. Consumers appear to remain upbeat. The University of Michigan Consumer Sentiment index declined modestly in April but has essentially moved sideways at elevated levels since the presidential election. When asked about financial prospects for the year ahead, 44 percent of surveyed consumers anticipated improvements compared with just 8 percent who expected worsening finances, marking the best net improvement share since 2004. The jump in March consumer spending suggests increased momentum heading into the second quarter."}, {"role": "assistant", "content": "Recognizing this strength combined with historically elevated consumer confidence levels and healthy labor market conditions, we expect real consumer spending growth to pick up noticeably this quarter. Business Fixed Investment and Productivity Growth While trade and inventories exceeded our expectations, nonresidential fixed investment disappointed. Nonresidential fixed investment grew at a modest 2.7 percent annualized in the first quarter, driven almost entirely by investment in intellectual property products. Structures spending fell for the third straight quarter and equipment spending was essentially flat, edging up only two-tenths, the slowest pace in more than two years. While incoming data were mixed, we believe business investment growth will accelerate this quarter due to improved financial conditions and corporations’ desire to increase productivity in response to tight labor market conditions. Productivity growth has helped to keep per unit labor costs contained. Productivity jumped 3.6 percent annualized over the first quarter, the biggest gain since the third quarter of 2014, and registered more than 2.0 percent annual growth for the first time since 2010. The rise in productivity during the first quarter applied downward pressure on the growth in unit labor costs, pushing down its annual growth to the slowest pace since the end of 2013. We remain cognizant of several downside risks to nonresidential investment. The most prominent is the continuation of U.S.- China trade tensions, which may lead businesses to defer capital investments. Elevated levels of riskier corporate debt are also a concern as they make corporations more vulnerable to market shocks. The ratio of outstanding debt to GDP among nonfinancial firms is now near its all-time high. Not only is the nonfinancial corporate sector highly leveraged by historical standards, but credit quality in this space is also riskier than during past cycles. About half of outstanding bonds in 2018 were rated BBB, the lowest investment grade tier, up from one-third in 2000. As a result, a historically large portion of corporate borrowers may be susceptible to interest rate or liquidity shocks due to rising risk premiums or downgrades, potentially harming real economic activity. The Fed Struggles to Hit Its 2.0 Percent Inflation Target Inflation pressures remain muted, thanks in part to productivity gains balancing out wage growth. The annual gain in the PCE deflator, the Fed’s preferred measure of inflation, accelerated in March for the first time in eight months, though it remains one-half percentage point below the Fed’s 2.0 percent target, and well below the six-year high reached last July. First quarter headline PCE averaged 1.4 percent, the slowest pace since the third quarter of 2016. The statement following the May Federal Open Market Committee (FOMC) meeting acknowledged that both headline and core inflation “have declined and are running below 2 percent.” In the post-meeting press conference, Fed Chair Powell attributed the recent slowdown in inflation to “transitory factors,” such as portfolio management '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 Q1 '19 Personal Consumption Expenditures (PCE) Chain Price Index (YoY %Change) Since the Recession, the Fed Has Struggled to Hit the 2.0 Percent Target Rate PCE Index Core PCE Index Fed Target '11 '12 '13 '14 '15 '16 '17 '18 '19 SA, Year-over-Year % Change Annual Growth in Productivity Accelerates While Unit Labor Costs Are Essentially Flat Nonfarm Productivity Unit Labor Costs of 5 service fees and apparel prices, but inflation below 2.0 percent has been more of a norm than an exception in the current expansion. Since the expansion began, headline PCE averaged above or at 2 percent twice, while core PCE has always averaged below the 2.0 percent target. Sustained below-target inflation will likely make it difficult for the Fed to raise the federal funds rate any further this year. Additionally, while we had been hopeful for a U.S.-China trade deal to boost growth in the second half of the year, that hope appears less likely, suggesting that the Fed will not see the substantial pickup in growth needed to justify a rate hike. Thus, we changed our call from a rate hike in December to no more hikes expected within our forecast horizon. This is consistent with statements from the Fed, such as Powell reiterating that the FOMC is comfortable with its patient stance and does not “see a strong case for moving in either direction.” Housing Drags, but We Expect a Rebound Residential fixed investment fell during the first quarter for the fifth straight quarter, driven by the decline in spending on new single- family structures. While single-family starts increased during the first quarter, the spending on the construction of these structures fell as the average price declined. Improvement spending rose during the quarter and exceeded investment in single-family structures for the first time since 2013. Brokers’ commissions, a part of residential investment, rose in the first quarter, thanks to a jump in new home sales and the first rise in existing home sales in five quarters. New single-family sales rose almost 15 percent over the quarter and were up slightly on an annual basis. The strong pace of new home sales was supported by drawing down inventories of already-started homes that had built up as sales slowed in 2018 in the face of higher mortgage rates. However, after peaking last November at an average of 4.87 percent, the 30-year, fixed mortgage rate has pulled back, falling about 70 basis points to 4.14 percent in April. The full effect of declining mortgage rates is likely still working its way through the market, adding further support for buyers. Builders likely still have a few months to go before inventories are back to their pre- slowdown trend, which should support new home sales in the second quarter, even if starts remain lackluster. Another positive development for affordability and good news for entry-level homes is that builders are increasingly focused on more modest-sized homes. After peaking at more than 2,500 square feet in the first quarter of 2015, the median size of single- family starts trended down to about 2,300 square feet at the end of 2018. As the share of low- and moderate-priced new homes sold in the first quarter increased, the median price for new home sales fell 7.1 percent. For existing homes, annual home price gains continued to moderate, with the CoreLogic National House Price Index rising 3.7 percent in March, the slowest pace since May 2012. Overall, leading indicators suggest that the spring home-buying season will be solid, as we expected. Pending sales, a leading indicator of existing sales, jumped 3.8 percent in March, suggesting continued strength into April. Purchase mortgage applications have also been on the rise, increasing strongly in March and April. Thus, we revised upward our home sales forecast for the second quarter to show a solid rebound from the first quarter. When combined with our more optimistic view of new home sales for the year, total sales for 2019 were also revised upward seven-tenths from our prior forecast to a modest gain of 1.0 percent from 2018. of 5 This mixed housing sentiment, the continued tightness in housing inventories, and elevated home prices relative to incomes will likely weaken sales momentum in the latter half of this year. Thus, after a solid rebound in the first half, total home sales are expected to moderate and level out by the end of the year, especially as economic growth slows heading into 2020. The Housing Vacancy and Homeownership Survey showed a three-tenths decline in the homeownership rate in the first quarter to a seasonally-adjusted rate of 64.3 percent, the first quarterly decline since 2016. The annual pace of total household formation growth remained steady at 1.3 percent, bolstered by renter households that grew at the fastest pace since the end of 2016. Vacancy rates for multifamily rental units in the first quarter were unchanged from the year prior, indicating that supply growth matched demand growth. To be consistent with incoming applications data, we revised upward both our purchase and refinance mortgage originations forecasts for 2019, pushing expected total originations volume from $1.62 trillion to $1.66 trillion. We continue to expect purchase originations to rise given modest increases in home sales and continued, but slowing, home price growth. With mortgage rates beginning to stabilize at much lower levels than in 2018, we expect less of a decline in refinance volumes and have revised our forecast for 2019 refinance mortgage originations from a 2.2 percent annual decline to a 1.2 percent decline. Economic & Strategic Research (ESR) Group May For a snapshot of macroeconomic and housing data between the monthly forecasts, please read ESR’s Economic and Housing Weekly Notes."}]}
{"messages": [{"role": "user", "content": "The biggest driver of higher construction costs came down to the cost of labor. The survey found that labor costs more in New York, San Francisco, and Chicago due to the presence and influence of construction unions. According to RS Means survey respondents, it is less expensive to build a multifamily property in Atlanta, Seattle, and Dallas. Source: RS Means Compliance Costs Differ as Well Interestingly, the survey results suggested that permitting, zoning, and other local regulations typically do not add much to the total cost of a project, at least in the majority of the cities surveyed. For multifamily development projects located in Seattle, New York, Dallas, Chicago, and Atlanta, total compliance costs were between 2.0 percent and 4.0 percent of total project costs. By comparison, San Francisco was the outlier, with respondents stating that compliance costs accounted for more than 10 percent of the total project costs for developments in that city. Even though regulatory compliance costs may not account for a large portion of the total project costs, they are still significant as all regulatory requirements must be met before any actual site work can begin."}, {"role": "assistant", "content": "Real Estate Development Costs Not Significant For the purposes of this survey, RS Means did not include land or land financing costs in the categorization of soft costs. Land costs vary greatly by city, submarket, neighborhood, and site location, and are not tied to the actual cost of constructing the building. Nevertheless, the question was included separately in the survey. Across all six cities, respondents stated that, on average, real estate development fees only accounted for approximately 4.0 percent of total multifamily development project costs. New York had the largest real estate development percentage of project cost at 5.0 percent, while both Chicago and Dallas had the lowest percentage of project costs at just 3.0 percent. Included in the criteria for defining real estate development fees in the survey were financing costs, interest, tax credits, and any loan fees. Building Codes Result in a Big Impact on Project Timelines The survey also looked at industry factors that could potentially impact project costs and completion dates. One of the industry factors was the impact of building codes on cost. The developers surveyed in the six cities stated that, on average, stricter building codes increased total multifamily project costs by about 5.8 percent, but it varied by city. For example, developers in Atlanta reported that stricter building codes only increased their total project costs by about 3.0 percent, which was the lowest impact percentage in the survey. By contrast, San Francisco developers reported that stricter building codes increased their project costs by approximately 8.0 percent. The average of 5.8 percent of total project costs for stricter building codes increased project completion time by two months on average. Even though Atlanta had the lowest impact from stricter building codes, the city had the highest impact in regard to timelines, at approximately three months. San Francisco trailed right behind Atlanta in regard to the impact of stricter building codes. Overall the survey revealed that there was not much variance from the impact of stricter building codes on project timelines in the six cities."}]}
{"messages": [{"role": "user", "content": "As seen in the chart below, several of the nation’s largest metros, especially in their more urban centers, have seen a decline in rent growth over the past year, according to data from Advisory Services. While these include some of the more expensive coastal metros, including San Francisco, San Jose, Boston, Washington, DC, New York, and Los Angeles, there are a few others that might be a bit of a surprise, such as Dallas, Salt Lake City, Minneapolis, Orlando, and Nashville. Source: Advisory Services Decline in Average Rent by Submarket Type: Q4 2019 – Q3 2020 – Select Metros San Francisco - CA: Urb. Not Just Leisure and Hospitality Metros During the first few months of the economic shutdown stemming from the COVID-19 pandemic, there was a concern regarding those metros with looming new supply, and many of the metros listed above have seen an influx of deliveries over the past several months. The other concern regarded those metros with a reliance on leisure and hospitality as primary economic drivers. And while that segment of the labor force is still recovering from job losses that occurred earlier this year, its corresponding metros are not overwhelmingly represented in the list of metros with the biggest rent declines. Instead, it appears that due to the option of telework, many of the high-tech metros, such as San Francisco, San Jose, Austin, and Salt Lake City, have been bearing the brunt of falling rents over the past four quarters: San Francisco’s urban locations are down by 10 percent; San Jose’s urban locations are down 7.2 percent; and even Salt Lake City’s urban locations are down 1.6 percent, all according to recent data from Portfolio Services. That said, there are some metros in the chart above that also rely on tourism to drive their local economies. For example, according to Moody’s Analytics, leisure and hospitality is the fourth largest employment sector in both Los Angeles and New York City, accounting for nearly 12 and 10 percent of employment, respectively. It is the third largest in Austin and Nashville, at nearly 12 percent each, and in San Francisco it’s an even bigger driver as the second largest sector, representing more than 12 percent of all jobs. 2 Multifamily Economic and Market Commentary Increased Demand in Some Urban and Suburban Submarkets As seen in the chart below, while there are several suburban locations that have seen an increase in rent growth, they are joined by their corresponding urban submarkets. The Inland Empire (i.e., the Riverside/San Bernandino metro area) is one example for which both the urban and suburban submarkets have been experiencing above average rent growth over the past year, at 5.3 percent and 5.8 percent, respectively. Despite its reliance on the leisure and hospitality sector, Las Vegas has also seen unexpected demand, with average rent growth of 5.0 percent in its suburban locations and even 3.4 percent rent growth in its urban locations, according to data from . Tucson and Sacramento have similarly seen increased demand for multifamily rentals in both their urban and suburban locations. Increase in Average Rent by Submarket Type – 4Q2019 – 3Q2020 – Select Metros Source: Advisory Services Non-Coastal Suburban Metros Seeing Rent Growth… The suburban locations of some Midwest and non-coastal metros are also experiencing increasing rent growth since the fourth quarter of 2019. These include Columbus, Indianapolis, Detroit, Memphis, and St. Louis. What these metros have in common is that their economies are in large part driven by logistics and/or manufacturing. These two employment sectors, while having endured job losses over the past several months, have fared better than other sectors and are now nearly back to pre-pandemic employment levels. Both sectors are down just 5.0 percent nationally between January and October 2020."}, {"role": "assistant", "content": "That is an improvement compared to other harder-hit job sectors, such as education, which is down 20 percent nationally; mining, which is down 8 percent; and, of course, leisure and hospitality, which is down 20 percent nationally over the same time period. 3 Multifamily Economic and Market Commentary The Impact of New Supply… The run-up in new supply expected to deliver in 2020 has been years in the making. We expect at least new units to complete this year with more than units underway, according to data from Dodge Data & Analytics. We believe that the elevated amount of new supply entering certain metros and submarkets this year has further stressed rent growth and resulted in rising concessions."}]}
{"messages": [{"role": "user", "content": "As seen in the charts below, there are several metros that have concession rates well above the national average – and it’s likely no surprise that many of them are the same higher-cost metros that have experienced some of the biggest rent declines. The New York City metro has one of the highest concession rates in the country, currently at an estimated 14.8 percent, according to RealPage, Inc., but San Francisco, San Jose, and Boston are not far behind at 13.7 percent, 12.2 percent, and 11.2 percent, respectively."}, {"role": "assistant", "content": "Austin Boston Dallas Los Angeles New York Oakland San Francisco San Jose Seattle Atlanta Charlotte Columbus, OH Indianapolis Las Vegas Phoenix Riverside Sacramento Tampa A Continued Differentiation Expected Based on current trends, we believe that the demand for suburban relative to urban locations will continue into early 2021. The continued reliance on teleworking in the face of the ongoing pandemic suggests that some tenants that are working and able to pay rent – and that don’t have to commute to their jobs each day – will seek out cheaper options in some suburban locations, thanks to rising concessions and lower rents. How long the trend will last is a bigger question. If additional outbreaks continue or worsen and local economies endure rounds of additional shutdowns, we believe multifamily fundamentals, especially rent growth and concessions, could remain stressed well into 2021."}]}
{"messages": [{"role": "user", "content": "1 Over the past decade, the U.S. multifamily sector has benefited from solid demand, increasing rent growth, and low vacancies, thanks to favorable demographic trends, ongoing job growth, and continued renter household formations."}, {"role": "assistant", "content": "The same trends are expected to continue into the first year of the current decade. The biggest driver of multifamily demand has come primarily from the nation’s more than 80 million Millennials (those born between 1982 and 2000). They are the largest age cohort, outnumbering Generation Z (those born after 2000) and even Baby Boomers, according to the Census Bureau. Millennials, combined with Gen Z, the oldest of whom are starting to reach young adulthood, are expected to continue driving demand for housing, especially multifamily rental housing. Looking to the coming year, we expect the national multifamily sector to stay the course, as fundamentals are expected to remain essentially the same. We expect the vacancy rate to increase slightly and rent growth to remain positive in 2020, similar to last year’s pace."}]}
{"messages": [{"role": "user", "content": "Net Absorption Expected to Remain Positive Demand for multifamily rental units remained positive throughout 2019. Net absorption is estimated to have totaled about units last year, according to data from , which is down compared to 2018’s estimated units absorbed."}, {"role": "assistant", "content": "Net absorption is expected to remain positive this year, although likely slowing to about units, according to . Net absorption is expected to remain elevated earlier in the year and then slow down later in the second half, as seen in the chart above. 2 Rent Growth Expected to Remain Stable Rent growth was positive in 2019 and is estimated to have ended the year at about 2.5 percent – once again outpacing the rate of inflation, which was at 2.1 percent as of the end of November 2019. There has been above average rent growth since 2011, but only since 2017 has rent growth stayed below 3.0 percent. Our expectation for 2020 is that rent growth will once again be positive, though perhaps slightly lower than 2019, as we project it to be in the range of 2.0 percent to 2.5 percent."}]}
{"messages": [{"role": "user", "content": "National multifamily concessions for all property classes (averaged across all units, including those not offering concessions) remain at low levels. Only about 15 percent of all multifamily units are offering concessions, according to data from RealPage, Inc. Class A concession levels remain higher than class B and C units, indicating that property owners are likely offering more generous concessions up front for newer class A units to lock in higher rent levels upon lease renewal. For those class A units offering concessions, the average concession rate as of November 2019 was 7.1 percent, which is slightly less than a month of free rent. It was approximately three weeks of free rent for those properties offering concessions on class B and C units, at 5.6 percent and 5.5 percent, respectively, as of November 2019."}, {"role": "assistant", "content": "Multifamily Economic and Market Commentary Not Much Change Expected in Vacancy The national multifamily vacancy rate is expected to rise slightly in 2020, primarily due to the amount of new supply expected to complete and come online this year. Since much of this new supply is concentrated in a limited number of submarkets (only about 10 metros), it is possible that supply could outpace demand in some places this year. As a result, the national vacancy rate is expected to inch upward later in the year, as illustrated in the chart on the previous page. Despite an anticipated increase in the national vacancy rate, it is expected to remain low, due to demand stemming from anticipated positive job growth and favorable demographic projections. multifamily vacancy rate will remain in the 5.5 percent to 5.75 percent range during the early part of 2020 and could end the year near 6.0 percent. This would bring the national vacancy rate back to its recent historical average of 6.0 percent. Multifamily Economic and Market Commentary National class C rent growth in 2019 was estimated at 2.5 percent, according to RealPage, slightly lower than 2.9 percent for class A and 3.0 percent for class B. It appears that although less expensive units remain in demand, there isn’t much room to push rents higher, as evidenced by class C’s lower concession rates and 3.9 percent vacancy rate. As more new units deliver over the coming months, we expect the national concession rate to increase, albeit slightly. Class A concession rates may rise more dramatically for those metros with elevated levels of new deliveries in 2020. However, we believe that number of completions to be unlikely, based on the ongoing scarcity of construction workers. According to the Associated General Contractors of America’s 2019 Workplace Results survey, more than 80 percent of firms surveyed stated that it was difficult filling all positions, both hourly and salaried, but with hourly craft workers being the most difficult to replace. We do not expect that trend to improve in 2020. According to the Dodge Data & Analytics Supply Track, which distinguishes between multifamily properties consisting of either apartment or condominium units, about apartment units were completed in 2017, making it the most recent peak year for new deliveries. About units are estimated to have completed in 2019. The focus remains on rental: Condo completions recently peaked in 2018, with nearly 70,000 units, compared to only about 55,000 units in 2019. Dodge expects fewer than 50,000 condo units to be completed this year. Multifamily Economic and Market Commentary Continued Multifamily Demand Expected At a national level, we believe there is the potential for a slight supply/demand imbalance this year, based on the amount of new multifamily units expected to complete. Even though not all of the projected units are expected to actually deliver, the amount of expected job growth might not produce enough demand for all these new class A units. Based on that amount of job growth, national multifamily rental demand could be between and units this year. As seen in the chart to the right, much of that new supply is expected to deliver earlier in the year, when job growth is expected to be more robust than later in the year."}]}
{"messages": [{"role": "user", "content": "Nevertheless, much of the new supply consists of more expensive, class A units and is primarily concentrated in about 10 to 12 metros, as seen in the chart below, with much of it concentrated in only a few submarkets."}, {"role": "assistant", "content": "The estimated amount of job growth, and its anticipated demand, differs widely from metro to metro, meaning that some metros are expected to experience more demand than others over the next 12 to 18 months."}]}
{"messages": [{"role": "user", "content": "Multifamily Economic and Market Commentary Supply and Demand Vary by Metro Although the nation is expected to see positive job growth this year, it is not expected to be consistent everywhere, as illustrated in the two charts on the next page. These metros also happen to have a large amount of new multifamily rental supply on the horizon, as seen in the chart on the previous page."}, {"role": "assistant", "content": "The New York metro is expecting the largest amount of new supply, with more than 59,000 units underway, of which nearly 40,000 units are expected to deliver this year alone. Based on Moody’s Analytics’ anticipated job growth rate of just 0.4 percent, conservatively the metro could produce demand for fewer than 10,000 rental units. Chicago has more than 10,000 multifamily units expected to come on line this year, yet job growth of 0.5 percent could conservatively produce demand for fewer than 5,000 rental units. Although Philadelphia doesn’t have as much new supply underway as other metros, its projected below average job growth of just 0.4 percent could produce demand for fewer than 1,000 rental units, despite more than 8,000 units expected in 2020 alone. Other Metros More in Balance… Job growth in other metros is expected to fare better. Some Texas metros, such as Austin, Dallas, and Houston, are expected to surpass the national employment growth average. All three are expected to see job growth of 2.0 percent or higher, due to a continued expansion in the professional services, technology, healthcare, and transportation sectors. And while Austin and Dallas have elevated levels of new multifamily supply, the expectation of robust job growth should allow the multifamily sector to stay in balance over the course of the next 18 months."}]}
{"messages": [{"role": "user", "content": "Austin’s new supply is anticipated at 14,000 units between now and 2021, but potential new demand is not expected to be that far behind at nearly 13,000 units. Dallas’s new supply appears elevated at more than 18,000 multifamily units delivering this year, but with 2.4 percent job growth projected this year, demand could easily be as high as 15,000 rental units. More importantly, by 2021, Dallas could actually be undersupplied, if job growth projections remain on track. Multifamily Economic and Market Commentary … And Some Need More Supply Once again, Las Vegas is likely to be undersupplied."}, {"role": "assistant", "content": "With Moody’s expecting job growth of 1.5 percent, there could be demand for more than 4,000 rental units, yet only about 2,500 multifamily units are expected to deliver in 2020. Even Riverside, with a renter household population of just 37 percent, is another metro that is likely to be undersupplied. With potential rental demand of between 6,000 and 7,000 units in 2020 (thanks to an expected job growth rate of nearly 1.9 percent), there are just 1,200 multifamily units expected to complete this year. Multifamily cap rates have remained in the mid- to low-5.0 percent range over the past two years due to the ongoing influx of capital flows and investor demand for properties. As a result of this anticipated investor interest, along with favorable fundamentals, investment in existing multifamily properties is expected to remain similar to 2019 levels. Although multifamily cap rates have remained at low levels – currently at about 5.4 percent, according to Real Capital Analytics – if the 10-Year Treasury Note yield declines any further, then cap rates would likely compress as well. But with our current economic forecast expecting the 10-Year to remain flat over the next 12 months, the expectation is that national multifamily cap rates are likely to remain low in 2020, staying well below 6.0 percent."}]}
{"messages": [{"role": "user", "content": "For example, according to a recent report from CBRE, the New York City metro area experienced a 9.2 percent year-over-year decline in multifamily investment during the first eight months of 2019, which some partly attribute to its expansion of rent stabilization."}, {"role": "assistant", "content": "Based on anticipated investor demand, available liquidity, low interest rates, and construction projects whose loans should convert to permanent financing throughout the year, we expect 2020 multifamily mortgage origination volume levels to be higher than 2019. The Mortgage Bankers’ Association is anticipating multifamily originations volume will have reached $364 billion in 2019. It is even more optimistic with a forecast of $395 billion for 2020, which, as of this writing, does not appear unreasonable. For commercial real estate investors, as long as job growth holds up, multifamily is expected to remain a favored asset class in 2020, leaving open the possibility for further cap rate compression, increased sales, and, in turn, higher origination levels."}]}
{"messages": [{"role": "user", "content": "Student Housing Deliveries – through Fall 2020 The Outbreak’s Impact on Enrollments College enrollments have been decreasing for seven years and early 2020 returns indicate that they are still in decline. According to the National Student Clearinghouse Research Center, Spring 2020 enrollments were down approximately 0.5 percent pre-COVID-19. Although this was a +1.2 percent increase, year-over-year, it is a bit misleading. Since the emergence of COVID-19 in the US, colleges and universities have had to face some harsh realities regarding enrollments for the upcoming Fall 2020-Spring 2021 school year. The biggest and most immediate impact is the decline in international student enrollments. According to the Institute of International Education, during the school year international student enrollment in U.S. institutions of higher learning was approximately students. In the school year, that number decreased to students. As a result of the global impact of COVID-19 and many of the travel restrictions that have emerged as a result of outbreak, many international students who left U.S. colleges and universities in March 2020 may not be able to return. Furthermore, international students who hoped to begin their college career in the U.S. may have to look elsewhere, as they are also impacted by travel restrictions. To try to mitigate the loss of international students, many colleges and universities altered their enrollment requirements for the upcoming school year. Some schools have eliminated standardized testing (ACT/SAT) requirements, and some schools are granting enrollment to a wider range of candidates that might have previously been waitlisted."}, {"role": "assistant", "content": "Unlike on- campus housing, which is suffering from full university closures resulting in a mass exodus of students, off-campus student housing properties are still open and operating. Since off-campus student housing properties are not technically affiliated with the universities they serve, the residents who occupy these properties did not have to evacuate once nearby schools announced their pivot to distance learning. The performance of fundamentals at the off-campus student housing properties are on par with pre-outbreak levels. Although occupancy levels have decreased compared to pre-outbreak levels, off-campus student housing properties are still occupied by residents as they continue to pay rent. Commercial real-estate services firm Berkadia has been conducting monthly surveys regarding the fundamentals of the off-campus student housing sector. In April 2020 approximately 70.5 percent of the beds surveyed were occupied; in May 2020, occupancy levels were at 71.2 percent of the beds surveyed. A New Reality for Student Housing Much like the rest of the multifamily sector, the student housing sector is learning to adapt to the COVID-19 outbreak on the fly. Due to the large social aspect of the college experience, we believe it’s unlikely that colleges and universities will only offer distance learning during the outbreak, as well as in any future outbreaks. As a result of the current outbreak, many schools may have to expedite changes that would otherwise still be on the back burner. The on-campus student housing sector, in particular, has a number of obstacles to overcome. The current model of packing students into small spaces with shared amenities and facilities is not beneficial during this outbreak and will likely not be in future outbreaks. However, the shortcomings of the on-campus student housing sector highlight the best qualities of the off-campus student housing sector. The off-campus student housing sector offers residents a social experience in which they can also practice social distancing in, since amenities are less shared than on-campus dormitories. We believe off-campus properties have maintained some normalcy, evidenced by the better-than-expected performance of their fundamentals, which have remained in-line with 2019 levels. As more colleges and universities update their learning plans for the upcoming school year, off-campus properties could become even more attractive to prospective residents."}]}
{"messages": [{"role": "user", "content": "According to NIC data, total seniors housing absorption achieved a record level for the year, with approximately 15,600 units absorbed, a 9.3 percent increase from 2018. The underlying segments experienced similar trends: Majority IL absorption was 18 percent higher than 2018 at approximately 6,000 units, while Majority AL was up by just 4 percent, to approximately 9,700 units. Units Under Construction by Property Type – Q4 2019 Majority IL Majority AL Seniors Housing Transaction Activity Total 2019 seniors housing sales volume was up 14 percent from 2018 to $10.6 billion, according to data from Real Capital Analytics. The 2019 sales involved 551 properties, down from 737 properties the prior year. Cap rates increased to 7.1 percent for fourth quarter 2019, up from 5.6 percent in third quarter 2019 and 6.6 percent a year ago. The mix of properties sold in any given quarter can significantly influence national cap rate averages, so it is likely too early to determine if this is the beginning of a trend or normal volatility. Buyer composition for seniors housing properties shifted toward private entities in 2019. Private entities saw the largest change in share, accounting for 49 percent in 2019, up from 42 percent in 2018. Institutional entities accounted for 26 percent of 2019 buyer volume, up from 20 percent for 2018. Public buyers saw a diminished share, accounting for 20 percent of transactions in 2019, compared to 32 percent in 2018. 3 Multifamily Economic and Market Commentary Multifamily Economic and Market Commentary Primary-Secondary Market Performance According to NIC data, occupancy levels in secondary markets (32nd to 100th in size) ended the year unchanged compared with year-end 2018 at 87.8 percent. Occupancy levels in the secondary markets dipped during the middle of the year but recovered by year end. Rent growth in the secondary markets at year-end 2019 eased from the prior year, decreasing to 2.6 percent, down from 3.1 percent at the end of 2018. Occupancy - Primary vs. Secondary – Q4 2019 Primary Markets Secondary Markets Source: NIC MAP® Data Service 0.0% 1.0% 2.0% 3.0% 4.0% Rent Growth - Primary vs. Secondary – Q4 2019 Primary Markets Secondary Markets Metro Level AL Performance According to data from Reis, Inc., majority AL performance was mixed among the nation’s 50 highest inventory AL metros. Among the better-positioned metros, such as suburban Maryland, Minneapolis, and San Diego, there was solid rent growth, as well as marked growth improvement. But other metros, such as northern New Jersey, Buffalo, and Allentown, saw a significant decline in rent growth rates, with Allentown reporting an outright contraction in rent levels. Detroit reported both a significant decline in rent growth and a rising vacancy rate. From a vacancy perspective, central New Jersey, Buffalo, and Ft. Lauderdale have been experiencing a modest tightening for several years. Oakland and San Francisco, while being among the five tightest metros, have seen a slow but steady increase in vacancy over the past few years. A similar increase in vacancy has been in occurring in Phoenix, Greenville, Detroit, Dallas, and Austin, though the increases in many of the Texas metros are largely attributable to surging supply there. Select Metro AL Rent Growth – Source: Reis, Inc. – select metros include 50 highest AL inventory metros Select Metro AL Vacancy –"}, {"role": "assistant", "content": "4 Multifamily Economic and Market Commentary Multifamily Economic and Market Commentary Outlook Seniors housing market conditions were generally steady over the course of 2019, with the continuing trend of solid absorption amid generous supply. Rent growth eased during the first half of the year, but overall it remained stable considering the ongoing supply surge. Construction activity continued to moderate compared to the prior years, though we believe that trend could be short-lived. We expect overall occupancy levels to remain stable over the next year. Steady absorption levels should continue, which we expect should allow for moderate ongoing rent growth. As long as there is a generally healthy economy coupled with a stable single-family housing market, we expect the seniors housing sector to remain fairly steady over the near term. Since many seniors typically sell their home to afford the transition into seniors housing, single-family prices can, and do, have an impact on demand. Indeed, we expect existing single-family housing prices to increase 4.8 percent in 2020 before easing to approximately 2.8 percent in 2021."}]}
{"messages": [{"role": "user", "content": "New Manufactured Homes Have Additional Costs Manufactured homes do have additional costs compared to a site-built home. For instance, new manufactured homes cost about $5,000 per section to ship, in addition to costs for installation and utility hookup. According to Next Step Network, a non-profit specializing in manufactured homes, the all-in cost to deliver, set, and finish a manufactured home can range from $21,000 for a single-section home to $34,000 for a double-section home. However, even when including these costs, a new site-built home is still more than 85% more expensive than a comparable single-section manufactured home and 36% more expensive than a double-section home. New Manufactured Homes* New Site-Built Homes** All Average (Avg.) Sales Price $ 78,500 $ Average Square Feet (sf) Avg. Cost per sf $ 54.59 $ 114.43 Single - Section Avg. Sales Price $ Avg. sf Avg. Cost per sf $ Double - Section Avg. Sales Price $ Avg. sf Avg. Cost per sf $ Select Pricing Statistics Manufactured and Site-Built Homes Average Cost to Deliver, Set and Finish a Home Average Cost Single-Section $21,000 Double-Section $34,000 A manufactured home can also be built very quickly. According to one manufactured home producer, it takes about six production days to complete a typical home. While delivery and installation require additional time, a homeowner is generally living in a manufactured home within 90 days. By contrast, a site-built home can take up to six months to construct. These factors can make manufactured homes an attractive alternative for some homebuyers. The compressed construction cycle also makes it attractive to some developers and builders. Production Concentrated Industry capacity has declined since the 1990s. In 2019, just 35 manufactured home companies had 133 production lines, and the top three manufacturers produced three-quarters of new homes. Even so, manufacturers have some excess capacity: One of the nation’s largest manufactured home producers, Skyline Homes, Inc., currently has five idle plants, according to a recent investor presentation. Additionally, the number of construction workers is 5% below the level seen a decade ago. Another large manufactured home producer, Cavco Industries, Inc., estimates that a single factory may need up to 400 construction workers. As a result, increased labor, automation, and innovation may be needed to address the backlog of orders listed in these companies’ -K financial reports. In fact, shipments to favorably disposed states have grown more concentrated. The top 10 states accounted for 62% of annual shipments in 2018, up from 54% just six years prior. Only one state in the top ten, Louisiana, saw a decline in shipments, to 5.0% in 2018 from 7.4% six years prior. Manufactured Housing Landscape Private Property Community New Manufactured Homes Placed for Residential Use by Location Share of Manufactured Homes Placed in Communities is Rising Manufactured homes can be placed on privately owned land or placed in communities where homeowners rent a pad-site from the community for a monthly fee. These pads also contain hookups for utilities. According to Sun Communities, Inc., one of the nation’s largest manufactured home community owner- operators, over the past three years, homes placed in their communities were only moved out at a rate of 0.8% per year on average."}, {"role": "assistant", "content": "Extreme Job Loss from Covid-19 Expected to Have a Detrimental Impact on Supply… It is estimated that over a seven-week period ending May 2 2020, over 33 million people filed for unemployment benefits, representing more than 20% of the workforce. Unsurprisingly, manufactured home builders have not been immune to the effects of job loss. Factories are starting to report the cancellation of orders for new homes. 7 Fewer Homes Eligible for Conventional Financing Even homes placed on private land frequently use chattel financing. In fact, while over three-quarters of new manufactured homes shipped are placed on private land, one-fifth are titled as real estate, indicating that these homeowners used cash or chattel financing to purchase their homes. Personal Property Real Estate Not Available Source: U.S. Census Bureau Manufactured Housing Survey New Manufactured Homes Placed for Residential Use by Type of Title In addition, manufacturers are expecting lower output due to a variety of other factors. Next Step Network recently surveyed manufacturers to provide insight into emerging trends. Respondents reported working with 22% fewer staff on average and all reported complying with social distancing. These two factors are expected to slow output. Manufacturers also indicated that they are concerned about a disruption in the supply chain for the materials they use to construct homes, such as lumber, drywall, and fixtures, among other items. As a result, many respondents estimated production would likely be reduced in the coming months. While about half of respondents estimated a reduction of 20% or less, approximately one-fifth estimated production could decline by over 30%."}]}
{"messages": [{"role": "user", "content": "Manufactured Housing Landscape 2020 …and Will Likely Reduce Demand for New Homes Manufactured homes built to the HUD Code are generally sold by retailers that have showrooms with display models for consumers to view. Next Step Network also recently conducted a survey of retailers. While this data is limited, it does provide an insight into recent trends. Respondents indicated that measures have been taken to comply with state/local ordinances related to COVID-19 mitigation, with over 60% restricting business hours, reducing or altering staff hours to maintain social distancing, and requiring an appointment. More than 70% of respondents expect to sell fewer homes in the coming months. Of those, 88% expect up to a 30% decline in home sales."}, {"role": "assistant", "content": "Source:: https://nextstepus.org/wp-content/uploads/2020/04/Summary-of-COVID19-Impact-Survey_2020.pdf Note: Based on responses from 36 retailers across 16 states representing 57% of states receiving new home shipments in 2019 Tabulation of Manufactured Housing Retailer Responses to Next Step Network COVID-19 Survey Sell more homes 6% No Change 23% Sell fewer homes 71% Demand in Texas Likely Impacted by Oil Prices We expect that demand in Texas, which receives about 20% of shipments of new homes annually, will likely decline due to the oversupply of oil at a time when there is reduced consumer and industry demand for energy. According to the first quarter Dallas Federal Reserve Energy Survey, two -thirds of support services firms and 45% of exploration and production firms expect to reduce employee counts in 2020, likely contributing to a dampening of demand for new manufactured housing."}]}
{"messages": [{"role": "user", "content": "Change in Sales Volume of Individual Properties (%) Source: Real Capital Analytics www.rcanalytics.com Increased Interest in Manufactured Housing MHVillage is a website that provides information on MHC, listing individual manufactured homes for sale as well as rental homes. As shown below, the website has shown increased traffic during the pandemic shutdown. In fact, traffic was higher than over the same time period in 2019. In addition, the website reports a 26% increase in new users during the current time period. MHVillage attributed the increase to a couple of factors. Manufactured housing remains an affordable housing choice for both home buyers and renters, and, with more people staying home due to the pandemic, there is additional demand for more space at home. In addition, according to the National Association of Realtors (NAR), there is also a low supply of inventory of single-family homes for sale. In fact, in July 2020, NAR reported 3.1 months of inventory of homes for sale, which was down 1.1 months from the inventory for sale in July 2019. All these factors have likely had a positive effect on MHC fundamentals over the past few months."}, {"role": "assistant", "content": "Multifamily Economic and Market Commentary 3 Two Types of MHC There are two types of MHC: All Ages communities and Age 55+ communities. Age 55+ communities, as the name suggests, are targeted to seniors. All Ages communities tend to attract families and those who do not want to live in seniors communities. Fundamentals in both segments of MHC appear to be stable in the face of the pandemic -- for now."}]}
{"messages": [{"role": "user", "content": "Occupancy Remained Steady in Q2 2020 Third-party data vendor Datacomp/JLT, which focuses exclusively on collecting data for MHC, collected occupancy and rent data for metros in several states in Q2 2020 after most states had issued stay-at-home orders due to the pandemic. The aggregated data at the state level is shown below. The data for All Ages communities shows that, year over year, occupancies held steady during the quarter and even increased slightly statewide in some cases. While this may seem counterintuitive, in surveying MHC owners, Datacomp/JLT found the demand for homes actually grew during Q2 2020 as renters looked to purchase new homes for additional space and then chose to live on a site rented in an MHC. For instance, the average occupancy rate for All Ages MHC in Florida increased to 94% during Q2 2020 from 93% in Q2 2019. Occupancies also appeared to hold steady in Midwestern states based on data collected for MHC in Iowa and Nebraska. On average, occupancies rose by 1% year over year to 94% as of Q2 2020 in Iowa, and to 92% as of Q2 2020 in Nebraska. Rent Growth Remained Positive in Age 55+ Communities Rents, excluding payments for utilities, continued to grow for pad sites rented in Age 55+ communities in Q2 2020."}, {"role": "assistant", "content": "MHC Cap Rates Remain Fairly Stable… With ongoing interest from a wide variety of investors and few new communities under construction, capitalization rates for institutional-quality MHC have declined significantly in recent years, falling from an average of 7.3% in Q2 2010 to just 5.7% as of Q4 2019, as shown in the adjacent chart. In fact, cap rates for investment-grade MHC assets have been within one-half percent of multifamily cap rates since Q1 2017. As of Q2 2020, the average cap rate for MHC was 5.8% compared to 5.3% for multifamily. Thus far, the COVID-19 outbreak has not resulted in increasing capitalization rates for MHC. Instead, it appears that sellers have decided to remain firm on pricing, or simply pull properties rather than list them at all, keeping cap rates steady. In fact, the average cap rate of 5.8% in Q2 2020 was only 0.1% higher than the average as of Q4 2019."}]}
{"messages": [{"role": "user", "content": "…but There Is Wide Dispersion There is generally quite a bit of variation in MHC cap rates, however. For instance, the 104-unit Hannah Mobile Home Park near Charleston, S.C., was underwritten with an 8.8% cap rate in January, according to Real Capital Analytics."}, {"role": "assistant", "content": ", which also tracks MHC sales transactions, also shows a wide dispersion of cap rates at time of sale during the first half of 2020. shows that about 15% of MHC cap rates at time of sale for the first half of 2020 were under 6%. Another 30% fell in the 6% to 7.9% range, and 25% fell in the 8.0% to 9.9% range. Just over 4% of MHC cap rates at time of sale were over 14%. However, tends to track smaller properties that tend to have higher cap rates on average. data reported the average number of pad sites per MHC sold in the first half of 2020 was just under 100, compared to just under 200 pad sites for sales tracked by Real Capital Analytics, during the same time period. Multifamily Economic and Market Commentary 5 Source: Manufactured Housing Distribution of Cap Rates during 1H 2020 Source: Real Capital Analyticswww.rcanalytics.com Quarterly based on trailing 12 month average. Includes property or portfolio sales $2.5 million or greater MHC Cap Rate Multifamily Cap Rate MHC Average Cap Rate vs. Multifamily Average Cap Rate"}]}
{"messages": [{"role": "user", "content": "According to recent manufactured home rental listings from MHVillage, the average asking rent for a pre-owned manufactured home in the Cleveland metro area was just $695, less than 75% of the average asking rent for an apartment in Q2 2020. However, the savings are even higher in major metropolitan areas. For instance, the average asking rent for a rental home in a MHC in the Chicago metro is $959 in Q2 2020, just 62% of the metro’s average estimated asking rent for an apartment. Nationwide, including rentals on individual plots of land, the average asking rent on all manufactured home rentals remains at about half of multifamily asking rent, making them a more affordable option for many renters. MHC Price per Site Rebounds in Q2 MHC are more thinly traded than traditional multifamily properties. Nevertheless, just as multifamily properties measure the price per unit (PPU) when a property is sold, MHC record a price per site where a home would be located when a community is sold. According to data from Real Capital Analytics, MHC price per site grew 2.6% quarter over quarter to an estimated $60,000 per site, as of Q2 2020, showing that MHC have held their value relatively well despite the COVID-19 outbreak."}, {"role": "assistant", "content": "Multifamily Economic and Market Commentary 7 MHC Face Some Uncertainty in the Near Term Even in the midst of the COVID-19 outbreak, fundamentals in the MHC market have not yet deteriorated. Age 55+ MHC are expected to weather the outbreak relatively well, due to both the ability of residents to be part of a community but remain socially distant and the fact that residents generally have steady sources of income. However, the MHC market does face some headwinds. Unemployment remains elevated, and the federal expansion of unemployment benefits and eviction moratoriums has expired – at least for now. As a result, the lasting impact of the COVID-19 outbreak on All Ages Communities remains less clear. These communities tend to have both lower income homeowners and renters, and many residents in these groups have been hit hard by the current recession. As a result, we believe All Ages communities may yet see some deterioration of fundamentals in the second half of 2020. However, one thing is unlikely to change: Given the lack of affordable housing in the country as a whole and the fact that few new MHC are likely to be built in the near term, we expect investor interest in the asset class to remain stable in 2020."}]}
{"messages": [{"role": "user", "content": "4 ECONOMY & POLITICS GDP is expected to end 2020 down by only 4.0%, followed by a 4.5% rebound in 2021."}, {"role": "assistant", "content": "11 CAPITAL MARKETS Long-term technological and demographic trends, such as digitalization, will change investor preferences and push the industry to evolve, but capital will continue to target opportunities in real estate."}]}
{"messages": [{"role": "user", "content": "22 INDUSTRIAL & LOGISTICS Nearly 250 million sq. ft. of industrial net absorption is expected in 2021, more than the previous five-year annual average of 211 million sq. ft."}, {"role": "assistant", "content": "KEY STAT GDP is expected to contract by 4.0% this year, which should be followed by a 4.5% rebound in 2021."}]}
{"messages": [{"role": "user", "content": "SUMMARY CBRE forecasts that the strongest growth of 2021 will occur in Q2 and Q3—5.5% and 5.6%, respectively, on an annualized basis— bringing U.S. GDP back to pre-COVID levels in Q3."}, {"role": "assistant", "content": "The real estate recovery is expected to lag that of the broader economy, particularly for the office, retail and hotel sectors."}]}
{"messages": [{"role": "user", "content": "REAL ESTATE RECOVERY WILL LAG THAT OF BROADER ECONOMY The U.S. economy entered a deep recession due to the COVID-19 pandemic, with GDP plunging by an unprecedented 31.4% in Q2 on an annualized basis. As the economic lockdown was loosened, employment growth resumed in May and GDP grew by 33.1% in Q3."}, {"role": "assistant", "content": "Full-year GDP is expected to be down by only 4.0%, followed by a 4.5% rebound in 2021. CBRE forecasts that the strongest growth of next year will occur in Q2 and Q3—5.5% and 5.6%, respectively on an annualized basis—bringing U.S. GDP back to pre-COVID levels in Q3 2021. CBRE expects the real estate recovery to lag that of the broader economy, particularly for the office, retail and hotel sectors. ADDITIONAL GOVERNMENT SUPPORT NEEDED The $2.2 trillion economic stimulus package delivered by Congress in late March was extremely effective in stabilizing the U.S. economy amid the depths of the COVID-19 crisis. Although there is bipartisan consensus that additional stimulus is needed, Congress so far has been unable to agree on the level of funding. Consequently, the pace of the economic recovery slowed in Q3. Our forecasts assume that additional government aid is forthcoming at some point. This will be particularly important over the near-term for the multifamily (rent payments) and retail (consumer spending) sectors. A strong fiscal response also will lay the foundation for a more rapid recovery across all other property types, including office and hotels. Additionally, central banks have been purchasing government debt to keep long-term interest rates down and the economy stimulated. They also can tighten monetary policy through interest rate increases and balance sheet reductions when economic conditions allow. Still, governments cannot rely on quantitative easing (asset purchases) alone. Renewed economic growth will generate revenue to service debts. ECONOMIC OUTLOOK – CBRE HOUSE VIEW (PERCENTAGE CHANGES) Average Average GDP Growth (%) -4.0 Source: CBRE Research, September 2020. FULL RECOVERY DEPENDS ON MEDICAL SOLUTION A full economic recovery depends on a medical solution to the COVID-19 pandemic. To that end, there are five vaccines in large-scale U.S. phase three trials. Dr. Anthony Fauci, director of the National Institute of Allergy and Infectious Diseases, has indicated that a vaccine could be available for all Americans by April 2021. Pfizer taxes and spending cuts), this will reduce overall debt- to-GDP ratios. Over the long term, there is a risk that governments could allow inflation to rise significantly to reduce their debt loads. FED POLICY CHANGE AND ‘LOWER-FOR-LONGER’ The Federal Reserve recently announced that it would allow inflation to move above the 2% target for several quarters after periods of low inflation. Consequently, the Fed likely will take a much more patient approach to rate hikes, essentially ensuring a “lower-for-longer” rate environment as the economy recovers. For commercial real estate, this likely will translate into greater downward pressure on long-term cap rates. Though low interest rates are generally good for commercial real estate, there could be other impacts not widely considered. For example, amid extended periods of extraordinarily accommodative monetary policy, central bankers have become more vigilant about preventing asset bubbles from developing, which could destabilize the financial system. This could include requiring banks to set aside more reserves and tighten underwriting standards. Such actions likely would impact loan-to-value (LTV) ratios for real estate."}]}
{"messages": [{"role": "user", "content": "Debt to GDP Ratio Source: U.S. Congressional Budget Office."}, {"role": "assistant", "content": "Another secondary impact of this policy relates to foreign exchange rates. A lower-for-longer environment is conducive to a weaker U.S. dollar. This could make U.S. commercial real estate assets more attractive to foreign investors—particularly in gateway markets—and put additional downward pressure on cap rates in those markets. BOTTOM LINE GDP is expected to contract by 4.0% this year, followed by a 4.5% rebound in 2021. This will be facilitated by a medical resolution of the COVID-19 pandemic by the second half of 2021 and additional fiscal support for the economy. In addition, we expect that interest rates will remain lower for longer with the timeline for initial rate increases pushed back by several quarters. This will put downward pressure on cap rates, but underwriting standards and LTVs could be affected by efforts to maintain financial stability amid low interest rates."}]}
{"messages": [{"role": "user", "content": "CBRE expects the recovery in property markets to lag the broader economy, due to the unique impact that the pandemic has exacted on the economy and how space is used."}, {"role": "assistant", "content": "As such, with a medical resolution in sight and continued economic growth, CBRE expects that all commercial real estate sectors will have started to recover by the end of 2021. Biden’s platform calls for $5.4 trillion in additional spending over 10 years. If enacted, expanded health insurance coverage likely will drive demand for medical space closer to the consumer and spur the conversion of some retail space. In addition, $1.6 trillion for infrastructure and R&D should benefit office and industrial real estate demand. Housing policy initiatives, such as tying federal funding to zoning changes to spur affordable housing development in suburban locales—as well as increased affordable housing subsidies—could present unique opportunities for residential real estate."}]}
{"messages": [{"role": "user", "content": "taxes may impact capital expenditures by businesses and wage and job growth, but this could be offset by a more stable global trade environment. If pursued vigorously, Biden’s environment agenda would have implications for commercial building operating costs to meet higher energy efficiency standards."}, {"role": "assistant", "content": "The presidency and a Democratic Senate would enable Biden to enact large portions of his agenda. Most immediately, a larger federal stimulus package to support the economy would boost real estate demand in the near term. This provides some upside potential to CBRE’s 4.5% GDP growth forecast for 2021. More aid to state and local governments could reduce pressure to raise taxes on real estate. However, the popular 1031 tax-free exchange program would be threatened and luxury retail, energy, finance, defense contractors and tech could face headwinds from tax and spending policy changes and increased regulation. If Republicans retain the Senate, the Biden agenda will be checked and have a more subdued effect on the broader economy and commercial real estate. A more limited fiscal stimulus package would be enacted, with less state aid and the prospect, at some point, of higher state and local real estate taxes. On the other hand, the 2017 personal and corporate tax cuts would remain in place. Like any president, Biden will also have power to influence spending priorities and the regulatory environment, and to enact trade policy. The potential for less trade friction, especially with U.S. allies, may be helpful as the economy pulls out of the pandemic- induced recession. Overall, markets seem to view “split government” favorably and this scenario largely supports CBRE’s forecast of 4.5% growth in 2021."}]}
{"messages": [{"role": "user", "content": "Investor sentiment also has recovered significantly."}, {"role": "assistant", "content": "CBRE’s Capital Markets Recovery Index—a composite tracker of economic conditions, real estate listings and investor interest—shows a 60% rebound from the April/May bottom. The index is strongly correlated with investment volume."}]}
{"messages": [{"role": "user", "content": "CAPITAL MARKETS CONTINUE BUMPY RECOVERY The COVID-19 crisis has weighed heavily on commercial real estate investment activity. Investment volume in the first three quarters of 2020 fell by 44% from the same period last year. Nevertheless, activity is increasing as the year goes on. Investment volume increased to $61 billion in Q3 from a 10-year quarterly low of $46 billion in Q2."}, {"role": "assistant", "content": "Such indicators suggest a bumpy road over the next six months. But not all real estate assets are equal. During this downturn, investor preferences have shifted strongly toward industrial & logistics assets. Apartment buildings, especially in certain markets like Dallas and Phoenix, have been resilient. Office, retail and hotel assets are called into question, but distressed sales have been very limited. As the economy continues to recover, so does the overall demand for real estate. Long-term technological and demographic trends, such as digitalization, will change investor preferences and push the industry to evolve, but investment opportunities and capital for real estate will remain. If a vaccine for COVID-19 is available by mid- to late- 2021, the commercial real estate market will normalize based on abundant liquidity, low cost of capital and attractive returns. Available capital for real estate investment remains more than $300 billion globally, the majority of which is targeting North America. This wall of capital is a major contributor to the constrained expansion of cap rates. Industrial cap rates are at historic lows. Meanwhile, the Fed plans to keep interest rates near zero until 2023. Both inflation and risk-free yield from 10- year Treasurys declined sharply of late. At the same time, real estate cap rates have remained relatively stable. This rewards investors with a wider yield spread and additional gains from asset value appreciation. SUMMARY Office fundamentals should stabilize in 2021, although rents will continue to fall and vacancies will continue to rise at least through the first half of the year. The very gradual reentry of employees to the traditional workplace will constrain transaction activity in 2021 as occupiers reassess their office space requirements. Class A space likely will rebound quicker as more progressive portfolio strategies are employed to support new workstyles brought on by the pandemic. In the interim, this uncertainty is muting investment volume as buildings occupied by long-term creditworthy tenants are favored."}]}
{"messages": [{"role": "user", "content": "URBAN VS SUBURBAN Suburban office markets are expected to recover faster than their CBD counterparts next year. While suburban office demand lagged that of CBDs after the GFC, the downturn in CBD office markets has been considerably more severe in this recession with disruptions to mass transit. Logistical barriers posed by COVID-19 to higher downtown occupancy will constrain CBDs’ recovery. In addition, a considerable amount of available downtown office supply will cause high vacancy to persist through 2021 at a rate only 80 basis points (bps) below its peak after the GFC. While suburban office markets also will see increased vacancy, the rate will remain some 3.7 percentage points below its peak after the GFC. Several megatrends such as shifting demographics support a brighter future for suburban offices, but there has yet to be any significant increase in leasing transactions that indicate a major shift by tenants to the suburbs is underway. OFFICE DOWNTURN TO STABILIZE Deteriorating office market fundamentals amid the sharpest downturn since the Global Financial Crisis (GFC) should stabilize next year. Continued economic recovery and an accelerated pace of hiring will counter occupancy declines and negative demand expected to start the year. The nation’s largest, most dense office markets have been disproportionately impacted by logistical constraints in tenant occupancy posed by COVID-19 and likely will struggle the most to emerge from the recession in 2021. Office vacancy will persist at a stubbornly high rate and rent increases will be difficult to achieve as market conditions remain decidedly in favor of tenants. An overhang of sublease space brought to the market in H2 2020, as well as an elevated level of new office completions, will contribute to persistently high vacancy in 2021. However, the office cycle will bottom out in 2021 as positive net absorption resumes."}, {"role": "assistant", "content": "previously office-based employees. A recent CBRE analysis suggests that remote working could cut the overall need for office space by 15%. But office-using employment will continue to grow after the recession and there may be some reversal of recent trends toward diversification. In short, it is too soon to know what the impact of remote working will be on the overall demand for office space, but it may not be anywhere near as much as some analysts suggest."}]}
{"messages": [{"role": "user", "content": "When they do return to the office, companies may favor a hybrid work style that combines remote working with office use. Until then, companies are deferring leasing decisions and are reducing their space usage in line with lower economic growth expectations. Negative net absorption, which characterized the second half of 2020, will persist in the first half of 2021. FLIGHT-TO-QUALITY MAY ACCELERATE Early evidence suggests that the COVID-induced recession has had a more severe impact on Class A office occupancy than on Class B. In times of recession, Class A properties have historically experienced more volatility and rapidly deteriorating market fundamentals. Once the recovery accelerates in 2021, we expect Class A properties to experience much faster improvement in demand, vacancy and rents, as they have done in past recovery periods."}, {"role": "assistant", "content": "Occupiers are increasingly demanding flexible space options, shared meeting space, indoor air quality, connected building apps and touchless technology when considering new leases. Buildings that provide these desired amenities may find more favor by enterprise tenants as leasing volume resumes. Occupiers may reduce their amount of leased space in the future, but the quality of that space will become more important."}]}
{"messages": [{"role": "user", "content": "MARKETS TO WATCH Secondary markets, particularly in the business-friendly Southeast, will perform more favorably in 2021. Raleigh-Durham, Nashville, Tampa and Charlotte will benefit from relatively resilient demand, lower costs and persistent demographic and employment growth. Some larger markets, such as Phoenix and Dallas-Fort Worth, will also benefit from these same demand drivers to a lesser degree. Markets with a high concentration of tech companies like San Jose, Austin and Seattle may stage an unexpectedly strong rebound in demand next year but will still have to absorb a significant amount of new office supply. At the other end of the spectrum, markets with high densities and a dependence on mass transit like San Francisco and New York City will have a slower recovery."}, {"role": "assistant", "content": "Despite a challenging 2020, there were fewer-than- expected flexible office space closures. The industry is expected to rebound in 2021 as occupiers shift their strategies away from long-term capital-intensive commitments. Many say they will strategically incorporate more flexible space options in their portfolios to satisfy temporary space needs, support a more mobile workforce and enter new markets to source talent. Flex space usage is expected to increase in 2021. UNCERTAIN SPACE DEMAND WILL CAUSE LESS INVESTMENT The office sector is expected to have among the slowest recoveries to pre-pandemic investment volumes. This sentiment is likely driven by the uncertainty around office space demand and which markets will benefit most from evolving trends, especially remote working. Investment volume is down significantly in 2020 and likely will remain well below pre-pandemic levels through 2021."}]}
{"messages": [{"role": "user", "content": "SUMMARY Brick-and-mortar retail sales are expected to grow in 2021 as e-commerce sales decline after the 2020 COVID-fueled surge. New opportunistic and emerging retailers will capitalize on market conditions to absorb some of the vacancies from bankrupt retailers and store closures. Adaptive reuse and conversion will drive the repositioning of Class B and C malls, which have been hardest hit by COVID restrictions."}, {"role": "assistant", "content": "Private capital will lead investment activity as institutional investors largely retreat from non-core assets and urban markets that face a significantly longer recovery. BANKRUPTCIES & STORE CLOSURES WILL CONTINUE NEXT YEAR Retail bankruptcies in the first eight months of 2020 nearly exceeded the 48 in all of 2010 following the Global Financial Crisis. CBRE Research forecasts that retail store closures in 2020 and 2021 each will exceed the 2019 record of 9,800 reported by the International Council of Shopping Centers (ICSC). Many of the bankruptcies and store closures will result from COVID-related failures of structurally declining categories such as department stores and apparel, along with an unexpected cyclical reversal in restaurants, gyms and entertainment."}]}
{"messages": [{"role": "user", "content": "New retail concepts will absorb some of the vacancies left by failed retailers. Digitally native brands, medical uses, health and wellness, automotive showrooms and service centers, pet services, franchisee- driven operations and salon suites will capitalize on opportunistic market conditions. Grocers, convenience stores and quick-service restaurants will also grow aggressively. Greater availability of prime second- generation space, declining rental rates and motivated landlords offering concessions and pandemic-related protections will drive lease transactions in 2021. Additionally, private equity and venture capital funds are actively seeking to finance new retail ventures provided they offer justifiable risk-return rewards."}, {"role": "assistant", "content": "ADAPTIVE REUSE/CONVERSION OF CLASS B & C MALLS CBRE Research predicts up to a 20% reduction in total U.S. retail real estate inventory by 2025 from the current level of 56 square feet per capita, according to ICSC. This will be triggered by large-scale adaptive reuse and conversion beginning next year, particularly among Class B and C malls that have been the most impacted by failing department stores and apparel retailers causing co-tenancy exposure. Further consolidation among mall REITs is expected in 2021, along with increasing sales of non-core assets as pricing resets under the duress and rising risk of receivership and insolvency."}]}
{"messages": [{"role": "user", "content": "While mall owners have made bold moves with signature tenants to preserve occupancy and differentiate their properties through merchandising, the current problems REVERSAL OF RECORD E-COMMERCE GROWTH After falling in February, total retail sales growth resumed in June with the surge in e-commerce sales and the reopening of brick-and-mortar stores. Although e-commerce growth accelerated dramatically this year, the growth rate is unsustainable over the long term largely due to the operational and profitability limitations around shipping and logistics. Brick-and-mortar stores will be valuable in delivering the physical experience and deeper engagement that consumers want, as well as increased profit margins from the fulfillment of digital sales through buy-online/pick-up-in-store or curbside pick-up programs. The tremendous pandemic-fueled growth in e-commerce sales this year has begun to stabilize. CBRE Research predicts the rate of e-commerce sales growth will decline in 2021 for the first time since 2008, according to the U.S. Census Bureau. Growth will resume in 2022 at a more moderate pace."}, {"role": "assistant", "content": "Institutional investors will continue their retreat from retail except for quality core assets like grocery- anchored centers. Private capital will remain active and pave the way for the emergence of a new class of opportunistic investors and private equity firms seeking attractively priced distressed retail assets for stabilization, redevelopment or conversion."}]}
{"messages": [{"role": "user", "content": "MARKETS TO WATCH There has been a clear bifurcation in consumer spending, retailer performance and market resilience between suburban and urban-core markets. Recovery is uneven and will take much longer in urban markets like New York City and San Francisco, where demand drivers are still severely handicapped. The suburbs will lead the recovery."}, {"role": "assistant", "content": "Sun Belt and secondary cities like Phoenix, Austin, Denver, Sacramento and Charlotte will benefit from faster office re-occupancy, increased inward migration, less impact to mobility and a greater prevalence of open- air shopping centers and outdoor space to enhance capacities. These markets will see less rent decline and likely will bottom out sooner than other markets. While availability will increase due to rising bankruptcies and store closures, there is better potential for absorption and adaptive reuse/conversion based on market strength. New “Zoom towns” are also emerging during the pandemic. Cities like Bend, Oregon and St. Louis with a smaller population base are benefitting from a rapid influx of residents relocating from larger cities for a lower cost of living as their jobs become more remote-friendly. CLEAR INVESTMENT BIFURCATION ACROSS PROPERTY TYPES & MARKETS Lack of clarity around rent rolls and net operating income make it difficult to assess the value of retail properties, furthering a pricing disconnect between buyers and sellers that kept investment activity stagnant in 2020. Investors will approach retail cautiously and selectively in 2021 while there is ongoing rent roll instability due to collection issues and vacancies and until there is greater income and pricing transparency. COVID-related rent negotiations and lease restructuring will continue in 2021 as some retailers will be unable to make balloon payments of deferred rent and will require additional deferral or abatement to stay open. Distressed assets are expected to rise in the first half of 2021, especially for those with debt coming due. There will be a clear bifurcation between property types and markets. Single-tenant net-leased properties and suburban neighborhood and grocery-anchored centers will continue to be the most resilient. Demand and"}]}
{"messages": [{"role": "user", "content": "KEY STAT Nearly 250 million sq. ft. of industrial net absorption is expected in 2021, more than the previous five-year annual average of 211 million sq. ft."}, {"role": "assistant", "content": "SUMMARY The U.S. industrial market will continue to flourish next year with low vacancy rates, record-high rental rates, robust development and a return to pre-COVID levels of absorption gains. Demand will be driven by an increase in online sales. Occupiers will expand both by location and size of facilities to accommodate supply sourcing, inventory control and customer reach. While economic and trade volatility remain potential headwinds, the volume and source of consumption will continue to dictate demand. MORE RETAIL-TO-INDUSTRIAL CONVERSIONS NEXT YEAR Given the increase in online shopping, retail-to-industrial conversion projects likely will accelerate in 2021 but should not lead to any oversupply given the challenges with such conversions in residential areas.1 There is strong demand for infill warehouse space in urban cores, but land constraints and high costs have limited new development. Adaptive reuse of retail buildings for industrial occupiers is expected to accelerate in 2021."}]}
{"messages": [{"role": "user", "content": "Overall, new industrial completions are forecast to jump by 29% next year, according to CBRE Econometric E-COMMERCE WILL DRIVE DEMAND NEXT YEAR Industrial has been one of the most resilient real estate sectors amid the COVID-19 crisis, buoyed by rising e-commerce demand. Year-over-year e-commerce growth surged to 44.5% in Q2 from 14.8% in Q1. This has put pressure on retailers, wholesalers and third-party logistics companies (3PLs) to reach consumers while lowering transportation costs. Demand for space in the near term will be driven by e-commerce. CBRE Research has found that $1 billion in incremental e-commerce sales generates 1.25 million sq. ft. of warehouse space demand. Therefore, net absorption is projected to reach nearly 250 million sq. ft. in 2021, more than the previous five-year annual average of 211 million sq. ft. This will spur new construction, which is already near-record levels, and strong preleasing of speculative projects. Meanwhile, El Paso will benefit from its border location with Mexico and the recently enacted United States- Mexico-Canada Agreement (USMCA), which should increase its manufacturing and distribution base. Industrial asking rents in El Paso are forecast to increase by 28.5% over the next five years, according to CBRE Econometric Advisors."}, {"role": "assistant", "content": "INVESTORS WILL SEEK NEW OPPORTUNITIES Overall industrial investment sales volume increased by 17% in the first half of 2020; however, it declined by 39% year-over-year in Q2. Despite the Q2 decline due to COVID-19, sale prices were largely unchanged and cap rates were either stable or slightly lower. Despite record-low cap rates, capital is expected to continue flowing into the industrial market from both domestic and foreign investors. Most expect rental rate growth over their holding period, which will offset a low going- in cap rate. Industrial real estate will be a haven for investors compared with other commercial property types negatively impacted by the pandemic."}]}
{"messages": [{"role": "user", "content": "2. Class B and C light-industrial buildings in urban markets with below-average vacancy rates, including Northern and Southern California, Chicago, the New York Tri-State Area and Miami."}, {"role": "assistant", "content": "Advisors. Given strong preleasing of speculative projects (38% as of Q3), demand is expected to keep pace with new supply, especially as occupiers flock to modern warehouse space. INVENTORY CONTROL A TOP CONCERN Inventory control will be a prime focus of industrial occupiers next year, as they increase their footprints to store “safety stock” in case of any supply chain disruptions. Many suppliers will increase inventories from 15 days to as high as 60 days. Wholesalers and outsourced 3PLs will be expected to significantly increase inventories onshore to avoid the disruptions from trade conflicts of the past year. Many companies are utilizing a “China-plus-one” strategy to diversify product sourcing and limit any supply chain disruptions related to COVID-19. Source countries west of Singapore, including Europe, will generally use U.S. East Coast ports, while those east of Singapore will use West Coast ports and Central and South American countries will use Gulf and Southeast ports.2 Onshoring of product to the U.S. or Mexico is plausible but will present real estate, logistics and labor challenges. Diversifying or completely changing supply sources away from Asia is a long and arduous task with uncertainty over how much industrial real estate demand will be affected."}]}
{"messages": [{"role": "user", "content": "MARKETS TO WATCH The Southwest and Southeast U.S. will have the highest rates of population growth over the next five years. In the Southwest, the Inland Empire will remain the dominant big-box industrial market."}, {"role": "assistant", "content": "Phoenix, Las Vegas, Denver, Salt Lake City and Reno also are posting robust industrial fundamentals and development because of their proximity to burgeoning populations."}]}
{"messages": [{"role": "user", "content": "Texas will provide the most opportunities for investors and occupiers with forecast population growth of 9% over the next five years, largely benefiting the Dallas-Fort Worth, Houston and San Antonio industrial markets."}, {"role": "assistant", "content": "Strong fundamentals will continue to put upward pressure on rents, fueling investor demand. Overall industrial rents grew by 6.3% year-over-year in Q2 and this level of growth is expected to continue in 2021. In some cases, rent growth will be higher by market and size segment. Nearly 80% of U.S. industrial markets will see positive rent growth over the next 12 months and most will exceed their historical average over the next several years, according to CBRE Econometric Advisors."}]}
{"messages": [{"role": "user", "content": "DEMAND FOR NEW DESIGN FEATURES Rising e-commerce fulfillment will require new design features for warehouse and distribution buildings, including ceiling heights upwards of 40 feet, multiple mezzanine floors and 3 million total square feet or more. In the short term, many of these buildings will be build- to-suits and significantly boost net absorption totals."}, {"role": "assistant", "content": "SUMMARY The multifamily sector will have a steady recovery in market fundamentals and investment activity next year. Suburban submarkets and the Midwest and Southeast regions will continue to outperform and provide good investment opportunities. Urban submarkets, particularly in gateway cities, have been hardest hit by the pandemic but will provide longer-term upside potential."}]}
{"messages": [{"role": "user", "content": "Class A assets were impacted the most by COVID-19 this year due to higher turnover from young adults moving back home, steady delivery of new supply and renters seeking less expensive housing."}, {"role": "assistant", "content": "Class B assets should continue to outperform in 2021 with low vacancy and steady rent growth. Class A assets may not begin recovering until midyear."}]}
{"messages": [{"role": "user", "content": "Lifestyle Millennials moving into life stages where urban living is often traded in for less-dense housing options in other submarkets and/or markets."}, {"role": "assistant", "content": "INCREASED MULTIFAMILY INVESTMENT IN 2021 With steadily improving market conditions, multifamily investment volume is expected to increase in 2021. CBRE Research predicts U.S. multifamily investment volume will reach about $148 billion next year, lower than 2019’s record level of $191 billion but a 33% gain over the 2020 estimate of $111 billion. Investor demand for multifamily assets this year was more than previous recessions would have indicated. Pricing held up quite well. Still, many investors moved to the sidelines as the COVID-19 pandemic spread. With greater clarity on future revenue streams, institutional buyers and value-add investors should become much more active next year. Offshore buyers likely will increase their activity, especially if travel restrictions are eased."}]}
{"messages": [{"role": "user", "content": "Five major COVID-19-related factors diminished the appeal of urban submarkets in 2020: remote working requirements, the closing of a portion of urban amenities, the reluctance to use public transit, a desire for more living space and a desire for greater access to the outdoors. Non-COVID-related factors exacerbated the situation, including the high cost of urban apartments and shifting demographics. Millennials are reaching life stages where urban living is often traded in for larger housing options in less-dense submarkets. There are no indications that 2020’s decline in urban multifamily demand is permanent or there is an impending return to the hollowed-out cities of the 1970s and 1980s. Yet urban submarkets will lag in the multifamily sector’s overall recovery. Lower-density and less-expensive suburban submarkets held up remarkably well in 2020 and are positioned to lead overall market performance in 2021. The most impacted metros in 2020 were San Francisco, San Jose and New York. Other underperformers included Los Angeles, Boston, Seattle, Oakland, Austin, Miami, Chicago, Washington, D.C. and Orlando. Among these, investors may favor high-tech markets for their potential quicker economic recovery, but tech firms’ remote working policies may not restore multifamily demand as quickly. SUMMARY COVID-19 continues to affect the hotel industry. Fear, social distancing and economic turmoil have lowered hotel demand to unprecedented depths. Beyond the crisis, the outlook for travel is strong and resilient. There have been recent improvements in leisure travel and overall economic recovery is predicted to be relatively swift."}, {"role": "assistant", "content": "Effects of the pandemic on the hotel industry were felt most strongly in Q2, as lockdown mandates peaked in April and May and caused drops in occupancy and RevPAR not seen since the Great Depression of the 1930s. Occupancy is not expected to return to pre-COVID-19 levels until 2023, followed by RevPAR in 2024."}]}
{"messages": [{"role": "user", "content": "CHAIN SCALE RECOVERY Higher chain scales have suffered the largest percentage and absolute drops in RevPAR this year. Upper upscale chains were particularly hard hit, with RevPAR briefly dropping below all other chain scales except for economy. Higher chain scales will take the longest to recover to pre-COVID levels. While economy and midscale chains are poised to regain pre-COVID RevPAR levels by late 2022, upper midscale and upscale chains will take until 2023 or 2024 to recover. Upper upscale and luxury chains will take the longest to regain pre- COVID RevPAR levels by late 2024 or 2025. By 2022 and 2023, RevPAR recovery will be more even among markets and more in line with long-term trends. By 2023, only the most severely affected markets will have less than 90% of 2019 RevPAR levels. In addition, some smaller markets such as Jacksonville, St. Petersburg and Savannah may gain additional demand as alternative destinations. CONTINUED LEISURE TRAVEL NEEDED While leisure travelers have helped prop up the hotel industry during the COVID crisis, a full recovery will not occur until group and business travel resumes. Small metros and rural areas are recovering faster, especially those that are drive-to destinations. POPULATION DENSITY A KEY FACTOR FOR RECOVERY Rural and interstate hotels have outperformed other location types this year. These hotels are often located in low-population-density areas that recorded modest gains in occupancy and ADR after the public’s fear of COVID-19 had peaked in April. Recovery to pre-COVID performance should occur sooner in these locations. High-density and urban locations will take longer to recover until the public feels safe to travel to these populous locations."}, {"role": "assistant", "content": "Hyperscale activity likely will level out in 2021 as demand drivers that spiked in 2020 begin to plateau, including enterprise clients leveraging hybrid IT solutions to accommodate remote working mandates. This trend likely will continue, albeit at a slower pace than in 2020. With more than 373 MW of wholesale colocation currently under construction across the seven primary markets, data center supply is expected to grow next year. 3. Cloud Migration: How will increased cloud services affect the leasing numbers for enterprise users who have decided to migrate to a hybrid IT approach? Alternatives are specialty operational real estate with relatively low inventory, less turnover and higher yield. Globally, alternatives investment has averaged about $90 billion annually over the past five years, more than double the peak in the previous cycle. Recent CBRE investor surveys found that 60% of respondents are actively pursuing one or more alternative sectors, led by data centers and health-care facilities."}]}
{"messages": [{"role": "user", "content": "Long-term demographic, technological and social changes present generational opportunities for specialty players to grow the market as well as their market shares. Growth of the elderly population is driving demand for seniors housing and nursing care. And the recent explosive growth of online grocery and pharmaceuticals has fueled the cold-storage industry, while the ever- growing digital economy and widespread adoption of cloud-based services supports the growth of data centers."}, {"role": "assistant", "content": "LIFE SCIENCES Technological changes and medical discoveries have caused the life sciences sector to cluster near the nation’s premier research universities and health-care centers. COVID-19 has accelerated growth of the life sciences industry. COVID-19 has led to new requirements for lab/R&D and biomanufacturing space, increased production and manufacturing domestically and more support from policymakers. New lab/R&D and biomanufacturing space is being completed in markets with previously limited supply, as well as in leading life sciences clusters such as Boston-Cambridge and the San Francisco Bay Area. Lab conversions from other property types have also accelerated, especially in CBD markets. The strong supply growth of R&D space over the past several years has produced a growing need for more biomanufacturing space to produce many of the solutions and innovations devised in the lab. The strong correlation between venture capital funding and employment growth in the life sciences industry means there should be more hiring and demand for life sciences commercial real estate next year. Nevertheless, there are always risks for a burgeoning industry fueled by early growth stage and venture capital-funded companies. There is also the risk of a pullback in demand once greater progress emerges toward a viable vaccine or therapeutics to address COVID-19."}]}
{"messages": [{"role": "user", "content": "The single-family rental (SFR) sector had stronger rent growth and lower vacancy than multifamily this year, although the recession did moderate rent gains. Next year will begin with less robust conditions than before the COVID-19 period. The BTR sector is still very small and"}, {"role": "assistant", "content": "SENIORS HOUSING COVID-19 impacted this sector more than most with little new leasing activity for much of 2020. Deteriorating property fundamentals in Q2 and Q3 reduced investment activity significantly in 2020, but the 2021 outlook for both market performance and investment is brighter."}]}
{"messages": [{"role": "user", "content": "The seniors housing market should slowly improve in 2021 but a full recovery won’t occur before 2022. New supply has moderated from recent years, but there are some markets with more supply than can be readily absorbed."}, {"role": "assistant", "content": "Real or perceived added COVID-19 risk could keep investment activity lighter than usual and financing harder than usual to obtain."}]}
{"messages": [{"role": "user", "content": "The impact of Boeing’s workforce reduction on the Seattle metro’s multifamily sector is difficult to ascertain, especially since the advent of the pandemic in early 2020. Seattle’s multifamily rental market has been dealing with the headwinds of the economic shutdown and subsequent recovery, new multifamily supply, falling rents, and rising vacancy levels. Multifamily Economic and Market Commentary Due to the metro’s large high-tech presence, Seattle has a favorable demographic profile for the multifamily sector. According to Moody’s Analytics, the prime multifamily renter cohort (consisting of renters between the ages of 20 to 34) accounts for nearly a quarter of the metro’s population at 23 percent."}, {"role": "assistant", "content": "Over the next five years, the prime renter cohort is expected to expand by 0.3 percent, compared to negative 0.3 percent nationally. Seattle is expected to continue attracting Gen Z and Millennial residents due to the presence of well-paying high-tech jobs. In addition, over the next five years, Seattle’s overall population is expected to expand by 1.2 percent, compared to 0.5 percent nationally. The presence of Microsoft, Amazon, Google, and Boeing Co. –- despite its cutbacks –- is still expected to continue drawing new job seekers to the area, as there is steady demand for intellectual capital in the metro."}]}
{"messages": [{"role": "user", "content": "Even though the Seattle metro has a very strong demographic foundation, there are some causes for concern that have emerged as a result of the pandemic. Remote working was prevalent prior to the pandemic, due to the number of high-tech jobs, but it has expanded substantially over the past year. Seattle is an expensive city, and multifamily property owners have not escaped unscathed during the pandemic. Estimated rent growth in Seattle as of fourth quarter 2020 declined by 2.5 percent compared to negative 0.50 percent nationally. In addition, the estimated vacancy rate increased to 6.25 percent as of fourth quarter 2020, which is the highest estimated vacancy level in more than 10 years."}, {"role": "assistant", "content": "Many employers within the Seattle metro have said that they won’t bring employees back to the office until well into 2021 and perhaps even later. Despite the uncertainty looming in its commercial real estate sector, Seattle’s economy is expected to bounce back rather quickly. Moody’s Analytics forecasts that employment growth over the next five years will expand by 2.9 percent in the Seattle metro compared to 1.8 percent nationally."}]}
{"messages": [{"role": "user", "content": "Multifamily Economic and Market Commentary Multifamily Development Still Churning Multifamily development in the Seattle metro area has been elevated over the past several years. Since 2014, over 72,000 apartments have completed. Development really started to reach new levels during 2018 when more than 5,000 apartment units were completed in a single quarter. Since then, nearly 3,000 to 4,000 apartment units have been delivered to the metro each quarter. On the other hand, condo development has slowed tremendously since its peak levels during 2009. Even though condo development has slowed, it has not completely vanished from the supply pipeline as there are still nearly 4,000 condo units underway and scheduled to deliver by the end of 2022. Most of the new development has taken place in just two submarkets: Capitol Hill and Downtown. Together, both submarkets are scheduled to deliver approximately 7,300 units, or about 35 percent, of the total supply underway through 2022. It is not surprising that these submarkets are getting most of the attention from developers as both locations are located near most of the metro’s major employers, as well as local amenities. According to RealPage, a multifamily data vendor, concessions in the Seattle metro area for Q4 2020 were approximately negative 2.4 percent compared to negative 0.7 percent in Q4 2019. Furthermore, the discount on rents for Class A properties was about 10 days of free rent in Q4 2020 compared to just 3 days in Q4 2019."}, {"role": "assistant", "content": "Multifamily Economic and Market Commentary Seattle’s Outlook Remains Bright 4 Despite its recent difficulties, Boeing remains one of the Seattle metro’s top employers, and the high-tech sector is expected to be the local economy’s driving force over the long term. Amazon, for example, has expanded in the metro area for several years now. Microsoft is the metro’s third-largest employer with more than 50,000 workers. Google also has a sizeable presence in the metro, with more than 5,700 employees. We expect the multifamily sector’s performance in Seattle to rebound as the pandemic recedes and vaccinations become more widespread. The passing of the recent stimulus package should allow both renters and property owners some breathing room over the short term. Seattle has a population growth rate that is more than twice the national average, a rate that is expected to continue for the next five years. Furthermore, the growth rate of the prime renting cohort in Seattle is expected to expand much faster than the national rate, which should also help boost multifamily demand, bringing the metro a brighter outlook over the long term."}]}
{"messages": [{"role": "user", "content": "1 Multifamily Economic and Market Commentary DECEMBER 2021 Concessions Remain Elevated Despite Spike in Rents Multifamily market fundamentals have strengthened considerably this year, despite the ongoing challenges posed by the COVID-19 pandemic. The rebound in the economy, most especially in job growth, coupled with pent-up demand for housing and increased household savings, have led to significant rent increases this year, particularly during the spring and summer months. Yet, in many metros there has also been an increase in new supply, resulting in an unusual situation of both elevated rents and concession levels. Source: RealPage New Supply Impacts Demand – and Concessions Despite the challenges confronting the construction sector over the past 18 months, including supply chain constraints, volatile material prices, and labor shortages, many of the nation’s multifamily markets continue to see a surge in the supply of new apartments. So far in 2021, the industry has completed over new apartment units, with another -plus units scheduled to complete before the end of the year, according to Dodge Data & Analytics. That’s after the industry delivered more than units in 2020, despite the delays caused by the pandemic. 2 Multifamily Economic and Market Commentary Concessions Higher in Expensive Markets Although approximately new apartment units may be completed in 2021, these units are not evenly distributed on a national basis. As has been the case for the past several years, much of the new apartment supply is concentrated in specific submarkets in approximately 12 metropolitan areas. The most active metros in the country for apartment development continue to be New York, Washington, D.C., Dallas, Austin, and Los Angeles. New York has more than 74,000 units underway; D.C. has more than 41,000 units underway; and Dallas is at more than 31,000 units. At the end of 2019, the level of Class A concessions was 7.1%. It remained approximately at that level until April 2020, when it rose 0.7% during the month to 7.8%. It continued to rise throughout 2020 and into early 2021, peaking at 9.9% in March 2021. And although the concession rate has been trending lower since then, it remains high at 9.2% as of October 2021 due to competing new supply entering many local submarkets. Classes B and C were not immune to rising concessions in 2020 and early 2021, as seen below. Class B concessions ended 2019 at 5.5%, but recently peaked at 8.1% during the summer of 2021. Class C began 2020 at 5.4%, and while it surpassed Class B during the earlier part of 2021, it has now begun to trend downward, to 6.6% as of October 2021. Although the national concession rate remains elevated, fewer units are offering concessions."}, {"role": "assistant", "content": "That trend is expected to continue over the coming months. And as seen in the case of Class C units – the most affordable units in a location – the declining trend in concessions offered has recently started accelerating, most likely due to the improving economy and increased job growth. As a result, we expect that concessions will continue decreasing, particularly for Class B and C units. We expect that the trend trajectory for Class A units will lag slightly behind, as new supply delivers over the next several quarters. But with the economy expected to continue and rental housing demand remaining firmly in place, we believe that concessions will decline throughout 2022, returning to more normalized levels by the end of the year."}]}
{"messages": [{"role": "user", "content": "Positive-but-Subdued Absorption Expected in 2021 Demand for multifamily rental units remained stable in 2020, according to data from Portfolio Strategy, which estimates that net absorption totaled units last year, compared to an estimated in 2019."}, {"role": "assistant", "content": "In contrast, anticipates a significant slowdown in multifamily net absorption this coming year, with only units of net absorption expected in 2021. 2 Rent Growth Expected to Remain Weak We believe that national rent growth turned negative in 2020, ending the year at an estimated negative 0.75 percent. That is in comparison to 2019’s estimated rent growth of 2.5 percent. From 2011 to 2019, rent growth was above historical averages, as illustrated in the chart above. Assuming 2020 has negative national rent growth, this would mark the first time that annualized rent growth was negative since 2009."}]}
{"messages": [{"role": "user", "content": "The current expectation for 2021 is more of the same, at least in the first half of the year. We anticipate that rent growth will not turn positive until the second half of the year. Nevertheless, we are currently projecting that rent growth will end 2021 at break-even or just slightly positive levels, assuming widespread COVID-19 vaccinations and a sustained economic recovery."}, {"role": "assistant", "content": "We expect rent growth to be within a range of 0.0 to 0.5 percent by year-end 2021. Multifamily Economic and Market Commentary Vacancy Expected to Increase The national multifamily vacancy rate is expected to increase in 2020, primarily due to the amount of new supply expected to deliver this year, coupled with the effects of improving economic conditions. Since much of this new supply is expected to consist of more expensive, Class A units concentrated in a limited number of submarkets, particularly in urban core neighborhood locations, it is expected that supply could continue outpacing demand in some places this year. As a result, the national vacancy rate is expected to climb throughout most of the year, within a range of between 6.0 percent and 6.5 percent. Nevertheless, it is important to note that this range is well below the most recent estimated vacancy peak of 8.25 percent that occurred in fourth quarter 2009, as seen in the chart below."}]}
{"messages": [{"role": "user", "content": "According to data from RealPage, Inc., year-over-year national Class A rents declined by more than 4.0 percent as of fourth quarter 2020. In comparison, Class B and C rents ended the year down but still positive, at 0.55 percent and 1.72 percent, respectively. It appears that although less expensive units remained in demand, that demand has been softening since last summer. Interestingly, Class B rents saw a slight uptick in fourth quarter 2020 after experiencing a similar decline in demand, which may suggest that some Class C renters are moving up to Class B and taking advantage of lower rent levels. Multifamily Economic and Market Commentary Multifamily New Supply Could Peak in 2021 According to estimates from Dodge Data & Analytics Supply Track, which distinguishes between multifamily properties consisting of either apartment or condominium units, more than apartment units were completed in 2020, making it the most recent peak year for new deliveries. Although the number of units slated for completion in 2021 is a staggering it seems that developers are uncertain that all of those units will actually be completed before year-end. Indeed, according to the Associated General Contractors of America’s 2021 Construction Hiring and Business Outlook Report, “most contractors report it remains difficult to fill some or all open positions. Fifty-four percent of firms report difficulty finding qualified workers to hire, whether to expand headcount and replace departing staff. Many contractors expect, despite the pandemic-induced downturn, that it will remain difficult to find qualified workers during the coming 12 months."}, {"role": "assistant", "content": "Forty-nine percent report it will either get harder, or will remain as hard, to find qualified workers, in 2021.” This is in addition to concerns contractors have regarding supply chain interruptions, increased competition, and overall fewer projects expected to be available in 2021. Multifamily Economic and Market Commentary Expect Weakening Before Improvement At a national level, a supply/demand imbalance is expected this year, based on the amount of new multifamily units expected to come online. Even though some of these new units may not be completed by year-end, the economic recovery and the amount of expected job replacement and growth are unlikely to produce enough demand for all the new Class A units that are anticipated to deliver in 2021."}]}
{"messages": [{"role": "user", "content": "Unfortunately, annualized job losses were negative 6.2 percent in 2020, resulting in an estimated net loss of more than 9.3 million jobs. As a result, we believe it will take until 2022 at the earliest to replace the jobs that were lost in 2020, as well as to begin seeing any possible new demand – instead of mostly replacement demand – for multifamily rental housing. Much of the new multifamily supply consists of more expensive Class A units and is primarily concentrated in about 15 metros, as seen in the chart below. Many of these impacted submarkets are among the most expensive in the country and also bore the brunt of falling rents, rising vacancies, and increasing concessions throughout much of 2020. Multifamily Economic and Market Commentary Employment Recovery Will Take Time in Many Places As seen in the charts below, although we expect the improving economic conditions to continue throughout the year, the employment recovery will likely vary from metro to metro. Indeed, we expect that the employment recovery of many metros will remain negative in terms of where job growth had been pre-COVID, or as seen here, as of fourth quarter 2019. Metros with a significant amount of supply, such as Austin, Dallas, and Phoenix, are expected to see positive job growth by late 2021, according to Moody’s Analytics, which we expect will help boost demand, albeit modestly. However, many other metros with elevated levels of new supply, such as New York, Los Angeles, and Chicago, are expected to languish until at least 2022 before seeing any meaningful increase in job growth – and demand."}, {"role": "assistant", "content": "Multifamily Economic and Market Commentary 2021 Multifamily Outlook: Weathering the COVID-19 Storm We maintain a positive but cautious outlook for the multifamily sector in 2021. We expect the multifamily sector to be impacted in the first half of 2021 from a rising national vacancy rate and declining rents, but, overall, we still expect the multifamily sector to perform well relative to other commercial real estate property types, most notably retail and hospitality. Additionally, based on anticipated investor demand, increasing-but-still-low interest rates, and construction projects whose loans are expected to convert to permanent financing throughout the year, multifamily mortgage origination volume levels in 2021 are expected to be higher than in 2020. The Mortgage Bankers’ Association predicted that multifamily originations volume will be $288 billion in 2020 and $305 billion in 2021. Based on current trends, we believe that annual multifamily originations could easily surpass both estimates. For commercial real estate investors, if the economic recovery continues as expected, demographics and demand are a tailwind that should help keep multifamily as a favored asset class in 2021, leaving open the possibility for further cap rate compression, increased property sales, and, in turn, higher origination levels. 7 10-year Treasury and Multifamily Capitalization Rates Source: Real Capital Analytics, and Federal Reserve, Selected Interest Rates H.15, per Moody’s Analytics With interest rates remaining low over the past several months and increasing pressure on the performance of the hotel, retail, and to a lesser extent, office sectors during the COVID-19 pandemic, investors have remained steadfastly interested in the multifamily sector. As a result, there has been downward pressure on cap rates, especially during the second half of 2020, as seen in the chart below. Although multifamily cap rates started 2020 at approximately 5.3 percent, according to data from Real Capital Analytics, they are estimated to have ended the year at 4.9 percent, a new low. Although we have previously cautioned that a decline in the 10-year Treasury yield would likely compress cap rates as well, it is interesting to note that cap rates have continued to decline despite recent increases in the yield for 10-year Treasurys. We currently anticipate that cap rates will remain low again in 2021 despite an expected increase in the 10-year; however, because the spread between the two remains wide, as illustrated in the chart below, we do not expect significant increases in multifamily property prices in 2021."}]}
{"messages": [{"role": "user", "content": "Supply Largely Uninterrupted, For Now Supply has been one of the most prominent fundamentals of the student housing sector and one that catches the attention of all at the start of each new school year. For the last few school years, supply had mostly moderated and was put on the back burner relative to more pressing issues within the sector. During the height of the pandemic in 2020, construction was considered essential and was largely unhindered. With minimal disruptions during construction, there were approximately 42,000 new beds delivered in time for fall 2021, which was practically level with fall 2020’s levels of 44,000 new beds, according to data from RealPage, Inc. Even though supply and deliveries were not disrupted in 2020 and in 2021, the impacts of supply chain disruptions are being felt in advance of the fall 2022 school year. Practically every industry around the world has been impacted by the supply chain shortages. Since the projects scheduled to deliver in 2020 and 2021 were already in progress and close to completion, deliveries for those school years was largely unimpacted. However, according to RealPage, Inc., as of October 2021, there are approximately 27,000 beds scheduled to deliver in time for the fall 2022 school year. Although supply numbers are subject to change until actual delivery, it appears that the next school year will feature among the lowest amount of new supply delivered to the sector in quite some time."}, {"role": "assistant", "content": "According to research from real estate data vendor John Burns Real Estate Consulting, the supply chain disruptions for lumber and windows have led to construction projects being delayed by at least two months. It is possible that many of fall 2022’s deliveries may be pushed out to deliver in spring 2023 or even fall 2023 due to supply chain disruptions. 2 Multifamily Economic and Market Commentary Student Housing Fundamentals Seeing Record Improvements Many student housing participants posit that the sector is recession-proof and, based on its performance over the past two years, many are now saying that the sector also appears to also be pandemic-proof. Although that’s certainly open to discussion, the performance of fundamentals for fall 2021 suggest the sector’s perseverance. Since many universities required students to be vaccinated, especially those living on campus – nearly 1,000 schools according to The Chronicle of Higher Education – this mandate has allowed off-campus student housing to seemingly return to normal and even out-perform the sector’s pre-pandemic results. Pre-leasing activity also improved by late summer, near the beginning of the actual school year. According to RealPage Inc., the final August 2021 pre-lease level was 92.2% compared to August 2020’s rate of 88.3% and 2019’s rate of 91.5%. It wasn’t until the late summer months of 2021 that pre-leasing activity gained steam; from October 2020 through June 2021, pre-leasing activity briefly lagged behind 2020’s levels as students waited to see what the plans would be for the upcoming school year."}]}
{"messages": [{"role": "user", "content": "Economy to Decelerate, but Home Sales and Mortgage Originations to Begin Slow Recovery in 2024 With 2023 nearing its end, we provide a look back at the year and our forecast evolution. While inflation decelerated largely as expected, economic growth has proven to be more resilient than we anticipated. We are now expecting 2023 Real Gross Domestic Product (GDP) growth to be 2.6 percent on a Q4/Q4 basis, whereas at the start of the year we were forecasting a modest 2023 recession. While the combination of disinflation alongside continued low unemployment points to a soft landing within reach, the dynamics that led us to expect a contraction mostly persist. We currently forecast GDP to decline slightly in 2024 by 0.3 percent followed by 1.7 percent growth in 2025. In housing, our persistent view that affordability challenges, lock-in effects, and a lack of available inventory of homes for sale would keep existing home sales at the slowest pace since the Great Financial Crisis proved correct. New home sales, however, were more resilient in the face of high mortgage rates than we had expected. The recent pullback in mortgage rates to 6.95 percent from their peak of 7.79 percent in October points to an incoming rebound in sales, but even with recent declines, mortgage rates are currently similar to those of the summer of this year. Given further declines in the ten-year Treasury rate since completion of our forecast, there is some upside risk to our home sales and originations forecast; however, rates are still comparatively high, and we still expect another year of slow sales in 2024. We project 2023 total sales will finish at 4.8 million, followed by a similar 4.8 million pace in 2024 and 5.4 million in 2025. However, taking into account home price appreciation and some modest growth in refinance activity, we forecast total single-family mortgage originations to grow from $1.5 trillion in 2023 to $1.9 trillion in 2024, and then to $2.3 trillion in 2025. Quick Links Economic Forecast Changes Housing & Mortgage Forecast Changes Economic Forecast Table Housing & Mortgage Forecast Table 2023 Unfolded Better than Expected, but 2024 Still Poised to Slow The past year began with an inverted yield curve, rising interest rates, waning fiscal stimulus, a slowdown in both housing construction and home price growth, and, in March, bank failures. A 2023 recession appeared to be developing. However, as the year progressed, consumer spending remained resilient and acute banking stress subsided while home prices rebounded. Continued economic resilience has surprised many forecasters this year and led to financial markets backpedaling multiple times on the pricing of impending Federal Reserve “pivots,” ultimately helping drive a rise in longer-term interest rates, including mortgage rates, to a 23-year high by October. Since that peak, however, longer-term interest rates have fallen sharply recently on yet another anticipation of rate cuts and slowing inflation in 2024. Fundamentally, our long-held view that the economy would enter a recession as monetary policy tightening worked to fight inflation was based on historical business-cycle dynamics that suggested inflation was unlikely to be brought k to t d’s 2-percent target without a significant weakening in the labor market. While some supply chain drivers of inflation were expected to subside over time, there was evidence that services inflation associated with a tight labor market had gone beyond what was consistent with an overall 2-percent inflation target. Historically, this has only been reduced via a substantial rise in the unemployment rate. To date, however, cooling inflation and wage growth is occurring while unemployment remains low. Compared to a year ago, the Personal Consumption Expenditure (PCE) Price Index rose 3.0 percent in October while core prices were up 3.5 percent, down from cycle-peaks of 7.1 and 5.6 percent, respectively. While core inflation in particular remains elevated on an annual basis, much of this is due to ongoing high measures of shelter inflation which lag more timely market measures of rent by 4 to 5 quarters. Currently, measures of rent growth for new tenants show slowing or even negative rent growth. As such, it is only time before this is reflected in the PCE. And inflation less shelter, whether measured by the PCE or the Consumer Price Index (CPI), is already closer to t d’s t t than the overall measures. The question of whether inflation could be brought down without a meaningful rise in the unemployment rate appears to have been answered in the affirmative. However, we are not yet ready to declare that the window for a recession has passed. The labor market has cooled from extremely tight conditions in 2022 to a healthy level that broadly mimics its state in 2019. In November, the economy added jobs, an increase from October, but this was inflated by the ending of the United Auto Workers (UAW) and Screen Actors Guild (SAG) strikes. Removing the effects of the strikes from both reports would indicate job gains slowed from roughly in October to in November. If this pace of employment growth can be maintained, then it would be consistent with a soft landing. However, the current monetary policy stance is still restrictive, and past tightening is still working its way through the economy. Bank lending is slow, near-term indicators suggest business investment is currently sluggish, and consumer spending is still in excess of its historical relationship to incomes. Whether it results in a recession or not, we believe growth is likely to decelerate significantly over the coming 2-3 quarters. Given the current restrictive stance, to achieve a soft landing, monetary policy will need to ease sufficiently this next year to prevent a downturn, but not reanimate inflation – a difficult balance to achieve. An uptick in average hourly earnings in November illustrates the risk that the labor market could still overheat and contribute to future inflationary pressures if monetary policy is eased prematurely. As such, we are projecting the start of fed funds rate cuts in Q2 2024, but at a cautious pace. 2023 Home Sales Will Be Lowest Since 2010, With Slow Recovery Beginning in 2024 We entered the year forecasting existing home sales to be around 4 million, a pace below most other forecasters and the lowest since 2010. While our forecast oscillated over the year along volatile mortgage rates, and our view on economic growth evolved, the sales expectation held in a narrow range. The drivers of slow sales are well known at this point: unaffordability, lock-in effects, and a lack of existing inventories freezing much of the housing market. While we believe these dynamics will slowly dissipate over time, they will remain obstacles in 2024. We forecast year total 2024 home sales to only be marginally higher than in 2023."}, {"role": "assistant", "content": "With that said, the extreme low point in October, where existing sales dropped to an annualized pace of 3.79 million, is likely to be at or near the low point. While October pending sales point to November sales also being low, purchase mortgage applications, as measured by the Mortgage Bankers Association, have bounced about 15 percent off their trough in November, as mortgage rates have fallen considerably. Given an expectation of further moderation in mortgage rates, we expect sales to start drifting upward. While the difference between a soft landing and a recession would have an effect on purchase demand, given current supply constraints, we see the path of future mortgage rates as being more determinative of sales."}]}
{"messages": [{"role": "user", "content": "We have long anticipated that new home construction would hold up better than what is typical in a downturn due to the fundamental shortage of housing units. This is one of the reasons why we still think the next economic downturn will be comparatively modest. However, the degree of resilience shown by new home sales and single-family starts in recent quarters in the face of mortgage rates rising to near 8 percent was unexpected. Homebuyers now appear more acclimated to higher mortgage rates then they were in 2022, as evidenced by a lower degree of order cancellations in the most recent episode of rate increases. Additionally, homebuilders who have been aided by lower materials costs and healing supply chain disruptions have been willing and able to offer concessions, including rate buydowns, to help drive sales. This trend continues into our 2024 forecast, in which we expect new home sales to decline from current levels only slightly due to a modest economic contraction. Along with the resilience in new home sales, so too have home prices exceeded our start-of-year expectations, with prices rebounding modestly off mild declines in late 2022. Our mortgage originations outlook, being a function of home sales and home prices, tended to drift upward over the year but remained within a 9 percent band of what now appears to be the level of originations for the year. Economic Forecast Changes Economic Growth GDP was revised upward to a 5.2 percent annualized rate in the third quarter of 2023, though the average of real GDP and Gross Domestic Income (GDI) show the economy grew 1.4 percent over the past year, which is below the long-term trend. We continue to expect a slowdown over coming quarters as consumer spending growth has exceeded income growth and higher real interest rates weigh on business investment. Conceptually our forecast is little changed from last month. Labor Market Nonfarm payroll employment growth was in November (though this was inflated by the ending of the UAW and SAG strikes, which contributed an increase of roughly 47,000 workers). The unemployment rate dropped two-tenths to 3.7 percent. Compared to last month, our forecasted unemployment rate was revised downward due to incoming November data and a modest recalibration of the expected economic growth/labor market relationship. Inflation & Monetary Policy The November CPI report was generally in line with our expectations. Headline CPI, weighed down by energy prices, grew just 0.1 percent over the month and 3.1 percent compared to a year ago. Core inflation was more persistent, rising 0.2 percent over the month, with the annual rate unchanged at 4.0 percent as shelter inflation remains hot."}, {"role": "assistant", "content": "Housing & Mortgage Forecast Changes Mortgage Rates Following the recent decline in interest rates, our interest rate forecast is lower this month, with the average FRM30 rate now predicted to average 7.4 percent over the fourth quarter of 2023. We expect the FRM30 rate to average 6.7 percent in 2024 and 6.2 percent in 2025. Our forecast was completed on December 11. Rates have declined further since then and are likely to remain volatile as we transition from monetary policy tightening to easing, which adds risk to our outlook for interest rates."}]}
{"messages": [{"role": "user", "content": "Existing Home Sales Existing home sales were at a seasonally adjusted annualized rate (SAAR) of 3.79 million in October, below what we had anticipated, and the lowest level since 2010. With October pending sales also being weak, we have revised downward our Q4 sales estimate. However, we have revised our forecast modestly upward beginning in 2024, largely due to the lower projected interest rate environment. However, the continued heightened volatility of long-run interest rates continues to point to risk around the sales projection. New Home Sales New single-family home sales declined 5.6 percent to a SAAR of in October and were downwardly revised in September; however, the lower projected interest rate path led us to modestly upgrade the forecast for new home sales. New home sales continue to benefit from the limited inventory of existing homes o s d o i d s’ i it and willingness to buy do o o s’ i t st t s."}, {"role": "assistant", "content": "Single-Family Housing Starts Single-family housing starts rose to a SAAR of in October and permits were at a pace of . While we continue to expect a softening trend in line with our forecast for a weakening economic backdrop, we have revised our forecast upward in part to reflect the lower projected interest rate path. We continue to expect that the lack of existing homes available for sale will continue to boost new home construction in the medium term."}]}
{"messages": [{"role": "user", "content": "Single-Family Home Prices Home prices grew 6.0 percent compared to a year ago in September, according to the most recently published non-seasonally adjusted FHFA Purchase-Only House Price Index (HPI). Our next home price forecast update will be in January. Single-Family Mortgage Originations We have upgraded our forecast for purchase mortgage origination volumes this month, consistent with upgrades to the home sales forecast. We now expect 2024 purchase volumes to be $1.4 trillion, an upgrade of $ i io d p t i s o ’s projected volumes of $1.3 trillion."}, {"role": "assistant", "content": "In 2025, we expect purchase origination volumes to continue to grow, reaching $1.6 trillion. For refinances, we now project 2024 volumes to be $451 billion, an upgrade of $23 billion forecast over forecast, given the more favorable mortgage rate expectation this month. As shown by recent data from the Refinance Application-Level Index, we have seen refinance application volumes rise slightly from their trough in October as rates have fallen, supporting more refinance activity. In 2025, we expect refinance volumes to grow to $686 billion."}]}
{"messages": [{"role": "user", "content": "1 FEBRUARY MF Affordability Outlook: LIHTC Outperforms but Affordability Still a Challenge LIHTC Seniors Vacancy Trends Stable As shown in the adjacent chart, both Moody’s Analytics CRE and data show the average vacancy rate barely moved at LIHTC Seniors properties even at the height of economic recession in 2020. Prior to the roll-out of the COVID-19 vaccine, many seniors housing properties experienced some of the highest COVID-19 infection and death rates, leading to an increase in their overall vacancy rate as some residents with means likely moved out. However, the vacancy rate at LIHTC Seniors properties only rose by 0.4 percent from Q4 2019 to Q1 2021 to a high of 2 percent, according to data from Moody’s Analytics CRE, with the vacancy rate now back in line with its pre-pandemic average. data shows a similar trend, with the average vacancy rate hovering around 2.7 percent. Market Rate Seniors housing fared much worse. The average vacancy rate at these properties rose by 7.8 percent points from Q4 2019 to Q1 2021 to a high of 18.1 percent. While the vacancy rate has been stabilizing – declining to 14.2 percent as of Q4 2022 – it remains much higher than the 1.7 percent average vacancy rate at LIHTC properties. Q4 Market Rate Seniors LIHTC Seniors (Moodys CRE) LIHTC Seniors () LIHTC Seniors Average Vacancy Rate vs. The lower vacancy rate for LIHTC Seniors properties is likely due to these lower-income residents simply having fewer housing options, keeping them from moving out. In addition, many of these seniors have a stable source of income in Social Security and are paying rents that are much lower than those offered at Market Rate properties. In fact, despite double digit vacancy rates, rents have continued to grow at Market Rate Seniors properties with the average asking rent increasing to $3,811 as of Q4 2022 from $3,460 as of Q4 2019. By contrast, the average asking rent at LIHTC Seniors properties for units affordable at 60 percent of AMI only increased to $982 as of Q4 2022 from $904 as of Q4 2019. LIHTC Family Vacancy Trends Also Stable As shown in the adjacent chart, Moody’s Analytics CRE data estimates the average vacancy rate remained unchanged at LIHTC Family properties even at the height of the economic recession in 2020. The vacancy rate at LIHTC Family properties remained at 2.5 percent from Q4 2019 to Q3 2021 before declining to 2.2 percent as of Q4 2022. The closest comparable market rate segment also tracked by Moody’s Analytics CRE, Market Rate Class B/C, also remained fairly stable with the average vacancy rate rising by just 0.2 percentage points over the same time period. But it had a higher average vacancy rate of 3.8 percent as of Q1 2021 before falling and rebounding to 3.5 percent as of Q4 2022. RealPage, which defines Class C properties as those with rents in the bottom 20 percent of a market, also estimates a slightly higher vacancy rate for Class C properties of 4.0 percent as of Q1 2021. While vacancy at LIHTC properties is expected to be low by design, the stability of their lower average vacancy rate over the past several years demonstrates that the various federal stimulus programs, as well as a quickly rebounding job market, generally helped both tenants and borrowers of subsidized properties. Q4 Market Rate Class B/C (Moody's CRE) Market Rate Class C (RealPage) LIHTC Family Properties LIHTC Family Average Vacancy Rate vs. As shown in the adjacent chart, LIHTC Family asking rents slightly exceeded Market Rate Class B/C properties during the height of the economic recession, according to Moody’s Analytics CRE data."}, {"role": "assistant", "content": "4 Multifamily Economic and Market Commentary Share of Rent Paid at LIHTC Properties Stable During Pandemic Most units at LIHTC properties are rented to residents earning no more than 60 percent of AMI. However, maximum rent increases are set by income limits released by the U.S. Therefore, federal stimulus payments, emergency rental assistance, and extended unemployment benefits were able to go further at LIHTC properties than at most types of market rate multifamily properties during the height of the economic lock-down during the pandemic. This supported steady fundamentals and the share of rents paid by month’s end hovered around 90% from April 2020 to March 2021."}]}
{"messages": [{"role": "user", "content": "Still, there has been some deterioration in both LIHTC and certain market rate properties in rents paid by month’s end since the start of the pandemic. RealPage defines Class C units as units in the bottom 20% of rents for a market. Rents paid by month’s end at Class C properties declined from 96.3% of all rents in March 2019 to 94.4% as of December 2022. In addition, rents paid at month’s end at LIHTC properties declined from 92.7% of all rents as of March 2019 to 89.5% as of December 2022. We believe the multifamily sector may face softening demand in 2023 due to the combination of a recession and stubbornly high inflation, but there is far greater demand for affordable units than supply."}, {"role": "assistant", "content": "This bodes well for the continued stable performance of LIHTC properties, particularly since we believe that rental affordability will continue to be a challenge in 2023. 5 Multifamily Economic and Market Commentary Ongoing Rent Growth Nationwide We project that the multifamily sector will see a decline in demand during the first half of the year, resulting in negative rent growth for at least the first quarter of 2023. However, we also expect demand to increase during the second half of the year, which will likely result in a more normal rent growth resumption averaging about 1.5% for the full year of 2023. After two years of above-average rent increases, a decline in rent growth would be welcome news for many renters but is not expected to contribute much to increased affordability, at least not at a national level."}]}
{"messages": [{"role": "user", "content": "Source: Moody’s Analytics, RealPage Year-over-Year Change in Private Sector Nominal Average Hourly Earnings and Effective Rent* Jan. 2011– Dec. All nonfarm employees wage growth CPI-U Class B Effective Rent Growth Production and Non-Supervisory Employees Wage Growth CPI-U Class C Effective Rent Growth 6 Multifamily Economic and Market Commentary Average Vacancy Average Asking Rent Growth Average Vacancy and Asking Rent Growth Class B Multifamily (Q4 2013 – QAverage Vacancy Average Asking Rent Growth Average Vacancy and Asking Rent Growth Class C Multifamily (Q4 2013 – Q4 2025) As shown in the lower chart on the previous page, the gap between the wages of production and non-supervisory employees and effective rent growth has been smaller for Class C units than for Class B units and, even prior to the pandemic, there were 20 months when wage growth slightly outpaced Class C effective rent growth. Even so, since January 2011, overall cumulative Class C effective rent growth has outpaced the wage growth of production and non- supervisory employees, despite some of the strongest wage gains in a decade. In 2022, Class C effective rent growth was 5.8%, still outpacing wage growth of 5.0% for production and non-supervisory employees, leading to a further erosion in affordability for the workers who can least afford it."}, {"role": "assistant", "content": "Vacancy Rates Expected to Rise Slightly… Based on our currently predicted moderate recession in the second quarter of 2023, combined with Class B properties having to adjust rents to compete with an above-average amount of Class A new supply being delivered in certain markets, both Class B and Class C fundamentals are projected to soften in 2023. As shown in the left chart below, projects that the average Class B vacancy rate is expected to rise to 7.2% in 2023, then 7.5% in 2024, which is slightly above the 6.1% average over the past 10 years. Similarly, as shown in the right chart below, the average Class C vacancy rate is expected to rise to 4.6% in 2023, then again in 2024 to 4.9%. Even so, it is expected to remain below the 5.1% average over the past 10 years leaving a tight market for the lowest income renters. …and Rent Growth is Expected to Slow Slightly In addition, projects that the average Class B asking rent will likely slow to 2.9% in 2023, followed by a 2.0% increase in 2024. Excluding the double-digit spike in 2021, the average rent increase for Class B apartments was 3.0% since 2013. We believe that Class C rent growth will likely be slightly stronger at 3.1% in 2023 followed by a 2.0% increase in 2024. While the average asking rent is expected to grow more slowly than the 3.8% average over the past decade, nationwide, we do not expect Class C asking rents to fall."}]}
{"messages": [{"role": "user", "content": "A New Normal For Annual Supply The amount of new off-campus student housing being added to the existing inventory has been trending downward since 2016, as seen in the chart above. For the second consecutive school year, new supply has been under 40,000 new beds delivered. For the semester ending fall 2022, there were approximately 36,000 new beds delivered."}, {"role": "assistant", "content": "Furthermore, as of May 2023, both fall 2023 and fall 2024 are expected to have approximately 38,000 and 39,000 new beds delivered according to RealPage Inc."}]}
{"messages": [{"role": "user", "content": "Multifamily Economic and Market Commentary Improved Fundamental Performance For the last two school years beginning in the fall semester, student housing performance has continued to improve."}, {"role": "assistant", "content": "Although it is still early in the year, fundamentals for the upcoming fall 2023 school year appear to already be above the last two school years, as seen in the charts below. The pre-leasing period for the upcoming school year officially begins as soon as the current school year takes place. For example, for the fall 2023 school year, pre-leasing began in September 2022. According to Dallas-based student housing data vendor, RealPage, Inc., pre-leasing for the fall 2023 school year as of April 2023 was approximately 73%. Comparing that to the prior year, we find that the pre-leasing rate for April 2022 was approximately 71%, which was the highest amount on record, at the time. Multifamily Economic and Market Commentary Transaction Activity Halted – For Now? According to MSCI Real Assets, student housing apartment transaction activity has drastically slowed down compared to activity in 2022 and 2021. As a result of the current elevated interest rate environment, financing student housing properties has become much more expensive. Furthermore, market players have decided to hold on to student housing properties due to the continued bid/ask spread gap, as well as those property owners that have below-average mortgage rates. For the period ending Q1 2023, there were approximately 36 student housing properties traded for a total $635 million. Compared to the same time last year, when 83 properties were traded for approximately $2.9 billion, this represents a decrease of nearly 78% year over year. The last time that student housing activity stalled in a similar manner was during the first two quarters in which the pandemic was declared (Q2 2020 and Q3 2020). During these respective quarters there were 9 and 15 properties traded for approximately $182 million and $262 million in total volume. We believe that investors will continue to hold on to their student housing properties over the next 12 to 18 months at least, as they are likely not incentivized to sell with interest rates remaining elevated. Dollars ($B) Rolling 4-Quarter Volume Quarterly Volume Sales Volume for Student Housing Properties Since QStudent Housing Properties Traded Since Q1 2013 Source: MSCI Real Assets Continued Stabilization Over the Short-Term, More Upside Longer-Term The off-campus student housing sector has seen a resurgence in demand over the past two years, leading to elevated rent growth and occupancy levels, but that is not necessarily an indicator of future trends. New supply has continued to moderate, and fall 2023 is expected to see similar levels of new supply delivered. Gone are the days of 45,000-plus beds being delivered annually, as developers moved toward moderation. We believe that there are short-term headwinds that will persist for the student housing sector. Fundamentals have been at peak levels for the third year in a row, and it is widely expected that this year may be the sector’s apex. As supply continues to moderate, we expect fundamental performance will follow, slowing to a trend that resembles pre-2020 performance. The biggest headwind currently for student housing is the decreasing size of the college age population, coupled with higher tuition and student loan costs. However, we believe the longer-term outlook for the sector is brighter, as we expect interest rates to stabilize and the population cohort is expected to start increasing further out in the forecast. As a result, activity in the student housing transaction market could start picking up in the next year or two, as investors decide to get back into the market in anticipation of possible rising enrollment rates."}]}
{"messages": [{"role": "user", "content": "of 7 Economy to Slow, but Home Sales Nearing a Bottom With the November forecast we include one additional year to our outlook; in this case 2025."}, {"role": "assistant", "content": "We remain in the camp of forecasters predicting a mild recession in 2024, with real gross domestic product (GDP) declining 0.4 percent on a Q4/Q4 basis. We anticipate that the recession will be brief and, for 2025 as a whole, we forecast the economy to expand by 1.6 percent. We expect the unemployment rate to peak at 5.4 percent in the middle of 2025, with core inflation trending toward the Federal Reserve’s 2-percent target. We project home sales will likely bottom out in early 2024, regardless of a mild recession or a “soft landing,” as the peak drag from rising mortgage rates passes. We forecast mortgage rates to decline gradually over the next two years. When mortgage rates do ease, we expect sales will begin to rebound, albeit modestly due to the ongoing lock-in effect. The continuing lack of existing homes for sale will likely remain supportive of new construction. We forecast total home sales to be 4.8 million in 2023, essentially unchanged from our prior forecast, 4.7 million in 2024 (4.8 million previously), and 5.3 million in 2025. Combined with an increase in refinance volumes and some home price appreciation, we forecast total mortgage originations to grow from $1.5 trillion in 2023 to $1.8 trillion in 2024, and then to $2.2 trillion in 2025. Quick Links Economic Forecast Changes Housing & Mortgage Forecast Changes Economic Forecast Table Housing & Mortgage Forecast Table Q3 2023 Growth Was Strong, but a Slowdown Remains Likely Real gross domestic product (GDP) surged to 4.9 percent annualized growth in the third quarter. However, despite the strong headline, the underlying details were less rosy. The strong 4.0 percent annualized jump in real personal consumption is likely to be unstainable given real personal incomes grew at only 0.6 percent annualized over the same period. The personal saving rate fell to 3.4 percent in September, well below its typical pre-pandemic level of roughly 7 percent. We expect consumption growth will moderate as spending and income return to a more historically normal relationship. Business fixed investment (BFI), which is typically more indicative of business cycle contours, contracted at a 0.1 annualized rate in the third quarter. Moving forward, we expect higher real interest rates and tighter credit conditions to weigh on investment. For the three months ending in October, the Federal Reserve Senior Loan Officer Opinion Survey (SLOOS) showed that net lending standards for commercial and industrial lending, which typically leads measures of business credit outstanding in those categories, continued to tighten, albeit at a slower pace than before. We project real GDP growth on a Q4/Q4 basis to be 2.6 percent in 2023 (2.5 percent previously), negative 0.4 percent in 2024 (negative 0.1 percent previously), and 1.6 percent in 2025. The change in the 2024 outlook largely reflects a shift in timing of the peak-to-trough GDP forecast aligning more with year-end dates, rather than a revised view of a deeper downturn. Inflation and Labor Market Cooling The labor market added jobs in October and average hourly earnings rose just 0.2 percent over the month, indicating healthy but not overheated conditions. However, the unemployment rate ticked up to 3.9 percent, half a percentage point above its recent low in April, and both initial S , ous ayroll gains s ow gra ual so ening com are to earlier in t e cycle of 7 and continuing unemployment claims have trended upward. While recent data has been affected by the auto workers strike (which should reverse in the next data print), we think the labor market is now clearly showing a softening trend. The October Consumer Price Index (CPI) report was also cool, with headline inflation flat over the month and core inflation increasing just 0.2 percent. From a year ago, headline and core prices increased 3.2 percent and 4.0 percent, respectively, each a slowdown from September. Furthermore, the CPI continues to be bolstered by time-lagged measures of rent, which will continue to fall based on more timely measures of market rents. Not including shelter, the CPI was up only 2 percent in October from a year ago. While the topline was dragged down in part by falling energy prices, we expect that annual core inflation will continue to move toward the Fed’s 2-percent target over the next year. Given the unemployment rate is still below 4 percent, a premature easing of monetary policy would risk reanimating inflation, so we do not expect the Fed to be quick in cutting rates in coming months. With slowing inflation, however, maintaining the current fed funds rate likely equates to increasing real short-term rates moving forward, putting further downward pressure on economic activity. Near-Term Home Sales Poised to Slip Further Prior to Start of Rebound in Q4 2024 In response to mortgage rates approaching 8 percent this fall, mortgage application activity continues to trend downward, with purchase mortgage applications in October hitting the lowest level since 1995, according to the Mortgage Bankers Association. We are expecting Q4 seasonally adjusted existing home sales to be 3.90 million on an annualized basis, the lowest since Q3 2010. However, although mortgage rates remain high, longer-run interest rates have pulled back significantly in recent weeks. While rates have been volatile, with markets weighing a stew of changing inflation expectations, heightened Treasury issuance and fiscal deficits, and global growth outlooks, the sharp drop in yields following soft October inflation print is noteworthy. It suggests once bond markets are convinced that inflation is contained, either via a soft landing or the start of a recession, that mortgage rates will have some room to recede, especially if the currently wide spread to the ten-year Treasury rate tightens after near-term worries of higher long-run Treasury yields soften. We expect existing home sales to begin to rebound later in 2024 as mortgage rates pull back. While the lock-in effect and the low number of homes available for sale will likely persist for some time, these limiting factors will begin to diminish, and affordability will improve modestly on 30-year fixed mortgage rates below 7 percent. The recovery to a pre-pandemic level of sales will likely take years, but we forecast the bottom will be passed in 2024. We expect some softening in single-family housing starts soon, as homebuilder confidence surveys have weakened in light of higher mortgage rates. However, if rates are to pull back even modestly, the mid-term outlook for new home sales and single- family housing starts will remain on solid footing. The lack of existing homes available for sale and what we believe to be a long-run deficit in the housing stock relative to demographic trends will support construction. A pullback in commodity prices, combined with many large homebuilders having locked in previous long-run financing at attractive rates, leaves many with sufficient operating margins to allow for continued concessions as needed to drive sales. Homebuilders continuing to push toward more modestly sized homes and in comparatively less expensive geographies has also kept new home sales prices historically low relative to the median existing home sales price. Combined with rate buydown concessions, a newly built home is now often comparatively affordable for many would-be homebuyers, and we expect this to be the case for the foreseeable future."}]}
{"messages": [{"role": "user", "content": "of 7 Economic Forecast Changes Economic Growth GDP grew at a 4.9 percent annualized rate in the third quarter of 2023. However, the underlying details were less robust. We continue to expect a slowdown over coming quarters as consumer spending growth has exceeded income growth and higher real interest rates weigh on business investment. Conceptually our forecast is little changed; however, we have shifted the primary quarters of our recession call back somewhat, with the peak negative quarter now expected in the second quarter of 2023. Labor Market Nonfarm payroll employment growth was in October (though this was weighed down by about 30,000 due to the auto worker strike). The unemployment rate ticked up one-tenth to 3.9 percent, a half-percentage point above its recent low in April. Compared to last month, our forecasted unemployment rate was revised slightly higher due to incoming October data and a modest recalibration of the expected economic growth/labor market relationship. Inflation & Monetary Policy The October CPI report was generally in line with our expectations. Headline CPI was flat over the month and grew just 3.2 percent compared to a year ago. Core CPI rose 0.2 percent over the month, bringing the annual rate down to 4.0 percent. The report is broadly consistent with a continued cooling in inflation. Our baseline expectation is that the Fed will not raise rates further this cycle but will keep policy tight until it is clear that inflationary pressures have abated."}, {"role": "assistant", "content": "of 7 Housing & Mortgage Forecast Changes Mortgage Rates Our interest rate forecast is higher this month, with the average FRM30 rate now predicted to average 7.7 percent over the fourth quarter of 2023. We expect the FRM30 rate to average 7.3 percent in 2024 and 6.9 percent in 2025. However, recent volatility at the long end of the yield curve adds additional risk to this forecast. As of this writing, the 10-year Treasury yield is nearly 50 basis points lower than the start of the month."}]}
{"messages": [{"role": "user", "content": "Existing Home Sales Existing home sales were at a SAAR of 3.96 million in September, the first time the rate fell below 4 million since 2010. We have revised our forecast modestly downward largely due to the higher projected interest rate environment. Again, however, the heightened volatility of long-run interest rates in recent weeks points to risk around the sales projection. New Home Sales New single-family home sales jumped 12.3 percent to a SAAR of in September, causing an upward revision to our near-term forecast. We have also revised the timing of our projected new home sales trough to align with the revised macroeconomic outlook. New home sales continue to benefit from the limited inventory of existing homes for sale and homebuilders’ ability to buy down b w ’ , d b between the new and existing home markets."}, {"role": "assistant", "content": "Single-Family Housing Starts Following the completion of our forecast, single-family housing starts rose to a SAAR of in October and permits were at a pace of . While we continue to expect a softening trend in line with our forecast for a weakening economic backdrop, we have revised our forecast upward in the near term to reflect incoming data available as of the November 13 data release. We expect that the lack of existing homes available for sale will continue to boost new home construction in the medium term."}]}
{"messages": [{"role": "user", "content": "Single-Family Home Prices Home prices grew 5.6 percent compared to a year ago in August, according to the most recently published FHFA Purchase-Only House Price Index (HPI). Our next home price forecast update will be in January. Single-Family Mortgage Originations We have revised downward our forecast for purchase mortgage originations this month given downgrades to the home sales forecast. In particular, we now expect purchase volumes to be $1.3 trillion in 2023, a downgrade $ b ’ t."}, {"role": "assistant", "content": "We expect purchase volumes to rise in 2024 to $1.4 trillion as housing sales increase, a downgrade of $31 billion from the prior forecast and $1.6 trillion in 2025."}]}
{"messages": [{"role": "user", "content": "Office/Occupier Demand for office space will improve as more workers return to the office and occupiers take advantage of favorable market conditions. The shift to hybrid work will prompt more occupiers to redesign their spaces to enhance collaboration and employee well-being."}, {"role": "assistant", "content": "Contents Industrial & Logistics Amid record demand, rent growth and investment activity, industrial real estate will stay hot in 2022. E-commerce’s expansion will fuel the need for more warehouse space, as will the growing economy, population migration and the desire for “safety stock” onshore. Multifamily The multifamily sector is set for a record-breaking 2022 amid solid fundamentals and heightened investor interest. With tremendous liquidity and a growing range of debt options available, multifamily pricing will be as strong as ever. Hotels While the hotel sector could face renewed travel restrictions, we expect higher occupancy levels from an increase in inbound international and business travel in 2022. Data Centers Data center needs will continue to grow as cloud service providers and social media and content streaming companies expand and 5G, AI and edge computing gain traction, spurring development of additional capacity nationwide. CBRE is maintaining a positive outlook for the economy and commercial real estate in 2022, despite uncertainty over potential impacts of the COVID omicron variant and other risks. While the new variant will impact the timing of a large-scale return to the office, fiscal and monetary policy remains highly supportive of economic growth. There may be other bumps along the way, notably from the ripple effects of an economic slowdown in China and rising oil prices, but the factors that held back growth in 2021—labor shortages, supply disruptions, inflation and other COVID variants—will ease. Monetary policy will tighten to keep longer-term inflation pressures in check, which may trigger some short-run volatility in the stock market, but it will not be enough to dampen investor demand for real estate. We foresee a record year for commercial real estate investment, enabled by high levels of low-cost debt availability and new players drawn to real estate debt’s attractive risk-adjusted returns. Commercial real estate values will rise, particularly for sought-after industrial and multifamily assets. Investors will sharpen their focus on emerging opportunities in the office and retail sectors in search of better returns."}]}
{"messages": [{"role": "user", "content": "The supply/demand balance in the office sector will remain highly favorable for occupiers, but the pace of recovery will pick up following a sluggish 2021. With hybrid work the new normal, office properties with amenities that enhance employee collaboration, connection and wellness will fare best. Industrial & logistics hardly broke step during the pandemic as e-commerce surged. 2022 will see slower demand for physical goods as the service sector reopens and attracts more consumer spending. This will give supply a chance to catch up with demand. Third-party logistics operators are beginning to dominate the sector and are looking to get ever closer to the end consumer."}, {"role": "assistant", "content": "Multifamily will continue its recovery in 2022, with downtown locations returning to pre-pandemic occupancy levels. Single-family rentals in the suburbs will also fare well as some millennials leave the city to raise families."}]}
{"messages": [{"role": "user", "content": "A notable trend in the second half of 2022 will be the return of downtowns. As business and tourist travel picks up, we will see a sharp revival in the hotel sector in gateway cities, alongside the already recovering food & beverage sector. This, in turn, will stimulate the return to the office and the fuller recovery of downtown life."}, {"role": "assistant", "content": "The outlook for real estate in 2022 is positive, with big cities potentially surprising on the upside. Amid this recovery, ESG, demographics, digitization and decarbonization will take on a new importance. We have produced this report to help you navigate the macro environment we expect in 2022 and look forward to working with you in the new year. The outlook for real estate in 2022 is positive, with big cities potentially surprising on the upside."}]}
{"messages": [{"role": "user", "content": "Economy & Policy 01 Inflation will remain well above the Fed’s 2% target through the first half of 2022 but will increase just 2.5% for the full year as supply chain and other economic headwinds abate."}, {"role": "assistant", "content": "While pandemic-related disruptions will continue, the economic outlook is still bright, with 4.6% GDP growth expected for 2022."}]}
{"messages": [{"role": "user", "content": "GDP Growth, CBRE House View Source: CBRE Research. November 2021. GDP Growth Long-Term Trend Avg. Avg."}, {"role": "assistant", "content": "Growing economy to fuel commercial real estate’s recovery In terms of GDP, the U.S. has fully recovered from the pandemic-induced recession of 2020. Real estate’s recovery is generally in full swing, with some sectors progressing faster than others. The pace of GDP growth will slow in 2022 from 2021’s exceptionally high level but will remain above the long-term trend for the U.S. Alongside low interest rates, strong economic growth will provide highly supportive conditions for commercial real estate. COVID-19 outlook still uncertain but more optimistic As the delta and omicron variants showed, the pandemic’s course is difficult to predict. COVID will likely endure in some form for the foreseeable future, However, society is learning to adapt to life with the virus and the ability to manage its effects has improved considerably. This is largely due to broader vaccine availability and the emergence of antiviral and antibody therapeutics. So, while COVID-19 will remain present in 2022, its impact on people, health-care systems and the economy should be more subdued than in 2020 and 2021."}]}
{"messages": [{"role": "user", "content": "Continued economic growth ahead We expect U.S. GDP to expand by a historically strong 4.6% in 2022. All four quarters will see more than double the long-term trend of around 2%. The recently enacted Infrastructure Investment and Jobs Act—as well as the social spending proposals under consideration as of this writing—may add some upside potential to our 2022 growth forecasts, with greater impact in 2023 and beyond."}, {"role": "assistant", "content": "We do not foresee interest rates rising sharply enough to disrupt property markets, with the 10-year Treasury yield expected to reach 2.3% (from 1.4% in early December) by the end of 2022. Inflation and interest rates in focus Inflation reached multi-decade highs in the U.S. during 2021, largely due to strong economic growth, labor shortages and hobbled supply chains. All of this conspired to increase costs for products and services. We expect that price increases (as measured by Core PCE, the Federal Reserve’s preferred measure) will remain elevated during the first half of 2022, but will increase just 2.5% for the full year amid cooling economic growth and fewer supply chain constraints. Headwinds to growth in China—the world's second largest economy— are a risk to growth in the U.S. and could impact the timing of monetary policy adjustments."}]}
{"messages": [{"role": "user", "content": "Given the strong economic recovery and inflationary pressure, we expect the Fed will end its emergency quantitative easing—a key policy response to increase liquidity and improve market functioning during the pandemic—by mid-2022. This will set the stage for an increase in the federal funds rate, with the potential for more than one rate hike before year's end."}, {"role": "assistant", "content": "However, we do not foresee interest rates rising sharply enough to disrupt property markets, with the 10-year Treasury yield expected to reach 2.3% (from 1.4% in early December) by the end of 2022. Policy changes and commercial real estate The recently enacted Infrastructure Investment and Jobs Act includes $550 billion in new spending on physical infrastructure over the next 10 years that could boost commercial real estate in 2022 and beyond. One positive effect is higher short- and long-term economic growth, which translates into more demand for commercial real estate, as new projects get underway and long-run productivity improves. In local markets, new areas could be opened for development, and better infrastructure supports the growth of local businesses. This bill also carries major implications for the tax code, which pose some degree of risk for commercial real estate. The most notable changes are a 3.8% net investment income tax expansion (which will cover rent and capital gains), surtaxes on taxpayers with adjusted gross incomes over $10 million and new tax incentives for clean energy infrastructure and building retrofits. Importantly, many of the proposed tax changes that would have been most detrimental to property markets are now off the table—including those affecting the 1031 exchange and carried interest treatment as well as an increase in the tax rate on capital gains."}]}
{"messages": [{"role": "user", "content": "Slowing growth abroad and the normalization of monetary policy Economic headwinds in China and supply chain issues will factor into inflationary pressures in 2022 and influence monetary policy. Should economic growth in China outperform and supply chain issues persist, the resulting inflationary pressures could hasten the Fed’s first rate hike since 2018. Alternatively, slowing growth in Asia and a resolution of supply chain issues could slow the U.S. central bank’s reduction in monetary stimulus. These are the main factors—along with COVID-19—that could shape the overall economic environment in 2022."}, {"role": "assistant", "content": "A growing focus on ESG Environment, social and governance (ESG) initiatives will play a larger role in real estate in 2022. According to CBRE's 2021 Americas Investor Intention Survey, more than 75% of investors have adopted or are considering ESG criteria, a trend that will continue. Impacts will not only come in the form of legislation, including elements of President Biden’s spending proposals, but also from federal regulation. The Securities and Exchange Commission (SEC) is expected to issue rules to improve ESG reporting consistency across various disclosures and reports to investors. These rules will touch on each of the ESG principles, including climate change, human capital management and board diversity. This will likely heighten investor and occupier focus on how their real estate decisions may hasten ESG compliance. Beyond the federal level, it is important to note that policymakers on the state and local levels are also focused on ESG—many have already enacted notable policies in this regard—and this too is worth watching in 2022."}]}
{"messages": [{"role": "user", "content": "In real estate terms, ESG will lead to more demand for efficient buildings and retrofits. Given the fact that commercial buildings account for 16% of U.S. CO2 emissions, according to the U.S. Department of Energy, property portfolios will play an important role in meeting ESG targets in the coming years."}, {"role": "assistant", "content": "Capital Markets 02 Investment activity in 2022 is expected to top pre-pandemic highs and cap rates will remain stable or slightly compress amid strong investor demand and abundant capital—even as interest rates rise. Investment volume approaching record territory Commercial real estate investment activity roared back in 2021 thanks to strong investor demand and abundant capital flows. Capital availability will continue to support a buoyant acquisition market in 2022, with equity capital targeting U.S. real estate near all-time highs and low-cost financing readily available. More foreign capital is expected to target U.S. assets in 2022, as international travel restrictions ease and costs to hedge against dollar depreciation remain very low. Total investment volume in 2022 is projected to increase 5%-10% over 2021 levels, which are on track to roughly equal pre-pandemic volumes from 2019 (currently the highest annual total on record). Although industrial and multifamily assets will likely continue to capture the most investor interest given the tailwinds of e-commerce and demographic shifts, investment in office and retail assets should also pick up. Industrial and multifamily volumes are projected to increase 10%-15% over 2021 levels, while office and retail volumes will rise 5%-10%. Meanwhile, hotel volume in the first three quarters of 2021 recovered to pre-pandemic levels, a positive sign for the sector heading into 2022. Cap rates to hold steady Strong demand for assets will push pricing higher, helping to hold cap rates generally steady even with minimal increases in long-term interest rates. We expect real estate spreads to remain wide by historical standards, helping to offset the impact of rising interest rates. The all-property average cap rate is expected to be basis points (bps) higher than the 10-year Treasury yield during the first half of 2022, on par with the 290-bp average from 2013 to 2018, before narrowing to 250 bps in H2 2022. In addition, rents should continue rising, supporting higher property net operating income (NOI) for most asset types. Although cap rates typically follow the direction of real interest rates in the long run, NOI expectations are more influential in the short term. Despite some lingering challenges for certain retail, hotel and office segments, real estate fundamentals are expected to strengthen throughout 2022. Economic and employment growth in 2022 will drive NOI higher as landlords fill vacancies and raise rents, though this will vary by asset type, quality and market. Overall, NOIs are forecast to increase for the multifamily (8%), industrial (4%) and retail (2%) sectors. The hotel sector will see a material improvement in NOI, though the omicron variant could impact by how much. NOI is expected to decrease modestly for the office sector (-1.5%), as lower-quality assets contend with a flight-to-quality to Class A properties by occupiers adopting hybrid work arrangements. Overall, as real estate values appreciate, real estate investors will be rewarded by the high yield spread versus risk-free Treasury rates. Additionally, we expect that inflation will increase 2.5% for the year, a level below our forecast NOI growth. Consequently, the opportunity for relatively low-risk yields, coupled with the ability to hedge against inflation, will make real estate a particularly attractive investment option in 2022. 10-Year T-Bond Retail Office Apartment Industrial Hotel (Upper Tier) Forecast Average U.S. Cap Rates, 10-Year Treasury Yield (%) As investors rebalance risk and return in the post-pandemic real estate environment, both core and opportunistic investment strategies are expected to accelerate further in 2022. Given the strength of underlying fundamentals, multifamily will likely make up a large share of opportunistic acquisitions. The flight-to-quality trend will likely be most apparent for office assets, including demand from institutional investors that paused acquisitions during the pandemic and now are under pressure to efficiently deploy large amounts of capital. Alternative lenders driving debt market Loan origination volumes will likely remain elevated through 2022—building on the marked increase in 2021—as borrowers seek to lock in lower rates ahead of the Fed’s tightening of monetary policy. 2021 saw a surge in activity from alternative lenders, particularly debt funds making use of collateralized loan obligations (CLO). This shift reflects a growing risk appetite from both borrowers seeking bridge loans and other transitional financing and investors who are eager for the higher yields, especially given current corporate and government bond spreads. CLO and traditional commercial mortgage-backed securities (CMBS) issuance should remain high in 2022 assuming the Fed tapers its asset purchases in a way that does not roil credit markets. Life insurance companies have been very active as well, finding good value in commercial real estate lending, particularly for multifamily and industrial assets. At the same time, private equity firms have increasingly been interested in acquiring loan portfolios from life companies, as their investment parameters (which can be more aggressive than the low-risk, low-yield life company approach). Life companies are expected to remain active lenders in 2022, though some portion will likely continue moving into private equity. Also notable is the growth in single-asset, single-borrower deals. Many investors are still cautious about segments of the office and retail sectors and prefer the security of evaluating a single property and sponsor rather than combing through the financials of a larger conduit deal. We expect that both investors and lenders will become more comfortable underwriting office and retail deals in 2022 as fundamentals improve and the impacts of remote work and e-commerce become clearer. A good year ahead for capital markets Putting the pieces together, 2022 is set for a record level of investment activity, fueled by ample liquidity and stable cap rates. Improving economic conditions will support both asset value appreciation and NOI growth, boosting returns. The largest risks to this outlook are from a COVID-19-caused disruption, an unforeseen spike in interest rates or elevated inflation that proves more durable than currently anticipated. At this point, these factors do not appear to be major threats to the outlook."}]}
{"messages": [{"role": "user", "content": "Office/ Occupier 03 Demand for office space will improve as more workers return to the office and occupiers take advantage of favorable market conditions. The shift to hybrid work will prompt more occupiers to redesign their spaces to enhance collaboration and employee well-being. Office Rent and Vacancy Forecast Source: CBRE Econometric Advisors, Q3 2021."}, {"role": "assistant", "content": "Office market inches closer to its “next normal” U.S. office market activity strengthened in the second half of 2021, and the momentum likely will continue in 2022. Although the outlook depends on how new COVID variants impact society, effective medical advancements will make occupiers more comfortable with making long-term leasing decisions. At the same time, however, occupiers are still determining how best to support hybrid work and how it will impact their portfolio strategies. Although demand will be greater in 2022, the U.S. office market will contend with the highest vacancy in nearly three decades and lower rental rates until the second half of the year."}]}
{"messages": [{"role": "user", "content": "Occupier-favorable market conditions to persist Throughout 2021, new lease transactions increased from pandemic lows, negative net absorption diminished and sublease space began to recede amid strong job growth nationally. These trends will accelerate in 2022—fueled by the expected creation of 1 million new office-using jobs—resulting in nationwide positive net absorption for the first time since Q1 2020. Despite the positive momentum, the national office vacancy rate will reach its highest level since 1993 in 2022 due to the delivery of more than 53 million sq. ft. of new office construction."}, {"role": "assistant", "content": "The rise of hybrid work Workplace flexibility will become even more embedded in corporate business models next year. Our research suggests the average U.S. office employee will spend 24% less time working in the office, and our 2021 Occupier Sentiment Survey revealed that 87% of large companies plan to adopt a hybrid work approach. The shifting role of the office will likely accelerate a flight to quality, with office buildings that offer the most desirable technology, amenities and flexible space capturing a growing share of demand. Life sciences impacting more markets The life sciences sector will continue growing in key U.S. office markets throughout 2022, fueled by advances in biotechnology and record levels of venture capital and other sources of funding. This is resulting in the largest pipeline of life sciences laboratory construction on record, with 23.6 million sq. ft. underway in the nation’s top 12 life sciences clusters as of Q3 2021. Average lab rents are at record highs in the premier life sciences clusters of Boston- Cambridge, the San Francisco Bay Area and San Diego. Life sciences’ growing labor pool and new development activity continues to spread to emerging hubs such as Pittsburgh, Houston and Salt Lake City, among many others. The shift to hybrid work will prompt occupiers to consider flexible office space for more agility. Flex providers were resilient and agile during the pandemic and will continue to shift their strategy to meet the demand for flexible space options. Flex office supply should grow in 2022 as providers resume acquiring new locations, landlords increase their own offerings and demand from small and large businesses grows."}]}
{"messages": [{"role": "user", "content": "Retail’s recovery stokes optimism and investment The retail sector is recovering relatively well from the pandemic’s major disruptions. Existing retail space is more efficient, with sales per sq. ft. improving due to few new stores being built and rising retail sales. The mall sector, thought to be in deep peril, is experiencing foot traffic above pre-pandemic levels and reporting double-digit sales growth. Investors, meanwhile, are taking a fresh look at retail’s attractive yields compared with other asset classes. In addition, record levels of venture capital are targeting retail-focused companies. Consumer spending is forecast to rise in 2022, as a build-up of personal savings during the pandemic is released. The revival of inbound international travel, responsible for more than $150 billion in expenditures annually according to a 2019 U.S. Travel Association report, will provide an additional boost to retail in coastal and other tourism-focused markets."}, {"role": "assistant", "content": "Modest development pipeline aiding recovery With developers focused on industrial and multifamily projects, the retail construction pipeline will remain modest heading into 2022. As supply chain issues impact building materials, including delayed deliveries and higher overall costs, retail development will remain constrained, allowing space productivity to improve even more. Capital markets showing signs of life Retail investment roared back in 2021. REITs increased acquisitions, which already reached their second-largest annual total over the past 10 years through Q3 2021. Grocery-anchored centers attracted $5 billion in investment activity in the U.S. in Q3 2021, the segment’s second-most active quarter over the last decade. Grocery-anchored retail assets were resilient during the pandemic. This sub- sector adapted quite well to online innovations such as curbside pickup and third-party delivery services. With grocery-based e-commerce expected to grow more than 20% in 2022 and double by 2025, grocery-anchored centers will remain the gold standard of retail investment amid favorable supply-demand dynamics and attractive pricing on a risk-adjusted basis. And as debt liquidity for retail improves, the buyer pool will increase."}]}
{"messages": [{"role": "user", "content": "The mall sector continues to surprise. Mall-owning REITs' Q3 2021 reports have been positive. Despite growing vacancy in lower-classed properties, foot traffic data from Placer.ai suggests an underestimated resilience within regional and super-regional malls. In July, indoor malls exhibited a year-over-two-year visit gap of just negative 0.1% for the month, with outdoor malls growing their total visits by 2.1%, suggesting a complete recovery in foot traffic."}, {"role": "assistant", "content": "With grocery-based e-commerce expected to grow by more than 20% in 2022 and double by 2025, grocery-anchored centers will remain the gold standard of retail investment. Venture capital entering the retail sector 2021 has been a record year for venture capital investment in companies supporting the retail trade. Technology that drives e-commerce—logistics and supply chain management, in particular—is especially attractive. Investment activity is also high for mobile payment applications. Also known as m-commerce, this conduit of retail trade has been growing as a segment of total retail, with an estimated $295 billion in U.S. retail sales in 2021 and up to $660 billion in annual sales by 2025 when it will account for over 10% of total retail sales, according to eMarketer. Venture capital is also seeking investments in location analytics, enterprise software, artificial intelligence and machine learning. Funding this growing technology could help ease the stress on the supply chain, which remains an issue as the nation emerges from the pandemic. Industrial & Logistics 05 Amid record demand, rent growth and investment activity, industrial real estate will stay hot in 2022. E-commerce’s expansion will fuel the need for more warehouse space, as will the growing economy, population migration and the desire for “safety stock” onshore. 2022 will be another banner year for industrial real estate On the heels of record transaction volume and rent growth amid extremely tight supply and high demand, the industrial real estate market will remain very strong in 2022. Demand will primarily be driven by growing e-commerce sales, the improving economy, population migration and the need for onshore “safety stock” inventory to avoid the supply chain disruptions of the past 18 months."}]}
{"messages": [{"role": "user", "content": "E-commerce sales exploded at the onset of COVID-19, rising to 21.6% of total retail sales in Q2 2020, up from 16.2% in the previous quarter, and are still above pre-pandemic levels at around 20% as of Q3 2021, according to CBRE Research. With consumers continuing to buy more goods online, e-commerce will keep expanding in 2022. Demand for space from e-commerce will trickle down the supply chain from retailers to wholesalers, who will need to hold more inventory."}, {"role": "assistant", "content": "These businesses will continue to outsource to third-party logistics companies (3PLs) at a greater clip due to rising costs, a lack of available space in highly populated areas and challenges with finding enough workers to operate facilities. Supply chain volatility will drive demand The top concern for occupiers in 2022 will be rising transportation costs and supply chain delays. The cost to ship goods via ocean freight increased more than 200% in 2021 and the cost for domestic freight increased over 40%, according to Drewry Supply Chain Advisors and the Cass Freight Index. While the increases may ease as 2022 unfolds, transportation costs will likely remain elevated for the foreseeable future. Manufacturers are still not at full capacity amid pandemic-related shutdowns, and it will likely take them until 2023 to fully recover. At the same time, demand for goods will continue to rise, leading to increased competition. This demand will keep supply chain costs elevated, including transportation. Transportation costs make up 40%-70% of a company’s total logistics spend, while fixed facility costs, which include rent, make up only 3%-6%, according to CBRE’s Supply Chain Advisory. While rents will continue to rise significantly, it will pale in comparison to rising transportation costs. Therefore, companies will continue to lease more space to cut down on transportation costs."}]}
{"messages": [{"role": "user", "content": "Outsourcing to accelerate in 2022 3PLs led industrial leasing activity in 2021 with a market share of 30%, compared with 13% for e-commerce. 3PLs will expand further in 2022 as companies look to reduce direct logistics costs and avoid the hassle of finding space in record- tight markets with limited labor availability. As a result, 3PLs’ market share will increase in most U.S. markets as vacancy rates decline, rents increase and labor markets further tighten, leading to a projected leasing market share of 35% by year’s end. Notwithstanding, 3PLs will need to overcome labor shortages, leading to the greater use of automation and other technologies to lower the reliance on human labor."}, {"role": "assistant", "content": "Manufacturing on the rise Companies will also look to onshore more manufacturing. U.S. manufacturing output was solid in 2021, bolstering real estate fundamentals for manufacturing space, including positive net absorption, lower vacancy rates and record-high rents. This will continue in the coming year with technology, defense, automobile and medical companies leading the way. While demand for manufacturing facilities will increase in traditional Midwest and Southeast markets, Arizona, Texas and Florida are expected to be the top growth markets for manufacturing real estate in the coming year, largely because of growing populations, available land and business incentives. Emerging logistics markets The top emerging markets for distribution facilities will once again be those with growing populations and superior logistics hub connectivity. Population growth will be robust in the Southwest and Southeast, stimulating demand for logistics real estate in those regions. Markets like Nashville, Las Vegas, Reno, Central Valley California, Salt Lake City, Central Florida, San Antonio and Austin should see significantly more activity in 2022. As companies look to alternative transportation modes, occupiers will also flock to inland port markets with air and rail connectivity like Louisville, Memphis, El Paso, Columbus, Indianapolis, Kansas City, St. Louis and Greenville. Supply pipeline keeping up with demand A record-setting 448.9 million sq. ft. of space was under construction as of Q3 2021. The elevated level reflects both projects that broke ground in 2021 and 2020 starts that were unable to be completed amid the COVID-19-related disruptions. Still, occupier demand continues to outstrip supply. If this trend continues in 2022, availability will remain tight, particularly for Class A space, leading to a higher number of lease renewals. While this will support high rents, it may slow the pace of new leasing activity in 2022. Investors bidding up assets in emerging markets Robust investor appetite for industrial assets will push up prices and further compress cap rates across markets and product types in 2022. The cap rate spread between primary and secondary markets will continue to narrow in 2022. Phoenix and Las Vegas will post cap rates in line with the Inland Empire, Indianapolis and Columbus cap rates will drop to Chicago levels, and prices in the PA I-78/81 Corridor will come close to those in the New Jersey markets. We also expect Northern and Central Florida cap rates to approach those of South Florida in the coming year. With institutional capital flowing into the market, it will remain difficult for new investors to find Class A space to purchase. As a result, we expect more capital to target Class B facilities, lowering cap rates for this product type. Automation on the rise ESG to impact industrial Increased demand from industrial occupiers, combined with an extremely tight job market, will lead to the expansion of automated technology and robotics. Since automation will require building amenities found mostly in newly constructed facilities, this will increase the demand for first-generation facilities in 2022 and beyond. Given the need to reduce carbon emissions, the industrial sector will face more regulatory pressure, particularly for energy efficiency. While much of this effort will likely be focused on improving passenger and freight transportation efficiency and reducing manufacturing emissions, warehousing may be impacted as well. Consequently, developers may use more sustainable construction materials like timber instead of concrete and steel. Multifamily 06 The multifamily sector is set for a record-breaking 2022 amid solid fundamentals and heightened investor interest. With tremendous liquidity and a growing range of debt options available, multifamily pricing will be as strong as ever. 8% projected growth in urban effective rents in 2022 +300k new units expected to deliver in 2022 +95% forecast multifamily occupancy levels Record-high demand and construction pipeline The U.S. multifamily sector is poised to finish 2021 with overall occupancy and net effective rents above pre-pandemic levels. While certain markets face challenges, the overall health of the sector will lead to a record 2022. The growing economy is boosting household formation, which had been artificially suppressed by the pandemic. New households are catalyzing demand for rentals, which is expected to match the pace of new deliveries in 2022. We forecast multifamily occupancy levels to remain above 95% for the foreseeable future and nearly 7% growth in net effective rents next year. Construction will remain elevated in the near term. Completions in 2021 will likely reach a new high, and another -plus units will be delivered in 2022. For context, deliveries averaged units annually since 2010 and per year since 1994. Despite strong demand, the volume of new Class A product coming online will limit the performance of higher-quality assets. However, Class A rents were most negatively affected during the crisis and there is more room to recover. Overall, we project 8% growth in urban effective rents in 2022. These exceptional growth rates will moderate to 3% in 2023 and slightly below that in subsequent years. These strong fundamentals, together with the expectation that debt will remain available and at a relatively low cost, is welcome news to developers as construction costs rise."}]}
{"messages": [{"role": "user", "content": "From urban to suburban—and back again Downtown multifamily properties are filling back up and occupancy rates are nearing pre-pandemic levels, spurred by a confluence of factors: fewer restrictions on urban amenities, higher vaccination rates, a growing willingness to use public transit, the reopening of college campuses and more workers returning to the office. Urban areas saw an average vacancy rate increase of nearly 200 bps during the peak of the pandemic."}, {"role": "assistant", "content": "As of Q3 2021, urban vacancy rates average 5%, just 70 bps above their pre-crisis level, and are expected to fall to 4% by the end of 2022. By contrast, suburban properties fared better, as both secular and cyclical factors— income uncertainty, a preference for outdoor options, a need for more space and more millennials with growing families requiring schools—drove demand for apartments in lower-density and lower-cost submarkets. As of Q3 2021, urban vacancy rates average 5%, just 70 bps above their pre-crisis level, and are expected to fall to 4% by the end of 2022. Source: CBRE Research, Real Capital Analytics, Q3 2021. multifamily investment volume will reach a record of nearly $213 billion in 2021 (year-to-date volume totaled $179 billion through Q3 2021), well above 2019’s level of $193 billion. For 2022, we expect at least a 10% increase from 2021 to $234 billion. This level of liquidity should facilitate strong value growth. In addition, we expect a resurgence in the flow of foreign capital targeting multifamily assets. Liquid multifamily debt capital markets, which includes traditional lending sources and alternative lenders like debt funds and mortgage REITs, will further stabilize and could even compress cap rates—even as interest rates rise. Lower-risk, lower-reward markets include strong secondary ones that were less affected by the pandemic. Markets like Atlanta, Dallas, Denver and Philadelphia are expected to offer more modest income and appreciation returns compared with gateway markets and a relatively stable investment return outlook. The rise of single-family rentals Return to the office will spur urban demand The single-family rental market will gain traction with both renters and investors as more millennials reach child-rearing life stages. Urban apartment operators will rely more on Gen Z to backfill the resulting vacancies. Hotels 07 While the hotel sector could face renewed travel restrictions, we expect higher occupancy levels from an increase in inbound international and business travel in 2022."}]}
{"messages": [{"role": "user", "content": "International travel: The recovery catalyst for many U.S. gateway markets Even though hotel demand plummeted by 57% early in the pandemic, leisure travel was enough to double the overall hotel occupancy rate from its pandemic low by late summer 2020. By July 2021, overall revenue per available room (RevPAR) reached 94% relative to 2019, according to Kalibri Labs. What’s still largely missing, however, are individual business, group business and international travel bookings. As a result, core urban areas—particularly U.S. gateway cities—are languishing, with some markets down as much as 67% in RevPAR relative to 2019. However, the easing of inbound international travel restrictions will catalyze hard-hit global gateway cities in the U.S. and aid the recovery over the course of 2022. As recently as August 2021, international travel was down nearly 78% relative to 2019."}, {"role": "assistant", "content": "For 2022, we expect inbound travel, led by leisure travelers from Europe and Asia-Pacific, to drive increased hotel demand. Based on vaccination rates by country and several key consumer sentiment surveys, we forecast the rollback of international travel restrictions for vaccinated travelers to account for approximately one-sixth of our 23% total revenue growth forecast for the hotel sector in 2022. The benefits will not be uniform. Resorts and all-inclusive destinations will continue to be strong performers in 2022 as travelers seek simplicity and price certainty. Already operating at 13% above 2019’s summer RevPAR, Miami has benefited from the shift in travel patterns, and thus may end up with less growth. Harder-hit markets like San Francisco and New York, with RevPAR still down 61% and 56%, respectively, compared with 2019, may benefit more in 2022. Overall, supply growth will continue to moderate given increased construction costs and labor shortages."}]}
{"messages": [{"role": "user", "content": "The return of business and international travel Getting back to business as usual Business and convention travel will slowly rebound, with “bleisure” becoming more common as business travel, still less frequent, will include additional leisure travel days. Meanwhile, the return of international travelers will provide a much- needed boost to global hubs that have been particularly hard hit by the pandemic and have experienced a slower recovery."}, {"role": "assistant", "content": "For hotels that have been limiting occupancy levels and amenities to stay open, we expect to see lower operating margins but strong cash flow growth, as accelerating top-line trends will be partially offset by wage pressures and the resumption of normal amenity and service levels. Overall, hotel owners will work to drive rates instead of chasing occupancy."}]}
{"messages": [{"role": "user", "content": "The resumption of inbound international travel will provide a lift to hotel fundamentals in 2022. When combined with the continued recovery in individual and group business travel, this might just make the difference between profits and losses for some struggling hotel operators."}, {"role": "assistant", "content": "The resumption of inbound international travel will provide a lift to hotel fundamentals in 2022. When combined with the continued recovery in individual and group business travel, this might just make the difference between profits and losses for some struggling hotel operators. To date, investor demand for hotel assets has mirrored consumer demand trends, with many leisure-oriented hotels trading hands at premiums seen before the pandemic. As the pace of recovery in corporate and group demand unfolds, we expect pricing for group and corporate-oriented hotels will increase. Data Centers 08 Data center needs will continue to grow as cloud service providers and social media and content streaming companies expand and 5G, AI and edge computing gain traction, spurring development of additional capacity nationwide. Data center development flourishing Data centers are becoming an ever more important and larger commercial real estate asset class as businesses expand their digital infrastructure. With emerging technologies like 5G, AI and edge computing adding to already high demand for data centers, development will increase in 2022, spurring growth in established primary markets, as well as secondary and tertiary markets. Since 2016, wholesale colocation inventory in primary markets (Northern Virginia, Silicon Valley, Chicago, New York Tri-State, Dallas, Phoenix and Atlanta) has more than doubled to 3.08 gigawatts (GW). With 527.6 megawatts (MW) under construction in primary markets—an increase of nearly 350 MW from 2016— the accelerated growth of the data center sector will continue in 2022. With 527.6 megawatts (MW) under construction in primary markets—an increase of nearly 350 MW from the first half of 2016—the accelerated growth of the data center sector will continue in 2022. With 290.5 MW currently under construction and an additional 586.5 MW of planned future capacity, Northern Virginia is expected to outpace all other North American markets through 2022. Secondary markets will continue to grow as developers seek to expand capacity, focusing on affordable land in favorable climates, network connectivity, clean and inexpensive power sources and favorable tax incentives. Hillsboro, Oregon, which possesses many of these qualities, is expanding faster than other secondary markets and will see increased activity through 2022."}]}
{"messages": [{"role": "user", "content": "Asking rates dip as new supply delivers On average, pricing continues to decline across both primary and secondary markets, largely due to more competition as new data centers come online. Some lower-vacancy markets, as well as markets facing potential supply bottlenecks, are beginning to see prices flatten out or, in some instances, tick up. We anticipate this trend to continue in 2022, with space availability and power having the largest impact on asking rates."}, {"role": "assistant", "content": "High-quality, highly connected assets such as carrier hotels will continue to command a premium for both new and existing tenants. ESG drives changes in data center operations As companies evaluate their digital transformation in relation to their ESG initiatives, both providers and end users will seek clean power solutions. Providers attempting to satisfy the environmental standards of their customers, or to meet their own carbon neutrality targets, want to lessen their reliance on traditional, carbon-intensive fossil fuels by powering their operations with clean, affordable energy. Industry professionals are focused on solving this issue, though it remains difficult as rapid growth and an ever-increasing demand for power persist. These environmental considerations will likely impact site selection, benefiting markets with an abundance of clean energy like Montreal and Hillsboro, Oregon, and adding challenges to markets with tighter resource restrictions like water conservation in Phoenix, Las Vegas and Salt Lake City. Going vertical in land-constrained markets Power availability key Markets with limited land availability will begin to see more vertical construction of data center space. There will also be a continued premium in asking rates at highly connected, high-quality data centers. Power requirements for data center occupiers will continue to grow, leading to larger lease deals and lower rents on a per kilowatt basis in 2022. Power constraints will remain the biggest threat to new developments in markets like Northern Virginia and Silicon Valley. ESG initiatives will also prompt providers to seek renewable and more efficient energy sources to power their centers."}]}
{"messages": [{"role": "user", "content": "Private Property Elsewhere Subdivision/PUD Land-Leased/MHC Location of New Manufactured Homes Shipped (for Residential Use Only) Source: U.S. Census Bureau and U.S. However, not all purchasers of manufactured homes can afford to purchase the land needed to situate their new home, and some prefer to avoid the maintenance associated with owning that land. Manufactured Housing Communities (MHCs), also known as land-lease communities, address this need. For those residents who own their manufactured home, these communities offer pad sites for rent, which are spaces where owners can place their homes that also provide access to utility hookups. MHCs can also have a limited number homes for rent. According to information from Datacomp Appraisal Systems, Inc., which verifies the existence and location of MHCs, as of second quarter 2023, there were just under 44,000 MHCs providing land for lease to owners, as well as rental of both the pad site and the manufactured home itself. While the manufactured housing sector has remained steady over the past couple of years, rising interest rates have begun to impact production of manufactured homes. However, demand for MHC pad sites remained high in the first half of 2023. Construction of Manufactured Homes Slowing According to the U.S. Census Bureau’s Manufactured Housing Survey, from 2018 to 2020, the total number of manufactured homes completed averaged about 95,200. Pent-up demand, along with rising housing prices and low interest rates, increased interest in manufactured homes as a more affordable source of housing. A recent study, from the Harvard Joint Center for Housing Studies, Comparison of the Costs of Manufactured and Site-Built Housing, calculated the nationwide cost to build a 1,568 square-foot home to be just over . As a result, the number of factory-built homes sold recently broke through the threshold for the first time since 2006. The number of homes sold in 2021 rose by 12.1% to and rose by another 6.7% in 2022 to . There were only three MHCs under construction as of mid-August 2023, representing under 450 pad sites, according to data from , Inc. This represents a fraction of new MHCs that were produced 20 years ago. In comparison, Dodge Data & Analytics estimates that there were new multifamily rental units under construction as of the end of July that are scheduled to be delivered by year-end 2023. MHCs Completed and Expanded in a Variety of States According to , in addition to the three MHCs under construction, about 21 MHCs have been built or expanded since the start of 2022. As shown in the left map below, while they are in a variety of states, most are in the South and West, which have traditionally seen greater investment in MHCs. 4 Multifamily Economic and Market Commentary Age 55+ - MHC Occupancy and Pad Site Rents for Select Regions* Occupancy Q2 2023 Occupancy Q2 2022 Change Rent Q2 2023 Rent Q2 2022 Change Midwest Northeast Pacific South Southwest West National Two Types of MHCs Roughly one-third of MHC are Age 55+ MHCs, targeted to older adults. Two-thirds are All Ages MHCs, which tend to attract families and residents of all ages, including those older adults that do not want to live in an Age 55+ community."}, {"role": "assistant", "content": "Fundamentals in both segments of MHC appear to have weathered the pandemic, recent inflationary trends, and now elevated interest rates – at least so far."}]}
{"messages": [{"role": "user", "content": "Occupancy Remains High in Age 55+ MHCs Some older residents prefer purchasing homes in Age 55+ MHCs due to the ease of maintenance and enjoyment of the amenities that are usually offered. This trend has not changed over the past several months, despite recent inflation levels. Nationally, the occupancy rate in Age 55+ MHCs remained high with just a 0.4% uptick in occupancy year over year to 97% as of second quarter 2023, as shown in the table below. Occupancy in five of the six regions tracked remained stable, with the Southwest region recording just a 0.6% increase. Source: Datacomp/JLT * As of July 5, 2023, Based on Trailing 12-month average. Note: Pad Site rents exclude utility payments Southeast: 13 states including Florida, Georgia, and the Carolinas. Northeast: seven states including Pennsylvania, New York, and New Jersey, Pad Site Rents Record Strong Growth in Most Regions As shown in the table above, pad site rents vary widely among regions. The Pacific region, which is comprised of the high-cost coastal states of California, Oregon, and Washington and has a 99% occupancy rate, had the highest monthly rent at $854 per month, as of second quarter 2023, according to Datacomp. By contrast, the large Midwest region, which is comprised of 12 states including Michigan, Illinois, and Indiana, had an average pad site rent that was more than $330 lower at $523 per month. Low vacancies and ongoing job and wage growth led to pad site rents across all regions growing by 7.5% year over year on average as of second quarter 2023, more than double the 3.0% non-seasonally adjusted inflation rate and the estimated 1.3% average national increase in apartment rents. Pad site rents in the Southern region, which continues to see significant population growth in many states, recorded the highest growth rate at 9.5% year over year, bringing the average monthly rent to $694. Pad site rents in the Northeast region, which has the fewest MHCs, recorded a lower growth rate of 4.4% year over year, bringing the average monthly rent to $570."}, {"role": "assistant", "content": "Occupancy Q2 2023 Occupancy Q2 2022 Change Rent Q2 2023 Rent Q2 2022 Change Midwest Northeast Pacific South Southwest West National All Ages MHC - Occupancy and Rents for Select Regions* MHC Cap Rates Tick Up After declining significantly in recent years, capitalization rates for institutional-quality MHCs have started to increase, as shown in the adjacent chart. According to MSCI Real Assets, the average cap rate for MHC property sales fell from an average of 6.8% in second quarter 2013 to an estimated 4.7% as of second quarter 2022. Since then, however, the average MHC cap rate has increased slightly to 5.0% as of second quarter 2023. data, which includes smaller transactions for which cap rates can vary more, shows a similar trend: Cap rates rose to 7.8% as of second quarter 2023 from 7.2% a year earlier. Source: , MSCI Real Assets Note: MSCI data is quarterly based on a trailing 12- month average. Includes property or portfolio sales of $2.5 million or greater."}]}
{"messages": [{"role": "user", "content": "6 Multifamily Affordable Housing Market Commentary Sales Decline Following a Strong 2021 According to MSCI Real Assets, sales of MHCs totaled an estimated $6.3 billion in 2022. As shown in the lower left chart, this is the second-highest volume recorded in the last six years. data is similar but with an estimated $5.3 billion in sales in 2022. We believe that sales remained elevated due to a several factors."}, {"role": "assistant", "content": "For one, investors realized that demand fundamentals for MHCs would likely remain positive due to a lack of affordable housing across the country. In addition, interest rates appeared poised to rise further in 2022, enticing investors attempting to avoid higher interest rates in the near future."}]}
{"messages": [{"role": "user", "content": "However, during the first half of 2023, sales of MHCs totaled just $1.0 billion, which is about 58% lower than the sales activity for the first half of 2022, according to MSCI Real Assets. This is also lower than the $1.8b in sales recorded for the first half of 2020, during the height of the pandemic. We believe that the rapidly rising interest environment, which started in March 2022 and continued into 2023, increased borrowing costs, pricing some would-be buyers out of the market. 7 Multifamily Economic and Market Commentary MHC Loan Volume by Type of Lender Jan. 1, 2018 – June MHC Sale Prices-Per-Site Increased According to data from MSCI Real Assets, MHC sale prices-per-site totaled an estimated $77,000, as of second quarter 2023. In comparison, as of first quarter 2017, the average price-per-site was $47,000, indicating that the MHC price-per-site has risen 63% over the past six years. This is higher than the 55% increase in price- per-unit of sales of multifamily properties over the same timeframe. 2023 Overall Lending Volume Declining Although not a complete market view, publicly available data combined with third-party vendor data provides insight into financing trends. As shown in the chart to the right, total lending volume declined to an estimated $5.6 billion in 2022, from a record $11.0 billion in 2021. The total lending volume for the first half of 2023 totaled $2.4 billion, which means that lending volume could fall even further to $4.8 billion for all of 2023. However, we believe these estimates for 2023 are likely on the low end. Refinances More Prevalent than Sales Refinances of MHCs remain more prevalent than financing for acquisitions, accounting for about 75% of financing volume since the start of second quarter 2022, according to data from MSCI Real Assets."}, {"role": "assistant", "content": "1, 2017 – June More MHC Needed Despite the rising prices of new manufactured homes, vacancies remain low at many MHCs, indicating that demand is outstripping supply. However, development of MHCs has not kept up with demand. Many local jurisdictions have zoning restrictions against MHCs, creating barriers to the development of new MHCs. As a result, building new communities takes a long time, when they can be built at all. The current Administration recently sought to ease regulatory barriers and zoning laws through new incentives. However, we expect the development of new MHCs will remain limited over the next few years, as it will take some time for local jurisdictions to change zoning laws, even with the new incentives."}]}
{"messages": [{"role": "user", "content": "The economy appears poised to end 2024 on solid footing: Consumer spending has been resilient and, while the labor market is slowly cooling, unemployment remains low, and job growth is currently at a healthy pace based on demographic trends. Combined with inflation measures remaining stickier than markets expected earlier in 2024, we forecast no meaningful decline in the 10-year Treasury rate in 2025, which will keep mortgage rates elevated and home sales suppressed. This dynamic is occurring with a backdrop of uncertainty over whether solid labor productivity can continue to fuel growth next year, whether inflation will come in for a soft landing, or, if not, whether interest rates will remain structurally higher for longer. Changes to immigration, trade, fiscal, and regulatory policies could all materially impact our outlook for economic growth, inflation, interest rates, and housing, though we have not incorporated any explicit policy changes in our forecast at this point as we await further details. Quick Links Economic Forecast Table Housing & Mortgage Forecast Table 1. Average mortgage rates will decline modestly but remain above 6 percent, with likely bouts of volatility We forecast the average mortgage rate to remain above 6 percent in 2025. Sticky inflation and an apparent stabilization in job market gains have lowered market expectations for future interest rate cuts."}, {"role": "assistant", "content": "Unless economic growth starts to slow significantly, we expect mortgage rates to remain elevated relative to pre-pandemic levels, moving only slightly downward to around 6 percent by the end of 2025."}]}
{"messages": [{"role": "user", "content": "However, given ongoing uncertainty over the resilience of economic growth, the stickiness of inflation, and future policy changes, we expect bouts of volatility in mortgage rates next year. As seen over the past six months, the 10-year Treasury yield has oscillated greatly as stronger and weaker economic and inflation data were reported. Financial markets are trying to determine what the ultimate “neutral” rate for the fed funds rate will be, as well as navigate uncertainty over current and future economic growth."}, {"role": "assistant", "content": "As more data is reported, and news around potential policy changes develops, we expect bouts of financial market volatility as bond markets reprice interest rate expectations."}]}
{"messages": [{"role": "user", "content": "Our baseline expectation is for economic growth and employment gains to slow modestly next year and for core inflation to continue to ease — but not to reach the Fed’s target until 2026. Still, there is considerable upside risk to our economic forecast stemming from the potential for continued resilience in consumer spending and stronger-than-anticipated productivity growth. However, a meaningful slowdown in immigration flows or significant tariffs point to downside risk to economic growth and upside risk to inflation measures. Potential tax and regulatory policy changes present both upside and downside risks that may also impact interest rates. 2. Existing home sales will remain near 30-year lows, but location matters We forecast existing home sales to total 4.25 million in 2025, an improvement of 4.8 percent compared to our expected 2024 sales pace of 4.06 million, but still down 20.3 percent compared to 2019. We expect the increased inventory of homes available for sale will drive a modest improvement in existing home sales next year. According to the National Association of Realtors, the total number of homes available for sale at the end of November was 1.37 million units, up 19.1 percent from a year prior. However, given our mortgage rate outlook for rates to stay above 6 percent in 2025, we expect both constrained affordability conditions and the lock-in effect will continue to be the dominant themes limiting the recovery of existing home sales in 2025."}, {"role": "assistant", "content": "Affordability conditions remain at the most constrained levels since the mid-1980s. Additionally, we expect the lock-in effect to remain prominent, even if mortgage rates move closer to 6 percent. The downward slope in the share of single-family loans with a rate below 4 percent and the upward slope in the share with a rate greater than 6 percent shows that, as expected, the lock-in effect will fade over time, but we believe the process is likely to be a slow one."}]}
{"messages": [{"role": "user", "content": "Even when interest rates briefly declined to around 6 percent in September, only a limited and brief pickup in mortgage applications and home sales occurred. Due to this muted response, we believe that mortgage rates near 6 percent are likely insufficient to spur enough additional demand or to encourage enough homeowners to sell, which is needed to thaw the housing market."}, {"role": "assistant", "content": "As discussed previously, though, there is significant regional variation in the number of homes available for sale, and some regions are likely to see more elevated sales in 2025 than in 2024. The comparatively loose markets tend to be those with strong homebuilding in recent years. Many of the Sun Belt states, including Florida and Texas, and parts of the Mountain West region and Pacific Northwest have inventory levels near or above pre-pandemic norms, according to Realtor.com. In contrast, the Midwest and Northeast have significantly fewer homes available for sale relative to 2019. In general, we expect that inventory levels will continue their gradual rise nationwide, with inventories in the Sun Belt remaining looser relative to inventories in the Northeast and Midwest."}]}
{"messages": [{"role": "user", "content": "3. New home sales will remain a bright spot in the housing market (where they can be built) With the continued limited supply of existing homes for sale and favorable demographic-based demand for housing, we expect 2025 to be another solid year for new home sales. New home sales have averaged an annualized sales pace of in 2024 through October, compared to an average sales pace of from . We expect a similar trend in 2025. In the face of elevated mortgage rates, homebuilders continue to show a willingness to offer incentives like interest rate buydowns to move their inventories of new homes available for sale and to change the products offered to be smaller, more affordable homes. Whereas historically the median sales price on new homes has far exceeded the median sales price on existing homes, that gap has narrowed in recent years. The price premium between the median price on a new vs. existing home sold has averaged about 4 percent in 2024, compared to an average of 28 percent between 2015 and 2019. Admittedly, this measure does not consider the difference in the geographic distribution of new homes sold, but part of the lower price premium is due to a decline in the median square footage of new homes from a peak of 2,519 square feet in the first quarter of 2015 to 2,158 square feet as of the third quarter of 2024."}, {"role": "assistant", "content": "New home sales, however, vary greatly by region. The South and Mountain West are places where land and zoning allow for more construction and thus make up the bulk of sales. Of the roughly single-family housing permits year-to-date through October, 20 percent were issued in the metropolitan statistical areas of Houston, Dallas, Phoenix, Atlanta, and Charlotte. In 2025, we expect the Sun Belt region will continue to see significant homebuilding activity. 4. National home price growth will decelerate While the continued lack of inventory for homes available for sale has helped to keep home price growth robust, we expect a continued deceleration in home price growth into 2025. While mortgage rates will continue to present an affordability challenge, softening home price appreciation in 2025 could allow for nominal wage growth to exceed home price growth for the first time since 2011, helping to start a gradual improvement in homebuyer affordability conditions. That said, there will likely be considerable regional differences. Regional variation in for-sale inventories is currently driving a diverging home price story. Of the FHFA top 100 metros, 75 experienced positive seasonally adjusted quarter-over-quarter home price growth in both the second and third quarters of 2024, a relatively small share historically outside of the Great Financial Crisis and the third quarter of 2022 when home prices declined nationally. We believe it is likely that regions with a greater inventory of homes available for sale will continue to experience weaker home price dynamics relative to the national average in 2025. 5. Multifamily housing will remain in a holding pattern In the multifamily space, we expect 2025 to look a lot like 2024. While longer-term demographic trends remain supportive of multifamily construction over the next decade as the prime renter-aged population is expected to continue to grow, we expect below-average rent growth in the near term as additional units are completed. Depending on the measure, we expect rent growth to be between 2 and 2.5 percent in 2025. This will be helpful for renter affordability as it will represent the second-consecutive year of nominal wage growth exceeding rent growth in certain metros. However, slower rent growth will contribute to fewer new construction projects, especially in light of continued high longer-term interest rates."}]}
{"messages": [{"role": "user", "content": "Economic Forecast Changes Economic Growth We’ e u graded our 2024 gross domestic product (GDP) growth expectation to a seasonally adjusted annualized rate (SAAR) of 2.3 percent, up three-tenths from the prior forecast, as consumption indicators remain robust. Our GDP forecast for total yearly growth in 2024 and 2025 on a Q4/Q4 basis was unchanged at 2.4 percent and 2.1 percent, respectively. Our forecast for 2026 is for growth of 2.1 percent Q4/Q4, one-tenth below the prior forecast. The unemployment rate rose one-tenth to 4.2 percent. The jump in payroll employment growth is due to an end in strike activity and a rebound from disruptions caused by Hurricanes Helene and Milton. Our unemployment forecast was essentially unchanged from the last forecast. Inflation & Monetary Policy Core inflation remains sticky. Recent inflation indicators have come in largely in line with our expectations, therefore our outlook for year-over-year change in inflation is little changed."}, {"role": "assistant", "content": "Housing & Mortgage Forecast Changes Mortgage Rates Our mortgage rate forecast is largely unchanged compared to last month. We expect the 30-year fixed mortgage rate to average 6.7 percent in 2024 and 6.4 percent in 2025 (both unchanged from the prior forecast). We expect mortgage rates to average 6.1 percent in 2026, one-tenth lower than we forecast last month. However, interest rates remain volatile, particularly as the market attempts to adjust to changing expectations around Fed policy, which adds risk to our outlook."}]}
{"messages": [{"role": "user", "content": "Existing Home Sales Existing home sales rose 3.4 percent to a SAAR of 3.96 million in October. Our outlook for existing home sales was revised upward modestly in 2024 and 2025, but notably downward in 2026. The near-term upward revision is due to a slightly lower near-term rate outlook and recently stronger purchase applications."}, {"role": "assistant", "content": "However, our longer-term outlook in 2026 has been revised downward due to a reassessment of the persistence of the lock-in effect, which we expect to continue to suppress home sales for the foreseeable future. New Home Sales New single-family home sales fell sharply in October, likely due to hurricane disruptions, falling by 17.3 percent to a SAAR of . We have downwardly revised our near-term new home sales outlook due to this decline. In 2025, our outlook is essentially unchanged as we continue to believe that the new home sales market will be a bright spot in the housing market in 2025, though we expect a leveling off in new sales in 2026. Single-Family Housing Starts Our forecast for single-family housing starts is slightly weaker in the near term following the October new residential construction report, which saw single-family starts fall 6.9 percent, though this was likely exacerbated by hurricane-related disruptions. We have revised downward our outlook for 2026 in line with our new home sales outlook. Single-Family Mortgage Originations We currently expect purchase originations to be $1.3 trillion in , essentially unchanged from last month’s forecast. In 2025, we expect purchase volumes to grow 12 percent to $1.4 trillion, representing an upgrade of $25 billion from the prior forecast as home sales are expected to be somewhat stronger in the near term compared to last month. However, our forecast for 2026 purchase volumes has been revised down by $54 billion from last month to $1.6 trillion, given the downgrades to the home sales path. In the refinance market, volumes have been revised up given the slightly lower expected path for the mortgage rate, though these changes are slight compared to the rior month’s forecast n articular, we e ect refinance volumes to be $360 billion in billion in 2025, and $724 billion in 2026, representing upgrades of about $ billion in total from the rior month’s forecast."}]}
{"messages": [{"role": "user", "content": "1 Multifamily Economic and Market Commentary DECEMBER 2024 Rising Number of Multifamily Properties Offering Concessions Multifamily market fundamentals in 2024 have remained soft but stable compared with last year because of consistent economic trends, including slowing but still-positive job growth, elevated single-family housing prices keeping many renters in place, and continued favorable demographics. Rent growth was exceptional in 2021 and 2022, but those levels have since slowed. Thus, the sector has seen lagged rent growth rates in 2024 similar to the prior year. A robust pipeline of new apartment rental projects are underway, particularly in the nation’s largest metros, and, as a result, there has been a rise in the number of rental units across the country offering concessions. Supply of New Units Remains High According to Dodge Data & Analytics Supply Track construction pipeline data, the number of apartment units completed across the country this year may exceed last year’s totals. According to Dodge, as of fall units underway are slated for completion in 2024, though actual inventory additions are likely to be significantly lower."}, {"role": "assistant", "content": "We expect completions will be in the -unit range this year. For comparison, full-year completion totals were units in 2023 and units in 2022. Looking forward, another units are underway for 2025 completion. 4 Multifamily Economic and Market Commentary New Supply Expected to Lead to More Concessions but Slightly Higher Rent Growth After exceptional rent growth rates in 2021 and 2022, it was generally expected that 2023 and 2024 would see easing rent growth and softening multifamily fundamentals, including vacancy rates — and that has generally been the case. Slowing demand in 2023 and during the first three quarters of 2024 resulted in below-average year-over-year rent growth of just 0.8% for the U.S. and a modest rise in vacancies. Some metros had slightly weaker results and experienced modest rent contractions, including Austin, Salt Lake City, and Charlotte. Because of the elevated level of new supply expected to complete and deliver over the next 12 to 18 months, the number of units offering concessions may rise over the short term. It is noteworthy that the value of concessions offered by property owners has increased alongside the total rate of concessions market-wide, which points to subdued absorption in many locations. With a robust pipeline of supply expected through 2025 and beyond, we believe there will continue to be pressure on owners to offer more generous concessions. However, rent growth is expected to increase slightly due to ongoing job growth and housing demand. Rent renewals are still seeing higher rent increases than new leases, allowing property owners to offset new concessions."}]}
{"messages": [{"role": "user", "content": "Home Sales Expected to Rise Modestly in 2024, as Homebuyers Adjust to Mortgage Rates We continue to expect a modest recovery in home sales over the course of 2024 and for mortgage rates to drift downward. With recent home sales and mortgage application measures coming in near our expectations, we have made only modest adjustments to our housing outlook. We expect total home sales in 2024 to rise 5.0 percent to 5.00 million units, a slight upgrade from 4.96 million units in our prior forecast. We expect the 30-year fixed mortgage rate to decrease to 5.9 percent by the end of 2024, a tick higher than our prior outlook. Despite the slight upward revision to home sales, incoming mortgage application data, combined with an adjustment to the projected cash share of home sales, caused a modest downward revision to our forecast for mortgage originations. We forecast total mortgage origination volume will be $1.92 trillion in 2024 (compared with $1.98 trillion in our previous forecast) and $2.36 trillion in 2025 (compared with $2.44 trillion in our previous forecast). Real Gross Domestic Product (GDP) was stronger in Q4 2023 than anticipated. As such, we have upgraded our 2024 GDP forecast largely due to stronger momentum to start the year. Additionally, primarily due to the brisk pace of immigration, we have revised upward our underlying assumptions on population and labor force growth, contributing to an upward revision to our GDP and employment forecasts. However, we still anticipate deceleration this year as consumer and local government spending growth slow and the continuing effects of tighter monetary policy work their way through the economy. However, if growth continues to surprise to the upside or inflation proves more persistent than anticipated, this would likely lead to upward pressure on mortgages rates as market participants adjust their fed funds rate cut expectations. Quick Links Economic Forecast Changes Housing & Mortgage Forecast Changes Economic Forecast Table Housing & Mortgage Forecast Table Economic Growth Remains Robust but Softening Still Anticipated Real Gross Domestic Product (GDP) increased at a 3.3 percent seasonally adjusted annualized rate (SAAR) in the fourth quarter of 2023, well above both consensus and our expectations. Consumer spending remained strong, rising 2.8 percent annualized and was particularly strong toward the end of the quarter. Strong consumption at the end of 2023 will mathematically carry over into the first quarter’s consumption growth number. Net exports and business inventory investment, which we had expected to drag on GDP, instead boosted growth modestly. Government spending at the state and local level was also above our expectations."}, {"role": "assistant", "content": "consumer spending in the next release. While some of the retail sales softness was due to lower gasoline prices, most spending categories showed weakness, with the “core sales” that fee into the D estimates falling .4 percent. Furthermore, we expect some reversal in business inventory investment, and, with a weak global economic backdrop, we expect net exports to slow. Finally, state and local government tax receipts are softening, pointing to weaker future direct government spending growth."}]}
{"messages": [{"role": "user", "content": "Payroll employment surprised to the upside in January, increasing by the strongest gain in a year. Following an upward revision of jobs to December, nonfarm payroll growth over the past two months looks to have reaccelerated. In contrast, most other labor market measures point to softening. The alternative measure of household employment used to estimate the unemployment rate remains on a much weaker trend than the payroll survey. Additionally, the quits rate is slightly below the pre-pandemic rate, and the job openings rate continues to gradually decline. Broad measures of compensation growth, including the fourth quarter Employment Compensation Index (ECI) and the Atlanta Fed Wage Tracker, indicate that wage growth has also slowed. As such, we continue to expect slowing payroll growth as the year progresses and for the unemployment rate to gradually drift upwards. Based on a reassessment of an assortment of population and immigration measures, we have upwardly revised our underlying projection of working-age population growth over our forecast horizon, driven primarily by the view of continued heightened net-immigration flows. While the trajectory of immigration going forward is heavily dependent on a mix of economic conditions and public policy decisions both here and abroad, we are setting as a baseline to our forecast a similar implied pace of net immigration through 2025 as was experienced in 2023. This led to a modest upward revision to our payroll and GDP forecasts, and if the trend is sustained, would imply a stronger pace of household formation and housing construction over the long run."}, {"role": "assistant", "content": "Home Sales and Single-Family Housing Starts Expected to Rise Existing home sales dipped slightly in December by one percent to a SAAR pace of 3.78 million units, the slowest pace since 2010. While this was a little lower than we had expected, more recent data on mortgage applications, as well as December pending homes sales, which lead closings on average by 30-45 days, show a modest rebound in sales is underway. Combined with a modest change in our mortgage rate forecast, we have made a moderate change to our existing home sales outlook. Driving much of this change was the anticipation that mortgage rates will decline, as the survey reported the highest net share of consumers expecting mortgage rates to decline since its inception in 2011. Consumers appear to be increasingly absorbing the idea that interest rates are in the process of easing. While both constrained affordability and the “lock-in” effect, which is limiting the selling incentive of current homeowners, will likely remain prevalent for the foreseeable future, more potential homebuyers and home- sellers may be preparing to move. The level of inventory remains low, according to Realtor.com, but recent listings are up 9.5 percent from a year prior as of the week of February 10."}]}
{"messages": [{"role": "user", "content": "the unseasonably warm weather in December. The pace of single-family starts had recently disconnected from the underlying housing permit series. Single-family permits in contrast edged up 1.6 percent in January, back in line with the overall starts series."}, {"role": "assistant", "content": "With single-family permits and starts now back in alignment, we expect new single-family construction to continue to drift upward in coming months. With a low supply of existing homes for sale, demand for new homes is likely to remain strong, and the limit on new home sales will be determined by homebuilder production capacity."}]}
{"messages": [{"role": "user", "content": "Economic Forecast Changes Economic Growth The preliminary estimate for Q4 2023 GDP growth from the Bureau of Economic Analysis (BEA) showed that GDP grew at an annualized rate of 3.3 percent, above both the consensus expectation and our own. The bulk of the change from our prior forecast was driven by the new higher starting point in Q4 2023 and stronger consumption expectations. As a result, we’ve upwar ly revised our GDP path, though we continue to expect growth to slow for some time to a rate below the long- run potential output trend. Therefore, our 2024 GDP outlook increased from a 1.1 percent Q4/Q4 increase to a 1.7 percent Q4/Q4 increase. Labor Market Nonfarm payroll employment growth was in January. The unemployment rate was unchanged at 3.7 percent for the third consecutive month. Compared to last month, our forecasted unemployment rate was essentially unchanged; we continue to expect a gradual rise over the coming quarters, though we expect the unemployment rate to remain below the non- accelerating inflation rate of unemployment (better known as NAIRU) in 2024. Inflation & Monetary Policy The January Consumer Price Index (CPI) report came out after the completion of our forecast and was higher than the market’s e pectation. Headline CPI grew 0.3 percent over the month and 3.1 percent compared to a year ago. Core inflation was more persistent, rising 0.4 percent over the month, with the annual rate unchanged at 3.9 percent, as a jump in shelter inflation offset a decline in used auto prices. The major change to our inflation expectations came from the lower oil price path, stronger assumed population growth leading to a less tight labor market, and a reassessment of core inflation less shelter; though, as the January CPI report shows, there is upside risk to our inflation expectations."}, {"role": "assistant", "content": "Our baseline expectation is that the Fed will maintain its current rate policy until June, when we expect the first rate cut. Housing & Mortgage Forecast Changes Mortgage Rates Following the slight increase in interest rates in January, our interest rate forecast is slightly higher this month. We expect the 30-year fixed mortgage rate, as measured by re ie ac’s Primary Mortgage Market Survey (PMMS), to average 6.2 percent in 2024 and 5.7 percent in 2025. However, interest rates remain volatile, particularly given changes in Fed policy expectations, which adds risk to our outlook for interest rates."}]}
{"messages": [{"role": "user", "content": "Existing Home Sales Existing home sales were at a SAAR of 3.78 million in December. We have revised our forecast modestly upward in 2024, mostly due to higher growth expectations, while we have lowered our expectations in 2025, largely due to the slightly higher projected interest rate environment. However, the continued heightened volatility of long-run interest rates continues to point to risk around the sales projection. New Home Sales New single-family home sales rose 8.0 percent to a SAAR of in December. Similar to our existing home sales forecast, sales in 2024 were revised upward due to higher growth expectations, while sales in 2025 were revised downward slightly given the slightly higher projected interest rate path. New home sales continue to benefit from the limited inventory of existing homes for sale."}, {"role": "assistant", "content": "Single-Family Housing Starts Single-family housing starts fell to a SAAR of 1.03 million in December, while permits rose to . The pullback was less than expected. Combined with a stronger growth outlook, we have revised our single- family starts forecast upward. We continue to expect that the lack of existing homes available for sale will continue to boost new home construction in the medium term."}]}
{"messages": [{"role": "user", "content": "Single-Family Home Prices Home prices grew 7.1 percent Q4/Q4 in 2023, according to the most recently published non-seasonally adjusted FHFA Purchase-Only House Price Index (HPI). Our next home price update will be in April. Single-Family Mortgage Originations We now expect 2024 single-family purchase origination volumes to be $1.5 trillion and 2025 volumes to be $1.6 trillion. These represent downgrades of $30 billion and $4 billion respectively compare to last month’s forecast. The downward revision to the 2024 forecast was driven by weaker-than-expected incoming data on the average price of new home sales. This outweighed upward revisions to our expectation for 2024 existing home sales."}, {"role": "assistant", "content": "For refinances, we have revised downward our overall volume expectation by $30 billion in 2024 to $459 billion, driven by the higher mortgage rate expectation this month. However, in the near term, we expect refinance volumes to continue to tick upward, consistent with recent readings from the Refinance Application-Level Index (RALI). In 2025, we expect refinance volumes to grow to $709 billion, another owngra e from last month’s forecast riven by the change in our mortgage rate expectations."}]}
{"messages": [{"role": "user", "content": "1 Multifamily Economic and Market Commentary JANUARY Multifamily Market Outlook: Instability Expected as Skies Remain Cloudy Based on preliminary data, multifamily rental growth is estimated to have turned negative during the fourth quarter of 2023, after having been at more moderate levels earlier in the year. Our prediction of turbulence in the multifamily market last year was correct, and it appears that it is likely to continue into 2024. Rental demand differed depending upon the metro: Those with a lot of new supply, such as Austin, Phoenix, and Jacksonville, have seen negative rent growth over the past six to 12 months. In contrast, metros that are supply constrained, such as Kansas City, Cincinnati, and St. Louis, have seen above-average rent growth, according to data from RealPage. At a national level, rental demand remained positive for much of 2023, due to stronger-than-expected job growth, smaller-but-continued wage increases, elevated interest rates, and an overall shortage of housing, especially for-sale housing, keeping many renters-by-choice renting – for now."}, {"role": "assistant", "content": "We expect the economy to grow at a below-trend rate in 2024 and note that the risk of a recession remains elevated. Coupled with more than one million multifamily rental units underway, we are once again expecting lower-than-normal rent growth this year along with a slightly higher national vacancy rate. We expect rent growth to be in the range of just 1.0% to 1.5% in 2024, and we believe it could stumble if job growth worsens significantly. The national multifamily vacancy rate is expected to rise to 6.25% this year, as illustrated in the chart below, and then begin to stabilize at 6.0% in 2025. The pace of absorption is expected to remain positive but only slightly higher this year due to the high number of new units delivering over the next 12 to 18 months. We also expect that the percentage of units offering concessions will increase and that concession levels will rise in oversupplied markets."}]}
{"messages": [{"role": "user", "content": "According to data from , annualized multifamily demand was estimated at units at the end of 2023, compared to an estimated units in 2022. In addition, is anticipating that demand will rebound in 2024, ending the year with an annualized units of multifamily demand."}, {"role": "assistant", "content": "2 Rent Growth Expected to Remain Below Average We believe that national rent growth was positive in 2023, but just barely, at an estimated 0.75%, despite turning negative at the end of the year. Last year’s annualized rent increase is down significantly from an estimated 4.75% in 2022 and estimated 10% in 2021. We expect rent growth to start the year negative, but then turn slightly positive during the second and third quarters, and then turn negative again in the fourth quarter, resulting in an annualized range of between 1.0% and 1.5%."}]}
{"messages": [{"role": "user", "content": "However, it is important to note that if job growth turns significantly negative, and the broader economy slows down or enters a recession, rent growth could stagnate further or even end the year negative. There is still too much uncertainty at this stage to know how rent growth might ultimately be impacted over the coming months."}, {"role": "assistant", "content": "Multifamily Economic and Market Commentary Vacancy Expected to Increase The national multifamily vacancy rate is estimated to have risen in late 2023 and is expected to rise again in 2024, primarily due to the amount of new supply expected to deliver this coming year, on top of the more than units that were expected to have been added in 2023. Much of this new supply consists of more expensive, class A units in many places, which should help improve the pace of filtering down the existing multifamily housing stock, resulting in a higher number of less expensive class B units. As a result, we expect that the amount of new supply completing over the next 12 months will push the national vacancy rate up to 6.25% in 2024. It is important to note that this elevated level is expected to be short-lived and is expected to drop back down to 6.0% by 2025, as seen in the chart on the previous page. Additionally, a vacancy level of 6.0% to 6.25% is not that much higher than the long-term average of 5.75% from 2005 through 2022."}]}
{"messages": [{"role": "user", "content": "3 Multifamily Economic and Market Commentary Demand for all classes of multifamily units remained subdued through much of 2023, as illustrated below. According to data from RealPage, Inc., as of fourth quarter 2023, quarterly effective rent growth for class A and B units had turned negative, to negative 0.69% for class A and negative 1.11% for class B. Class C rent growth was estimated to have remained positive but just barely at 0.33% for the quarter. We believe that the slowing in rent growth across all classes later in the year was the result of new supply entering many local markets, as well as weaker demand from new renters. National Multifamily Concession Rate by Class Percent Of Units Offering Concessions Source: RealPage, Inc. 3 The number of properties offering concessions increased throughout much of last year, as seen in the chart below right. As of fourth quarter 2023, an estimated 18.1% of class A units were offering concessions, up from 13% a year ago. Class B units increased to 18.5% from just 12.5% in fourth quarter 2022, as did Class C units, which reached an estimated 18.6% as of fourth quarter 2023 compared to 9.5% a year ago."}, {"role": "assistant", "content": "Although the percentage of units offering concessions has been increasing for quite awhile, the concession levels themselves remained below one month’s free rent, or 8.3%, as seen in the chart below left. Nevertheless, we expect that both the value of concessions and the number of units offering them will increase in 2024, primarily in oversupplied metros."}]}
{"messages": [{"role": "user", "content": "4 Multifamily Economic and Market Commentary New Multifamily Supply Expected to Peak in 2024 According to preliminary data from Dodge Data & Analytics Supply Track, which distinguishes between multifamily properties consisting of apartment and condominium units, more than apartment units were likely completed in 2023, up notably from 2022’s units – the most recent peak year for new deliveries. Indeed, according to the National Multifamily Housing Council’s Construction Survey, as of December of respondents reported construction delays, with most stating the delays were caused by either permitting requirements or in actually getting the project started. And of those experiencing delays getting their projects started, 83% stated it was due to economic uncertainty and 79% said it was due to construction financing concerns."}, {"role": "assistant", "content": "5 Multifamily Economic and Market Commentary Subdued Multifamily Demand Expected to Continue in 2024 At a national level, we believe that there will continue to be a supply/demand imbalance this year, based on the amount of new multifamily units expected to come online compared to the anticipated increase in job growth."}]}
{"messages": [{"role": "user", "content": "Although it is unlikely that all new units slated for completion will be delivered by year-end 2024, the possibility of slower growth or even possible recession coupled with slowing job growth means that there is unlikely to be enough demand to keep up with the wave of new deliveries in some metros."}, {"role": "assistant", "content": "That would likely keep new multifamily rental demand weak, just as an elevated level of new units are expected to deliver."}]}
{"messages": [{"role": "user", "content": "Much of this new supply is primarily concentrated in about 15 metros, as seen in the chart below. In addition, several of the impacted submarkets are located in some of the most expensive metros in the country, including New York, Washington, DC, Seattle, and Los Angeles. Although Moody’s Analytics is expecting some metros to see positive job growth in 2024, such as Austin, Orlando, and Phoenix, the amount of expected new units could still easily outstrip demand. 6 Multifamily Economic and Market Commentary 6 There are a number of oversupplied metros across the country, in terms of the amount of new supply underway compared to the current inventory of multifamily units. As seen in the chart below, metros such as Austin, Denver, Charlotte, Miami, Orlando, Nashville, Raleigh, Colorado Springs, and Huntsville, all have more than 10% of their respective multifamily inventories underway."}, {"role": "assistant", "content": "In general, a market is considered in balance when it has between 2% and 4% of inventory underway, and with some of these metros expecting below average job growth this year, many are expected to remain oversupplied over the next 12 to 18 months."}]}
{"messages": [{"role": "user", "content": "7 Multifamily Economic and Market Commentary 7 Although at a national level job growth is expected to be just 0.6% in 2024, Moody’s is expecting a number of metros will see job growth exceed the national average, as illustrated below. Some Texas metros, such as Austin, Dallas, and Houston, are all expected to have job growth of between 1.0% and 2.0%, making them some of the best performing in the nation. Yet it is not expected to be enough to keep up with all the potential new supply. For example, with job growth forecasted at 1.3% this coming year, Austin could produce demand for about 5,900 new multifamily units, but the new supply expected to deliver in 2024 totals more than 28,000 units, meaning an excess of more than 22,000 units. Dallas is expecting about 34,000 new multifamily units in 2024 but based on Moody’s Analytics’ anticipated job growth rate of 1.1%, the metro would likely only have demand for a little more than 12,000 units, leaving a potential excess of 29,000 units. Houston, which Moody’s expects to have some of the nation’s best job growth at 2.0% this year, is expecting nearly 25,000 multifamily units, but the expected number of new jobs is likely only going to produce demand for about 13,000 units, leaving an excess of more than 11,000 units."}, {"role": "assistant", "content": "Positive Job Growth Will Not Be Enough in Some Metros… … But Others Become Undersupplied by 2025 There are some metros, such as Las Vegas, Los Angeles, Chicago, and Orlando, that might have too much supply this year, but could be undersupplied by as soon as 2025. For example, Las Vegas has more than 5,500 units expected to deliver by the end of 2025, and while it is expected to be oversupplied in 2024, by the following year, it could actually be undersupplied by more than 2,500 units. Los Angeles is also expected to be briefly oversupplied this year, by about 5,800 units, but will likely fall short by an estimated 3,400 units by 2025. Similarly, Chicago is expected to be oversupplied by about 5,300 units this year but will be undersupplied by about 2,100 the following year. Orlando has a projected oversupply of more than 11,000 units in 2024, but just a year later could be short by a little more than 1,250 units. In some metros, patience will likely be a virtue in terms of waiting for a multifamily supply/demand balance."}]}
{"messages": [{"role": "user", "content": "8 Multifamily Economic and Market Commentary 8 As a result of increased new construction, many oversupplied metros may find that their average multifamily vacancy rates are going to stay higher longer. In taking a closer look at some of these metros, although the amount of new supply tends to decline over the next five years, as seen in the charts below, the vacancy rates stay relatively elevated."}, {"role": "assistant", "content": "For example, according to third quarter 2023 projections from , despite Austin’s new construction pipeline declining to just under 2% of its multifamily inventory by 2028, its vacancy rate is expected to be 10% that same year, well above the metro’s long-term average of 8.5%. Similarly, believes that Nashville is also poised to see a higher-than-average vacancy rate of nearly 10% by 2028 compared to its long-term average of 6.8%. In contrast, Phoenix is likely returning to its long-term average vacancy rate due to all its new supply. With its new construction pipeline falling to an estimated 1.3% of inventory by 2028, is expecting the metro’s vacancy rate to be about 9%, which is only slightly above its long-term average of 8.7%. Midland-Odessa is in a similar position, with its vacancy rate expected to be an estimated 8.8% by 2028, which is only slightly higher than its long-term average of 8.5%. Some Metros May See Higher Than Average Vacancy Rates for Awhile Source: Moody’s Analytics Austin Colorado Springs Nashville Phoenix Salt Lake City San Antonio Midland/Odessa Austin Colorado Springs Nashville Phoenix Salt Lake City San Antonio Midland/Odessa Avg. Vac. Rate: Units Completed By Year (% of Market Inventory) – Select Markets Historical and Forecasted Vacancy Rates – Select Markets Source: , QWe continue to maintain a cautious outlook for the national multifamily sector in 2024. We expect the multifamily sector will see a further softening in demand this year, possibly resulting in negative rent growth during the first quarter of 2024 due to new supply entering the market, especially during what is normally a slow lease-up time of the year, as well as again during the fourth quarter due to the additional stressor of expected slower job growth. At a metro level, demand will vary. In some metros, especially those with a large amount of supply expected to come online during the year, we believe rents could remain flat to negative much of the year, in turn pushing up concession rates as well as the number of units offering them, but that is likely to be at a localized, submarket level. In other undersupplied metros, rent growth is expected to be positive but will not be at sufficient enough levels to dramatically alter the overall national outlook. As a result, we expect multifamily origination volume levels will remain subdued. As of October 2023, the Mortgage Bankers Association is estimating that multifamily originations volume will be $285 billion in 2023 and $339 billion in 2024, but that is subject to change. Based on current trends, our estimated annual multifamily originations are in the same general range, albeit slightly lower: $255 billion to $275 billion in 2023 and $295 to $325 billion in 2024. We expect the multifamily rental market to see continued softness in demand from both tenants and investors, and a return to more normalized trends is not anticipated until mid-2025."}]}
{"messages": [{"role": "user", "content": "Higher interest rates dampened investor appetite for purchasing commercial real estate properties in 2023, and multifamily properties were no exception. Sales of U.S. multifamily properties plummeted last year, totaling just an estimated $105.5 billion year to date through November 2023 for properties valued at $2.5 million or higher, according to data from MSCI Real Assets. As expected, November's average cap rate was estimated at 5.36%, which was up slightly from 5.32% in October and up quite a bit from 4.82% as of November 2022, according to data from MSCI Real Assets and as seen in the chart below."}, {"role": "assistant", "content": "We anticipate that cap rates could inch up higher this coming year, perhaps climbing to as high as 5.75% before declining back to between 5.5% and 5.25% over the next 12 to 18 months, in response to any interest rate reductions."}]}
{"messages": [{"role": "user", "content": "Economic Growth, Inflation Still on Track to Slow as Interest Rate Volatility Continues Our May forecast maintains our previous outlook for Q4/Q4 real Gross Domestic Product (GDP) growth of 1.8 percent in 2024 and 1.9 percent in 2025."}, {"role": "assistant", "content": "We expect payroll growth to decelerate and the unemployment rate to drift upward to 4 percent by the end of the year. Longer-term interest rates, including mortgage rates, have been volatile the past two months – first rising in response to stronger than expected economic data, and then a more recent decline on weaker readings. Despite this, we view economic growth and inflation as being on the same track as our prior outlook, and we continue to anticipate moderation as the year progresses. We also continue to expect the Federal Reserve to implement the first of two rate cuts this year in September as inflation measures moderate, gradually trending toward the Fed’s 2-percent target. However, we believe the Fed is likely to remain cautious as there are still signs that inflation may remain stickier than anticipated. We revised modestly lower our total home sales forecast, primarily due to the higher mortgage rate forecast compared to last month’s projection – although we still expect an upward trajectory in sales through our forecast horizon, and recent downward movements in mortgage rates following the conclusion of our interest rate forecast present slight upside risk to housing activity. We now project 2024 total home sales to be 4.89 million (4.96 million previously), followed by 2025 total sales of 5.29 million (previously 5.47 million). Consistent with the slower sales outlook, our forecast for total mortgage originations was downgraded modestly to $1.73 trillion for 2024 ($1.81 trillion previously) and $2.08 trillion in 2025 ($2.26 trillion previously). Quick Links Economic Forecast Changes Housing & Mortgage Forecast Changes Economic Forecast Table Housing & Mortgage Forecast Table Underlying Growth Remained Steady Through Q1 but Slowing Still Likely First quarter 2024 GDP increased at a 1.6 percent annualized rate, below both consensus and our expectations. However, the headline miss was due almost entirely to the volatile net exports and business inventory investment categories; real consumption growth and private fixed investment were in line with our forecast. Real final sales to private domestic purchasers, the sum of personal consumption and gross private fixed investment, increased at a solid 3.1 percent annualized rate, nearly identical to each of the prior two quarters. However, on net, this quarterly change has no material impact on our full- year 2024 total growth forecast. in April, which fell by 0.3 percent over the month, is supportive of this view. While revolving consumer credit balances remain normal relative to incomes, higher interest rates are likely putting some consumers under stress: Personal interest payments on all non-mortgage debt as a percentage of total personal outlays has been at its highest level since 2008 over the past three quarters, and recent data show an uptick in credit card and auto loan delinquencies. Additionally, we expect further softening in labor market conditions, which will likely limit consumption growth. The April employment report showed nonfarm payroll growth slowing to a marked slowdown compared to the average jobs added each month in the first quarter. While additional data will be necessary to definitively establish that the trend is slowing, a downshift in hiring would be consistent with other labor market indicators, such as the Job Openings and Labor T rno er r ey’s (JOLT ) job openings and quits rates, which have shown cooling labor market conditions for several months."}]}
{"messages": [{"role": "user", "content": "We believe the combination of softer labor market conditions and weaker consumption growth should flow through to lower inflation prints in the second half of the year. Further, we continue to expect measures of shelter inflation to weaken over time as measures of new tenant rents, including the Bureau of Labor Statistics’ (BLS) own series, show near-zero rent growth over the past two quarters. While these “f ndamentals” point to decelerating inflation mo ing forward, releases to date have highlighted the risk that inflation pressures remain sticky. The Fed’s preferred core Personal Consumption Expenditures (PCE) inflation averaged an annualized rate of 4.4 percent through the first three months of the year. While this strength can be explained away by idiosyncrasies in measuring items such as auto insurance and healthcare costs, alternative inflation measures, including the median Consumer Price Index (CPI), also point to some price stickiness that we believe will likely give the Fed and financial markets pause. Additionally, while most labor market indicators are pointing to softening, the Employment Cost Index (ECI) increased 1.2 percent in Q1, an acceleration of three-tenths compared to the prior quarter. As such, we still expect that the Fed will hold off on rate cuts until September and only cut twice this year. We view risks as weighted toward fewer than two cuts rather than three or more cuts. While the 10-year Treasury rate has pulled back after peaking around 4.7 percent at the end of April, the trend in 2024 has clearly been upward. Our May forecast shows a higher interest and mortgage rate path this year and next relative to our prior forecast. Home Sales Forecast Lower on Higher Mortgage Rates, but Recent Data Coming in as Expected Existing home sales fell back 4.3 percent in March to an annualized pace of 4.19 million, in line with our expectations. While we expect home sales to remain sluggish going forward, the flow of new listings has remained steady in recent months despite generally rising mortgage rates, suggesting that additional sizeable sales declines are unlikely. We suspect that, for a myriad of reasons, enough would-be sellers are deciding they can no longer put off moving. In April, the supply of active listings, according to Realtor.com, was up 30.4 percent from a year prior. While the higher mortgage rate forecast this month translates into a modest downgrade to 2024 sales, we see the flow of for-sale listings in the near term as being relatively resilient to recent mortgage rate moves. We forecast a modest drift upward in existing home sales over our forecast horizon. New home construction and sales look to be converging as expected. We had previously noted that the pace of starts has been elevated relative to the new home sales pace in recent months. Single-family starts fell in March by 8.7 percent, followed by a 0.4 percent decline in April, while new sales rose 8.8 percent in March. We expect this convergence to continue in the near term via a combination of homebuilders offering incentives to move existing inventories and a modest slowing in the pace of starts. While existing home sales listings are loosening somewhat, the housing market remains tight in most metros. As such, we continue to expect a solid pace of new home construction over the next two years as buyers look to new homes due to the limited existing home supply. Economic Forecast Changes Economic Growth Q1 2024 GDP grew at an annualized 1.6 percent, well below the consensus and our estimate of 2.4 percent, with the difference driven mostly by net exports and the change in business inventories. e to stronger “core” GDP we anticipate a rebound and, therefore, have revised upward our Q2 and Q3 forecasts, but our forecast for total yearly growth in both 2024 and 2025 is unchanged at 1.8 percent Q4/Q4 and 1.9 percent Q4/Q4, respectively. Labor Market Nonfarm payroll employment growth was in April. The unemployment rate ticked up one-tenth to 3.9 percent. Compared to last month, we have lowered slightly our unemployment rate expectations consistent with a modest GDP growth upgrade in Q2 and Q3, though we continue to expect a gradual uptick over time. We continue to project the unemployment rate to gradually trend upward over the course of our forecast horizon. Inflation & Monetary Policy A lower near-term energy outlook led to a slight downward revision in the headline CPI outlook, though the persistent stickiness in the core measure of inflation led to a slight upward revision to our core inflation forecasts this month. However, we still forecast inflation to moderate over the outlook time horizon. Our baseline expectation continues to be that the Fed will begin rate cuts in September, with only two rate cuts this year given the persistence of inflation and the robust labor market. Existing Home Sales Existing home sales fell to a seasonally adjusted annualized rate (SAAR) of 4.19 million in March. We revised modestly downward our forecast through 2025, mostly driven by the change in mortgage rate expectations. While we expect a pullback in Q2, due to a strong start at the beginning of Q1, we continue to forecast existing sales to trend upward over our forecast horizon on a monthly sequential basis. New Home Sales New single-family home sales jumped 8.8 percent in March to a SAAR of . Similar to our existing home sales outlook, we have lowered our expectations for new home sales primarily due to the higher interest rate outlook. However, new home sales continue to benefit from the limited inventory of existing homes for sale, which we expect to support demand for new homes over our forecast horizon."}, {"role": "assistant", "content": "Single-Family Housing Starts We continue to expect that the lack of existing homes available for sale will continue to boost new home construction in the medium term, though we have lowered our expected starts pace over the forecast horizon due to the higher interest rate path."}]}
{"messages": [{"role": "user", "content": "Further Declines in Mortgage Rates Needed to Address Affordability and Spur Home Sales Despite a meaningful pullback in mortgage rates over the past few months, home purchase activity continues to be unresponsive, with existing home sales remaining near cycle lows. Lock-in effects and affordability constraints are keeping many would-be homebuyers on the sidelines. While we have made little change to our macroeconomic outlook, we have revised downward our near-term home sales forecast. We now expect 2024 total home sales to be 4.7 million (previously 4.8 million), down 0.3 percent from their 2023 total; notably, we also expect 2024 existing home sales to fall to the slowest annual pace since 1995. We forecast sales to then pick up by 9.8 percent in 2025 to a pace of 5.1 million units; with the majority of that increase coming in the second half of 2025 if mortgage rates decline sufficiently to end 2025 at 5.7 percent, as we currently project. Our forecast for total single-family mortgage originations was revised downward modestly for 2024 to $1.68 trillion (previously $1.70 trillion), while the outlook for 2025 was moved slightly higher to $2.16 trillion (previously $2.15 trillion), principally due to a rise in refinance volumes from anemic levels. For economic growth, we expect 2024 Real Gross Domestic Product Growth (GDP) to be 2.0 percent on a Q4/Q4 basis (1.9 percent previously) and 2025 growth to be 1.8 percent (unchanged), and for the unemployment rate to gradually drift upward to 4.6 percent by end of 2025. Quick Links Economic Forecast Changes Housing & Mortgage Forecast Changes Economic Forecast Table Housing & Mortgage Forecast Table Economy Downshifts as Post-Pandemic Imbalances Fade With inflation continuing to move toward the Federal Reserve’s target and most labor market data softening, we believe economic growth is in the process of downshifting, even though consumer spending to date has remained more resilient than previously expected. Fed commentary has stated that risks to their dual mandate – maximum employment and stable prices – are now better balanced and a rate-cutting cycle is imminent. The Consumer Price Index (CPI) fell four-tenths to 2.5 percent compared to a year ago in August, a new cycle low and roughly even with pre-pandemic readings. While core inflation remains somewhat stickier, 2.3 percentage points of the 3.2 percent year-over-year increase in core prices is due to lagged shelter prices, which are widely expected to converge to lower measures of rents on newly signed leases over time. On the employment side, the increase in payroll employment in August represented an improvement from July’s downwardly revised estimate of 89,000 jobs added, but the three-month moving average of job gains declined to just the lowest level since the start of the labor market recovery following the pandemic. The unemployment rate fell back one-tenth, as expected, to 4.2 percent due in part to a reversal in those reporting temporary unemployment in July, but it remains five-tenths higher than in January. Data from the July Job Openings and Labor Turnover Survey (JOLTS) also showed a slowing labor market as job openings declined to their lowest level since February 2021, layoffs moved up to their highest level since March 2023, and the quits rate remained below its pre-pandemic level. Varying business surveys also show softening in hiring. Despite this, real Personal Consumption Expenditures (PCE) have remained robust to date. Second quarter PCE was revised upward by six-tenths to a 2.9 percent annualized gain in the second release of GDP and monthly data showed another 0.4 percent increase in real consumption in July. As has been the case over the past half-year, the strong consumption occurred without a corresponding large increase in real disposable personal income, which grew at just a 0.9 percent annualized rate in the second quarter. This dynamic has pushed the saving rate down to just 2.9 percent in July, the lowest level since June 2022 and several percentage points below its pre-pandemic level. We continue to believe that the current rate of spending relative to incomes is unsustainable, and therefore expect consumption will slow by the end of the year. However, the exact timing of this downshift presents risk to our forecast."}, {"role": "assistant", "content": "On balance, our growth forecast is largely unchanged compared to last month. While we have upgraded our third quarter growth expectations due to stronger base effects from the higher second quarter reading, we continue to expect that growth will slow in line with business surveys and signs of a weaker labor market. We now forecast 75 basis points of fed funds rate cuts by the end of the year, spread evenly between t e Fed’s t ree remaining meetings. We anticipate that rates will continue to decline through next year and, with a lag, will provide a boost to the economy as monetary policy transitions from a restrictive to a neutral stance. We expect GDP growth will return to roughly its long-term potential by the end of 2025."}]}
{"messages": [{"role": "user", "content": "Rising Regional Variation in Housing Market as Sales Fail to Respond to Easing Mortgage Rates Existing home sales continue to be weak despite the pullback in mortgage rates over the past few months. While existing home sales edged upward by 1.3 percent in July, the pace remained at a subdued 3.95 million units annualized, near the cycle low. Furthermore, pending home sales, which lead sales on average by 30-45 days, fell back by 5.5 percent in July, pointing to likely further weakness in August and September. Higher frequency data such as purchase mortgage applications and Redfin’s Home Search Demand Index, also show little signs of a pickup in sales. Therefore, we have downwardly revised our near-term existing home sales forecast and now expect existing home sales to average only around 4 million annualized units for the remainder of 2024 and for the year to be slightly below the 2023 sales pace. On a national basis, the inventory of homes listed for sale continues to nudge upward. According to the National Association of REALTORS®, the number of homes on the market at the end of July was up 19.8 percent from a year prior. However, this rise in homes on the market is not occurring because of a significant increase in new listings. Rather, the pace of sales has been so weak that new listings on average are remaining on the market longer. The rise in the inventories of homes for sale has not been uniform across geographies, and we believe this geographic variation is a significant factor as to why home sales have not responded meaningfully to the pullback in mortgage rates. Most of the rise in homes for sale have occurred in Sun Belt and a few Mountain West states. Some of these states now have for- sale inventories near or even above what was available pre- pandemic at the end of 2019. However, most of the Northeast and Midwest continue to have near cycle lows of homes available for sale. While there are likely many factors driving this divergence, an examination of the states driving the rise in homes for sale shows that these they tend to have two characteristics in common. First, the cumulative home price gains since the pandemic have tended to be some of the largest, creating a larger relative shock to affordability for residents in these states. Second, these states have had comparatively strong new home construction since the pandemic, causing existing home listings to face greater competition from homebuilders offering new homes. We interpret the lack of a sales pick up in these states, despite the increase in for-sale listings, as meaning there are no longer enough borrowers able or willing to transact at current price points and mortgage rates, whether because affordability is now binding for the marginal buyer, because new home sales are more attractive, or some other reason, such as concern about availability and cost of insurance. To date, the decline in mortgage rates has not helped affordability enough to generate sales in these markets. This can be seen in the scatterplot chart above, where states in the top right quadrant are those with comparatively high recent homebuilding and comparative large post-pandemic home price gains. These states are driving the bulk of the national rise in active for-sale listings of existing homes."}, {"role": "assistant", "content": "As time progresses, more households will likely initiate moves because t ey can’t put off various life events any further; however, as long as the lock-in effect remains as strong as it currently is, we do not expect a large increase in transactions broadly. For the states that are seeing rises in active inventories, we expect a combination of easing mortgage rates and soft home price growth relative to income growth will be needed before existing home sales begin to meaningfully rise, as affordability constraints appear to be a large driver. While it will likely take some time before sales recover to a more “normal” pace, we forecast existing home sales to begin moving up in a meaningful way in mid-2025 as mortgage rates ease further and home price growth decelerates, as shown in our forecast. While we have softened our new home construction forecast over the past couple months, we continue to expect comparatively robust activity in the new home sales market as elevated existing home prices will continue to make new homes attractive, especially as homebuilders continue to offer concessions and rate buy downs."}]}
{"messages": [{"role": "user", "content": "Economic Forecast Changes Economic Growth The second estimate of Q2 2024 GDP was revised upward by two-tenths to an annualized 3.0 percent, driven by an upward revision to consumption. This higher starting level led to an upward revision to our Q3 forecast, though we maintain our expectation of weakness in Q4 and the first quarter of 2025. Our GDP forecast for total yearly growth in 2024 on a Q4/Q4 basis was revised upward one-tenth to 2.0 percent. Our forecast for growth in 2025 was unchanged at 1.8 percent Q4/Q4. The unemployment rate fell one- tenth to 4.2 percent, ending a four-month string of increases. Given this, our unemployment rate expectations were unchanged, and we continue to expect the labor market to cool at a gradual pace. Inflation & Monetary Policy Our inflation outlook was revised downward following a downward revision to our oil price outlook. The August Consumer Price Index (CPI) report was in line with our expectations for further deceleration in inflation. We continue to forecast inflation to moderate over our forecast horizon. Given the inflation numbers and signs of cooling in the labor market, our baseline expectation remains that the Fed will begin to cut the federal funds rate in September by 25 basis points, followed by 25-basis point cuts at both the November and December meetings. Existing Home Sales Existing home sales rose 1.3 percent to a seasonally adjusted annualized rate (SAAR) of 3.95 million in July. We revised downward our near-term outlook for existing home sales, despite the lower mortgage rate path, given the weakness in recent high-frequency indicators, such as purchase applications, which have shown little movement despite the drop in mortgage rates. However, we continue to forecast existing sales to trend gradually upward over our forecast horizon as affordability slowly improves and lock-in effects weaken. New Home Sales New single-family home sales jumped 10.6 percent in June to a SAAR of . We have upwardly revised our new home sales outlook following the strong July report, and we continue to expect the dearth of existing homes being listed for sale to help support new home sales and lead to a gradual increase over the forecast horizon."}, {"role": "assistant", "content": "Single-Family Mortgage Originations We expect 2024 purchase origination volume to be $1.3 trillion, a downward revision of $20 billion from the prior forecast. This revision is driven by a somewhat weaker expectation for existing home sales. In 2025, we expect purchase volumes to grow by 15 percent year over year to $1.5 trillion. For refinances, we now expect 2024 volume to be $375 billion, a slig t upward revision from last mont ’s forecast given the lower mortgage rate path. We expect 2025 volumes to come in at $649 billion, an upward revision of $23 billion from the prior forecast, again driven by the lower expected mortgage rate path. These upward revisions are consistent with a slight uptick in F tarts urrent Forecast rior Forecast F tarts urrent Forecast rior Forecast F A Actual July Forecast urrent April Forecast rior urc ase Refinance Forecast ots represent prior forecast"}]}
{"messages": [{"role": "user", "content": "The number of facilities producing these factory-built homes conforming to HUD standards has grown in recent years. According to MHInsider, in 2023, there were 36 companies producing factory-built homes with a combined 148 production facilities, compared with 35 companies with 146 production facilities in 2022. This represents an 11% increase from the 133 production facilities recorded in 2019. Private Property Elsewhere Subdivision/PUD Land-Leased/MHC Location of New Manufactured Homes Shipped (for Residential Use Only) Source: U.S. Census Bureau and U.S. However, not all purchasers of manufactured homes can afford to purchase the land needed to situate their new home, and some prefer to avoid the maintenance associated with owning that land. Manufactured Housing Communities (MHCs), also known as land-lease communities, address this need. For those residents who own their manufactured home, these communities offer pad sites for rent, which are spaces where owners can place their homes that also provide access to utility hookups. MHCs can also offer manufactured homes for rent. According to information from Datacomp Appraisal Systems, Inc., which verifies the existence and location of MHCs, as of second quarter 2024, there were just over 44,000 MHCs providing land for lease to owners, as well as rental of both the pad site and the manufactured home itself. While demand for manufactured housing has remained steady, rising interest rates have had a negative impact on production of manufactured homes and loan origination. As a result, current community occupancy remains high and pad site rents continue to increase. New Manufactured Home Production Slowing According to the U.S. Census Bureau’s Manufactured Housing Survey, from 2018 to 2020, an average of 95,200 manufactured homes were completed annually. Pent-up demand, along with rising housing prices and low interest rates, increased interest in manufactured homes as a more affordable source of housing. MHCs Completed in Only a Handful of States According to , only five MHCs have been built or expanded since the start of 2023. Three are in Texas: the 437- pad site Fannin Meadows in Tyler, owned by Four Leaf Properties; the 420-pad site The Landing at Pearland in the Houston metro area, developed and owned by Jacob White Construction; and the 200-pad site Creeks Crossing located just outside of Austin, and owned by Sun Communities. In addition, the Kofa Cabana Courtyard was developed outside of Yuma, Arizona and has 24 manufactured housing rentals, and the 54-pad site Blue Haven Mobile Estates owned by BoaVida Communities was developed in Paradise, California. MHC Under Construction or Proposed There was only one MHC under construction as of mid-August 2024, the Twin Lakes at Avon Park that will consist of 325 manufactured housing rentals in Avon Park, Florida, according to data from . This represents a fraction of the amount of new MHCs that were produced 20 years ago, as shown in the chart below. 5 Multifamily Economic and Market Commentary Age 55+ - MHC Occupancy and Pad Site Rents for Select Regions* Occupancy Q2 2024 Occupancy Q2 2023 Change Rent Q2 2024 Rent Q2 2023 Change Midwest Northeast Pacific South Southwest West National Two Types of MHCs Roughly one-third of MHC are Age-55+ MHCs, targeted to older adults. Two-thirds are All Ages MHCs, which tend to attract families and residents of all ages, including those older adults that do not want to live in an Age-55+ community."}, {"role": "assistant", "content": "Fundamentals in both segments of MHC appear to have weathered the pandemic, recent inflationary trends, and elevated interest rates – at least so far."}]}
{"messages": [{"role": "user", "content": "Source: Datacomp/JLT * As of July 1, 2024, Based on Trailing 12-month average. Note: Pad Site rents exclude utility payments Southeast: 13 states including Florida, Georgia, and the Carolinas. Northeast: seven states including Pennsylvania, New York, and New Jersey, Pad Site Rents Record Strong Growth in Most Regions As shown in the table above, pad site rents vary widely among regions. The Pacific region, which is comprised of the high-cost coastal states of California, Oregon, and Washington, has a 99% occupancy rate and the highest monthly rent at $911 per month, as of second quarter 2024, according to Datacomp. By contrast, the large Midwest region, which is comprised of 12 states, including Michigan, Illinois, and Indiana, had an average pad site rent that was $330 lower at $581 per month – the lowest rent among the six regions. Low vacancies and ongoing job and wage growth led to another year of strong rent growth, with pad site rents across all regions growing by 6.6% on average year over year as of second quarter 2024, following a 7.5% increase as of second quarter 2023. The 6.6% increase is more than double the 3.0% non-seasonally adjusted inflation rate and the estimated 1.1% average national increase in multifamily rents over the same timeframe. Pad site rents in the South and Southwest regions saw the highest increases, growing by 7.4% and 7.3%, respectively to $700 and $656, respectively. Occupancy Q2 2024 Occupancy Q2 2023 Change Rent Q2 2024 Rent Q2 2023 Change Midwest Northeast Pacific South Southwest West National All Ages MHC - Occupancy and Rents for Select Regions* MHC Capitalization Rates Tick Up After declining significantly in recent years, capitalization rates for institutional-quality MHCs have started to increase, as shown in the adjacent chart. According to MSCI Real Assets, the average cap rate for MHC property sales fell from an average of 6.8% in second quarter 2013 to an estimated 4.7% as of second quarter 2022. Since then, however, the average MHC cap rate has increased to 5.5% as of second quarter 2024."}, {"role": "assistant", "content": "data, which includes smaller transactions for which cap rates can vary more widely, shows an even larger jump, on a relative basis: It estimates that cap rates rose to 9.5% as of second quarter 2024 from 7.2% as of second quarter 2022. Source: ,MSCI Real Assets Note: MSCI Real Asset data is quarterly based on a trailing 12- month average. Includes property or portfolio sales of $2.5 million or greater."}]}
{"messages": [{"role": "user", "content": "Strong Rent Growth Pad site rents in All Ages MHCs recorded another year of strong growth, increasing by 6.6% year over year to an average of $665 as of second quarter 2024, as seen in the table above. This follows a year-over-year increase of 6.8% as of second quarter 2023. Pad site rents are highest in the Pacific region, growing by 5.4% year over year to over $1,061 as of second quarter 2024. Pad site rents saw the fastest growth in the South, Southwest, and West regions, where they grew approximately 8% to and $826, respectively. Even in the traditionally more affordable Midwest region, the average rent rose by 6.7% to $523. As a comparison, the year-over-year inflation rate was 3.0% at that time. During the first half of 2024, sales of MHCs totaled just $1.1 billion, which is on par with sales for the first half of 2023 but about 52% lower than the sales activity for the first half of 2022, according to MSCI Real Assets. This is also lower than the $1.9 billion in sales recorded for the first half of 2020, during the height of the pandemic. We believe that the ongoing elevated interest environment kept sales depressed in the first half of 2024. 8 Multifamily Economic and Market Commentary MHC Sale Price-Per-Site Declined According to data from MSCI Real Assets, MHC sale prices-per-site totaled an estimated $69,000, as of second quarter 2024. This is down 12% from the $78,700 price-per-site in Q1 2023, just five quarters prior."}, {"role": "assistant", "content": "Lending Volume Declining Although not a complete market view, publicly available data combined with third-party vendor data provides insight into financing trends. As shown in the chart to the right, lending volume totaled an estimated $7.3 billion in 2023.This is on par with the $7.3 billion in lending volume in 2022 but down from a record $12.8 billion in 2021. The total lending volume for the first half of 2024 totaled just $2.2 billion, which means that lending volume could fall even further, to perhaps just $4.4 billion for all of 2024. However, with the Federal Reserve poised to cut interest rates, borrowing costs will likely decline, which we think will lead to increased financing of MHC in 2025."}]}
{"messages": [{"role": "user", "content": "The factual framework for this analysis was developed by HUD’s Economic and Market Analysis Division as thoroughly as possible on the basis of information available on the “as-of” date from both local and national sources. As such, they may be modified by subsequent developments. We wish to express our appreciation to those industry sources and government officials who provided data and information on local economic and housing market conditions."}, {"role": "assistant", "content": "This analysis takes into consideration changes in the economic, demographic, and housing inventory characteristics of the market area during three periods: 1990 to to the as-of date of the analysis (“Current date”), and from the Current date to a “Forecast date.” The analysis presents counts and estimates of employment, population, households, and housing inventory, as of the 1990 and 2000 Censuses, the Current date and Forecast date. For the purposes of this analysis the forecast period is 24 months."}]}
{"messages": [{"role": "user", "content": "Analysis of the Janesville-Beloit, Wisconsin Housing Market as of April 1, 2003 Housing Market Area The definition of the Janesville-Beloit, Wisconsin Housing Market Area (HMA) is coterminous with the Janesville-Beloit Metropolitan Statistical Area by the Office of Management and Budget, defined as Rock County. For purposes of this report, the Janesville-Beloit HMA is divided into two submarkets: the city of Janesville, and the remainder of the HMA, referred to in this report as the Remainder. The Janesville-Beloit HMA economy slowed during the 3-year period 2000 through 2002 compared with the previous 3-year period when the unemployment rate was low and employment was increasing. The economic slowdown is reflected in job losses in manufacturing and other sectors of the economy."}, {"role": "assistant", "content": "Demand for new housing in the Janesville-Beloit HMA will remain strong for sales housing, and balanced for rental housing. Demand for new sales housing is strong, due to low mortgage interest rates and increased household growth. The rental market in Janesville and Beloit is expected to remain slightly soft. The rates of population and household growth in the past 3 years have been moderate. The growth is primarily due to an increase in the number of people moving to the area for affordable housing. Increased net migration is primarily from the Madison, Wisconsin metropolitan area (Dane County) and northern Illinois counties. The rates of demographic and economic growth are expected to remain relatively stable during the 2-year forecast period."}]}
{"messages": [{"role": "user", "content": "Recent low mortgage interest rates have had a positive impact on new home construction in Janesville. Since 1998 the median sales price for existing homes in the HMA has averaged $96,600 annually, or $60,000 less than the median sales price of existing homes in Madison. These factors have led to increased home sales and contributed to the softening in the rental market, as renters converted to homeownership."}, {"role": "assistant", "content": "It is estimated that there will be demand in the HMA for 1,150 units of new sales housing and 450 new rental units over the 2-year forecast period."}]}
{"messages": [{"role": "user", "content": "Economy of the Area The economy of the HMA has been dependent on the manufacturing sector. In 2002 manufacturing jobs accounted for 23 percent of the total nonfarm jobs in the area. The economy of the area has slowed recently due to the decline in manufacturing jobs in the HMA and a substantial slowdown in new firms relocating to the HMA. In 2000 the Beloit Corp., manufacturer of papermaking equipment, closed its business, resulting in the loss of 1,200 jobs. In 2002 General Motors transferred work from its Janesville automobile assembly plant to Flint, MI, resulting in the loss of 800 jobs. Despite the job losses, from 1999 through 2002 the economy of the HMA diversified and several employment sectors experienced job growth. From 1992 through 1999, the service- producing sector added 1,025 jobs annually. During the same period, trade, transportation, and utilities accounted for 35 percent of the job gains in the service- producing sector. From 1992 to the Current date, the education and health services sectors increased by 110 persons annually, or an average annual 1.5 percent change. Mercy Health System is the second-largest employer in the HMA, with an estimated 2,350 employees. Household Incomes The median family income in the Janesville-Beloit HMA is estimated to be $58,100 in 2003, a 1.4 percent increase since the 2000 Census. The rate of increase in median family income during the past 3 years has declined significantly compared with the 6.1 percent annual increase between 1990 and 2000, due in part to the loss of high-paying manufacturing jobs. Population As of the 2000 Census, the population of the HMA totaled up 0.9 percent annually from the 1990 Census. The population was estimated to be approximately as of the Current date. Sixty percent of the population increase during the period occurred in the City of Janesville. From 2000 to the Current date, population growth for 4 Analysis of the Janesville-Beloit, Wisconsin Housing Market as of April 1, 2003 the HMA increased an average of 1,225 persons annually."}, {"role": "assistant", "content": "Population gains during the forecast period are expected to continue at a stable rate of 1,200 persons annually. The trends in population and household changes from 1990 through the Forecast date for the HMA and the two submarkets are presented in Table 3."}]}
{"messages": [{"role": "user", "content": "Net in-migration to the HMA, as a result of increased employment opportunities and available affordable housing, significantly contributed to the gains in population. Although some persons moved to the HMA for employment, much of the population increase has been from households who work in the Madison metropolitan area and north central Illinois. Between 1990 and 2000 net in-migration averaged 500 persons a year. The rate of population growth from net in-migration is estimated to have remained stable, at 500 persons annually, from 2000 to April 1, 2003. The rate of net in-migration is forecast to continue at the same level to April 1, 2005. Annual data from the Wisconsin Department of Health and Family Services, Vital Statistics, indicates a relatively stable rate of net natural increase of 780 persons annually during the 1990s. From 2000 through the Current date, net natural increase in the HMA is estimated to have averaged approximately 730 persons annually. The level of net natural change is forecast to be 700 persons annually during the next 2 years. Households Between 1990 and 2000, an average of 640 households a year were added in the HMA. The number of owner households increased by 610, or 95 percent of the total change. From 2000 to the Current date, household growth has remained relatively stable, averaging approximately 650 annually. An estimated 60,600 households are in the HMA as of April 1, 2003. Although the area lost 3,300 jobs from 1999 through the Current date, the area has become a bedroom community, the result of increased household and population growth from persons with high-paying jobs in surrounding areas such as Madison seeking affordable housing in the HMA. The housing market remains relatively strong and even stronger for sales given the lower interest rates. During the next 2 years, the growth of households is expected to increase slightly to an average of 675 annually. It is estimated that more than half, or 350 households, will occur in Janesville, basing estimates on current and prospective residential construction activity. The trends in households from 1990 through the Forecast date for the HMA are presented in Table 3. Housing Inventory In response to the increased demand for housing, as a result of the gains in population and households, the housing inventory since 1990 has grown steadily. From 1990 to 2000 the housing inventory increased to 62,190 units, or an average annual increase of 740, while households increased by 640 annually. The overproduction of 600 units in rental inventory led to an increase in rental vacancies from 4.3 percent in 1990 to 7.3 percent in 2000. As of the Current date an estimated 64,450 housing units are in the HMA, or an average annual change of 750 units since the 2000 Census. The counts of housing 5 Analysis of the Janesville-Beloit, Wisconsin Housing Market as of April 1, 2003 inventory, occupancy, and vacancy by tenure for the 1990 Census and 2000 Census and the Current date are presented in Table 4. Because of job growth through increased economic diversification, and in-migration for affordable housing, a steady shift in demand to homeownership occurred throughout the 1990s. In percent of all households in the HMA were owners; by 2000 the homeownership rate had increased to 71 percent. Most of the single-family permit activity during the 1990s occurred while the national and local economy was strong during the second half of the decade. From 1990 through 1993, single-family production, as measured by building permits, averaged 490 units a year. Beginning in 1994 the demand for new homes began to increase steadily. From that year through 1999 single-family permit activity averaged 640 homes annually. The recession of 2000 and subsequent slow job growth reduced homebuilding activity during the past 3 years, only slightly. While the slow economy has reduced demand, low interest rates and lower sales prices in the HMA compared with Madison have kept activity relatively high. Building activity in the HMA, as measured by permits, has averaged 590 single-family homes a year, between 2000 and the Current date. More than half of the homebuilding activity in the past 3 years in the HMA occurred in the City of Janesville where buildable land is available. The level of single-family home construction of recent years is expected to continue during the forecast period due to the relative affordability of homes in the HMA. The trends in building permit activity in the HMA from 1990 to the Current date for single-family and multifamily housing are presented in Table 5. Housing Vacancy As of 1990 the sales vacancy rate was 1.3 percent in the HMA and 1.0 percent in the City of Janesville. By 2000 the sales vacancy rate increased to 1.4 percent in the HMA and 1.3 percent in Janesville as a result of the housing inventory increasing faster than household growth. As of the Current date sales vacancy rates are little changed from 2000: sales vacancy is 1.1 percent in the HMA and 1.5 percent in Janesville. Between 1990 and 2000 the rental vacancy rate increased from 4 percent to more than 7 percent in the HMA. The increase was the result of increased multifamily overproduction. The rental vacancy rate has increased to an estimated 8 percent as of the Current date. This subsequent increase is the result of both the prior increase in multifamily production and a decline in renter demand due to the economic slowdown and shift of a significant number of renter households that have become homeowners due to low mortgage interest rates. Sales Market Conditions The market for sales housing since 2000 has been fairly strong. Affordable sales prices and low interest rates continue to fuel demand. Conditions have remained strong for both new and existing homes despite the economic slowdown. From 1998 through 2002, sales for new and existing homes in the HMA have averaged 1,750 annually. During the 6 Analysis of the Janesville-Beloit, Wisconsin Housing Market as of April 1, 2003 period, the median sales price of existing homes has risen steadily from $90,000 to or a 3.5 percent average annual change. The shift in demand toward sales housing has led to a tight single-family market and increased housing production. Sales in the 12 months ending March 2003 totaled 1,950 homes, a 13 percent increase over the same period a year earlier. The median sales price for existing homes during the most recent 12 months was . Both the South Central Wisconsin Multiple Listing Service and the Madison Area Builders Association estimate that the average price of new homes in the HMA during the past 12 months is approximately compared with an average price in the Madison area of more than . Rental Market Conditions Conditions in the Janesville HMA rental market are balanced with softness noted in some segments of the market. The current vacancy rate in the HMA is estimated to be 8 percent. The rental vacancy rate in the City of Janesville is estimated to be 9 percent currently and conditions are softer than in the Remainder of the HMA. The high vacancy rate in Janesville reflects a less competitive position of the older stock as well as the increase in new units in the north and northeastern parts of the city, where most of the production has occurred."}, {"role": "assistant", "content": "Rent concessions of 1 to 2 months’ free rent are offered throughout Janesville. Current gross rent for new apartments in the HMA are $585 for a one-bedroom unit, $675 for a two-bedroom unit, and $750 for a three-bedroom unit. The softer conditions in Janesville are anticipated to continue through the forecast period given the anticipated levels of production. There are 200 units of rental housing planned in both Janesville and Beloit during the next 24 months. Several local apartment developers indicated that absorption of new units has been moderate, averaging seven units a month."}]}
{"messages": [{"role": "user", "content": "While the conditions are soft in the market-rate segment of the rental market, conditions in the market for “affordable” and “federally assisted” rentals are balanced. As of the Current date, an estimated 2,500 units of federally assisted rental housing were in the HMA, according to the Wisconsin Housing and Economic Development Authority. Occupancy rates in assisted housing developments average 94 percent, and a 96 percent utilization rate is in Section 8 Housing Choice Vouchers."}, {"role": "assistant", "content": "Forecast Housing Demand Based on anticipated household growth and current market conditions, estimates indicate that a demand for new housing will be approximately 1,600 units during the 2-year forecast period ending March 2005. Demand in the HMA would best be met by the construction of 575 units of sales housing and 225 market-rate rental units annually. This level of construction would maintain a balance in demand-supply conditions in the sales market and help to bring the rental market in balance during the forecast period. Sales housing demand is expected to continue to increase as a proportion of total demand based 7 The REALTORS® Association of South Central Wisconsin anticipates that much of the demand for new single-family homes will be priced under . It is expected that almost all 575 units of owner demand will be for single-family homes and a minimal number for condominiums."}]}
{"messages": [{"role": "user", "content": "Secondary office assets have already seen sharply lower pricing due to rising vacancies, as hybrid working arrangements now appear permanent. Once interest rates begin to fall and inflation eases further, rehabilitation or conversion of underperforming office buildings to other uses will become more attractive and financially viable. This process will receive substantially more state and local government aid in 2024."}, {"role": "assistant", "content": "2024 Economy & Policy"}]}
{"messages": [{"role": "user", "content": "2024 Despite easing inflation, the U.S. economy will face cer- tain headwinds in early 2024, including relatively high interest rates, a strong dollar, near recessions in Europe and China and continued geopolitical conflicts. Resilience will come from the U.S. consumer, so often the mainstay of the global economy. Consumer balance sheets are strong and wage growth will outstrip inflation for at least the first half of 2024. As a result, spending on services such as health, leisure and hospitality will provide vitality and There is an increased chance that the U.S. will avoid a recession and achieve a soft landing in 2024."}, {"role": "assistant", "content": "There will be an economic slowdown and downside risks will be elevated but the unemployment rate will rise to only around 4.5%, which won’t materially weaken real estate fundamentals except in the office sector."}]}
{"messages": [{"role": "user", "content": "2024 The inflation rate will start the year at around 4% but fall steadily to around 2.7% by year-end. A weaker global economy will keep commodity prices muted, while a return to pre-pandemic supply chain efficien- cy will buoy the auto industry and an increase in labor supply will temper wage growth to more sustainable levels. Core inflation could even surprise on the downside due to tight credit conditions and broad- er weakness in the global economy. Upside risks to headline inflation include geopolitical conflicts and oil production cuts. Construction cost growth that has been limiting new development will ease in 2024."}, {"role": "assistant", "content": "2024 Despite the risk of higher headline inflation if oil prices rise in 2024, the U.S. Federal Reserve will mainly focus on core inflation, which excludes food and energy prices, and the broader risks from the global economy and the banking sector. The Fed will reduce short-term interest rates to around 4.25% by year-end 2024 and to 3.5% in 2025. This would be a much slower pace than during previous rate-reduction cycles due to the resilience of the U.S. economy. If the downside risks materialize, the Fed can lower rates more quickly due to the decline in inflation. Gently falling interest rates amid generally solid real es- tate fundamentals will revive real estate capital markets activity above its currently very depressed levels. How- ever, the federal deficit, which ended fiscal year 2023 at 7.5% of GDP, likely will not be reduced by much in 2024, keeping the 10-year Treasury yield high relative to the past decade, even as inflation eases. 2024 Capital Markets 2024 We expect that commercial real estate investment activity will begin to pick up in the second half of 2024, although an uncertain macro environment and elevated interest rates will continue to weigh on investor and lender sentiment. We also expect losses in the banking sector due to decreases in real estate values. Even though charge-offs will be spread out over the course of the next several years, some banks will fail and their appetite to lend to commercial real estate will remain muted throughout 2024. It will remain extremely difficult to finance office properties, particularly for non-Class A assets. Select multifamily, industrial and grocery-anchored retail as- sets can still be financed but asset quality and existing relationships with borrowers will be key considerations for lenders. Notable amounts of equity capital remained on the side- lines at the end of 2023, particularly for value-add and opportunistic strategies. We expect that some of this capital will be deployed throughout 2024. 2024 Real estate values for most property types are unlikely to fully stabilize until mid-2024. Cap rates, excluding those for office assets, increased by roughly 150 basis points (bps) between early 2022 and late 2023 depend- ing on market and asset type. Office cap rates rose by at least 200 bps. This implies a 20% decline in values for most property types. We think cap rates will expand by another 25 to 50 bps in 2024, with a corresponding 5% to 15% decrease in values. 2024 Multifamily and industrial assets will be most favored by investors in 2024. Both property types have relatively strong fundamentals (demand, vacancy, rent growth, etc.) and long-term tailwinds that bolster their attrac- tiveness. Retail fundamentals also look strong, although the sector will inevitably suffer from a slowing econo- my. The higher-for-longer outlook for interest rates will cause some owners of Class B and C office assets to sell due to further erosion in values. There will be notable opportunities in 2024 for all-cash buyers such as sovereign wealth funds and endow- ments, as the higher cost of debt capital will reduce competition for prime assets. A large amount of capital has been raised in the private credit market for oppor- tunistic investments, as traditional sources of credit— particularly banks—pull back. We expect that the lowest pricing for assets will be during the first half of the year. 2024 Total investment volume is expected to decrease by only 5% year-over-year in 2024, stabilizing after a 45% drop in 2023. Lower levels of investment activity are directly tied to expectations that the 10-year Treasury yield will remain elevated throughout the year. This will lead to some distress for Class B and C office buildings and for certain assets that were highly leveraged using floating-rate debt amid ultra-low rates. However, CBRE Research forecasts an average 10-year Treasury yield of 3.3% from 2025 to 2028, which will support investment activity and asset prices over the medium term. 2024 — Cap rates will continue to rise through midyear and stabilize thereafter, marking a trough in asset pricing. — Industrial and multifamily assets will likely remain most favored by investors due to relatively strong fundamentals. Office/Occupier 2024 An economic slowdown in the first half of the year and the normalization of hybrid working arrangements will continue to limit office demand in 2024. CBRE forecasts that the overall office vacancy rate will peak at 19.8% by year-end as below-average leasing activity persists and new construction deliveries continue to come to market, albeit at a slower pace. More than half of the respondents to CBRE’s 2023 U.S. Office Occupier Sentiment Survey said they plan to further reduce their office space in 2024. The flight-to-quality trend of recent years will continue to support demand for newer, prime office product with the best amenities. Since 2017, absorption in newer post-2010 assets has been positive and we expect this will continue in 2024. For pre-2010 buildings, absorption has been negative for the past four quarters. Quarterly demand for post-2010 buildings is expected to begin outpacing new supply added to the market by Q4 2024. A recent increase in tenants that are actively looking for space across major markets suggests that leasing activity will rise by 5% in 2024 but will remain between 20% and 25% below pre-pandemic levels. 2024 High interest rates and limited demand, along with re- cord-high vacancy, will deter developers from breaking ground in 2024. The 36.1 million sq. ft. in total construc- tion completions expected in 2024 would be the lowest annual amount since 2014. CBRE forecasts that average prime office asking rent will increase by as much as 3%, a slower rate than in recent years. However, the shrink- ing supply pipeline is expected to improve office funda- mentals and reduce supply-side risk to vacancy. Nearly 40% of respondents to CBRE’s 2023 U.S. Office Occupier Sentiment Survey think office utilization will increase marginally in 2024, while 60% said they have already reached a steady state of office attendance. This suggests that more occupiers will be comfortable making long-term leasing decisions, resulting in a mod- est improvement in leasing activity. Small occupiers with requirements of less than 20,000 sq. ft. made up 60% of leasing volume by count through Q3 2023 and will continue to account for the bulk of leasing activity. Smaller space requirements will boost the flexible office market, with more landlords offering flexible space options, such as pre-built spec suites, directly to tenants rather than through third-party oper- ators. Tenant-favorable market conditions will persist in 2024, as the margin between asking and taking rents reached a post-pandemic-era high in 2023. However, the spread is expected to narrow slightly in 2024, as asking rents are forecast to drop by 3.4% from their Q3 2023 aver- age. Concessions in the form of free rent and tenant improvement allowances are expected to moderate in 2024 as asking rents decrease."}]}
{"messages": [{"role": "user", "content": "2024 Office location, quality, flexibility and amenities will be more important than ever to attract occupiers. While economic headwinds and the prevalence of hybrid work- ing will play a major role in occupiers’ decisions in 2024, those that do lease space will flock to submarkets with an abundance of walkable amenities that help attract and retain the best talent. Hard-hit gateway markets, such as Manhattan, Los Angeles and Chicago, may recover at a faster pace than previous years and see increased demand in certain submarkets with a higher percentage of prime office space and amenities. CBRE surveys show that public transportation access is the most important building amenity for occupiers. To increase office attendance, companies will need to offer employees top-notch ame- nities both in and around the workplace, boosting de- mand in the most desirable and accessible submarkets."}, {"role": "assistant", "content": "2024 Many older buildings that lack modern amenities will struggle to attract tenants in 2024, so a higher percent- age of them likely will undergo conversion to other uses. As of Q3 2023, approximately 8% of total U.S. office supply by square footage was less than 50% occupied. Even though vacancy is forecast to grow another 160 bps in 2024, we do not expect this statistic to materially change."}]}
{"messages": [{"role": "user", "content": "2024 Nashville The market has seen five consecutive quarters of positive net absorption through Q3 2023, which has bolstered rent growth. Office em- ployment grew by 4.2% in 2023, well above the 1.2% national average."}, {"role": "assistant", "content": "Demand for newly deliv- ered prime office space is expected to remain strong."}]}
{"messages": [{"role": "user", "content": "Miami Average asking rent increased by 6.0% year- over-year in Q3 2023—one of the highest rates in the country. A wave of new-to-market ten- ants led to positive rolling-four-quarter net absorption through Q3 2023 and a 1.8-percent- age-point drop in the vacancy rate. For these reasons, Miami’s office market is expected to remain healthy in 2024. Las Vegas The 4.5% year-over-year growth in office-using employment in Q3 2023 was fueled by an influx of companies that have either relocated or ex- panded due to the business friendly and favor- able tax environment. Las Vegas recorded posi- tive rolling four-quarter net absorption through Q3 2023. With a recent uptick in leasing activity and strong preleasing at planned speculative projects , the Las Vegas office market is poised for further growth in 2024."}, {"role": "assistant", "content": "2024 Retail 2024 Retail real estate fundamentals are expected to remain strong in 2024 due to the long-running dearth of new construction deliveries over the past several years. The retail availability rate is expected to fall by 20 basis points and end the year at 4.6%. Asking rent growth will dip below 2% for the first three quarters of 2024 but rise above 2% in Q4. Demand for open-air suburban retail centers will increase at a faster pace than other retail formats, as traditionally mall-based retailers explore new formats for expansion. High costs in 2023 discouraged construction starts and will ensure the scarcity of new development deliveries in 2024. Quoted construction costs currently range from $300 per sq. ft. for a junior anchor box to $500 per sq. ft. for a multi-tenant pad site. Only a few markets can demand asking rents that are high enough to justify the new construction. CBRE’s Cost Consultancy Group re- ports that retail construction costs rose by 6.5% in 2023 and are expected to increase further in 2024, albeit at a slower rate. Only a few markets can command asking rents that are high enough to justify new construction. 2024 Consumers will face certain headwinds in 2024, includ- ing a lack of affordable housing, high interest rates and the resumption of student-loan payments. The National Association of Realtors Home Affordability Index fell to a 29-month low in August 2023, while the Federal Reserve Bank of New York estimates almost $1.6 trillion of outstanding student-loan debt. This likely will curb discretionary consumer spending in coming years. CBRE Research forecasts that retail sales growth will moderate to around 2.6% in 2024. Asking rent growth is expected to decrease in early 2024 but rebound in the second half of the year. 2024 Net absorption of retail space is expected to fall to 28 million sq. ft. in 2024 from 35 million sq. ft. in 2023. Nev- ertheless, the retail availability rate is expected to reach a record-low 4.6% due to a lack of new supply. Only 14 million sq. ft. of new multi-tenant retail space is sched- uled for delivery in 2024—half the amount of projected demand. 2024 Luxury brands that once focused only on space in high-street districts such as Beverly Hills’ Rodeo Drive, New York’s Fifth Avenue and Miami’s Design District are taking fresh looks at resort markets like Las Vegas, Hono- lulu, Charleston and West Palm Beach. With a slowing Chinese economy, expansion-mind- ed luxury retailers will return to the U.S. for expansion. Texas markets like Dallas and Houston that have long been underserved by high-end brands will see new interest. Luxury Brands Look Farther Afield Demand for open- air suburban retail centers will increase at a faster pace than other retail formats, as traditionally mall- based retailers explore new formats for expansion."}]}
{"messages": [{"role": "user", "content": "2024 Orlando Year-to-date through Q3 2023, Orlando led all U.S. markets with over 2 million sq. ft. of net absorption, lowering its retail availability rate to just 3.5%. San Francisco Despite a hobbled downtown market, Greater San Francisco, which includes Marin and San Mateo counties, is projected to have one of the largest drops in overall retail availability in 2024 due to continued tech job growth."}, {"role": "assistant", "content": "Industrial & Logistics"}]}
{"messages": [{"role": "user", "content": "2024 The U.S. industrial market is expected to stabilize in 2024, with net absorption on par with 2023 levels and taking rent growth moderating to 8%. Construc- tion deliveries will taper off by midyear and finish at half of 2023’s total. New deliveries in the early part of the year will cause the overall vacancy rate to rise to around the 10-year average of 5.0% before falling slightly in the second half of the year. New develop- ment will remain low for the foreseeable future due to tight lending conditions, economic uncertainty and an oversupply of large warehouse and distribution facilities in certain markets."}, {"role": "assistant", "content": "Annual leasing activity should remain around 750 million sq. ft. for the next several years at least. Lease renewals will dominate total activity in the first half of 2024, but new leasing may increase in the second half of the year if economic growth improves. Three demand drivers will affect occupier decision-mak- ing: supply chain resiliency, e-commerce growth and population growth."}]}
{"messages": [{"role": "user", "content": "2024 Occupiers are focused on strengthening their supply chains by adding more import locations, onshoring or nearshoring more manufacturing operations and ad- equately staffing their distribution centers. Look for companies to explore alternative seaport and airport markets to hold more inventory. Strong demand for manufacturing and distribution facilities will be sus- tained by a projected 7.5% increase in U.S. industrial production over the next five years, according to Ox- ford Economics. Well-trained, affordable and available labor will remain an important factor in site selection. Markets with labor pools that meet these criteria in- clude Memphis, the PA I-78/81 Corridor, Indianapolis, Louisville, the Inland Empire and Savannah."}, {"role": "assistant", "content": "E-commerce will continue its slow steady growth over the next decade, leading retailers and their sup- pliers to add more warehouse and distribution space. This will be particularly prevalent in the U.S. South, with many growing population centers. 2024 With pandemic-driven demand waning, occupiers will focus more on energy savings for their facilities. Requirements for sustainable energy sources like solar and wind will grow in 2024. Commercial use of solar panels, for example, is expected to grow by 13% in 2024, according to the Solar Energy Industries Association. 2024 Central Texas Austin and San Antonio will continue to merge into one large industrial market, with robust logistics advantages, a growing population and a burgeoning manufacturing sector. Salt Lake City The Mountain West is expected to overtake the Southwest as the top western region for popu- lation growth, further solidifying Salt Lake City as the region’s primary distribution hub."}]}
{"messages": [{"role": "user", "content": "Central Florida This region checks all the boxes for occupiers, with strong population growth, excellent logis- tics drivers and one of the most attractive labor markets in the country."}, {"role": "assistant", "content": "The biggest wave of new apartment supply in decades will temper rent growth and improve affordability for renters in 2024. With delivery of new units ex- pected in 2024 and more than currently under construction, the overall vacancy rate is expected to rise and rent growth to decelerate."}]}
{"messages": [{"role": "user", "content": "Of the 69 markets tracked by CBRE, 17 are poised to grow their inventories by more than 7% in 2024 and 2025. Construction completions have already peaked in several markets, including Chicago, Washington, D.C. and Las Vegas. Completions will peak in most other markets in 2024."}, {"role": "assistant", "content": "We expect weaker average rent growth of 1.2% in 2024. Supply headwinds limited recent record rent growth to just 0.7% year-over-year in Q3 2023."}]}
{"messages": [{"role": "user", "content": "Despite near-term economic weakness and vacancy rates that will rise further above their pre-pandemic averages in 2024, enough demand should keep the aver- age occupancy rate above 94%. Markets with the largest supply pipelines (e.g., Austin, Dallas, Nashville and Atlanta) have the highest job growth projections."}, {"role": "assistant", "content": "2024 Multifamily real estate is playing a more important role in alleviat- ing a severe shortage (at least 3.1 million) of single-family homes that is contributing to homeownership challenges, particularly in a high-interest-rate environment. The premium for an average monthly mortgage payment of a newly purchased home vs. average monthly rent is expected to remain above 35% in 2024 versus 52% in 2023. Multifamily construction starts are down substantially in response to overall weakening fundamentals and the rapid increase in interest rates. We expect starts will fall by 45% in 2024 from their pre-pandemic average and by 70% from their 2022 peak. This decline in starts means that new deliveries will be reduced to less than half the current level by 2026, paving the way for a strong recovery in both occupancy and rent growth. In the near-term, rent growth and occupancy will remain strongest in the Midwest and Northeast regions, as well as the mature urban hubs of New York, Boston, Chicago and Washington, D.C. Many of these markets had more modest rent growth in 2021 than those in the Sun Belt and Mountain regions and have less supply pressure. Although many markets in the Mountain and Sun Belt regions are expected to continue having negative rent growth through mid- 2024, this should bolster rental demand by attracting in-migration. Many of the markets struggling with imbalanced supply and demand are expected to outperform in the long-term. Local and regional economic drivers will continue to favor large secondary markets across the Sun Belt, as well as most large coastal markets. 2024 Softer fundamentals and higher borrowing costs have negatively affected property values and created significant buying opportunities for investors. With investment activity expected to remain muted in 2024, investors have an opportunity to consider their longer-term investment strategy. A typical five-to- seven-year hold period implies they could market these assets to a buyer with a similar investment horizon. The Midwest and Northeast regions offer the best opportunity for positive leverage in 2024. With cap rates typically 25 to 50 basis points higher than else- where and with stronger rent growth expected next year, buyers in these two regions can more easily underwrite to positive leverage. Cap rates are nearing their peak, so the window for favorable pricing oppor- tunities won’t last long. Local regulatory environments (e.g., rent control poli- cies) and other factors like climate risks, public safety and infrastructure are becoming more important con- siderations for multifamily investors. Market selection and underwriting are becoming more complicated. The recent increase in both cost and availability of real estate insurance for some coastal states high- lights the growing importance of these long-term factors for buyers, sellers and lenders. 2024 Midwest/Northeast Supply-and-demand dynamics across the Midwest and Northeast are expected to remain balanced in 2024. This will support rent growth throughout the year, while many markets facing supply pressures will have several quarters of negative rent growth. San Diego Supply growth remains muted, averaging only 3.1% over the past two years and forecast at just 2.4% in 2024. Strong demand-side fundamentals like high-quality and durable life sciences jobs will help San Diego outper- form the overall market next year. Boston Market fundamentals are buoyed by the growing tech and life sciences sectors, as well as a limited construc- tion pipeline. Balanced fundamentals will support rent growth throughout 2024."}]}
{"messages": [{"role": "user", "content": "New York City The post-pandemic resurgence of New York’s multi- family market is expected to continue in 2024. With one of the lowest overall vacancy rates in the country, it's clear developers have struggled to keep pace with renter demand as the city continues to add jobs and residents."}, {"role": "assistant", "content": "Dallas Even as the pace of new supply lowers rent growth, Dallas has remained the biggest multifamily investment market over the past several years. Additionally, it is the largest market with the lowest average prime multi- family cap rate. These trends are expected to continue, making Dallas the most liquid market for multifamily property investment in 2024. Given the prevailing headwinds, CBRE expects RevPAR growth of just 3.0% in 2024, supported by a 40-ba- sis-point increase in occupancy and a 2.3% increase in ADR. Urban hotels are expected to outperform in 2024, while airport hotels will benefit from the increase in inbound international travelers. Resort properties, which were a bright spot during the pandemic and benefited from outbound international travel constraints, are ex- pected to see the slowest growth. 2024 On average during economic downturns, RevPAR falls less and recovers more quickly in the up- per-midscale chain scale than in other chain scales as guests trade down. We expect this will be the case in 2024 as the U.S. experiences an economic slowdown."}]}
{"messages": [{"role": "user", "content": "With a forecast of 3.0% overall RevPAR growth in 2024, we expect that margins, profits and cash flows will fall due to wage inflation, higher food & beverage and non-operating costs, increased renovation costs and high interest rates."}, {"role": "assistant", "content": "Hotel cap rates averaged 8.0% in Q3 2023, while the average hotel CMBS loan carried an 8.4% interest rate. This spread between hotel cap rates and borrowing costs is narrower than other real estate classes, making hotel assets relatively attractive. Nonetheless, heightened risks to RevPAR growth, an expected decline in profits, deferred capex and higher cost of cap- ital will result in less hotel investment activity. We expect trophy assets, newer select-service assets in markets with modest supply growth and hotels focused on group travel in markets with a solid mix of business and leisure demand will be the most attractive for investors. Investment Activity Will Remain Muted 2024 Baseline Forecast 2024 Downside Forecast RevPAR (Growth) 3.00% -5.20% ADR (Growth) 2.30% -3.30% Occupancy 0.70% -2.00% Margins* 35.7% 33.6% Valuation (price per key)* With a forecast of 3.0% overall RevPAR growth in 2024, we expect that margins, profits and cash flows will fall due to wage inflation, higher food & beverage and non-operating costs, increased renovation costs and high interest rates. 2024 Los Angeles The local hotel industry should see a boost from more Asian visitors and an end to the strike by entertainment workers. San Diego Group travel to the city is expected to improve due to resurgent convention business and the 17% increase in government per diems in 2024. The data center industry is undergoing significant transformation that is making it an attractive invest- ment opportunity. Historically, data centers were predominately utilized for hard drive storage, comput- ing and network connectivity. While these traditional uses remain, data centers now incorporate new appli- cations like artificial intelligence and machine learning, high-performance computing for genome sequencing or high-frequency trading, as well as other more effi- cient cloud-based solutions."}]}
{"messages": [{"role": "user", "content": "Data center pricing continues to rise due to limited supply and strong demand."}, {"role": "assistant", "content": "Following a projected 16% year-over-year increase in pric- ing for 250-to-500-kW requirements in 2023, we expect another 10% to 15% pricing increase in 2024. This is due to supply constraints and continued strong demand across all markets. Operators may be willing to lower lease pric- ing for legacy assets with vacancy, but this discount will not apply to artificial intelligence workloads that require high power density. Demand for new data center development likely will attract more institutional investment in 2024, as investors are under-allocated to digital infrastructure by 1.5% to 3% compared with other asset classes. Power supply in primary markets increased by 19.2% year-over-year in H1-2023, leading to a 25% increase in new data center construction activity. We expect con- struction activity in primary markets to surpass 3,000 MW in 2024. Construction completion timelines have been extended by 24 to 72 months due to power supply delays. We believe that Austin-San An- tonio and Omaha will continue to see significant interest from investors and developers due to land availability, power infrastructure develop- ment and tax incentives. 2024 As AI becomes more prevalent, there will be an increased need for high-bandwidth network connections to facilitate higher data transfer rates. Large Language Models (LLMs) used in generative AI will require significantly more network bandwidth than currently exists. Major cloud-service providers are becoming more interested in less-expensive rural areas to provide their clients with AI training solutions, although many of these sites require new fiber connectivity. 2024 Northern Virginia This will remain the top market in North America for new supply. 2024"}]}
{"messages": [{"role": "user", "content": "Analysis of the Madison, Wisconsin Housing Market as of October 1, 2003 Foreword This analysis has been prepared for the assistance and guidance of the U.S. The factual information, findings, and conclusions also may be useful to builders, mortgagees, and others concerned with local housing market conditions and trends. The analysis does not purport to make determinations regarding the acceptability of any particular mortgage insurance proposals that may be under consideration in a particular locality or the housing market area. The factual framework for this analysis follows the guidelines developed by HUD’s Economic and Market Analysis Division. The analysis and findings are as thorough and current as possible based on information available on the “as-of” date from both local and national sources. As such, any findings or conclusions may be modified by subsequent developments. HUD wishes to express its appreciation to those industry sources and state and local government officials who provided data and information on local economic and housing market conditions."}, {"role": "assistant", "content": "This analysis takes into consideration changes in the economic, demographic, and housing inventory characteristics of the market area during three periods: from 1990 to 2000, from 2000 to the as-of date of the analysis (Current date), and from the Current date to a Forecast date. The analysis presents counts and estimates of employment, population, households, and housing inventory as of the 1990 Census, 2000 Census, Current date, and Forecast date. For the purposes of this analysis the forecast period is 24 months."}]}
{"messages": [{"role": "user", "content": "Analysis of the Madison, Wisconsin Housing Market as of October 1, 2003 Housing Market Area The Madison, Wisconsin Housing Market Area (HMA) is defined as the Madison Metropolitan Statistical Area and includes Dane County in its entirety. For purposes of this analysis, the HMA has been divided into two submarkets, the City of Madison and the remainder of Dane County, referred to in this report as the Remainder of the HMA. Summary The Madison HMA has a diverse and vital economy that has registered strong, steady job growth since 1990. Between 1990 and 2000, resident employment increased by an average of 4,950 annually, or 2.3 percent. Since 2000, resident employment has grown by 6,900 annually. In 2002, the unemployment rate was at 2.7 percent. The population of the HMA has increased at an annual rate of 1.6 percent since 1990 to total as of the Current date. In-migration has been responsible for slightly more than half of the increase in population. Since 1990, the number of households has increased at an annual rate of 2.1 percent, with households reaching as of the Current date. As a result of a strong job market and historically low home mortgage interest rates, the percent of owner-occupied units increased from 55 percent in 1990 to 59 percent as of October 1, 2003. Conditions in the Madison HMA sales market continue to be very strong for both new and existing homes. Economy of the Area The Madison HMA has a diverse and growing economy. Government and education, however, are still the major forces of the local economy. Madison is the home of the state capital and the University of Wisconsin, which together are responsible for about a quarter of the jobs in the HMA. Nearly 8 percent of the employment in the area is in high technology. The University of Wisconsin has the third highest research expenditure of any university in the nation, more than $370 million annually. In June 2003, a university- commissioned study estimated that the annual economic impact of the university on the local economy was $4.3 billion. From 1990 to 2000, total resident employment increased at a rate of 2.3 percent annually. Resident employment has increased every year since 1990, with the exception of 1999, when the number of persons employed in the HMA declined by 2,500. During the first half of the 1990s, the unemployment rate was between 2.1 and 2.4 percent. Throughout the second half of the decade, the unemployment rate was less than 2.0 percent, reaching a low of 1.4 percent in 1999. Between 1990 and 2000, resident employment increased annually by 4,950, a rate of 2.3 percent. Between 2000 and 2002, employment increased by 6,900 annually, or a rate of 2.6 percent. During the most recent 12-month period, employment has increased by 10,400 jobs. The unemployment rate during the 12 months 3 Population Between 1990 and 2000, the population in the Madison HMA increased at an annual rate of 1.6 percent, with a population of in 2000. Since that time, population has continued growing at the same 1.6-percent rate, reaching an estimated persons as of October 1, 2003. During the 1990s, the City of Madison grew at a rate of 0.9 percent, increasing to persons; over this same period, the population for the Remainder of the HMA grew by 2.4 percent, reaching persons in 2000. As of the Current date, it is estimated that the population in the City of Madison is and the population in the Remainder of the HMA totals persons. During the 1990s, net natural increase (resident births minus resident deaths) accounted for 46 percent of the population increase in the HMA; in-migration was responsible for the rest of the growth. Between 2000 and the Current date, net natural increase accounted for 42 percent of the population growth for the HMA. The University of Wisconsin, whose main campus is located in the City of Madison, has had only modest increases in enrollment during the past several years. Student enrollment as of the Current date stands at approximately 41,600 students, compared with 41,300 students in 2000. Approximately 11,000 students live on campus in various types of student housing. Table 3 presents population change trends from 1990 to the Forecast date for the HMA and the two submarkets. Analysis of the Madison, Wisconsin Housing Market as of October 1, 2003 Households Growth in the number of households parallels growing employment. The number of households has increased at a faster rate than the population. As a result, average household size in the HMA dropped from 2.46 in 1990 to 2.31 as of the Current date. Since 1990, the number of households in the HMA has been growing at an annual rate of 2.1 percent. Households in the HMA increased from in 1990 to in 2000. As of the Current date, households are in the HMA. Approximately 60 percent of the increase in households since 1990 has occurred in the Remainder of the HMA."}, {"role": "assistant", "content": "This proportion is expected to remain the same through the forecast period. It is estimated that approximately 9,000 households, or slightly less than 5 percent of all households in the HMA, are composed solely of university students. Table 3 presents trends in households from 1990 through the Forecast date for the HMA and the two submarkets. Housing Inventory Since 1990, the healthy economy of the Madison HMA has led to substantial increases in household growth and demand for new housing. As of the Current date, the HMA has housing units. Between 1990 and 2000, the number of housing units increased 3,205 annually, or a rate of 2.2 percent. Since 2000, the inventory has increased by 4,230 units annually. As of the Current date, an estimated occupied housing units are in the HMA. Of an estimated 8,900 vacant units, 6,225 are available for sale or rent, with the remaining 2,675 units being kept off the market for various reasons. In 1990, housing tenure was 55 percent owner and 45 percent renter. It is estimated that as of the Current date, ownership has increased to nearly 59 percent. Table 4 presents trends in housing inventory, tenure of occupancy, and housing vacancy from 1990 to the Current date. Multifamily building permit activity between 1990 and 1999 averaged 1,550 units annually. The level of activity increased to an average of 2,150 units a year between 2000 and the Current date. The increase in construction was the result of low interest rates and a strong real estate lending market. Since 2000, nearly 60 percent of the multifamily permits were issued in the City of Madison. The cities of Fitchburg, Middleton, Sun Prairie, and Verona account for the bulk of the remaining multifamily permits. Since 1990, approximately 15 percent of the multifamily units built in the City of Madison have been condominiums, many of which are located in the downtown area. Table 5 presents 5"}]}
{"messages": [{"role": "user", "content": "Analysis of the Madison, Wisconsin Housing Market as of October 1, 2003 trends in building permit activity from 1990 through the Current date for single-family and multifamily housing in the HMA and both submarkets. Housing Vacancy The healthy local economy and low mortgage interest rates have resulted in a strong sales market for single-family homes. The sales vacancy rate for the HMA in 1990 was 0.8 percent; this rate increased slightly to 1.0 in 2000, which is also the estimated current sales vacancy rate. The rental vacancy rate, which was 4.2 percent at the time of the 2000 Census, has risen to an estimated rate of 6.3 percent in the HMA and 7 percent in the City of Madison. Sales Market Conditions Conditions in the Madison HMA sales market continue to be very strong for both new and existing homes. According to the Realtors® Association of South Central Wisconsin, between 1997 and 2002, on average, 4,750 homes were sold annually in the HMA. During 2002, a record 5,226 homes were sold. In the first 9 months of 2003, sales reached 4,316, on pace to set a new record. The median sales price has increased from in 1997 to in 2002, an annual increase of 5.7 percent. According to the Madison Area Builders Association, the average cost for a typical single-family home built in the HMA during 2002 was approximately . Very few homes larger than 3,500 square feet are being built. The condominium market is strong with new projects being built in Madison and surrounding suburbs such as Fitchburg. Prices start at with some units selling for more than . As housing prices in the City of Madison continue to increase, many first-time homebuyers who work in the City of Madison are purchasing homes in the Remainder of the HMA or in adjacent counties. The 2000 Census indicates that 37,000 people commuted into the HMA from other counties such as Rock County. According to data from the South Central Multiple Listing Service, the median sales price in the HMA in 2002 was compared with in Columbia County and less than in Rock County. Rental Market Conditions The rental market has historically had a very low vacancy rate. A recent surge in the construction of new rental projects, along with a number of former renters taking advantage of low mortgage interest rates to purchase homes, has caused the vacancy rate in several locations to rise. Despite certain rental projects and areas experiencing double- digit vacancy rates, the overall rental market is balanced. At the time of the 1990 Census, the rental vacancy rate in the HMA was 3.7 percent, and conditions throughout much of the market were very tight. As of the 2000 Census, the vacancy rate had increased to 4.2 percent, and the market remained tight. The University of Wisconsin has not increased its on-campus housing stock since 1986, while enrollment has increased at a modest but 6 Beginning in 2000, multifamily building activity increased in the HMA. Between 1990 and 1999, multifamily construction, as measured by building permits, averaged 1,550 units, half of which were in the City of Madison. Since 2000, multifamily building activity has increased to 2,150 units annually, while the city’s rental inventory has increased by 1,275 units each year. Because of the increase, the vacancy rate has risen above its historical low average. Madison Gas & Electric conducts a quarterly survey that estimates the number of vacant rental units. The survey covers only larger apartment buildings and thus does not include the entire rental inventory. The surveys indicate the vacancy rate increasing steadily since 2000. During the first quarter of 2000, the rate was 3.4 percent; this increased to 5.8 percent during the third quarter of 2003."}, {"role": "assistant", "content": "The completion of several large rental developments in the City of Madison and the Remainder of the HMA is the primary cause of the recent increase in the rental vacancy rate. A contributing factor is the low home mortgage interest rates that have caused former renting households to purchase a home. In the downtown area, many older rental properties that typically are rented by students are experiencing vacancies for the first time in years. In the suburban areas, newer higher end projects are experiencing difficulty maintaining full occupancy. The strong, diverse economy should continue to create jobs and result in continued demand for rental units. Units currently under construction and those in the later stages of planning should result in a rental market that will continue to be balanced over the forecast period. Forecast Housing Demand Based on anticipated household growth and current market conditions, it is projected that there will be a demand for an estimated 8,100 new housing units during the 2-year forecast period ending October 1, 2005. Sales housing will account for 5,700 units of the total demand. The continued growth in employment along with historically low mortgage interest rates should result in a continued tenure shift from rental to homeownership and keep demand for new sales housing strong. For rental housing, demand during the forecast period will be 2,400 units. Annual demand is projected for 480 one-bedroom units with monthly gross rents starting at two-bedroom units with gross rents beginning at $700, and 120 three-bedroom units with rents starting at $850. Table 6 presents detailed data on rental demand for the forecast period by bedroom size and rent."}]}
{"messages": [{"role": "user", "content": "The factual framework for this analysis follows the guidelines developed by HUD’s Economic and Market Analysis Division. The analysis and findings are as thorough and current as possible based on information available on the “as-of” date from both local and national sources. As such, any findings or conclusions may be modified by subsequent developments. HUD wishes to express its appreciation to those industry sources and state and local government officials who provided data and information on local economic and housing market conditions."}, {"role": "assistant", "content": "This analysis takes into consideration changes in the economic, demographic, and housing inventory characteristics of the market area during three periods: from 1990 to 2000, from 2000 to the October 1, 2004 as-of date of the analysis (Current date), and from the Current date to an October 1, 2007 Forecast date. The analysis presents counts and estimates of employment, population, households, and housing inventory, as of the 1990 Census, 2000 Census, Current date, and Forecast date. For purposes of this analysis, the forecast period is 36 months."}]}
{"messages": [{"role": "user", "content": "Analysis of the Milwaukee-Waukesha, Wisconsin Housing Market as of October 1, 2004 Housing Market Area The Milwaukee-Waukesha Housing Market Area (HMA) is defined as the Milwaukee- Waukesha Metropolitan Statistical Area that includes Milwaukee, Waukesha, Ozaukee, and Washington Counties. For purposes of this analysis, the HMA has been divided into two submarkets: the City of Milwaukee and the remainder of the metropolitan area, referred to in this report as the Remainder of the HMA. Since 1990, the population of the HMA increased at an annual rate of approximately 0.5 percent, reaching as of the Current date. During this same period, the City of Milwaukee lost population at a rate of 0.4 percent annually, reaching as of the Current date. The City of Milwaukee has lost population because the rate of out- migration has exceeded the net natural change (resident births minus resident deaths). The rate of out-migration from the City of Milwaukee has slowed from 9,100 people annually between 1990 and 2000 to 6,600 people annually since 2000. The loss of jobs in the HMA has reduced the rate of household formation. Since 1990, households in the HMA increased at an annual rate of slightly less than 1 percent, reaching as of the Current date. Between 1990 and 2000, the City of Milwaukee lost more than 800 households annually; since 2000, that rate of loss has dropped to fewer than 100 a year. Despite a weakening job market, historically low mortgage interest rates have resulted in a very strong market for both existing and new homes in the HMA. The percentage of owner-occupied units increased from 59.4 percent in 1990 to 61.8 percent as of the Current date."}, {"role": "assistant", "content": "Through October 1, 2007, the demand for new sales housing is estimated at approximately 4,000 homes annually. With mortgage interest rates at historically low levels, the tenure shift toward homeownership should continue, which will keep the demand for new sales housing strong through the forecast period. Annual demand for rental units will be 1,500 units during the forecast period."}]}
{"messages": [{"role": "user", "content": "Analysis of the Milwaukee-Waukesha, Wisconsin Housing Market as of October 1, 2004 Corporation. Between 1990 and 2003, the number of manufacturing jobs in the HMA declined by more than 25,000. In addition, many manufacturing jobs moved within the HMA from the City of Milwaukee to suburban locations, especially Waukesha County. Although still dependent on high-paying manufacturing jobs, the HMA has become more diversified with nearly 80 percent of the jobs located in the service-providing sectors. The retail trade, professional and business services, educational and health services, and government sectors all account for nearly 50 percent of the nonfarm jobs in the HMA. Between 1990 and 2003, nearly 90 percent of the net job growth occurred in professional and business services and in educational and health services. Major service sector employers include Marshall & Ilsley Corporation, U.S. Bank, Kohl’s Department Stores, and Northwestern Mutual Life Insurance Company. The HMA mirrored the national economy with strong job growth between 1990 and 2000, followed by 3 years of job losses. During the past 12 months, the HMA experienced modest growth in employment. From 1990 to 2000, total resident employment increased at a rate of slightly more than 1.0 percent annually. Since 2000, resident employment has declined at an annual rate of 0.4 percent. Between 1992 and 1996, resident employment increased on average by 16,100 a year, but declined by 1,000 annually from 1997 to 2003. During the latest 12-month period, average resident employment in the HMA increased by 2,800 compared with the previous 12-month period. Between 1993 and 2000, the unemployment rate in the HMA fluctuated very little, moving between 3.1 and 4.6 percent. In 2001, because of the recession, unemployment climbed to 4.7 percent and reached 6.0 percent the following year. During the past 12 months, unemployment averaged 5.5 percent. Population Between 1990 and 2000, the population in the Milwaukee-Waukesha HMA increased at an annual rate of 0.5 percent, reaching in 2000. Since that time, because of the slowdown in the economy, population has grown at a slightly lower annual rate of 0.4 percent, reaching an estimated as of the Current date. The City of Milwaukee, 4 Analysis of the Milwaukee-Waukesha, Wisconsin Housing Market as of October 1, 2004 which has experienced significant job losses, especially in manufacturing, continues to lose population. Between 1990 and 2000, the City of Milwaukee lost 5 percent of its population, declining to in 2000. Over the same period, the population for the Remainder of the HMA grew by 10.2 percent, reaching in 2000. As of the Current date, it is estimated that the City of Milwaukee has a population of an annual loss of 0.1 percent since 2000. The Remainder of the HMA continues to add population at an annual rate of 0.7 percent and currently stands at . During the 1990s, an annual net natural increase of approximately 9,400 occurred in the HMA, which helped to offset annual out-migration of slightly more than 2,500 people. Between 2000 and the Current date, net migration increased to 2,800 people annually and net natural increase declined to 8,300 people. Since 2000, the City of Milwaukee has shown an annual net natural increase of 5,800, less than the 6,650 people lost to out- migration. Two universities—the University of Wisconsin-Milwaukee and Marquette University— are located in the City of Milwaukee. Neither university has had a major impact on population growth. The University of Wisconsin, which is located northeast of downtown Milwaukee near the shores of Lake Michigan, has experienced modest enrollment growth in recent years; enrollment currently stands at approximately 26,000 students. About 2,700 students are housed on campus, with the remainder living in nearby private housing or commuting by car. Marquette University had an enrollment of 10,800 students in the spring of 2004 compared with 10,200 in the spring of 2000. The campus houses about 3,100 students and another 1,400 live in apartment buildings owned by the university in the surrounding neighborhood. Freshmen and sophomores are required to live on campus while upper-classmen can live off campus, with a small percentage of students commuting. Table 3 presents population change trends from 1990 to the Forecast date for the HMA and the two submarkets. Households The number of households in the HMA has increased faster than the rate of population growth because of a decrease in average household size. Current household size in the HMA is estimated at 2.44 persons, compared with 2.60 persons in 1990, which follows the national trend toward smaller families. Between 1990 and 2000, the number of households in the HMA increased at an annual rate of 0.9 percent. Since 2000, the rate of household growth has declined to approximately 0.8 percent and is projected to maintain that rate during the forecast period. Households in the HMA have increased from in 1990 to an estimated as of the Current date. The City of Milwaukee, which lost an average of more than 800 households between 1990 and 2000, has lost fewer than 100 households annually since 2000 and is projected to gain 1,650 households during the forecast period. Table 3 presents trends in households from 1990 through the Forecast date for the HMA and the two submarkets. Analysis of the Milwaukee-Waukesha, Wisconsin Housing Market as of October 1, 2004 Housing Inventory The housing inventory has followed a pattern similar to that of employment, population, and households. Between 1990 and 2000, the number of housing units in the HMA increased by 5,600 annually, or a rate of 1.0 percent a year. Since 2000, the inventory has increased annually by 5,100 units, or an annual rate of 0.8 percent. As of the Current date, an estimated housing units are in the HMA. Of an estimated 31,000 vacant units, 18,650 are available for sale or rent, with the remaining 12,500 kept off the market for various reasons. In 1990, housing tenure was 59.4 percent owner and 40.6 percent renter. It is estimated that, as of the Current date, ownership has increased to more than 62 percent. This shift toward homeownership is due in large part to historically low interest rates and a healthy economy during the 1990s. Table 4 presents trends in housing inventory, tenure of occupancy, and housing vacancy from 1990 to the Current date. From 1990 through 1999, single-family permits averaged 3,911 a year in the HMA, although permits varied considerably by year, ranging from a low of 3,351 in 1997 to a high of 4,583 in 1992. Between 2000 and 2003, single-family permits averaged 3,635 a year, peaking at 3,939 in 2003. Between 1990 and 2000, on average, only 92 permits a year were issued in the City of Milwaukee. Since that time, the City of Milwaukee has issued an average of 168 permits annually. The increase in activity can be attributed in large measure to construction occurring near the city’s downtown on land that became available when deteriorated structures were demolished. Between 1990 and 2000, multifamily building permit activity averaged 3,000 units annually in the HMA. The average number of permits decreased to 2,350 units from 2000 through 2003. Most multifamily activity occurred in the Remainder of the HMA, with the City of Milwaukee accounting for 11.8 percent since 1990. Much of the activity in the City of Milwaukee was due to the construction of condominiums, many of which are located northeast of downtown near the University of Wisconsin-Milwaukee campus. Table 5 presents trends in building activity from 1990 through the Current date for single-family and multifamily housing in the HMA and both submarkets. Housing Vacancy The vacancy rate for owner-occupied units in the HMA declined from 1.3 percent in 2000 to an estimated 1.0 percent as of the Current date. The City of Milwaukee currently has an owner vacancy rate of 1.5 percent, which is down from 2.0 percent in 2000. Because of a weaker economy and the shift toward homeownership, the rental vacancy rate in the HMA has increased from 5.7 percent in 2000 to an estimated 6.0 percent as of the Current date. The City of Milwaukee has demonstrated a similar trend, with the rental vacancy rate increasing from 6.2 percent in 2000 to a current rate of 6.5 percent. Sales Market Conditions Despite a sluggish economy, low mortgage interest rates resulted in record existing home sales during 2003, with the first 9 months of 2004 on pace to set another record. According to the Metro Multiple Listing Service, 19,358 existing homes were sold in the 6 Analysis of the Milwaukee-Waukesha, Wisconsin Housing Market as of October 1, 2004 HMA during 2003, compared with the previous high of 18,479 in 2002. Existing home sales have set a record in every year since 1999 and the market remains strong as of the Current date. Prices in 2003 were 7 to 9 percent higher than a year earlier, with the average price ranging from in Milwaukee County to in Ozaukee County. In Ozaukee County, which has many high-end homes, prices were down 1.6 percent from 2002, but are up nearly 30 percent over the past 6 years. The City of Milwaukee and some of the older suburbs, with modestly priced housing stocks, are experiencing strong sales for homes priced in the mid s. In other areas of the HMA, few existing homes sell for less than . The demand for homes priced at more than has been soft, with sales times increasing upward to 6 months and prices edging down in some areas. According to MTD Marketing Services, the average price for a newly constructed home in the HMA in 2003 was up 5.2 percent from 2002. Rising material costs have pushed the average new home price during the first 9 months of 2004 to . The primary market for new single-family homes is between and . New homes are typically at least 2,000 square feet, with many homes being more than 3,000 square feet. In 2003, the HMA had its best year for single-family construction since 1999. Washington County had a 28-percent increase in permits compared with 2002 due in part to the search for lower land costs and home prices, although people would face longer commutes. Activity continues to be strong in the downtown Milwaukee condominium market. In 2001 there were 128 condominium units built in the downtown area. Since that time, more than 2,300 units have either been built or proposed. Empty nesters, who are selling their large suburban homes to escape maintenance and yard work and want to enjoy the Lake Michigan shoreline and other downtown amenities, are buying condominiums. Young professionals who work downtown and have previously been renting are also purchasing such units. According to Mandel Group, single, young professionals are purchasing units in the to range, while affluent empty nesters, who tend to be business owners, managers, and professionals, are purchasing more expensive units. Some members of the latter group live in warmer climates during the winter months. Rental Market Conditions The rental market has suffered since the 1990s due largely to low mortgage interest rates that have resulted in a tenure shift from renter to homeownership. The market is also still absorbing a large number of new units that entered the market in the late 1990s. Since 2000, the rental vacancy rate for the HMA has steadily increased from 5.7 percent to an estimated 6.0 percent as of the Current date. Although the overall rental market is soft, several areas such as the east side of Milwaukee and the northern suburbs along Lake Michigan have balanced to tight markets. According to REIS, Inc., the average rent in Milwaukee and Waukesha Counties increased from $729 in 2000 to $768 in 2003, or an annual increase of 1.8 percent. Concessions are common, with 1 or more months of free rent being offered in apartments 7"}, {"role": "assistant", "content": "Forecast Housing Demand Based on anticipated household growth and current market conditions, estimates indicate a demand for an estimated 16,650 new housing units during the 3-year forecast period ending October 1, 2007. Sales housing will account for 12,050 units of the total demand. With mortgage interest rates rising slightly, but low by historical standards, the tenure shift from renter to homeowner should continue, which will keep demand for new sales housing strong through the forecast period. Rental housing demand during the forecast period will be 4,600 units. Annual demand is projected for 620 one-bedroom units with monthly gross rents starting at two-bedroom units with gross rents beginning at $700, and 155 three-bedroom units with rents starting at $850. Table 6 presents detailed data on rental demand for the forecast period by bedroom size and rent."}]}
{"messages": [{"role": "user", "content": "Sales Market Currently, the sales market in the HMA is balanced. The strong market for existing sales housing reflects affordable home prices and low mortgage interest rates. During the past year, the number of homes sold and the median sales price have increased. Improvement in the economy and a modest increase in net in-migration is expected to result in a steady demand for sales housing during the 3-year forecast period, as illustrated in Table 1."}, {"role": "assistant", "content": "Rental Market The rental market in the HMA is relatively balanced overall. Rent concessions have declined during the past 12 months as the rental market has become more com- petitive because of condominium conversions, which have reduced the supply of rental units. Rents have increased modestly by 1 to 2 percent a year during the 12- month period ending June 2006. The rental market is expected to continue to tighten during the 3-year forecast period as continued condominium conversions reduce the rental inventory. Market Details Economic Conditions................2 Population and Households......4 Housing Market Trends.............5 Data Profile...............................9 Notes: Total demand represents estimated production necessary to achieve a balanced market at the end of the forecast period. Units under construction as of July 1, 2006. Source: Estimates by analyst Table 1. Housing Demand in the Milwaukee-Waukesha HMA, 3-Year Forecast, July 1, 2006 to July 1, 2009 Milwaukee-Waukesha HMA Sales Units Rental Units Total Demand Under Construction"}]}
{"messages": [{"role": "user", "content": "Since 2000, the local economy has slowed and total nonfarm employment has declined. Approximately 32,500 jobs were lost between 2000 and the current date. During this period, employment in the manufacturing sector accounted for 30,620, or 94 percent, of the jobs lost as a result of plant closings and relocations. Approximately 80 percent of the jobs lost were in Milwaukee County, which had a concentration of industrial equipment and electrical equipment and components manufacturers. Since 2000, new healthcare providers and specialty clinics have expanded throughout the HMA, especially in the fast-growing suburban areas of Washington and Waukesha Counties. The top two employers in the area are Aurora Health Care and Wheaton Franciscan Healthcare, with 15,000 and 9,000 employees, respectively, as shown in Based on 12-month averages through June 2006. Source: U.S. Trends in Labor Force, Resident Employment, and Unemployment Rate in the Milwaukee-Waukesha HMA, 1990 to 2005 Labor Force & Resident Employment Unemployment Rate Labor Force Resident Employment Unemployment Rate Job losses in transportation and utilities and trade accounted for most of the decline in the service-providing sectors. In the same period, employment in the education and health services sector continued to increase, by 1.4 percent. Net out-migration of working-age residents and increased retirement of older workers have contributed to the decline in the labor force since 2000. Because of these net out- migration and retirement factors, the unemployment rate in the HMA declined from 5.5 percent in 2004 to 5.0 percent in 2005."}, {"role": "assistant", "content": "Based on anticipated employment growth in southeastern Wisconsin, particularly in the service-providing sectors, total nonfarm employment in the HMA is expected to increase modestly by 600 jobs annually, or less than 1 percent, throughout the 3-year forecast period. According to the Wisconsin Department $500 million annually, according to the University’s Office of Resource Analysis. Employment in the trade sector is projected to increase by approximately 800 retail jobs when the newly remodeled Bayshore Town Center opens in suburban Milwaukee in November 2006. The financial activities sector also is expected to expand when Northwestern Mutual Life Insurance Company completes an $85 million office expansion in the fall of 2008, increasing its workforce from 1,000 to 2,000 in suburban Milwaukee. Total resident employment also is projected to grow during the forecast period. Resident employment growth during the forecast period is expected to increase at a rate of less than 1 percent a year, slightly less than the growth levels of the 1990s. As of the forecast date, total resident employment in the HMA is expected to total ."}]}
{"messages": [{"role": "user", "content": "Between 1990 and 2000, population in the HMA had a net increase of 6,859 annually. During this period, the population in Ozaukee, Washington, and Waukesha Counties increased by 8,770 a year. Milwaukee County lost 1,911 residents a year; all the population loss was in the city of Milwaukee. Household growth trends during the 1990s reflect the pattern of population growth in the HMA, with the number of households increasing by approximately 5,000 annually. The strengthening local economy led to a modest net in-migration for Note: Based on 12-month averages through June 2005 and June 2006. Table 3. 12-Month Average Employment in the Milwaukee- Waukesha HMA, by Sector Employment Sector 12 Months Ending June Months Ending June 2006 Percent Change Total Nonfarm Employment – 0.4 Goods Producing Construction Manufacturing – 0.3 Service Providing – 0.6 Trade – 2.1 Transportation & Utilities – 7.3 Information – 3.3 Financial Activities Professional & Business Services – 0.7 Education & Health Services Leisure & Hospitality Other Services – 1.0 Government – 0.9 of Workforce Development, the education and health services sector is projected to continue to add jobs and account for most new nonfarm jobs. Children’s Hospital of Wisconsin in suburban Wauwatosa From 2000 to the current date, as the local economy slowed, population growth in the HMA slowed to 2,375 a year, or less than 1 percent. In Milwaukee County, the population continued to decline as the area lost 5,000 jobs and workers relocated to areas outside the county. Although some of these residents relocated to the neighboring counties of Ozaukee, Washington, and Waukesha, population still increased at a slower rate than in the 1990s. The slowdown in household growth was due to the loss of jobs that resulted in increased net out-migration in the HMA. The forecast annual population growth rate for the HMA is estimated to remain at 0.2 percent, or 2,675. The number of households is forecast to increase by 4,675, or 0.8 percent, annually. Housing Market Trends Sales Market Low mortgage interest rates, affordable sales housing, and modest increases in median household incomes boosted existing home sales in the HMA between 2003 and 2005. During this period, approximately 20,400 homes were sold annually, up 17 percent from the 17,400 homes sold during the previous 3-year period. A record 21,650 homes were sold in 2005. During the 2003- through-2005 period, the median sales price for existing homes increased by 6 percent annually to . Components of Population Change in the Milwaukee-Waukesha HMA, 1990 to Forecast Current to Forecast Net Natural Change Net Migration Average Annual Change Sources: 1990 and 2000—U.S. Census; current and forecast—estimates by analyst – 2,000 – 4,000 – 6,000 – 8,000 Population and Households Continued Home sales totaled 20,400, unchanged from the previous 12-month period ending June 2005. The median sales price increased by 5 percent during the past 12 months to . The sales market is strong for homes selling below the median sales price. More than 3,000 new single-family homes were permitted during the 12-month period ending June 2006, down 17 percent from the previous 12-month period. Condominium units are becoming more popular in both the city of Milwaukee and suburban areas. Since 2000, approximately 4,500 condominiums units, with an average price of have been sold in the HMA, representing 17 percent of total residential sales. Suburban Milwaukee accounted for approximately 52 percent of condominium sales and the city of Milwaukee for the remaining 48 percent."}, {"role": "assistant", "content": "Neighborhoods in the city of Milwaukee are undergoing significant condominium development. Much of this activity is concentrated in downtown Milwaukee, the Third and Fifth Ward neighborhoods located south of downtown, and Brewer’s Hill located north of downtown. Reflecting increased demand from empty nesters and single professionals, Brewer’s Hill and downtown neighborhoods east of the Milwaukee River are the most active for condominium development, accounting for 1,600 of the 2,100 units entering the market since 2000. The Third and Fifth Wards, where vacant commercial buildings are being converted to residential units, have 400 condominium units, and the Westown area has the remaining 100 units. Park East, one of the largest redevelopment projects in downtown Milwaukee, will start construction in September 2006. Approximately 1,500 new residential units are planned for this $250 million planned, mixed-use project during the 3-year forecast period."}]}
{"messages": [{"role": "user", "content": "As of the current date, an estimated owner-occupied units are in the HMA, up 1.1 percent annually since 2000. The sales vacancy rate is currently 1.2 percent. Table DP-1 (at the end of the report) provides sales vacancy rates in the HMA in and the current date."}, {"role": "assistant", "content": "Estimated Demand for New Market- Rate Sales Housing in the Milwaukee- Waukesha HMA, July 1, 2006 to July 1, 2009 Price Range ($) Units of Percentage From To Demand of Total Source: Estimates by analyst and higher 35 0.3 Housing Market Trends Sales Market Continued current market conditions, estimates indicate a demand for approximately 12,300 new units of sales housing during the forecast period. U.S. Census Bureau, Building Permits Survey The anticipated strengthening of the local economy and modest increase in net in-migration are expected to maintain the demand for homes during the forecast period. Condominiums are expected to continue representing 17 percent of total sales over the 3-year forecast period. Based on anticipated household growth combined with Rental Market The rental market in the Milwaukee- Waukesha HMA is balanced. The current 7-percent rental vacancy rate is down by approximately 8 percent from a year ago. The bal- anced conditions are attributable to the strengthening local economy and conversions of rental housing to condominiums that, together, resulted in tighter conditions. Since 2000, approximately 1,000 apartments have been converted. As occupancy rates increased, concessions have become less prevalent than they were a year ago. Property managers in west suburban Milwaukee and Waukesha Counties reported that rental vacancy rates declined significantly in Class A properties to about 8 percent in 2006, down from approximately 11 percent or higher in 2005."}]}
{"messages": [{"role": "user", "content": "Multifamily Building Permits Issued in the Milwaukee-Waukesha HMA, 1990 to 2006 Notes: Includes all multifamily units in structures with two or more units. Includes data through June 2006. Source: U.S. Census Bureau, Building Permits Survey Reflecting tighter market conditions, rents increased 1 to 2 percent during the 12-month period ending June 2006 compared with flat rents in the previous 12-month period. The average rents for one-bedroom, two- bedroom, and three-bedroom units in newly completed Class A devel- opments are approximately and $1,350, respectively. Rental Vacancy Rates in the Milwaukee-Waukesha HMA, 1990 to Current Current Sources: 1990 and 2000—U.S. Census; current—estimates by analyst During the current 12-month period ending June 2006, approximately 1,825 rental units were permitted, about the same as during the previ- ous 12-month period. Currently, more than 1,000 rental units are under construction and 200 rental units are in the planning phase. The rental units currently under construction are targeted mainly to empty nesters and young profes- sionals seeking to live closer to jobs, retail services, and entertainment sources. Tax credit financing plays an impor- tant role in rental housing production for low-income households in the HMA. An estimated 17,500 com- pleted rental units for low-income residents in the HMA were financed with low-income housing tax credits; about 9,700 of these units are for se- niors. The vacancy rate for tax-credit units is less than 5 percent."}, {"role": "assistant", "content": "Based on anticipated household growth and current market condi- tions, estimates indicate a demand for 5,000 new rental-housing units during the 3-year forecast period. Table 5 provides an estimate of the noncu- mulative distribution of demand for new market-rate rental housing in the HMA by rent levels and the number of bedrooms per unit."}]}
{"messages": [{"role": "user", "content": "For purposes of this analysis, the HMA is divided into three submarkets: (1) the Cook County submarket, which includes the principal city of Chicago; (2) the Northern submarket, which includes DeKalb, DuPage, Kane, Lake, and McHenry Counties in Illinois and Kenosha County in Wisconsin; and (3) the South- ern submarket, which includes Grundy, Kendall, and Will Counties in Illinois and Jasper, Lake, Newton, and Porter Counties in Indiana."}, {"role": "assistant", "content": "Nonfarm payrolls are projected to increase an average of 1.2 percent annually during the 3-year forecast period. Table DP-1 at the end of this report provides employment data for the HMA."}]}
{"messages": [{"role": "user", "content": "Sales Market The sales housing market in the HMA is soft, with an estimated vacancy rate of 2.1 percent. The sales of both new and existing homes trail their re- cent peaks; existing home sales have improved during the past 12 months and new home sales continued to decline. During the forecast period, demand is expected for 46,400 new homes (Table 1). The 4,400 homes currently under construction and a portion of the other vacant units in the HMA that might come back on the market will satisfy some of the forecast demand."}, {"role": "assistant", "content": "Rental Market The rental housing market in the HMA is slightly soft, with an esti- mated overall rental vacancy rate of 6.8 percent, down from 9.3 percent in 2010. During the forecast period, demand is expected for 20,600 new rental units (Table 1). The 4,600 units currently under construction and a portion of the other vacant units in the HMA that might come back on the market will satisfy a portion of that demand."}]}
{"messages": [{"role": "user", "content": "Excludes local school districts. Population growth averaged 36,300 people, or 0.4 percent, annually between 2000 and 2010. Population growth since 2000 in the HMA has been entirely the result of net natural increase (NNI), or resident births minus resident deaths. Net migration has been negative since 2000; however, net out-migration slowed significantly during the past 5 years. The nation- wide recession and housing downturn combined to reduce the number of residents who chose to move out of the HMA. Population and Household Growth in the Chicago HMA,* 2000 to Forecast * Chicago-Naperville-Joliet HMA. Sources: 2000 and 2010—2000 Census and 2010 Census; current and forecast— estimates by analyst Population Households 2000 to to current Current to forecast Average annual change Components of Population Change in the Chicago HMA,* 2000 to Forecast * Chicago-Naperville-Joliet HMA. Sources: 2000 and 2010—2000 Census and 2010 Census; current and forecast— estimates by analyst Net natural change Net migration 2000 to to current Current to forecast Average annual change – 20,000 – 40,000 from 2001 through 2007 before de­ clining to an average of 24,800 people annually since 2008. The Cook County submarket, with an estimated population of 5.24 million as of the current date, accounts for approximately 55 percent of the total population in the HMA. Since 2010, Cook County has recorded the most population growth of all submarkets, increasing by an average of 20,150 people, or 0.4 percent, annually, com­- pared with a decline of 18,200 people, or 0.3 percent, annually from 2000 to 2010. Population growth in Cook County began in 2008 and coincided with a large drop in net out-migration from the submarket. From 2001 through 2007, net out-migration from Cook County averaged 76,500 people annu­- ally, before declining to 30,700 people in 2008. Since 2009, net out-migration has averaged 17,350 people annually. Based on Internal Revenue Service migration statistics, the number of individuals who migrated to Cook County has remained relatively un- changed since 2001, and the smaller net out-migration is attributable to a reduction in the number of individuals migrating from Cook County to the Northern and Southern submarkets of the HMA, as well as elsewhere in Illinois. Since 2010, the population of the Northern submarket has increased by an average of 10,800, or 0.4 percent, annually, to 2.74 million, compared with growth averaging 26,450, or 1.0 percent, annually from 2000 to 2010. The population of the Southern submarket has grown by an average of 6,225, or 0.4 percent, annually since 2010, to 1.57 million, compared with growth averaging 28,000, or 2.0 percent, annually between 2000 and 2010. The Northern and Southern submarkets have recorded respective average net out-migration of 7,150 and 3,175 people annually since 2010. Net out-migration has occurred each year since 2007 in the Northern sub­- market while out-migration began in 2009 in the Southern submarket. Both submarkets were affected by increasing gas prices and soft home sales markets, which reduced the number of residents who chose to move from Cook County to these surrounding areas."}, {"role": "assistant", "content": "As the economy continues to recover, net out-migration from the HMA is expected to remain near recent levels and the population of the HMA is ex­- pected to grow at a similar rate during the forecast period when compared with growth since 2010. The popula­ tion in the HMA is expected to increase by 40,350, or 0.4 percent, annually during the 3-year forecast period. During this time, NNI is expected to continue to account for all population growth, offsetting net out-migration of approximately 23,000 people an­- nually from the HMA. Population Population and Households Continued"}]}
{"messages": [{"role": "user", "content": "The Northern and Southern submarkets are expected to increase in population by an aver- age of 11,650 and 6,675, respectively, or 0.4 percent each, annually."}, {"role": "assistant", "content": "Household growth in the HMA, which has averaged 18,900 households, or 0.5 percent, annually since 2010, is ex­- pected to remain relatively unchanged at 18,350 households, or 0.5 percent, annually during the forecast period, a rate of growth slightly above that of the population. The homeowner- ship rate in the HMA increased from 65.2 to 66.0 percent from 2000 to 2010 but decreased to 64.9 percent as of the current date, with declines recorded in each of the three submarkets during this time. Soft home sales markets, tight lending standards, and a local economy that has not fully recovered from the 2008-through-2010 downturn made homeownership less attractive than renting for many households during this time. The Cook County submarket has the lowest homeowner­- ship rate in the HMA, at 57.2 percent, but the Northern and Southern sub- markets have homeownership rates of 74.1 and 76.5 percent, respectively. Number of Households by Tenure in the Southern Submarket, 2000 to Current Current Renter Owner The vacancy rate remains elevated despite increasing home sales. Approximately 43,950 new and exist­- ing homes were sold during the 12 months ending September 2012, up 12 percent compared with the number sold during the previous 12 months (Hanley Wood, LLC). The rate of home sales declined each year from 2005 through 2010, from new and existing home sales in 2005 to 39,900 such sales in 2010, before in­- creasing in 2011 and 2012. The number of new home sales has declined signifi­- cantly in the Cook County submarket, from 19,550 in 2005 to 3,450 in 2010. During the 12 months ending Septem­- ber 2012, approximately 1,350 new homes sold in the submarket, a decline of 28 percent from the 1,900 new homes sold during the previous 12-month period. At the same time, the average sales price for new homes increased nearly 10 percent, to partly reflecting a shift toward construction of homes in higher cost areas in Cook County. Newer developments tend to be smaller, in-fill projects, because financing has become more difficult to secure for large-scale developments and speculative building has become less common. As the number of new home sales declined, the proportion of those home sales that were con- dominium units increased, from 58 percent of new home sales in 2005 to 80 percent in 2008 and 2009, reflect- ing increased new home construction in the city of Chicago and decreased construction in outlying Cook County suburban locations, which are more likely to consist of single-family homes. This trend may be reversing, because 70 percent of new homes built during the 12 months ending September 2012 were condominium units, compared with 73 percent during the 12 months ending September 2011. The average sales price for a new condominium unit in Cook County was during the 12 months ending Septem- ber 2012 compared with for a new single-family home. Sales of existing homes in the Cook County submarket have declined since 2005, initially following a trend similar to new home sales, but existing home sales reached a bottom in 2008 and have gradually increased since. Exist- ing home sales totaled 84,950 in 2005 and declined each year until 2008, when 34,700 existing home sales were recorded (Hanley Wood, LLC). Sales of existing homes remained stable, averaging 37,500 homes sold annually from 2009 through 2011. During the 12 months ending September 2012, existing home sales totaled 42,600, up 14 percent from the previous 12 months. The average sales price for existing homes in the Cook County submarket declined from a peak of in 2007 to in 2010. The average sales price has continued to decline and, for the 12 months end­ing September 2012, the average sales price of an existing home was or 6 percent less than the average sales price during the 12 months ending September 2011. The continuing decline in existing home sales prices is partially a result of the large number of Real Estate Owned (REO) properties sold. The During the 12 months ending September 2012, approximately 34 percent of existing home sales, or 14,600 homes, were REO; during the same time, the aver­- age sales price for an REO home was or less than one-half the average sales price for all existing resale homes. As of September percent of home loans in the submarket were 90 or more days delin­- quent, in foreclosure, or transitioned into REO, up slightly from the 12.0- percent rate recorded in September 2011 (LPS Applied Analytics). It takes an average of 697 days to complete a foreclosure action in Illinois, among the longest periods in the nation (RealtyTrac® Inc.). Single-family home construction, as measured by the number of single- family homes permitted, averaged approximately 5,225 homes annually in the Cook County submarket from 2000 through 2007. In 2008, as the economy and housing market began to weaken, 1,475 single-family homes were permitted, and construction de­- clined further, to an average of 720 homes permitted annually, from 2009 through 2011. New condominium construction in the Cook County sub­- market averaged 4,975 units annually from 2000 through 2003, before in- creasing to an average of 7,750 units annually from 2004 through 2007, as low interest rates and a strong local economy boosted condominium de­- velopment in the city and investor purchases increased. From 2008 through 2011, new condominium units per­- mitted averaged 1,175 annually, as developers shifted new multifamily construction efforts from condomini- ums to rental properties, in response to strengthening rental market conditions. Sales prices for new homes vary de­- pending on location and amenities, with higher prices for new condomin­- ium homes in downtown Chicago. Lakeshore East, in downtown Chicago, between the Chicago Loop and Lake Michigan, includes retail, restaurants, apartments, and condominiums in a 28-acre, master-planned community. When complete in 2016, the develop- ment is expected to include 4,950 residences, 1,500 hotel rooms, and up to square feet of retail, along with a planned elementary school. The centerpiece in Lakeshore East is the 87-story Aqua Tower, which includes 262 condominiums, 9 townhomes, 474 rental units, and a 334-room Radisson Hotel. The condominiums range in price from for a studio unit to $3 million for multistory townhomes. Single-family homes in desirable neigh­- borhoods in Chicago also command a premium. Single-Family Building Permits Issued in the Cook County Submarket, 2000 to 2012 Notes: Includes townhomes. Includes data through September 2012. Sources: U.S. Census Bureau, Building Permits Survey; estimates by analyst During the 3-year forecast period, demand in the Cook County submar- ket is expected for 17,400 new homes (Table 1). The 2,750 homes currently under construction and a portion of the 87,000 other vacant units that might come back on the market will satisfy some of the forecast demand. Table 4 illustrates the estimated de­- mand for new sales housing in the submarket by price range. Demand is expected for approximately 5,000 homes in the first year and is expected to increase to 6,500 homes by the third year of the forecast period."}]}
{"messages": [{"role": "user", "content": "Housing Market Trends Sales Market—Cook County Submarket Continued Price Range ($) Units of Percent From To Demand of Total and higher Note: The 2,750 homes currently under construction and a portion of the estimated 87,000 other vacant units in the submarket will likely satisfy some of the forecast demand. Source: Estimates by analyst Table 4. Estimated Demand for New Market-Rate Sales Housing in the Cook County Submarket, October 1, 2012, to October 1, 2015 Rental Market—Cook County Submarket with the average monthly rent a year before (MPF Research). Apartment rents in the submarket averaged $1,150 for an efficiency apartment, $1,100 for a one-bedroom unit, $1,225 for a two-bedroom unit, and $1,525 for a three-bedroom unit. Concessions, typically 1 month of free rent or no security deposit, with a 12-month lease were offered at approximately 7 percent of apartment properties ­during the third quarter of 2012, down from nearly 20 percent a year ago. In the Loop area, concessions are offered in only 1 percent of the apartments surveyed in the third quarter of 2012, down from 24 percent of apartments a year ago (MPF Research). Rental housing market conditions in the Cook County submarket have tightened since 2010 because of the improved economy, continued soft sales market conditions, and slowing out-migration. Apartment market conditions are typically tighter than the overall rental market conditions in the submarket. Rental Vacancy Rates in the Cook County Submarket, 2000 to Current Multifamily construction activity, as measured by the number of multifamily units permitted, totaled 4,275 units permitted in the Cook County submarket during the 12 months ending September 2012, down slightly from the 4,400 units permitted during the same period a year earlier. By com­- parison, from 2000 through 2007, multifamily construction averaged 9,625 units annually, before declining to an annual average of 2,525 units from 2008 through 2010. After 2007, the composition of multifamily con­ struction shifted from predominately owner-occupied units to predominantly rental units. From 2000 through 2007, it is estimated that more than two-thirds of the multifamily units permitted were for owner occupancy; this ratio more than reversed from 2008 through 2010, when only 28 percent of all multi- family units permitted were intended for owner occupancy. The reversal of tenure in multifamily units permitted was primarily caused by soft home sales market conditions and tighter lending standards, as well as the weak local economy, which made homebuy­- ing less attractive. Currently, approxi­ mately 6,000 multifamily units are under construction, of which 60 percent are estimated to be for rental occupancy. The Aqua Tower, within the Lake- shore East development (described previously in the sales market section), includes 474 rental units and reached stabilized occupancy in the summer of 2010, approximately 1 year after leas­- ing began. Rents for studio apartments in the Aqua Tower start at $1,750, one- bedroom units begin at $2,340, and two-bedroom units begin at $3,487. Also in downtown Chicago, just west of the Loop, a 496-unit apartment property named “K2” is scheduled to begin leasing in March 2013. The K2 includes studio, one-bedroom, two- bedroom, and three-bedroom units, with rents ranging from $1,650 through $6,500 monthly; it is the fifth and final building in the K Station development, which includes a total of 2,145 condo­- miniums and apartments. Suburban rental properties outside Chicago but in the Cook County submarket include Central Station, an 80-unit property in Evanston, just north of Chicago. Central Station is scheduled to begin leasing in July 2013 and will include studio, one-bedroom, two- bedroom, and three-bedroom units."}, {"role": "assistant", "content": "Demand is expected for 14,900 new market-rate rental units in the Cook County submarket during the forecast period. The 3,600 units currently under construction and a portion of the 87,000 other vacant units that might come back on the market will satisfy some of this demand (Table 1). Table 5 shows the estimated demand for new market-rate rental housing in the submarket by rent level and number of bedrooms."}]}
{"messages": [{"role": "user", "content": "Multifamily Building Permits Issued in the Cook County Submarket, 2000 to 2012 Notes: Excludes townhomes. Includes data through September 2012. Sources: U.S. Census Bureau, Building Permits Survey; estimates by analyst From 2009 through 2011, existing home sales prices averaged . Much of the decline in existing home sales prices since 2007 can be attributed to an increase in the number of REO sales. In 2005 and 2006, before the housing downturn, REO sales ac­- counted for 2 percent of all existing home sales in the submarket; by the end of 2007, the share had increased to 6 percent. From 2008 through 2010, REO sales accounted for approximately 25 percent of all existing home sales. REO sales accounted for 31 percent of existing home sales during the 12 months ending September 2012, down from 34 percent during the previous 12 months. The average sales price of an REO home in the submarket during the 12 months ending Septem­ ber 2012 was or 53 percent below the average sales price of a non-REO existing home. As of September 2012, 8.7 percent of home loans in the Northern submarket were 90 or more days delinquent, were in foreclosure, or had transitioned into REO, up from 8.5 percent in September 2011 and 3.3 percent in September 2008 (LPS Applied Analytics). The sales housing market in the North­- ern submarket remains soft, with a current estimated vacancy rate of 1.8 percent, down from 2.2 percent in 2010 (Table DP-3 at the end of this report). Despite gains during the most recent 12 months, existing home sales, which include both single-family homes and condominiums, have remained at relatively low levels during the past 5 years, a result of strict lending require­- ments and a sluggish local economy. The number of existing homes sold increased 22 percent, to 28,400 homes, during the 12 months ending Septem- ber 2012 (Hanley Wood, LLC). This increase followed a 3-percent decline in the number of existing homes sold during the previous 12 months. From 2005 through 2007, by comparison, an average of 46,500 existing homes sold annually in the submarket before the number of existing home sales dropped to an average of 23,800 an­- nually from 2008 through 2011. The average sales price of an existing home declined 7 percent, to during the 12 months ending Septem­ ber 2012, after declining 3 percent dur­- ing the previous 12 months. Exist­ing home sales prices peaked at Notes: Numbers may not add to totals because of rounding."}, {"role": "assistant", "content": "The 3,600 units currently under construction will satisfy some of the estimated demand. Source: Estimates by analyst Zero Bedrooms One Bedroom Two Bedrooms Three or More Bedrooms Monthly Gross Rent ($) Units of Demand Monthly Gross Rent ($) Units of Demand Monthly Gross Rent ($) Units of Demand Monthly Gross Rent ($) Units of Demand Estimates by analyst Table 6. Apartment market conditions are typically tighter than the overall rental market conditions in the submarket. During the third quar­- ter of 2012 apartment vacancy rates within the Northern submarket ranged from a low of 3.1 percent in Central DuPage County to a high of 5.3 per­- cent in the far west Chicago suburbs, which also recorded the largest in­- crease in vacancy rates among areas surveyed during the past year of 1.0 percentage point (MPF Research). The largest vacancy rate declines during the past year occurred in the Arlington Heights/Palatine/Mount Prospect and Schaumburg areas, which recorded decreases of 0.9 percentage points each, to 3.4 and 5.0 percent, respec- tively. Average monthly rents in the North- ern submarket range from $930 in the far west Chicago suburbs to $1,100 in the Naperville area. The average monthly rent rose in the third quarter of 2012 when compared with the third quarter of 2011 in all areas within the Northern submarket except for central DuPage County, where the average rent declined less than 1 percent. Rent growth during this time ranged from a 1-percent increase in southeast DuPage County to a 6-percent increase in the Schaumburg area. Builders responded to improved rental market conditions in many parts of the submarket during the past year by increasing multifamily housing pro­- duction. During the 12 months ending September 2012, the number of multi­- family units permitted increased by approximately 35 units, or 3 percent, to 1,250 units, compared with the number permitted during the previous 12-month period (preliminary data). Rental Vacancy Rates in the Northern Submarket, 2000 to Current homes is expected to remain below the level of production recorded from 2000 through 2007. The 1,025 homes currently under construction, as well as some of the estimated 26,500 other vacant units that will likely reenter the market, will satisfy part of the forecast demand. Prices for new units currently start at . Table 6 presents detailed information on the estimated demand for new market- rate sales housing, by price range, in the Northern submarket during the forecast period. Several multifamily projects are cur­- rently under way in the submarket. Arboretum Landmark Apartments, in the city of Lisle, in DuPage County, Illinois, began construction in the spring of 2012 and will include 310 units when completed in the fall of 2013. Wheaton 121, a 306-unit apartment complex in the city of Wheaton, in DuPage County, Illinois, is expected to be complete in the summer of 2013. During the next 3 years, demand is expected for 3,200 market-rate rental units in the Northern submarket (Table 1). Demand for new units is not expected to emerge until the second year of the forecast period, after the 660 units currently under construction are complete. Rents for new units typically start at about $700 for efficiencies, $900 for one-bedroom units, $1,200 for two-bedroom units, and $1,500 for three-bedroom units. Table 7 provides the estimated demand for new market-rate rental housing by number of bedrooms and rent level during the forecast period."}]}
{"messages": [{"role": "user", "content": "Multifamily Building Permits Issued in the Northern Submarket, 2000 to 2012 Notes: Excludes townhomes. Includes data through September 2012. Sources: U.S. Census Bureau, Building Permits Survey; estimates by analyst The sales housing market in the Southern submarket is soft, with a current estimated vacancy rate of 1.8 percent, down from 2.1 percent in 2010 (Table DP-4 at the end of this report). Despite gains during the most recent 12 months, existing home sales (which include both single-family homes and condominiums) have re­- mained at relatively low levels during the past 5 years, a result of strict lend- ing requirements and a sluggish local economy. The number of existing homes sold in­creased 16 percent, to Sales Market—Southern Submarket Notes: Numbers may not add to totals because of rounding. The 660 units currently under construction will satisfy some of the estimated demand. Source: Estimates by analyst Zero Bedrooms One Bedroom Two Bedrooms Three or More Bedrooms Monthly Gross Rent ($) Units of Demand Monthly Gross Rent ($) Units of Demand Monthly Gross Rent ($) Units of Demand Monthly Gross Rent ($) Units of Demand Table 7. Estimated Demand for New Market-Rate Rental Housing in the Northern Submarket, October 1, 2012, to October to to to to to to to to or more to to to or more or more or more 95 Total 160 Total 960 Total 1,600 Total 480 This increase in existing homes sold followed a decline of 10 percent in the number sold during the previous 12 months. From 2005 through 2007, an average of 28,600 existing homes was sold each year in the submarket, before sales dropped to an annual average of 16,550 homes from 2008 through 2011. The average sales price of an existing home declined 3 percent, to during the 12 months ending Septem­ ber 2012. This sales price decline followed a 3-percent decline during the previous 12 months. Existing home prices peaked at approximately in 2007, before declining 18 percent to their current levels; from 2009 through 2011 existing home prices averaged . Much of the decline in existing home prices during this time can be attributed to an increase in the number of REO sales. In 2005 and 2006, before the housing downturn, REO sales ac­- counted for 6 percent of all existing home sales in the submarket; by the end of 2007, the share had increased to 11 percent. From 2008 through 2010, REO sales accounted for 26 percent of all existing home sales. REO sales accounted for 29 percent of existing home sales during the 12 months end- ing September 2012, down slightly from 31 percent during the previous 12 months. The average sales price of an REO home in the submarket dur- ing the 12 months ending September 2012 was approximately or 34 percent below the average sales price of a non-REO existing home. As of September percent of home loans in the Southern submar­- ket were 90 or more days delinquent, were in foreclosure, or transitioned into REO, up from 9.8 percent in Septem­- ber 2011 and 5.3 percent in September 2008 (LPS Applied Analytics). During the 12 months ending Septem­- ber 2012, the number of new homes sold in the Southern submarket in­- creased 17 percent, to 1,350 homes. New home sales began to increase during 2012, after posting declines each year from 2005 through 2011. Declines in new home sales averaged 36 percent annually in 2008 and 2009 before slowing to an average of 17 percent annually in 2010 and 2011. Net in-migration to the Southern submarket recorded a steady decline since 2005, particularly from Cook County, which resulted in decreased demand for new homes. Softness in the sales market led to a decline in the average sales price of new homes of 2 percent, to during the 12 months ending September 2012, following an increase of less than 1 percent during the previous 12 months. The average new home sales price is currently 11 percent below the peak of recorded in 2007 and 2 percent below the average sales price of for the period of 2008 through 2011. Condominiums are not a significant part of the new home sales market in the Southern submarket, accounting for only 30 units, or 2 percent, of new home sales, during the 12 months ending September 2012. From 2006 through 2010, condominiums accounted for an average of 4 percent of all new home sales in the submarket. Despite the recent increase in new home sales, single-family home builders re­main somewhat cautious. Single- family homebuilding activity, as meas­- ured by the number of single-family homes permitted, increased during Despite reduced levels of building activity, a number of developments are currently under way or nearing completion in the submarket. Butter­ nut Ridge, in the city of Manhattan in Will County, Illinois, includes 18 lots, with preconstruction pricing for new homes starting at approximately . Churchill Club, in the city of Oswego, in Kendall County, Illinois, is a single-family development with 1,100 home sites and is mostly built out. Sales prices for the remaining available floor plans range from about to ."}, {"role": "assistant", "content": "During the next 3 years, demand is ex­- pected for 9,975 new homes (Table 1). Because of the current supply of va­- cant units and slower household growth, demand for new homes is expected to remain below the levels recorded in the early 2000s to mid- 2000s. The 630 homes currently under construction, as well as some of the estimated 20,500 other vacant units that will likely reenter the sales hous- ing market, will satisfy part of the forecast demand. Sales prices for new units currently start at approximately . Table 8 presents detailed information on the estimated demand for new market-rate sales housing, by price range, in the Southern submar- ket during the forecast period."}]}
{"messages": [{"role": "user", "content": "Summary Economy Economic conditions in the Madison HMA continued to improve, maintain­- ing a trend that began during 2010. During the 12 months ending May 2015, nonfarm payrolls increased by 7,500 jobs, or 2.0 percent, to . The unemployment rate declined to 3.7 percent from 4.6 percent during the past 12 months. During the next 3 years, economic conditions should remain strong and nonfarm payrolls in the HMA are expected to increase 1.6 percent annually. Table DP-1 at the end of this report provides addi­ tional economic and population data on the HMA. Sales Market The sales housing market in the HMA is currently slightly tight, with a 1.2-percent vacancy rate, down from 2.0 percent in April 2010. Home sales (including single-family homes, townhomes, and condominiums) in the HMA totaled 10,200 during the 12 months ending May 2015, down 550, or more than 5 percent, from the previous 12 months (Metrostudy, A Hanley Wood Company). Demand is forecast for 6,275 new homes during the next 3 years (Table 1). The 360 homes currently under construction and a portion of the estimated 6,700 other vacant housing units that will likely reenter the sales market will satisfy some of the demand during the forecast period."}, {"role": "assistant", "content": "Rental Market The rental housing market in the HMA is currently balanced, with an estimated vacancy rate of 6.0 percent, which is an improvement from the 6.7-percent rate in April 2010. Students at the Univer- sity of Wisconsin-Madison (UW-M) are estimated to account for more than 13 percent of all renter households in the HMA. During the forecast period, demand is estimated for 5,550 new market-rate rental units ( Estimates by analyst Market Details Economic Conditions................ 2 Population and Households...... 6 Housing Market Trends............. 7 Data Profile............................. 12"}]}
{"messages": [{"role": "user", "content": "Although gains are expected in nearly every sector, job growth is projected to be greatest in the professional and business services sector because of continued job growth from commercial applications of research conducted at UW-M. Population and Households T he population of the Madison HMA is an estimated as of June 1, 2015. The population of the HMA has increased by an average of 6,625, or 1.1 percent, annually since April 2010. Net in-migration to the HMA since 2010 has averaged 3,275 people annually and accounted for approximately 50 percent of the HMA’s population growth during this time. Dane County, where the city of Madison is located, has an estimated population of which accounts for more than 80 percent of the HMA’s population. The strongest period of population growth in the HMA during the previous decade coincided with the strongest period of job growth, 2000 to 2002, when the population increased by an average of 7,400, or 1.4 percent, an­- nually. Net in-migration during that period averaged 4,225 people per year (Census Bureau population estimates, as of July 1), accounting for 57 percent of population growth. From 2002 to 2009, population growth averaged 7,050 people, or 1.2 percent, a year, with annual growth ranging from 1.1 to 1.3 percent. During the period, net in-migration averaged 3,350 people annually and accounted for 48 percent of all population growth. Job losses in the HMA slowed net in-migration to 1,100 people in 2010, and the popula­- tion increased by only 4,700, or 0.8 percent. The number of households in the HMA is currently estimated at an average annual increase of 2,775, or 1.1 percent, since 2010. During the 2000s, households increased at a higher rate of 1.5 percent, or 3,500 households, annually. Since April 2010, renters have comprised nearly 75 percent of household growth, which is up signifi- cantly from the average of 27 percent from 2000 to 2010. Components of Population Change in the Madison HMA, 2000 to Forecast Notes: The current date is June 1, 2015. The forecast date is June 1, 2018. Sources: 2000 and 2010—2000 Census and 2010 Census; current and forecast— estimates by analyst Economic Conditions Continued to to current Current to forecast Average annual change Net natural change Net migration"}, {"role": "assistant", "content": "During the forecast period, the number of households in the HMA is expected to increase by an average of 3,425, or 1.3 percent, annually, while population growth is expected to average 7,775, or 1.2 percent, annually. Approximately 95 percent of the population and household growth during the forecast period is likely to occur in Dane County."}]}
{"messages": [{"role": "user", "content": "Number of Households by Tenure in the Madison HMA, 2000 to Current Note: The current date is June 1, 2015. Population and Household Growth in the Madison HMA, 2000 to Forecast Notes: The current date is June 1, 2015. The forecast date is June 1, 2018. Sources: 2000 and 2010—2000 Census and 2010 Census; current and forecast— estimates by analyst Housing Market Trends Sales Market The sales housing market in the Madison HMA is currently slightly tight. Increasing home sales and limited homebuilding activity from 2008 through 2013 resulted in a decline in the estimated sales vacancy rate from 2.0 percent in April 2010 to 1.2 percent currently. During May 2015, the HMA had a 4.6-month supply of inventory on the market, down from a 5.9-month supply during May 2014 and a 6.5-month supply during May 2013 (Realtors® Association of South Central Wisconsin). In May 2015, 2.5 percent of all mortgage loans in the HMA were seriously delinquent (90 or more days delinquent or in fore- closure) or had transitioned into real Population and Households Continued Current Renter Owner Population Households to to current Current to forecast Average annual change New home sales (including single- family homes, townhomes, and con­ dominiums) in the Madison HMA totaled 680 during the 12 months ending May 2015, an increase of only 10 sales from the 12 months ending May 2014 (Metrostudy, A Hanley Wood Company). The average sales price of a new home was during the 12 months ending May 2015, an increase of $35,300, or nearly 13 percent, from the previous 12 months as strong demand for new homes is outpacing the ability of developers to deliver new product. New home sales in the HMA peaked in 2006 with 1,725 sales at an average price of . Following the peak, new home sales declined for 6 consecu­- tive years by an average of 190 sales, or slightly more than 16 percent, an­- nually from the end of 2006 through 2012. The average sales price also declined during this time, but the drop was not as sharp. From 2006 through 2012, the average sales price of a new home declined by an average of $1,300, or less than 1 percent, annually to by the end of 2012. During 2013, the market for new homes re­- bounded and sales increased by 180, or more than 30 percent, to 780 sales. The average sales price of a new home was during 2013, an increase of $11,000, or nearly 5 percent, from the previous year. Sales of existing homes (including single-family homes, townhomes, and condominiums) increased in the Madison HMA during the 12 months ending May 2015. Existing home sales totaled 10,250, an increase of 150, or slightly more than 1 percent. Existing home sales reached a new high in 2013, when 10,400 existing homes sold, which was 50 sales, or less than 1 percent, higher than the previous peak level of 10,350 sales during 2006. The average sales price of an existing home in the HMA was during the 12 months end- ing May 2015, which was an increase of $8,900, or more than 4 percent, from the previous 12 months, when the average sale price increased by $20,700, or nearly 11 percent. After peaking in 2006, sales of existing homes declined for 5 consecutive years by an average of 780, or 9 percent, annually to 6,450 existing homes sold in 2011. The average sales price de­ creased at a lower rate, declining from in 2006 to during 2011, an average decline of less than 1 percent annually. During 2012, sales of existing homes increased by 2,625 sales, or nearly 41 percent, to 9,075. The number of existing home sales was accompanied by a sharp drop in the average sales price, which declined by $21,800, or more than 10 percent, to during 2012. The large increase in the number of existing home sales and the corre- sponding price drop during 2012 were because of an increase in REO sales to 1,350, an increase of 320 sales, or 31 percent, from 2011. The average sales price of an REO property was during 2012, a decline of $11,200, or 8 percent, from 2011. Dur­- ing REO properties sold, and this number steadily increased by an average of 170, or nearly 42 percent, annually to 1,025 REO sales in 2011. Since peaking in 2012, REO sales have been steadily declining in the HMA. During the 12 months Housing Market Trends Sales Market Continued Building activity, as measured by the number of single-family homes per­- mitted, was unchanged during the 12 months ending May 2015, with 1,275 single-family homes permitted (preliminary data). Building activity started to increase in 2013 after the downturn because of the housing crisis in 2008. From 2012 through 2014, an average of 1,125 new homes were permitted annually. Even with the recent increase in single-family home permitting, production is still well below previous periods. Single- family home construction peaked in 2003 with 3,500 homes permitted and averaged 3,050 homes annually from 2000 through 2003. The number of single-family homes began to decline in 2004, and continued to decline to a low of 740 single-family homes permitted in 2011. One of the more recent developments in the HMA is West Prairie Village in northwest Dane County. This project has 213 single-family lots, with the first phase of 115 homes currently under development. Home sales prices at this development range from to for three- and four-bedroom homes. In addition, the Westbridge subdivision in Waunakee is a 283-unit single-family home development ex- pected to complete buildout in 2015. Home prices range from to at this subdivision."}, {"role": "assistant", "content": "Demand is estimated for 6,275 new homes in the Madison HMA during the 3-year forecast period, with de­- mand increasing during each year ( Estimates by analyst Housing Market Trends Sales Market Continued"}]}
{"messages": [{"role": "user", "content": "The apartment market in the HMA is balanced. The vacancy rate during May 2015 was 6.8 percent, up from 4.8 percent 1 year earlier (Reis, Inc.). The increase in the current vacancy rate is because the many apartment units completed during the past 2 months are likely to be leased as students return to school in August. The average rent for an apartment is currently $994, which is up $46, or nearly 5 percent, from the previous year. The apartment vacancy rate declined from 7.0 percent during 2006 to 4.9 percent in 2009 and again to 2.7 percent in 2012 because of limited multifamily construction and an increase in the formation of renter households. At the end of 2012, the average rent for an apartment in the Madison HMA was $867, an ­average increase of $18, or more than 2 per­ cent, annually from the end of 2009. Multifamily construction started to increase in response to tightening apartment market conditions in 2012, and, as those new units began to come on line, the apartment vacancy rate increased, reaching 4.1 percent during 2013. The average rent for an apart- ment increased by $56, or more than 6 percent, to $923 in 2013. Multifamily construction, as measured by the number of units permitted, has increased significantly since the end of 2011 as builders have responded to tight rental market conditions. During the 12 months ending May multifamily units were permit- ted, an increase of 450 units, or 15 percent, from the previous 12 months (preliminary data). The current level of production is significantly higher than the average of 2,300 multifamily units permitted annually from 2000 through 2006. With the start of the economic downturn in 2007, multi­ family construction declined to an average of 1,075 units permitted an­- nually from 2007 through 2011. From 2012 through 2014, with tight apart- ment market conditions and above average population and job growth, the number of multifamily units per­- mitted increased significantly, peaking at 4,075 units permitted in 2014. During the 2014–2015 academic year, UW-M had an enrollment of more than 43,250 students, only 8,100 of whom lived on campus. The large number of students living off campus has a significant impact on the local housing market, and the rental market in particular. Rental Vacancy Rates in the Madison HMA, 2000 to Current Note: The current date is June 1, 2015. Sources: 2000 and 2010—2000 Census and 2010 Census; current—estimates by analyst Housing Market Trends Continued 2000 Current Multifamily Units Permitted in the Madison HMA, 2000 to Current Notes: Excludes townhomes. Current includes data through May 2015. Sources: U.S. Census Bureau, Building Permits Survey; estimates by analyst students at the university account for more than 13 percent of all renter households in the HMA and more than 35 percent of all renter house­ holds in the city of Madison. With this large number of students living off campus, part of the recent surge in multifamily construction are new apartment units that have been devel­- oped to meet the housing needs of students. Since 2012, more than 3,450 apartment units have been permitted within a ZIP Code that borders the university, accounting for more than 40 percent of all apartment units permitted in the HMA during that time. Apartments within ZIP Codes that border the university currently have a vacancy rate of 13.2 percent (Reis, Inc.). The high vacancy rate may be caused in part by the nearly 700 units that have come on line dur­- ing 2015 and were not available for students to rent until the start of the 2015–2016 school year. Although not strictly restricted to students, these new units will have anywhere from one to five bedrooms in each unit, with residents of these units being able to sign a lease on a per-bedroom basis, instead of a group of roommates signing a lease for the whole apartment together. Apartments located within a ZIP Code that borders the university have an average rent of $1,857, which is 87 percent higher than the HMA average. Part of the reason for higher rents around the university is because apartments with four and five bed­ rooms, which do not exist elsewhere in the HMA, have higher rents. Also, many of the units that cater to student housing needs come with most utili- ties included in the rent."}, {"role": "assistant", "content": "Enrollment at UW-M is expected to remain flat until the fall of 2018, when enrollment is expected to increase because more high school graduates are expected in the state of Wisconsin. The university has no current plans to construct new on-campus housing but will be under­ taking several renovations of existing dormitories during the next 3 years."}]}
{"messages": [{"role": "user", "content": "For purposes of this analysis, the HMA is divided into three submarkets: (1) the Cook County submarket, which includes the principal city of Chicago; (2) the Northern Counties submarket, which includes DeKalb, DuPage, Kane, Lake, and McHenry Counties in Illinois and Kenosha County in Wisconsin; and (3) the Southern Counties submarket, which includes Grundy, Kendall, and Will Counties in Illinois and Jas- per, Lake, Newton, and Porter Counties in Indiana."}, {"role": "assistant", "content": "Summary Economy Economic conditions in the Chicago HMA have improved since 2011, following 3 years of declines. During the 12 months ending May 2016, non­farm payrolls totaled 4.62 million jobs, reflecting a growth of 75,800 jobs, or 1.7 percent, from a year earlier. During the 3-year forecast period, nonfarm payrolls are expected to increase an average of 1.5 percent annually. Although the professional and business services sector is the largest employment sector in the HMA, the largest employer is the U.S. Government, with approximately 45,650 jobs as of December (Crain’s Chicago Business)."}]}
{"messages": [{"role": "user", "content": "Sales Market Sales housing market conditions in the HMA are soft but improving, with the sales vacancy rate estimated at 2.1 percent, down from 2.6 percent during April 2010. Demand is forecast for 25,375 new homes during the next 3 years, which includes 1,300 mobile homes (Table 1). The 3,075 single-family homes, townhomes, and condominiums currently under construction and a portion of the other vacant housing units that may reenter the sales market will satisfy some of the demand during the forecast period. Rental Market The rental housing market in the HMA is currently balanced. The estimated overall vacancy rate is 6.6 percent, down from 9.3 percent in 2010. The apartment market in the HMA is slightly tight, however, with a vacancy rate of 4.5 percent as of the first quarter of 2016 (MPF Research). During the next 3 years, demand is estimated for 19,375 new market-rate rental units, including the approximately 14,410 units currently under construction (Table 1)."}, {"role": "assistant", "content": "Housing Demand in the Chicago HMA* During the Forecast Period Chicago HMA Cook County Submarket Northern Counties Submarket Southern Counties Submarket Sales Units Rental Units Sales Units Rental Units Sales Units Rental Units Sales Units Rental Units Total demand Under construction * Chicago-Naperville-Elgin HMA. Notes: Total demand represents estimated production necessary to achieve a balanced market at the end of the forecast period. Units under construction as of June 1, 2016. A portion of the estimated other vacant units in the HMA will likely satisfy some of the forecast demand. Sales demand includes an estimated demand for 1,300 mobile homes. The forecast period is June 1, 2016, to June 1, 2019. Source: Estimates by analyst Economic Conditions T he Chicago region developed as a transportation hub for water transit, linking the Mississippi River and the Great Lakes, before transforming into the nation’s railroad hub during the mid-19th to late 19th century. Throughout its history, Chicago has been a center of whole- sale and retail trade, provisioning the nation during its westward expansion and producing some of the nation’s largest retailers, including Sears, Roebuck and Co.; Marshall Field & Co.; and Montgomery Ward & Co. During the 20th century, Chicago developed into a major manufacturing center, producing farm equipment, food, railroad cars, and steel. Today, Chicago is also a center of govern- ment, business, higher education, and health care."}]}
{"messages": [{"role": "user", "content": "Recent additions in this sector include jobs at Capital One, which announced plans in late 2013 to expand in downtown Chicago. Since that announcement, approximately 600 new employees have joined Capi- tal One Financial Corp. offices at the downtown Chicago location and an existing location in suburban Rolling Meadows. Finland-based Nokia Corp­oration purchased Chicago-based Navteq Corporation, a digital-mapping firm, in 2008 and has added staff each year since 2012. The company, now called HERE, employs approximately 1,200 workers in the HMA. Chicago is encouraging technology growth in the city with The City of Chicago Technology Plan, approved in the fall of 2013, which highlights 28 initiatives in 5 broad strategies: Next-Generation Infrastructure; Every Community a Smart Community; Efficient, Effective, and Open Government; Civic Innova- tion; and Technology Sector Growth. The number of jobs in digital em­ ployment, defined as software, B2B (business-to-business) web, consumer web, and ecommerce, increased from 33,000 in 2012 to 54,000 in 2015 (builtinchicago.org). Jones Lang LaSalle Inc., which produces the annual Technology Office Outlook report, for 2015, ranked Chicago as the fifth most promising location nationally for technology expansions based on a composite score account- ing for tech economic momentum, talent pool, startup friendliness, and market factors. Digital employment jobs in Chicago are primarily concen- trated in three community areas: The Loop (which includes downtown) and the Near West Side and River North, the latter two of which are adjacent areas west and north of The Loop. The Loop community area includes more digital technology employers than any other area in the HMA, and the River North community area hosts more technology firm startups. Current Nonfarm Payroll Jobs in the Chicago HMA,* by Sector * Chicago-Naperville-Elgin HMA. Note: Based on 12-month averages through May 2016. Economic Conditions Continued Government 12.0% Other services 4.2% Leisure & hospitality 10.0% Education & health services 15.3% Professional & business services 17.5% Wholesale & retail trade 15.5% Manufacturing 9.0% Mining, logging, & construction 3.7% Transportation & utilities 4.8% Financial activities 6.4% Information 1.8%"}, {"role": "assistant", "content": "Additional technology jobs are expected to follow when firms seek to locate near Google. The announcement of this move by Google in 2013 contributed to the growth of restaurants in the area and was a primary contributor to the development of new hotel capacity in the Near West Side. Other technology companies with substantial employ- ment in Chicago include Groupon Inc. (2,000 employees) in the River North community area and inflight wireless provider Gogo (more than 700 employees) in the Near West Side community area."}]}
{"messages": [{"role": "user", "content": "The three largest employers in the HMA are governments, currently the fourth largest employment sector in the HMA (Table 3). The government sector increased by 7,600 jobs, or 1.4 percent, during the past 12 months, all in local government employment, as federal and state government employment, in general, was stable. The next two largest employers in the HMA are Advocate Health Care and The University of Chicago, both in the education and health services sector, which recorded the second largest number of nonfarm payroll gains, 14,000 jobs, or 2.0-percent growth, during the past 12 months."}, {"role": "assistant", "content": "During the forecast period, nonfarm payrolls are expected to increase an average of 1.5 percent, or by 69,200 jobs, annually. Job growth is expected to continue to expand in the profes- sional and business services sector because many technology firms plan Crain’s Chicago Business, as of December Economic Conditions Continued Glassdoor, an online human resources company, plans to hire more than 250 workers in Chicago during the next 3 years, and Avant, Inc., an online lending institution, expects to hire up to 600 new workers. ConAgra Foods, Inc., announced it is moving its headquarters from Omaha, Nebraska, to Chicago during the summer of 2016. Although this move may result in the loss of approximately 1,500 jobs overall for the company, 700 jobs are expected to relocate to Chicago as a result. ConAgra Foods joins 31 current Fortune 500 companies with headquarters in the HMA; Chicago is ranked the number two North American city for international business headquarters (World Busi- ness Chicago, September . Employment is expected to increase in the education and health services sector, in part, because Rush Univer- sity Medical Center announced plans to build a new $500 million outpatient center at its hospital campus in the Near West Side neighborhood. The number of jobs to be added as a result of this expansion was uncertain at the time of this report. Employment is expected to grow in the construction subsector as additional commercial and residential construction is undertaken, and growth is expected to continue in the leisure and hospi- tality sector as new hotel properties are brought on line during 2016 and 2017. A number of cutbacks have been announced, however, which will impact employment during the next 3 years. Contractions include Motorola Mobility, which has begun the process of cutting 500 jobs from its Chicago workforce, and the loss of 270 office jobs from the Walgreen Company. Both cuts were announced during the summer of 2015. In the information sector, Harpo Studios, which has operated in the Near West Side neighborhood since 1990, is relocating all Chicago-based produc- tion efforts to California, resulting in the loss of approximately 180 jobs."}]}
{"messages": [{"role": "user", "content": "Population and Households T he population of the Chicago HMA has increased by 14,100, or 0.1 percent, annually since 2010, to an estimated 9.55 million as of June 1, 2016. (Tables DP-1 through DP-4 at the end of this report provide information on population growth in the HMA and submarkets.) Net popu­lation gains in the HMA can be attributed entirely to net natural increase (resident births minus resident deaths). The HMA has recorded net out-migration every year since 1991. Population growth averaged 0.4 percent annually, or 36,300 people, during the previous decade. From 2000 to 2004 (Census Bureau, July 1 estimates), the population in the HMA grew by 38,200, or 0.4 percent, with net out-migration averaging 33,950 people annually. From 2001 through 2003, nonfarm payrolls in the HMA declined 1.2 Economic Conditions Continued Components of Population Change in the Chicago HMA,* 2000 to Forecast * Chicago-Naperville-Elgin HMA. Notes: The current date is June 1, 2016. The forecast date is June 1, 2019. Population and Household Growth in the Chicago HMA,* 2000 to Forecast * Chicago-Naperville-Elgin HMA. Notes: The current date is June 1, 2016. The forecast date is June 1, 2019. Sources: 2000 and 2010—2000 Census and 2010 Census; current and forecast— estimates by analyst percent each year and registered an increase of only 1,900 jobs during 2004. From 2005 through 2007, non- farm payrolls in the HMA increased 1.1 percent annually; however, payroll growth averaged 1.5 percent annu- ally in the United States during that period. Thus, more job opportunities in other areas of the country relative to the HMA led Chicago residents to move to faster-growing areas, and out-migration increased to 45,550 people from 2004 to 2007, leading to a slower population growth rate of 0.3 percent annually. After register- ing a growth of 37,400 jobs, or 0.8 percent, during 2007, the economy in the HMA and the national economy both contracted sharply from 2008 through 2010. During this time, from 2007 to 2010, net out-migration de­creased by nearly 50 percent, to 23,650 each year, leading to popula- tion growth of 45,100 people, or 0.5 percent, annually. Although the economic downturn was more severe in Chicago than it was for the nation, comparatively fewer jobs were available outside the HMA. Also, with home values contracting and more stringent mortgage lending standards in place, homeowners were less mobile because of difficulty in selling their homes. The Northern Counties and Southern Counties submarkets comprise 29 and 16 percent, respectively. These propor­tions are unchanged from 2010. The Cook County submarket, with an estimated population of 5.23 million as of June 1, 2016, has increased by 6,050, or 0.1 percent, annually since 2010. Net population growth in the Cook County submarket since 2010 has been greater than growth in the other submarkets, accounting for nearly 43 percent of the total gain for the HMA. This growth represents a reversal from the average annual population declines of 18,200, or 0.3 percent, during the previous decade. Significant population loss during the early part of the decade overshadowed growth that began in Cook County during 2007. From 2000 to 2006, the population of Cook County declined by 33,800 annually, or 0.6 percent, and net out-migration averaged 71,650 people a year. From 2006 to 2012, however, the level of net out-migration from Cook County declined, averaging 25,050 annually, and the population began to grow during 2007. Local officials indicate that declining net out-migration from Cook County from 2007 to 2010 was a result of people wanting to remain closer to the downtown employment center, with shorter commutes and access to the city’s public transit system. Net out-migration began to increase again during 2012 and has averaged 28,550 people annually since 2012. Certain suburban Cook County communities such as Glenview, Orland Park, and Evanston have gained resi- dents since 2010, but more than 50 percent of the population growth in Cook County between 2010 and 2013 was in the city of Chicago. Beginning in 2014, population in both the city and the county began to decline. In the downtown Chicago area within the Cook County submarket are three neighborhoods of expanding technology employment: The Loop, the River North, and the Near West Side (hereafter, the Downtown Area). The population in the Downtown Area has increased by an estimated 6,900, or 4.1 percent, annually since 2010, contributing nearly 60 percent of the population growth in the Cook County submarket during the period. The population of this area, which was in 2000, grew to in 2010 and is currently estimated to be . The Northern Counties and Southern Counties submarkets have populations currently estimated at 2.75 and 1.57 million, respectively, with increases of 5,675 and 2,375, or 0.2 percent each, annually since 2010. During the 2000s, population growth averaged 26,450 people annually in the Northern Counties submarket and 28,000 people annually in the Southern Counties submarket, rates of 1.0 and 2.0 percent, respectively. In both submarkets, net in-migration was recorded during the earlier years of the decade and turned to net out-migration by the end of the decade. In the Northern Counties submarket, net in-migration averaged 11,150 people from 2000 to 2004, contributing to population growth of 35,150 people, or 1.4 percent, during the period. From 2004 to 2010, net out-migration averaged 1,350 people annually, and the population growth declined to 20,050 people, or 0.8 per- cent, annually, coinciding with similar demographic patterns recorded for Population and Households Continued In the Southern Counties submarket, net in-migration averaged 23,450 people annually from 2000 to 2007, leading to population growth of 33,700 people a year, a 2.5-percent annual gain. From 2007 to 2010, net in-migration averaged 2,400 people annually, significantly less than the previous level, and popula- tion growth declined to 13,000 people, or 0.9 percent, annually. Although the Southern Counties submarket aver- aged annual net in-migration for the decade from 2000 to 2010, net out- migration began during 2009. Since 2010, net out-migration has occurred in both submarkets, averaging 9,025 people annually from the Northern Counties submarket and 4,675 people annually from the Southern Coun- ties submarket. Growth in the two submarkets is generally aligned with transit linkages to Chicago, along major highways such as Interstate 55 (I-55), I-88, and I-90, and also in proximity to transit stations along several Metra commuter rail lines. The changes in migration patterns across all three submarkets are mod- estly related. Migration from Cook County into the other two submarkets increased from 2001 through 2006 and then declined from 2006 through 2010 (Internal Revenue Service). Since 2010, migration from Cook County into the two submarkets has begun to expand again. By contrast, net in-migration from the suburban submarkets to Cook County, in gen- eral, was stable through 2006, before increasing from 2006 through 2012. During 2013, the most recent data available, however, net in-migration from the two suburban submarkets into Cook County declined, in part, because overall net out-migration, to any destination, declined. The Cook County submarket has also attracted a larger number of new migrants into the HMA. From 2010 through 2013, migration from outside the HMA to the Cook County submarket accounted for approximately 41 percent of overall immigration to the HMA, up from 38 percent during the previous decade. The number of households in the Chicago HMA has increased by 10,900, or 0.3 percent, annually since 2010, which is below the average annual 0.6-percent rate, or 19,550 households, recorded during the previous decade. The lower rate of household formation is because of slower population growth since 2010. Mirroring population dynamics, growth in the number of households has slowed in the Northern Counties and Southern Counties submarkets and has increased in the Cook County submarket since 2010. In the Cook County submarket, household change during the previous decade was most- ly stable, averaging declines of 780 households annually. This trend has reversed since 2010, and household growth averaged 6,325 households annually, or 0.3 percent, to a current total of 2.01 million households. Household growth during the previ- ous decade in the Northern Counties and Southern Counties submarkets were 10,650 and 9,675 households annually, gains of 1.2 and 2.0 percent, respectively. Since 2010, household growth has slowed in each submarket, to 2,900 households annually in the Northern Counties submarket and 1,625 households annually in the Southern Counties submarket, rates of 0.3 percent each, to current totals of and households, respectively. Because of the effects of the most recent economic recession Population and Households Continued Number of Households by Tenure in the Cook County Submarket, 2000 to Current Note: The current date is June 1, 2016. Number of Households by Tenure in the Northern Counties Submarket, 2000 to Current Note: The current date is June 1, 2016. Number of Households by Tenure in the Southern Counties Submarket, 2000 to Current Note: The current date is June 1, 2016. Sources: 2000 and 2010—2000 Census and 2010 Census; current—estimates by analyst and more stringent lending standards, household growth since 2010 has been in renter households. This trend toward renting is true in each submar- ket in the HMA; all net household growth was in renter households."}, {"role": "assistant", "content": "Because of the modest economic fore- cast, population growth in the HMA during the next 3 years is expected to remain at 0.1 percent, equal to 5,000 people annually. During this time, net natural increase will continue to account for all population growth because net out-migration should continue, averaging 42,400 people annually. Population is expected to decline slightly, by 330 annually, in the Cook County submarket. The population is forecast to expand 0.2 percent, or by 4,325, annually in the Northern Counties submarket and 0.1 percent, or by 1,000, annually in the Southern Counties submarket. The number of households is expected to increase in each submarket, at rates of 0.2 percent in the Cook County and Southern Counties submarkets and at a higher 0.3-percent rate in the Northern Counties submarket. This expected household growth leads to forecast household counts of 2.02 million, and in the three submarkets, respectively, and an HMA household count of 3.57 million. The economic recovery in the HMA, comparatively low levels of single- family home construction, and in­creas­ing population since 2010 have contributed to improvement in the sales housing market. The continu- ing effects of the previous national recession that ended in 2009, tighter mortgage lending standards, and a shift to rental tenure in the submarket, however, contributed to a decline in the homeownership rate, which is cur- rently estimated at 56.0 percent, down from 58.2 percent in April 2010. During the 12 months ending April 2016, new and existing home sales (including single-family homes, town­ homes, and condominiums) in­creased in the submarket. New home sales totaled 1,800 homes sold during the past 12 months, 17 percent more than a year earlier, and the average new home sales price was per- cent below the average price from the previous year (CoreLogic, Inc., with adjustments by the analyst). New home sales averaged 6,600 homes sold during 2002 and grew nearly 50 percent each year, until reaching the recent peak of 20,300 homes sold during 2005. New home sales remained elevated, averaging 16,650 homes sold annually during 2006 and 2007 before falling sharply during 2008, to 8,100 homes sold, coinciding with the onset of the most recent national recession. During 2009 and 2010, as the local and national economies continued to contract, new home sales fell further, dropping 41 percent during 2009, to 4,800 homes sold, and to 3,425 homes sold during 2010. During 2011, new home sales fell again, to 1,600 homes sold, a 53-percent decline from 2010. Local real estate professionals attribute this decline, despite improving economic conditions, to dislocations in the mortgage lending market, specifically the requirement for higher down pay- ments, which impacted higher-priced new home sales more than the resale housing market. In addition, a shift toward rental housing occurred, with large numbers of new apartments entering the Cook County submarket, in both the city of Chicago and sub­ urban locations, which were absorbed quickly. Since 2011, new home sales have remained low, totaling 2,000 homes sold during 2012 and 2,100 homes sold during 2013. By contrast with new home sales, average new home sales prices have increased since bottoming out in 2011. The average new construction home sales price increased 1 percent annually from 2003 through 2007, before rapid growth of 23 percent during 2008, to . The high sales price during 2008 was at the end of the inflated housing market in the Chicago HMA, and, when sales declined during 2008, the average sales price also fell, but not as severely. New home sales prices averaged during 2009 and 2010 and the number of sales declined. The average new home sales price declined 9 percent during 2011, As with new home sales, existing home sales are also below previous highs, but sales prices for existing homes have not recovered as strongly as new home sales prices. Existing home sales in the submarket in- creased during the past 12 months, to 61,700 homes sold, a 2-percent gain from a year earlier. The average sales price during the period was up more than 11 percent from the previous year. Sales of existing homes averaged 78,450 homes sold annually during and 2003 and increased to an average of homes sold annually during 2004 and 2005, the peak for existing home sales activity. Following this 2-year peak, existing home sales fell during the next 3 years, declining an average of 28 percent annually from the end of 2005 through 2008, to average 40,600 homes sold annually from 2009 through 2011, when the local and na- tional economies weakened. During 2012, home sales increased to 51,600 homes sold, up 25 percent from 2011. Existing home sales continued growing to an average of 61,650 homes sold annually during 2013 and 2014, signs of a modest recovery in the market. The average sales price for an existing home in the submarket grew steadily, from during 2001 to during 2007, with gains averaging nearly 6 percent annually before dropping 6 percent annually during the next 5 years to the recent low average sales price of during 2012. The largest single-year decline in home sales prices was 18 percent during 2009, the same year as the greatest number of nonfarm payroll job losses in the HMA. As economic conditions began to improve and the population began to grow, average sales prices rose, gaining 11 percent during 2013 and 9 percent during 2014, to an average price of . Seriously delinquent loans and distressed sales have had a negative impact on existing home sales prices in the HMA during recent years. In April 2016, 4.5 percent of mortgage loans in the Cook County submarket were seriously delinquent (90 or more days delinquent or in foreclosure) or had transitioned into real estate owned (REO) status, down from 6.0 percent a year earlier (CoreLogic, Inc.). By comparison, the rate of seriously delinquent loans and REO properties in the state of Illinois for April 2016 was 3.5 percent, down from 4.6 percent during April 2015. The national rate was 2.9 percent during April 2016, down from 3.7 percent a year earlier. The percentage of distressed sales (REO and short sales) as a proportion of all existing sales in the submarket was less than 5 percent until 2008, when it began increasing precipitously, peaking at 37 percent during 2011. The effect that distressed home sales have on average sales prices is significant. During 2011, when distressed home sales peaked as a ratio of all existing home sales, the average price for a distressed home sale was and the aver- age price for a nondistressed home sale was . The presence of distressed sales resulted in an overall average sales price for existing homes of more than 20 percent below the nondistressed average sales price. The rate of distressed sales has declined since 2012 but remains elevated, averaging 19 percent during Housing Market Trends Sales Market—Cook County Submarket Continued During the 12 months ending April 2016, the average sales price for a distressed home sale was and the average sales price for a nondistressed home sale was . The impact of distressed home sales is lessening, but the average sales price for all existing home sales, of is more than 3 per- cent below the nondistressed price (CoreLogic, Inc., with adjustments by the analyst). By comparison, the national rate of distressed sales as a percentage of all resales, which peaked at 34 percent during 2011, or 1 year before the submarket peak, was 10 percent of all resale homes during the 12 months ending April 2016, down from 13 percent during April 2015. Single-family homebuilding, as measured by the number of homes permitted, expanded 6 percent in the Cook County submarket during the 12 months ending May 2016, to 1,675 homes permitted (preliminary data). During the 3 years from 2009 through 2011, developers built fewer homes in response to the low level of new home sales and falling home prices in the submarket. Single- family home construction declined to record low levels, averaging 720 annually from 2009 through 2011, before beginning to gradually recover, to 1,325 annually from 2012 through 2014. Despite the nearly doubling rate of the number of homes permitted, the annual average of 1,325 homes permitted remains low by historic standards and reflects the soft market and developers’ caution regarding single-family homebuilding in this submarket. Condominium development and sales in the Chicago HMA are primarily concentrated in the Cook County sub- market, which accounted for nearly 80 percent of HMA condominium sales since 2010, up from 74 percent from 2005 through 2009 (Metrostudy, A Hanley Wood Company, with adjustments by the analyst). During the 12 months ending March 2016, condominium sales totaled 35,050 units sold, 7 percent more than the number sold during the previous 12 months, and the average sales price increased 1 percent, to . Condominium sales in the submarket averaged 42,000 units sold annually during 2006 and 2007, before falling to an average of 21,450 units sold ­annually from 2007 through 2012. Sales then rose to average 33,200 units sold annually during 2013 and 2014. Average sales prices for condominiums were from 2005 through 2009, declined to during 2010, and bottomed out at an average of during 2011 and 2012. Single-Family Homes Permitted in the Cook County Submarket, 2000 to Current Notes: Includes townhomes. Current includes data through May 2016. Sources: U.S. Census Bureau, Building Permits Survey; estimates by analyst Housing Market Trends Sales Market—Cook County Submarket Continued An estimated 550 single-family homes and townhomes and 520 condomini- ums are currently under construction in the submarket. Despite population growth since 2010 in the Downtown Area, condominium development has been relatively restrained after large properties like Trump Tower (486 units) and 235 Van Buren (714 units) sold out during 2014. During 2015, remaining for-sale inventory at the Museum Park Place development in the city’s Near South Side neighbor- hood sold out. Current new con- struction in and around downtown Chicago is primarily rental, although developers are beginning to propose smaller owner-occupied properties of 20 to 60 units. In the River North community area of the city of Chi- cago, Sedgwick at Locust is scheduled to begin occupancy in the fall of 2016. Sedgwick at Locust includes 45 new-construction condominium units, with two-bedroom units priced from approximately and three- bedroom units from approximately . At Grant Park within the Sheffield Square development by M/I Homes in Orland Park, Illinois, approximately 15 miles southwest of downtown Chicago, new construction townhomes start at . In this development, which is walkable to a Metra commuter train station, more than 90 percent of the 160 home sites are sold. During the next 3 years, demand is estimated for 11,250 new homes in the submarket, including an estimated 500 mobile homes (Table 1). The estimated 1,075 single-family homes, townhomes, and condominiums currently under construction and a portion of the 95,000 other vacant units in the submarket that may come back on the market will satisfy some of the demand. Demand is expected to be stronger during the second and third years of the 3-year forecast period, as the home sales market continues to recover. Demand is expected to be greatest for homes priced from to . Table 4 shows the estimated demand for new market-rate sales housing in the submarket by price range. Table 4. Estimated Demand for New Market-Rate Sales Housing in the Cook County Submarket During the Forecast Period Price Range ($) Units of Percent From To Demand of Total and higher Notes: The 1,075 homes currently under construction and a portion of the estimated 95,000 other vacant units in the submarket will likely satisfy some of the forecast demand. Demand for 500 mobile homes during the forecast period is excluded from this table. The forecast period is June 1, 2016, to June 1, 2019. Since 2010, the rental market has improved considerably, primarily because of the increasing population in the submarket and a shift in preference from homeowner- ship to renting. These factors have helped the rental market absorb an estimated 25,500 existing vacant and constructed rental units during the Housing Market Trends Sales Market—Cook County Submarket Continued"}]}
{"messages": [{"role": "user", "content": "Rental Vacancy Rates in the Cook County Submarket, 2000 to Current Note: The current date is June 1, 2016. Sources: 2000 and 2010—2000 Census and 2010 Census; current—estimates by analyst period. Rental households currently account for approximately 44 percent of all households in the submarket, up from 41.8 percent in April 2010. Single-family rental units currently comprise an estimated 15 percent of the rental stock compared with 9 percent in 2000. The effect of fore- closures and resulting stronger rental demand have prompted additional single-family home conversions into rental units. The apartment market in the sub­ market is slightly tight as of the first quarter of 2016, with a vacancy rate estimated at 4.1 percent, up from 3.7 percent during the first quarter of 2015 (MPF Research). Apartment market conditions were tight to slightly tight throughout the submarket, with vacancy rates ranging from a low of 2.8 percent in the MPF Research- defined Central Cook County market area (hereafter, area) to a high of 5.3 percent in the Streeterville/River North area, where nearly 1,500 new apartments were added to the supply during the past year. The average rent in the submarket was approximately $1,400 per month, more than 5 percent higher than the average rent a year ear- lier. The highest rent in the submarket was in the Streeterville/River North area, where rents averaged $2,130, nearly 6 percent higher than a year earlier. Concessions are currently being offered at fewer than 5 percent of properties in all MPF Research- defined areas except the North Cook County area, where 8 percent of units are offering concessions, equal to 1 month’s free rent with a 12-month lease (MPF Research). The Loop and the Streeterville/River North areas have the highest rents of all Cook County areas. Approximately 710 and 1,500 new, market-rate rental units entered the inventory during the past 12 months in The Loop and Streeterville/ River North areas, respectively. Responding to tight apartment market conditions in the submarket, developers have expanded multifamily construction, as measured by the number of units permitted. During the 12 months ending May 2016, the number of multifamily units permitted totaled 8,625, approximately 14 percent fewer than the 10,050 units permitted during the 12 months ending May 2015. Despite this decline during the past 12 months, the number of multifamily units per­ mitted has grown significantly since 2010, and the number of units permitted Housing Market Trends Rental Market—Cook County Submarket Continued Current From 2011 through 2014, the number of multi- family units permitted averaged 6,200 annually, with approximately 12 percent of those units being permitted for owner occupancy and 72 percent located in the city of Chicago. This pattern of multifamily permitting represents a change from permitting from 2000 through 2010, a period when multifamily units were more evenly distributed throughout Cook County and more units permitted were intended for owner occupancy. From 2000 through 2007, the number of multifamily units permitted in the submarket averaged 10,450 annually, with approximately 58 percent of all units permitted for owner occupancy and 54 percent of all units permitted in the city of Chicago. As the number of nonfarm payroll jobs decreased each year from 2008 through 2010, multifamily production declined as well. Permitting for multifamily developments averaged 2,600 units annually from 2008 through 2010, and the proportion of those units intended for owner occupancy fell to approximately 25 percent of the total and 87 percent were in the city of Chicago. This decline in condo- minium development also correlates with the increase in foreclosed and REO homes described previously in the Cook County submarket sales housing section. Because of the recent significant economic development and popula- tion growth in the Downtown Area of Chicago described earlier in this ­report, a higher proportion of multi­ family housing is being constructed there. Of the 6,200 units permitted annually in the Cook County submar­ ket from 2011 through 2014, approx­ imately 2,900 units each year, or 47 percent of the submarket total and 65 percent of the city of Chicago total, were permitted in the three neighbor- hoods that comprise the Downtown Area. An estimated 11,100 rental units are currently under construction in the submarket, accounting for 77 percent of all multifamily units under con­struction throughout the Chicago HMA. Of these 11,100 units, approx­ imately 8,400 are in the city of Chicago and 5,200 are in the Downtown area. Among properties currently in lease up, Wolf Point West apartments, in the River North community area began leasing 509 units in January 2016, with rents for studio, one-bedroom, and two-bedroom units starting from and $4,264, respectively. Wolf Point West also includes penthouse units, some with three bedrooms, at higher rent levels. As of April 2016, over 35 percent of the 509 units were leased at Wolf Point West. In Evanston, Illinois, north of Chicago in suburban Cook County, E2 Apartments opened in the spring of 2015 and recently reached sustaining occupancy. Multifamily Units Permitted in the Cook County Submarket, 2000 to Current Notes: Excludes townhomes. Current includes data through May 2016. Sources: U.S. Census Bureau, Building Permits Survey; estimates by analyst Housing Market Trends Rental Market—Cook County Submarket Continued At both properties, Wolf Point West and E2, rents have increased an average of approxi- mately 10 percent among all bedroom sizes since January 2016."}, {"role": "assistant", "content": "During the 3-year forecast period, demand is expected for 15,650 new market-rate rental units. The 11,100 units currently under construction will meet a significant amount of that demand (Table 1), including all the demand in the first 2 years of the forecast period. Given the number of units under construction, demand for additional rental housing is expected to be minimal during the second year and increase in the third year of the forecast period. Table 5 shows the estimated demand for new market- rate rental units in the submarket by rent and number of bedrooms."}]}
{"messages": [{"role": "user", "content": "Estimates by analyst Sales Market—Northern Counties Submarket The sales housing market in the Northern Counties submarket is currently balanced, with an estimated vacancy rate of 1.7 percent, down from 2.2 percent in April 2010. Dur- ing May 2016, the unsold inventory in the submarket was 14,850 homes, approximately 13 percent fewer than a year earlier and nearly 40 percent less than in May 2010 (Yahoo!-Zillow Real Estate Network). The eco- nomic recovery in the HMA and the relatively low levels of single-family home construction have contributed to improving sales housing market conditions. A shift to rental tenure in the submarket, however, has lowered the homeownership rate to a current estimate of 73.0 percent, down from 75.5 percent in April 2010. During the 12 months ending April 2016, new home sales (including single-family homes, townhomes, and condominiums) declined from a year earlier, while existing home sales in- creased in the submarket. New home sales totaled 2,250 homes sold during the past year, 14 percent less than the 2,625 homes sold during the previous 12-month period. At the same time, the average new home sales price was approximately 8 percent higher than a year earlier and higher than the previous record of during 2008 (CoreLogic, Inc., with adjustments by the analyst). New home sales averaged 10,200 homes sold annually from 2000 through 2003, before increasing to an average of 12,000 homes sold during the Housing Market Trends Rental Market—Cook County Submarket Continued The combined period, from 2000 through 2006, coincided with net in-migration and annual population growth averag- ing 1.2 percent. The rate of popula- tion growth has declined to less than 1.0 percent annually since, however. The number of new homes sold in the submarket fell to 8,600 during 2007, a 24-percent decrease from 2006. From 2007, new home sales continued to drop for the next 4 years, to an aver- age of 1,525 new homes sold during 2011, representing decreases averag- ing 35 percent annually. This period of sharp declines in the number new homes sold coincided with falling nonfarm payrolls and continued even as the number of jobs stabilized and began increasing, in part, because of stringent mortgage underwriting requirements, including larger down payments. New construction home sales increased from 2011 through 2014 before the decline during the past 12 months, averaging and 2,575 homes sold during and 2014, respectively. The average sales price for a new home in the submarket increased steadily through 2008, declined for 3 years through 2011, and has increased since 2012. From 2001 through 2008, new home sales prices increased nearly 5 percent annually, to a peak of during 2008. From 2009 through 2011, average new home sales prices declines averaged nearly 6 percent annually, reaching a recent low of during 2011. Since bottoming out in 2011, new home sales prices have increased, averaging gains of 4 percent annually to the cur- rent average sales price of . During the 12 months ending April 2016, in the Northern Counties submarket, existing home sales increased 2 percent, to 40,250 homes sold, from 39,400 homes sold during the previous year. At the same time, the average sales price was percent higher than the price a year earlier. Existing home sales in the submarket were relatively stable during the early 2000s, averaging 61,250 homes sold annually from 2001 through 2005, before a 19-percent decline in sales, to 51,300 homes sold, during 2006. Sales declined 25 percent, to 38,450 homes sold during 2007. As economic conditions in the Chicago HMA weakened, existing home sales continued to decrease, averaging 25,550 homes sold annually during the 4-year period from 2008 through 2011, before beginning to increase. Existing home sales increased 30 percent, to 33,350 homes sold during 2012 and rose 24 percent during 2013, to 41,250 homes sold, before declin- ing 7 percent, to 38,450 homes sold during 2014. Average prices for existing home sales increased from during 2001 to the decade peak of during 2007, representing average increases of 6 percent annually. From 2008 through 2012, average sales prices declined, registering drops of 6 percent annually, to a low of during 2012. Since bottoming out in 2012, existing home sales prices have partially recovered, increasing 6 percent annually to the current average of . The impact of seriously delinquent loans and distressed home sales in the Northern Counties submarket has been significant since 2008, and negatively impacted existing home sales prices as occurred in the Cook County submarket. In April 2016, 2.7 percent of mortgage loans in the submarket were seriously delinquent (90 or more days delinquent or in Housing Market Trends Sales Market—Northern Counties Submarket Continued The percentage of distressed sales (REO and short sales), as a proportion of all existing sales in the submarket, was less than 5 percent until 2007, when it began to increase drastically, peaking at 38 percent during 2013. This peak of distressed sales ratio occurred later than the peak in the Cook County sub­market. This late peak is due primarily to differences in economic and housing market conditions for owners in the two submarkets. In the Northern Counties submarket, the average household income was approximately 25 percent higher than in the Cook County submarket, on average, from 2007 to through 2014 American Community Survey, 1-year data). In addition, the number of owner households experi- encing cost burden, defined as paying more than 30 percent of household income for housing costs, is lower in the Northern Counties submarket than in the Cook County submarket. During 2013, an estimated 30 percent of owner households in the Northern Counties submarket reported cost- burden status compared with nearly 35 percent of owner households in the Cook County submarket reporting such hardship. After the economy contracted and reached its bottom during 2009, households in the North- ern Counties submarket were in better financial condition than households in the Cook County submarket, and, while overall able to delay foreclosure proceedings, were unable to avoid them. During 2013, when distressed home sales peaked in the Northern Counties submarket as a proportion of all exist- ing home sales, the average price for a distressed home sale was and the average price for a nondis- tressed home sale was . The presence of distressed sales resulted in an overall average sales price for existing homes of nearly 17 percent below the nondistressed aver- age sales price. The rate of distressed sales has declined since 2013 but remains elevated, averaging 17 percent during the 12 months ending April 2016, down from 22 percent a year earlier, and continues to depress resale home sales prices. During the 12 months ending April 2016, the aver- age sales price for a distressed home sale was and the average sales price for a nondistressed home sale was . The impact of distressed home sales is lessening, but the average sales price for all existing home sales was more than 2 percent below the nondistressed price (CoreLogic, Inc., with adjustments by the analyst). Single-family homebuilding, as measured by the number of homes permitted, during the 12 months ending May 2016, totaled 3,400 homes permitted, nearly 6 percent less than were permitted in the Northern Coun- ties submarket during the 12 months ending May 2015 (preliminary data). The number of homes permitted fell even further, averaging 1,925 homes permitted annually from 2009 through 2011, similar to levels in the Cook County submarket, before starting to recover. From 2012 through 2014, the number of single- family homes permitted increased to average 3,150 annually, which is greater than the homebuilding Housing Market Trends Sales Market—Northern Counties Submarket Continued An estimated 1,025 single-family homes and townhomes and 125 condominiums are currently under construction in the Northern Coun- ties submarket. At Ingham Park, in Aurora, Kane County, Illinois, 76 new single-family homes with four bedrooms are being marketed at sales prices from to . Nearly 90 percent of the homes were sold at the time of this analysis. In Hawthorn Woods, Lake County, Illinois, Hawthorn Hills Ranches lists 16 available homes and 27 sold, among a 76-homesite neighborhood, with the remaining 33 lots yet to enter the market. The single-family homes at Hawthorn Hills Ranches are 1,785 square feet and larger and are priced from to . During the next 3 years, demand is expected for 10,500 new homes in the submarket, including an estimated 500 mobile homes ( The current date is June 1, 2016. Multifamily Units Permitted in the Northern Counties Submarket, 2000 to Current Notes: Excludes townhomes. Current includes data through May 2016. Sources: U.S. Census Bureau, Building Permits Survey; estimates by analyst Housing Market Trends Rental Market—Northern Counties Submarket Continued Current When the number of multifamily units permitted increased during 2006, to 6,325, DuPage and Lake Counties each accounted for one-third of the annual total, and, during 2007, the number of multifam- ily units permitted increased heavily in DuPage County, where two-thirds of the development was located. From 2008 through 2014, when multifamily permitting was comparatively low, 35 percent of the units permitted were in Lake County, 30 percent were in DuPage County, and 15 percent each were in Kane and McHenry Counties. An estimated 2,400 multifamily units are currently under construction in the submarket. Metro 59 is currently under construction in Aurora, DuPage County, Illinois, and scheduled for occupancy in the fall of 2016. Metro 59 includes 460 apartment units, is walkable to a Metra train station, and includes rents starting at $1,290 for studio units, $1,495 for one-bedroom units, $2,120 for two-bedroom units, and $2,855 for three-bedroom units. In Deerfield, Lake County, Illinois, monthly rents at the 128-unit Wood- view Apartments start at $1,540 for a studio unit, $1,819 for a one-bedroom unit, and $2,394 for a two-bedroom unit."}, {"role": "assistant", "content": "During the 3-year forecast period, demand is expected for 2,650 new market-rate rental units (Table 1). The 2,400 units currently under construc- tion will satisfy most of the forecast demand. Demand for additional units beyond those already under construc- tion will be strongest during the third year of the forecast period. Table 7 shows the estimated demand for new market-rate rental units in the submar­ ket by rent and number of bedrooms."}]}
{"messages": [{"role": "user", "content": "Estimates by analyst Sales Market—Southern Counties Submarket The sales housing market in the South­ ern Counties submarket is currently soft, with an estimated vacancy rate of 2.2 percent, above the 2.1-percent rate in April 2010. During May 2016, the unsold inventory in the submarket was 6,950 homes, nearly 12 percent less than a year earlier and 40 percent less than in May 2010 (Yahoo!-Zillow Real Estate Network). As in the other submarkets, the economic recovery and relatively low levels of single- family home construction in the submarket have aided the strengthen- ing of the sales housing market. The submarket has also registered a shift toward increased rental tenure. The current homeownership rate is estimated at 75.9 percent, down from 77.4 percent in April 2010, which, despite the decline since 2010, is the highest rate in the HMA. The number of new home sales in the submarket rose strongly, from 5,600 homes sold during 2001 to 12,800 homes sold during 2005, with growth averaging 23 percent annually. Beginning in 2006, new home sales in the submar- ket began to decline sharply, dropping an average of 32 percent annually, to 1,225 new homes sold during 2011. Since bottoming out in 2011, new home sales have increased, to the current total of 2,025 homes sold, which represents gains averaging 12 percent annually. The Southern Counties submarket is and has been a more affordable sub- market than either of the other two submarkets in the Chicago HMA. The current average sales price in the submarket for newly constructed homes is compared with for the Northern Counties submarket and for the Cook County submarket. Average sales prices for new homes in the Southern Counties submarket rose nearly 5 per- cent annually, from during 2001 to during 2007. Aver- age new home sales prices then fell an average of 7 percent annually to a recent low of during 2009. During 2010, average new home sales prices increased 5 percent, to . Average new home prices remained relatively stable, averaging during 2011 and during 2012, before increasing to the current average of which represents a 1-percent gain from a year earlier. Existing home sales in the Southern Counties submarket totaled 25,600 homes sold during the 12 months ending April 2016, 6 percent fewer sales than a year earlier. Regular, non­ distressed resale home sales, however, increased nearly 1 percent during the same time, and the decline during the past year was in distressed home sales. Existing home sales averaged 26,150 homes sold during 2001 and increased at an average annual rate of 11 percent to the peak of 40,250 homes sold during 2005. During 2006, average sales of existing homes began to decline, to 37,600 homes sold, a 7-percent drop, followed by a 23-percent contraction during 2007, to 28,900 homes sold. After existing sales declined a further 27 percent during 2008, total sales of existing homes then averaged 18,800 homes sold annually from 2009 through 2011. Sales began to increase during 2012, to 22,500 homes sold, or 23 per­cent more than during 2011. Since 2012, existing home sales have increased an average of 4 percent annually to the current total of 25,600 homes sold. The average existing home sales price peaked during 2006 and 2007, averag­ ing reflecting increases averaging 6 percent annually from the 2001 average sales price of . After that 2-year peak period and before the economy began to weaken during 2008, average sales prices declined 6 percent annually, to the re- cent low annual average of during 2011. Since 2011, average home sales prices have increased, to the current average of for the 12 months ending April 2016, up 10 percent from the previous 12 months. In April 2016, 3.7 percent of mortgage loans in the submarket were seriously delinquent (90 or more days delinquent or in foreclosure) or had transitioned into REO status, down from 4.9 percent a year earlier (CoreLogic, Inc.). The percentage of distressed sales (REO and short sales), as a proportion of all existing sales in the submarket, was less than 5 percent until 2007, when it began to increase substantially, peak- ing at 33 percent during 2012. When distressed home sales peaked during 2012 as a ratio of all existing home sales, the average price for a distressed home sale was and the aver- age price for a nondistressed home sale was . The presence of distressed sales resulted in an overall average sales price for existing homes of more than 10 percent below the nondistressed average sales price. The effect that distressed home sales have on average sales prices was evident but less substantial in the Southern Counties submarket than in the other two submarkets because of lower average resale prices overall in the Southern Counties submarket. The rate of distressed sales has declined since 2012 but remains elevated, aver­aging 19 percent during the 12 months ending April 2016, down from 24 percent a year earlier. During the 12 months ending April 2016, the average sales price for a distressed home sale was and the average sales price for a nondistressed home sale was . As in the other two submarkets, the impact of distressed home sales on resale home sales prices is lessening in the South- ern Counties submarket. The average sales price for all existing home sales was approximately 2 per- cent below the nondistressed price (CoreLogic, Inc., with adjustments by the analyst). Single-family homebuilding, as meas­ ured by the number of homes permit- ted, totaled 2,700 homes permitted in the Southern counties submarket during the 12 months ending May 2016, approximately 4 percent more than a year earlier (preliminary data). Single-family home permitting in the submarket followed a similar pattern reported in the other two submarkets in the Chicago HMA. From 2009 through 2011, levels of single- family home permitting were low, averaging 1,600 homes annually. As the number of new home sales began to increase during 2011, single-family permitting also increased, to 2,400 homes permitted annually, from 2012 through 2014. An estimated 850 single-family homes are currently under construction in the Southern Counties submarket. Single-Family Homes Permitted in the Southern Counties Submarket, 2000 to Current Notes: Includes townhomes. Current includes data through May 2016. Sources: U.S. Census Bureau, Building Permits Survey; estimates by analyst Housing Market Trends Sales Market—Southern Counties Submarket Continued In northwest Indiana, SummerTree, in Crown Point, Lake County, advertises 13 available home­ sites with 7 sold in a new neighborhood of single-family homes including three and four bedrooms and with prices ranging from to . During the next 3 years, demand is expected for 3,625 new homes in the submarket, including an estimated demand for 300 mobile homes (Table 1). The estimated 850 homes currently under construction and a portion of the 26,000 other vacant units in the submarket that may come back on the market will satisfy some of the demand. Demand is expected to be relatively stable throughout the 3-year forecast period, because the owner market was not as severely impacted in the Southern Counties submarket as in the other two submarkets in the HMA. Demand is expected to be greatest for homes priced from to . Table 8 shows the estimated demand for new market-rate sales housing in the submarket by price range."}, {"role": "assistant", "content": "Table 8. Estimated Demand for New Market-Rate Sales Housing in the Southern Counties Submarket During the Forecast Period Price Range ($) Units of Percent From To Demand of Total and higher 330 10.0 Notes: The 850 homes currently under construction and a portion of the estimated 26,000 other vacant units in the submarket will likely satisfy some of the forecast demand. Demand for 300 mobile homes during the forecast period is excluded from this table. The forecast period is June 1, 2016, to June 1, 2019. Approx­ imately 1,600 vacant and newly constructed rental units have been absorbed in the submarket since 2010."}]}
{"messages": [{"role": "user", "content": "The HMA consists of Milwaukee, Ozaukee, Washington, and Waukesha Counties. Corporate head­ quarters for Harley-Davidson, Inc., Kohl’s Corporation, and Johnson Controls are located in the HMA. Summerfest, the world’s largest music festival, has been held on Milwaukee’s Lake Michigan lakefront each year since 1970 and has an economic impact of more than $200 million. Market Details Economic Conditions................ 2 Population and Households...... 6 Housing Market Trends............. 8 Data Profile............................. 12 Summary Economy Economic conditions in the Milwau- kee HMA continue to recover from the recent recession, with nonfarm payrolls increasing each year since 2011; job levels remain 2,300 jobs below the 2007 high and 15,800 jobs below the peak in 2000, however. Nonfarm payrolls averaged during the 12 months ending August 2016, up 7,100 jobs, or 0.8 percent, from the previous 12 months. The current unemployment rate is 4.7 percent, down from 5.2 percent a year ago and well below the 2010 peak of 8.9 percent."}, {"role": "assistant", "content": "During the 3-year forecast period, nonfarm payroll growth is expected to moderate to an average increase of 0.7 percent a year."}]}
{"messages": [{"role": "user", "content": "Sales Market The current sales housing market in the HMA is balanced with a 1.6-­percent vacancy rate, down from 1.9 percent during April 2010. New and existing home sales in the HMA totaled 24,450 homes sold during the 12 months end­ ing August 2016, an increase of 980, or 4 percent, from the previous 12 months (CoreLogic, Inc., with adjust- ments by analyst)."}, {"role": "assistant", "content": "During the 3-year forecast period, demand is estimated for 5,375 new homes ( Estimates by analyst"}]}
{"messages": [{"role": "user", "content": "As of September 1, 2016, the HMA population is estimated at 1.58 million, an average gain of 3,275, or 0.2 percent, annually since 2010, slower than the average increase of 5,525, or 0.4 percent, annually from 2000 to 2010. Lower net out-migration, because of limited job growth in other metropolitan areas in the country during the late 2000s, contributed to higher population growth during the previous decade. Net natural increase (resident births minus resident deaths) was also higher during the previous decade. Since 2000, nearly all population gains have been attributed to net natural in­crease because of a net out-migration in the HMA every year except from 2008 to 2009 (U.S. Census Bureau population estimates as of July 1). During the national recession of the early 2000s, net out-migration was lower because of limited job opportu- nities elsewhere but, as job growth in other parts of the country accelerated during mid-2000s, out-migration from the HMA increased. From 2000 to 2003, the population rose by an aver­age of 5,775, or 0.4 percent, annually, which was slowed by average net out-migration of 2,450 people each year. From 2003 to 2008, as employ- ment grew faster nationally, popula- tion growth fell to an average of 3,700 people, or 0.2 percent, annually, as net out-migration rose to average 5,125 annually. The nearby, larger metro- politan areas of Chicago and Min- neapolis, along with faster-growing metropolitan areas such as Madison and Phoenix, were common destina- tions for HMA residents from 2000 to 2008 (Internal Revenue Service, County-­to-County Migration Data). As the national recession began in late 2007, HMA residents could move to few other places with improved employment opportunities. From 2008 to 2009, the HMA population increased by 11,400, or 0.7 percent, including net in-migration of 2,300 people, the largest overall annual population gain and the only year with net in-migration since before 2000. Population and Household Growth in the Milwaukee HMA,* 2000 to Forecast Population Households to to current Current to forecast Average annual change * Milwaukee-Waukesha-West Allis HMA. Notes: The current date is September 1, 2016. The forecast date is September 1, 2019. Components of Population Change in the Milwaukee HMA,* 2000 to Forecast – 2,000 – to to current Current to forecast Average annual change Net natural change Net migration * Milwaukee-Waukesha-West Allis HMA. Notes: The current date is September 1, 2016. The forecast date is September 1, 2019. Sources: 2000 and 2010—2000 Census and 2010 Census; current and forecast— estimates by analyst Net out-migration averaged 3,350 people annually, increasing in more recent years because recovery and job growth have been faster in other metropolitan areas around the country. The Chicago, Minneapolis, and Madison metropol­ itan areas continue to be common destinations for people leaving the HMA but, since 2009, the Dallas, Austin, and Houston, Texas metropoli- tan areas have increased in popularity for residents moving from the HMA. Within the HMA, population growth in downtown Milwaukee is outpacing growth for the area as a whole. From 2010 to 2014, downtown Milwaukee added an estimated 770 residents a year, or growth of approximately 2.5 percent, annually (analyst estimates). Since 2010, a surge in downtown housing construction and the reloca- tion of more than 46 companies into downtown from suburbia and areas outside the HMA contributed to a rising downtown population. Compa- nies relocating to the downtown area include a satellite office for Kohler Co., Jones Lang LaSalle, and Aecom/ URS from suburban parts of the HMA and Lohmann & Rauscher, a medical device manufacturing company, from Topeka, Kansas. No job counts were announced with the moves. During the next 3 years, population is expected to increase by an average of 4,000, or 0.3 percent, annually as expected job growth slows out- migration. The trend in household growth has been similar to that of population growth in that it has slowed from the previous decade. Household growth since 2010 has averaged 2,425 house­ holds, or 0.4 percent, annually compared with an average of 3,450 households, or 0.6 percent, a year from 2000 to 2010. As of September 2016, the HMA contains an estimated households, up from approximately in 2010 and in 2000. From 2000 to 2010, the homeowner- ship rate increased only slightly, from 61.1 percent in 2000 to 61.2 percent in 2010. The homeownership rate has declined since 2010 and is currently estimated at 58.2 percent. During the next 3 years, household growth is expected to remain rela- tively stable, increasing by 2,800, or 0.4 percent, annually. Existing home sales (including single-family homes, townhomes, and condominiums) in the HMA totaled 23,700 during the 12 months ending August 2016, up 1,025, or 5 percent, from the previous year, continuing a trend of increasing or stable sales that began during 2012 (CoreLogic, Inc., with adjustments by the analyst). Limited growth in sales is partially because of limited inventory. ­During August 2016, the 5.8 months of inven­tory was down from 7.0 months dur­ing August 2015 and 8.3 months during August 2014 (Greater Milwau- kee Association of Realtors®). Despite recent gains, existing sales are still below levels from 2003 through 2006, when an average of 31,550 homes sold each year, but above the average of 17,200 sales a year from 2007 through 2011. Sales increased 42 percent from 2011 to 2012 and then stabilized, averaging 21,450 annually from 2012 through 2015. Average sales prices for existing homes are increasing, up 2 percent to during the 12 months ending August 2016, continu- ing a trend of increasing prices that began in 2014. The average sales price for an existing home is up 16 percent, or $27,700, from the low of in 2009 but is 3 percent, or $6,200, below the 2007 peak of . Distressed sales—including real estate owned (REO) and short sales—comprised 13 percent of all existing sales during the past 12 months, down from a high of 24 percent during 2011. In August 2016, 2.5 percent of all mortgage loans in the HMA were 90 or more days delinquent, were in foreclosure, or had transitioned into REO status, down from the 3.1-percent rate in August 2015 and well below the peak of 6.2 percent in early 2010. New home sales remained stable during the past 12 months, at 740, but were down 20 percent compared with new home sales during 2012 and 2013. Recent housing construction has shifted more to apartments and to development in or near downtown Milwaukee, following business reloca­ tions and increased development of new retail and entertainment venues. The average sales price for a new home during the 12 months ending August 2016 was down 2 percent from a year earlier, and 5 percent, or $12,900, below the prerecessionary peak in 2007 of . New home sales prices declined at an average of 4 percent a year from 2008 through 2012. Despite the decline during the past 12 months, average sales prices were still up 17 percent, or $44,200 from the low of in 2012. During 2014 and 2015, new home prices rose an average of 10 percent a year, nearly three times faster than existing home prices, widening the gap between new and existing home sales prices from less than 15 percent during 2012 to more than 20 percent during 2015. Coincid- ing with slower population growth in the mid-2000s, followed by the reces- sion in the late 2000s, homebuilding declined by an average of 620 homes Permitting remained low from 2009 through 2011, averaging 920 homes annually. Home sales increased beginning in 2012, absorbing existing inventory, and permitting began to rise, increasing an average of 10 percent annually from 2012 through 2015. During the 12 months ending August 2016, approximately 1,600 single-family homes were permitted, up from 1,275 during the previous year (preliminary data). Continued job growth and a declining inventory of existing homes for sale are support- ing the rise in permitting."}, {"role": "assistant", "content": "Demand is expected for 5,375 new homes in the HMA during the next 3 years. The 600 homes currently ­under construction will meet part of the demand during the first year ( Estimates by analyst Housing Market Trends Sales Market Continued"}]}
{"messages": [{"role": "user", "content": "Despite continued job gains, tenure shift of foreclosed homes to the rental market and relatively slow population growth kept the overall rental market slightly soft. During 2015, single-family homes comprised 21 percent of all occupied rental housing units, up from 18 percent during and 2015 American Community Survey 1-year data). The remaining renter-occupied housing consisted of 33 percent in two- to four-unit buildings and 46 percent in five-or-more-unit buildings. Mobile homes accounted for less than 1 percent of rental housing. A portion of the shift from owner-occupied single-family housing to renter-occupied housing was because of a partnership between the city of Milwaukee and Gorman Co., Inc., which has rehabili- tated more than 300 foreclosed homes since 2010, shifting them to the rental market. Supporting an increase in rental demand is an increase in the number of out-of-state and international students at University of Wisconsin- Milwaukee (UW-M), up 7 percent, or an average of 200 students, a year since 2006. Student households are estimated to comprise fewer than 5 percent of all rental households in the HMA but are a larger share of renter households in and near downtown, where the two largest universities, UW-M and Marquette University, with a combined enroll- ment of 37,000, are located. The apartment market in the Milwau- kee HMA is tight, with an estimated vacancy rate of 1.9 percent as of the second quarter of 2016, down from 2.6 percent during the second quarter of 2015 (MPF Research). Vacancy rates in six of the seven MPF Research- defined market areas (hereafter, areas) declined, with vacancy rates in the second quarter of 2016 ranging from 1.4 percent in the South Suburban Franklin/Oak Creek area to 2.7 percent in the Far North Side area in northern Milwaukee County. Only one of the areas, the Washington/Ozaukee area, the most rural portion of the HMA, recorded an increase in vacancy rate, to 2.1 percent. The average monthly rent for the HMA during the second quarter of 2016 rose to $993, up 2 per­ cent from $974 a year earlier, continu­ ing a trend of rent increases each year since 2011. Average rents in six of the seven areas went up, with increases ranging from 1.6 to 2.8 percent, and declined in only one area, the Washington/Ozaukee area, where the average rent declined 1 percent. The average rent in the Downtown/ Shorewood area, the most expensive area, was $1,282, up 3 percent from a year ago, and the average rent in the least expensive area, the South Side/ West Allis/Greenfield area, is $827, up 2 percent from a year ago. Rental Vacancy Rates in the Milwaukee HMA,* 2000 to Current 2000 Current * Milwaukee-Waukesha-West Allis HMA. Note: The current date is September 1, 2016. During the 12 months ending August 2016, the number of multifamily units permitted rose 5 per­- cent, to 2,200 units, up from 2,100 units during the previous 12 months (preliminary data; estimates by ana- lyst). Permitting averaged 3,275 units from 2000 through 2005 and then declined to an average of 1,700 units during 2006 and 2007. Permitting increased during 2008 to 2,900 units and then returned to lower levels from 2009 through 2013, averaging 1,775 units annually. Permitting increased by more than 1,000 units from 2013 to 2014, to a recent high of 2,825 in 2014, coinciding with an increase in availability of Wisconsin’s Historic Preservation Tax Credit, and then returned to previous levels, with 1,850 multifamily units permitted during 2015."}, {"role": "assistant", "content": "Although multifamily permitting in the HMA is still below levels from the early- and mid-2000s, more than $3 bil­lion of public and private invest- ment since 2005 has contributed to an increase in multifamily construction in the downtown area of the city of Milwaukee. Residential development in and near downtown Milwaukee is supported by the cleanup and redevel­ opment of brownfield sites such as the former Beerline B railroad spur that served the Pabst, Blatz, and Schlitz breweries, the former Pabst Brewery site, and several former tannery sites along the Milwaukee River. Approxi­mately 1,600 multifamily units have been constructed on the former brownfields, with most units built since 2010, and more than 1,000 additional units are currently under construction in the downtown area. River House Apartments, Phase I, a 243-unit apartment project located on a former brownfield site, is expected to open in December 2016. Studio apartments rent for $1,215 to $1,250, one-bedroom units rent for $1,475 to $1,525, two-bedroom units rent for $1,900 to $2,135, and three-bedroom units rent for $2,355. A second phase of the apartment project, with another 240 units, is also planned, but no groundbreaking date has been announced."}]}
{"messages": [{"role": "user", "content": "During the 12 months ending June 2018, nonfarm payrolls averaged up 1.0 percent, or by 4,100 jobs, from the previous 12 months. The government sector, which is the largest payroll sector in the HMA, grew by 700 jobs, or 0.8 percent, during the past 12 months."}, {"role": "assistant", "content": "During the next 3 years, nonfarm payrolls are expected to increase an average of 1.2 percent annually. Sales Market Slightly tight, with a 4% home sales price increase during the 12 months ending June 2018 The home sales market is currently slightly tight, improving from slightly soft conditions in 2010. The sales vacancy rate is currently estimated at 1.1 percent, down from 2.0 percent in 2010. The average inventory of homes for sale increased to 3.9 months in June 2018, up from 3.5 months in June 2017. Most of the increase in inventory was for homes priced above . New and existing home sales rose to 13,350 during the 12 months ending June 2018, up 2 percent from the previous 12 months (Metrostudy, A Hanley Wood Company). During the 3-year forecast period, demand is estimated for 4,825 additional units. The 670 units under construction are expected to meet a portion of demand during the first year of the forecast. Rental Market Balanced, with an 11% decrease in rental unit permitting during the 12 months ending June 2018 Rental market conditions have transitioned from slightly soft in 2010 to currently balanced. The rental vacancy rate was 6.7 percent in 2010 and has fallen to an estimated 4.3 percent, currently. Renter households have increased at an average of 2.0 percent annually since 2010, faster than overall household growth, contributing to the decline in the vacancy rate. During the 3-year forecast period, demand is expected for 5,425 additional rental units. The 3,075 units currently under construction are expected to meet demand during the first year and a portion of the second year of the forecast. Units under construction as of July 1, 2018. The forecast period is July 1, 2018, to July 1, 2021. Source: Estimates by analyst 3-Year Housing Demand Forecast Sales Units Rental Units Madison HMA Total Demand Under Construction"}]}
{"messages": [{"role": "user", "content": "Primary Local Economic Factors Chosen as the state capitol in the 1830s and home of the flagship state university since the 1840s, Madison has been the center of state government and public university education in Wisconsin for more than 150 years. In 2015, UW, UW Health, and UW-affiliated startup companies had an economic impact of $15 billion statewide (University of Wisconsin), and the university spent more than $1.16 billion on research and development in 2016 (National Science Foundation). Current Conditions – Nonfarm payrolls (Past 12 months) Job growth during the 12 months ending June 2018 slowed compared with the 12 months ending June 2017. Nonfarm payrolls increased by 4,100 jobs, or 1.0 percent, during the past 12 months (Table 1), compared with growth of 5,300 jobs, or 1.4 percent, during the previous 12 months. Both goods-producing sectors added jobs during the past 12 months. The mining, logging, and construction sector rose by 700 jobs, or 4.3 percent. The $175 million Judge Doyle Square redevelopment project in downtown Madison broke ground in October 2017, contributing to the increase."}, {"role": "assistant", "content": "The first phase, a 562-stall underground parking garage, is expected to be complete in early 2019. Current Nonfarm Payroll Jobs in the Madison HMA, by Sector Table 1. 12-Month Average Nonfarm Payroll Jobs in the Madison HMA, by Sector 12 Months Ending June Months Ending June 2018 Absolute Change Percentage Change Total nonfarm payroll jobs Goods-Producing Sectors Mining, Logging, & Construction Manufacturing Service-Providing Sectors Wholesale & Retail Trade 55.5 55.1 – 0.4 – 0.6% Transportation & Utilities 9.6 9.6 0.0 0.0% Information 17.3 17.0 – 0.3 – 2.0% Financial Activities 23.7 23.4 – 0.2 – 1.0% Professional & Business Services Education & Health Services Leisure & Hospitality Other Services 20.5 20.4 – 0.1 – 0.5% Government Notes: Numbers may not add to totals because of rounding. Based on 12-month averages through June 2017 and June 2018. Numbers are in thousands."}]}
{"messages": [{"role": "user", "content": "Job gains occurred despite the closure of an Oscar Meyer manufacturing facility during the fourth quarter of 2017, which employed 5,000 workers earlier in the 2010s. Payroll changes in the service-providing sectors were mixed, with four sectors increasing, one unchanged, and four decreasing. The leisure and hospitality sector led growth, with a gain of 1,400 jobs, or 3.7 percent. In 2016, visitor spending in Dane County increased 5.2 percent from the previous year, to $1.2 billion (Tourism Economics). The education and health services sector had the second largest gain, up 1,300 jobs, or 2.8 percent, continuing year-over-year expansion since 2012. The government sector, which lost jobs during 4 of the past 8 years, recovered some of the previous losses, adding 700 jobs, or 0.8 percent. The wholesale and retail trade sector had the largest loss, down 400 jobs, or 0.6 percent, as Bon-Ton, Toys “R” Us, Sam’s Club, and several local grocery stores closed. The current unemployment rate in the HMA is well below the 3.0-percent rate for the state of Wisconsin and the 4.1-percent rate for the nation. Historic Trends: Overview Nonfarm payrolls rose during 8 of the first 9 years of the 2000s. The effects of the Great Recession were relatively limited in the Madison HMA, with jobs declining only during 2009, down 8,100, or 2.2 percent, compared with 4.4-percent and 4.3-percent declines in the state of Wisconsin and the nation in 2009. Job growth returned in 2010, and payrolls exceeded pre-recessionary levels during 2012, recovering 3 years before the state of Wisconsin and 2 years before the nation. Recovery, which began in 2010, marked the transition from a period of slow and steady job growth concentrated in the service-providing sectors to a period of faster growth that gains in both the goods-producing and service-providing sectors supported. Since 2010, job growth in the HMA averaged 5,500 jobs, or 1.5 percent, annually, growing faster than the early to mid-2000s. 12-Month Average Unemployment Rates in the Madison HMA and the Nation Job gains were largest in the professional and businesses services sector, with an average increase of 1,200 jobs, or 3.5 percent, annually, accounting for 30 percent of jobs added in the service-providing sectors. Epic Systems, a healthcare records company and currently the largest private sector employer in the HMA (Table 2), expanded from $50 million in sales and 550 employees in 2000 to more than $500 million in sales and 3,000 employees in 2008, contributing to growth in the service-providing sectors. Offsetting job growth in the service-providing sectors, jobs in the goods- producing sectors declined by an average of 600 jobs, or 1.2 percent, annually, from 2001 through 2008, with losses concentrated in the manufacturing sector. The food manufacturing industry, which includes a portion of the 2 billion pounds of cheese produced annually, statewide, accounted for approximately one-half the jobs lost in the manufacturing sector in the HMA. The mining, logging, and construction sector increased by less than 100 jobs, or 0.1 percent, annually, because job gains in the early 2000s were offset by an average decline of 900 jobs, or 5.4 percent, annually from 2007 through 2008. Lower levels of homebuilding contributed to the decline. Historic Trends: 2009 The goods-producing sectors, which had been declining since the Great Recession began in 2007, were hardest hit, with a loss of 6,400 jobs, or 12.5 percent, comprising approximately 80 percent of job losses in the HMA during 2009. Layoffs and closures of manufacturing facilities included closure of the Land O’Lakes butter manufacturing facility, affecting 120 workers, and layoffs of nearly 400 workers at Sub-Zero Freezer Company, an appliance manufacturer. The goods-producing sectors continued to decline during 2010, down by 1,600 jobs, or 3.6 percent. The manufacturing sector, which had been declining since 2007, reached a low of 30,800 jobs in 2010, but has grown by an average of 500 jobs, or 1.5 percent, a year from 2011 through 2016. The mining, logging, and construction sector, which also had been declining since 2007, reached a low of 12,200 jobs in 2011, coinciding with a low in residential building permits. From 2012 through 2016, payrolls in the sector increased by an average of 900 jobs, or 6.2 percent, annually supported by increasing residential construction. Job growth occurred in nearly all service-providing sectors from 2010 through 2016, with an average increase of 5,000 jobs, or 1.5 percent, annually. The only service-providing sector to decline was the government sector, down by less than 100 jobs, or 0.2 percent, annually. The Wisconsin Budget Repair Bill (Wisconsin Act 10), which passed in 2011, contributed to the decline in the sector during the early 2010s, and layoffs at UW during the summer of 2015 further contributed to the decline. Expansion of companies in healthcare technology supported job growth during the current decade. Epic Systems has added more than 4,200 employees since 2010. Exact Sciences, a medical testing company, received FDA approval for their cancer screening test, Cologuard, in 2014, and has since added more than 750 jobs."}, {"role": "assistant", "content": "The company is expected to break ground on a new building in the UW Research Park later in 2018 that will support further job growth. Building on the high concentration of workers in the healthcare technology industry, companies in other information technology industries, including the video game industry, have expanded. The fastest growing sector from 2010 through 2016 was the information sector, increasing by 1,000 jobs, or 7.2 percent, annually. More than 50 software publishing firms, a portion of which are video game production companies, are in the HMA, and the firms have added an estimated 6,500 jobs during the current decade. Employment Forecast During the next 3 years, payrolls are expected to increase an average of 1.2 percent annually. Job growth is expected to continue, but at a slower pace compared with the rate of growth since 2010. Tight labor market conditions during the 3-year forecast period are expected to result in a relatively low unemployment rate. Additional job growth in both the goods-producing and the service-providing sectors is expected to contribute to payroll growth during the next 3 years. Three new UW buildings currently under construction; a chemistry lab, a renovation at the Babcock Hall dairy plant, and a new Meat Science lab are expected to attract students and research funding. Cellular Dynamics, a stem cell manufacturer, is currently building a new $40 million facility and expects to add 120 employees. Sub-Zero, the appliance manufacturer that laid off employees in the late 2000s, is expected to hire 300 employees and has already begun a $62 million expansion of an existing manufacturing facility."}]}
{"messages": [{"role": "user", "content": "Population Trends Despite relatively steady in-migration during periods of job growth, population growth in the Madison HMA has slowed during the current decade because of a decline in net natural increase (resident births minus resident deaths). Population growth was lowest from 2009 to 2010, a period of payroll decline, partially because of lower net in-migration. Since 2010, population growth averaged 6,725, or 1.1 percent, annually ( Net natural change and net migration totals are average annual totals over the time period. Source: U.S. Census Bureau, Bureau of Labor and Statistics Household Quick Facts 2010 Current Forecast Households Average Annual Change Percentage Change 1.5% 1.2% 1.1% Note: Average annual changes and percentage changes are based on averages from 2000–to current, and current to forecast. Sources: 2000 and 2010–2000 Census and 2010 Census; current and forecast–estimates by analyst Population Quick Facts 2010 Current Forecast Population Average Annual Change Percentage Change 1.2% 1.1% 1.0% Table 3. Madison HMA Quick Facts total population in 2010 to 19 percent in 2016 and was the only age cohort to increase as a share of the total population during this period."}, {"role": "assistant", "content": "The rising share of older residents is expected to have contributed to the decline in net natural increase during the current decade."}]}
{"messages": [{"role": "user", "content": "Enrollment increases typically account for less than 10 percent of net in-migration, annually, but during the recent recessionary period, enrollment growth accounted for nearly one-half of net in-migration. From 2009 to 2010, enrollment increased by nearly 500 students, or approximately 45 percent of net in-migration. Since 2010, enrollment has increased by an average of 240 students a year, or 7 percent of net in-migration. Migration Trends People moving into the Madison HMA are typically moving from a non- metropolitan area or from one of the three nearby major metropolitan areas; Milwaukee-Waukesha-West Allis, Chicago-Naperville-Elgin, and Minneapolis-St. Paul-Bloomington (Table 4). More people moved into the Madison HMA from non-metropolitan areas and from the nearby major metropolitan areas than moved out of the HMA to those areas. Net out-migration, with more HMA residents moving out than in, was greatest to the Tampa, Seattle, Austin, Denver, and San Jose metropolitan areas, which have a high concentration of jobs in high-tech industries or are popular retirement destinations. Population by Geography Within the Madison HMA, approximately 80 percent of the population resides in Dane County and 20 percent resides in the remaining three counties of the HMA. Population growth was concentrated in the downtown Madison neighborhood and in suburban portions of Dane County (Map 3), with population in census tracts in those areas increasing approximately 1 percent or more, annually (2007–2011 and 2012–2016 American Community Survey 5-year data). A relatively large share of housing construction occurred in these areas, with approximately one-third of all apartment units built since 2012 in the downtown Madison neighborhood and nearly one-half of all single-family homes were built in suburban portions of Dane County, where land close to most employment centers is available for development. In the parts of the HMA farthest from the city of Madison, population tends to be relatively unchanged or declining."}, {"role": "assistant", "content": "Population Forecast Population growth is expected to continue during the 3-year forecast period, but slower than the current rate. Low unemployment both in the Madison HMA and the nation are expected to contribute to fewer people moving to the HMA for jobs. The relatively large share of residents aged 60 and older is also expected to contribute to lower net natural increase, further slowing population growth. During the next 3 years, the population is expected to increase by an average of 6,450, or 1.0 percent, annually."}]}
{"messages": [{"role": "user", "content": "Household Trends Similar to population growth, household growth has also slowed during the current decade. Since 2010, the number of households increased by an average of 3,075, or 1.2 percent, annually, down from an average increase of 3,500 households, or 1.5 percent, annually from 2000 to 2010. Since 2010, only one-third of additional Source: American Community Survey 5-year data 2011 and 2016 Map 3. Average Annual Population Change by Census Tract in the Madison HMA, 2011–2016"}, {"role": "assistant", "content": "Household Forecast Household growth is expected to slow to an average of 3,050, or 1.1 percent, annually, partially because of the slowdown in population growth. Approximately one-half of the additional households are expected to be owner households, an increase from the proportion during the current period, but below the level during the 2000s."}]}
{"messages": [{"role": "user", "content": "Current Conditions The home sales market in the Madison HMA is currently slightly tight, improving from slightly soft conditions in 2010. The home sales vacancy rate is currently estimated at 1.1 percent ( Vacancy rate is as of the current date, home sales and prices are for the 12 months ending June 2018, and months of inventory and mortgage delinquency data is as of June 2018. Sources: Metrostudy, A Hanley Wood Company, Wisconsin Realtors® Association, National Association of Realtors®, CoreLogic, Inc. during 2012 and 2013 and payroll expansion, existing home sales rose each year by an average of 830, or 9 percent. During the 12 months ending June homes were sold. REO sales, which peaked in 2013 at 1,450, accounting for 13 percent of all existing home sales, have fallen to 250 during the past 12 months, accounting for 2 percent of all existing home sales. Delinquent Mortgages The rate of seriously delinquent (90 or more days delinquent or in foreclosure) home loans and REO properties in the Madison HMA peaked well below—and remains below—the national rate. As of June 2018, the rate was 0.6 percent compared with 0.7 percent a year earlier and a peak of 3.6 percent in early 2010 (CoreLogic, Inc.). By comparison, the portion of seriously delinquent home loans and REO properties in the nation was 1.9 percent in June 2018 compared with 2.3 percent a year earlier and a peak of 8.6 percent in 2010. During the 12 months ending June 2018, prices averaged up 3 percent from a year earlier and or nearly 45 percent, above the previous peak of in 2008. Prices fell an average of 3 percent a year from 2008 through 2011, during the period of economic decline and early recovery. Existing Home Sales Prices Existing home sales prices, including regular resale and REO sales, have risen an average of 5 percent annually since 2012. Prices averaged during the 12 months ending June 2018, up 3 percent from the previous 12 months. The current average price is or 29 percent above the low of in 2012. The previous high of was in 2006, followed by an average decline of 5 percent annually to the most recent low in 2012. Inventory of Homes for Sale Total inventory of homes for sale, as measured by months of unsold inventory, is 3.9 months in June 2018, up from 3.5 months a year earlier (Wisconsin Realtors® Association). The inventory of homes for sale priced below increased slightly during the past year but remained below 3 months in June 2018. The inventory of homes priced between and fell compared with June 2017. Sales Permit Activity Permitting of sales housing, including single-family homes, townhomes, and condominiums, has increased or remained essentially unchanged each year since 2012. Permitting fell to an average of 880 a year from 2008 through 2012, during the housing market downturn, but has risen to an average of 1,475 a year from 2013 through 2017. Average Sales Price by Type of Sale in the Madison HMA"}, {"role": "assistant", "content": "Demand for New Sales Construction Units in the Madison HMA During the Forecast Period Sales Units Demand 4,825 Units Under Construction 670 Units Source: Estimates by analyst Source: Metrostudy, A Hanley Wood Company Forecast During the next 3 years, demand is estimated for an additional 4,825 homes. (Table 6). The 670 homes currently under construction are expected to meet a portion of demand during the first year of the forecast period. New homes priced under are expected to account for most of the demand, and demand is estimated to rise each year of the forecast."}]}
{"messages": [{"role": "user", "content": "Current Conditions and Recent Trends Rental market conditions in the Madison HMA have transitioned from slightly soft in 2010 to currently balanced. The rental vacancy rate in 2010 was 6.7 percent and has fallen to an estimated 4.3 percent currently (Table 7). Since 2010, renter households have increased an average of 2.0 percent annually, faster than overall household growth and contributing to the decline in the vacancy rate. Rental housing in the Madison HMA is comprised of 38 percent single-family homes, townhomes, and buildings with four or fewer units, 60 percent in larger buildings with five or more units, and the remainder are mobile homes and other housing types. Housing built for renter-occupancy, the majority of which were in apartment buildings with five or more units, has comprised approximately two-thirds of all housing units permitted since 2010 and has contributed to a change in apartment market conditions. The relatively low foreclosure rate, which, if higher, would have likely shifted more single-family homes and townhomes to renter occupancy, contributed to limited growth in the non-apartment rental housing stock. Apartment Market Conditions and Recent Trends The apartment market has transitioned from balanced conditions in 2010 to currently slightly tight conditions. The average apartment rent was $1,130, up 1 percent from a year earlier. The average rent in the Central Madison market area, which includes downtown Madison and the west side of the city of Madison is 3 percent above the average for the HMA, whereas other market areas range from 2 to 4 percent below average. Rent growth during the past year has slowed compared with an average increase of 5 percent a year from 2012 to 2017. Rental unit construction has been elevated since 2012 and has contributed to the higher vacancy rate and slower rent growth during the past year. Student Apartments Student apartments; units marketed to, but not limited to, student-renters, typically near campus and designed to support the student lifestyle, are a growing part of the rental housing stock in the HMA. From 2012 through 2017, enough student- targeted apartments were built to house 5,800 people (Triad Real Estate Partners), Rental Market Quick Facts 2010 Current Rental Vacancy Rate 6.7% 4.3% Occupied Rental Units by Structure Single-Family Attached & Detached 18% 16% Multifamily (2-4 Units) 24% 22% Multifamily (5+ Units) 57% 60% Other (Including Mobile Homes) 1% 1% Apartment Market Quick Facts Current YoY Change Apartment Vacancy Rate 3.0% +0.2 Average Rent $1,130 1% Studio/One-Bedroom $988 1% Two-Bedroom $1,233 2% Three-Bedroom or Larger $2,002 1% YoY = year-over-year Notes: The current date is July 1, 2018. Current data for ‘occupied rental units by structure’ is American Community Survey, 2016. The 2010 ‘occupied rental units by structure’ data include adjustment by analyst. Sources: American Community Survey, 1-year data; RealPage, Inc. Apartment Rents and Vacancy Rates in the Madison HMA whereas enrollment at UW increased by approximately 1,000 students during the same period. During the 2017–2018 academic year, the student apartment vacancy rate was 4.2 percent, up from 3.4 percent during the previous academic year. Student households are estimated to comprise 12 percent of all renter households in the HMA. Rental Permit Activity Rental permitting, including permitting of general occupancy apartments, student apartments, and senior housing, is currently at a historically high level. As the national economy began to slow and goods-producing jobs began to decline in the HMA, rental unit permitting fell to an average of 800 units a year from 2007 through 2011. The local economy began to add jobs in 2010, but the number of rental units permitted remained low through 2011. As payrolls in the HMA returned to the previous high in 2012, rental permitting also rose to levels from the early 2000s, and then exceeded them, averaging 2,725 units each year from 2012 through 2017. During Sources: U.S. Average Annual Rental Permitting Activity in the Madison HMA Completed Projects in the Madison HMA Since 2012 the 12 months ending June 2018, rental permitting slowed to 2,775 units, down from 3,125 during the previous 12 months, in response to slowing rent growth and rising vacancy rates. Recently Completed Rental Properties During the current period of elevated rental permitting, construction has been concentrated in Dane County, mostly in the city of Madison and adjacent suburbs (Map 4). Approximately one-third of rental units permitted since 2012 were in the downtown Madison/UW campus neighborhood in the city of Madison. A recent zoning change along Washington Street on the east side of downtown Madison has permitted apartment construction in an area that was previously mostly office and retail use. Veritas Village, a 189-unit apartment on the east side of downtown Madison, currently in lease-up, is renting studio units for $995 to $1,350, one-bedroom units for $1,320 to $1,575, two-bedroom units for $1,995 to $2,295, and three-bedroom units for $2,540 to $2,755. On the far northeast side of the city of Madison, Hidden Creek Residences Apartments, Phase I, an 82-unit property, opened in 2017. Rents range from $940 to $1,015 for a studio, $1,155 to $1,240 for a one-bedroom, and $1,605 for a two-bedroom unit."}, {"role": "assistant", "content": "Forecast During the 3-year forecast period, demand is estimated for an additional 5,425 rental units. ( Estimates by analyst"}]}
{"messages": [{"role": "user", "content": "The Milwaukee HMA is in southeastern Wisconsin and is the largest MSA in the state, accounting for approximately one-fourth of the population. The city of Milwaukee, the largest city in the HMA, is approximately 90 miles north of the city of Chicago. Harley-Davidson, which is headquartered in the HMA, had a 115th- anniversary celebration in September 2018, attracting visitors, with an estimated economic impact of $95 million."}, {"role": "assistant", "content": "During the 12 months ending September 2018, payrolls increased by 6,600 jobs, or 0.8 percent, up from a gain of 2,800 jobs, or 0.3 percent, during the 12 months ending September 2017. The stronger growth is partially because of a shift from decline to growth in the manufacturing sector. The manufacturing sector added 2,700 jobs, or 2.3 percent, during the past 12 months, compared with a loss of 1,500 jobs, or 1.3 percent, during the previous 12 months. During the 3-year forecast period, nonfarm payrolls are expected to increase 0.5 percent annually, similar to the gains since 2017."}]}
{"messages": [{"role": "user", "content": "Sales Market Slightly soft: Total home sales during the 12 months ending September 2018 were 26,150, largely unchanged from the previous 12 months."}, {"role": "assistant", "content": "The sales housing market is slightly soft. The sales vacancy rate is currently estimated at 1.8 percent, down slightly from 1.9 percent during 2010. The average new and existing home sales price during the 12 months ending September 2018 was up 2 percent from a year earlier and 2 percent above the previous peak of in 2007. During the 3-year forecast period, demand is estimated for 4,100 new sales units. The 680 homes under construction are expected to meet a portion of demand."}]}
{"messages": [{"role": "user", "content": "Rental Market Soft: During the 12 months ending September 2018, rental permitting slowed to 2,950, down from 3,525 during the 12 months ending September 2017. Rental housing market conditions are currently soft. The rental market vacancy rate in the HMA is currently estimated at 9.6 percent, up from 7.8 percent in 2010. The number of rental units added, including new construction and existing housing shifting from the sales to the rental market, exceeded renter household growth, contributing to the soft conditions. During the 3-year forecast period, no demand is expected for additional rental units. Properties currently under construction within the HMA may be successfully absorbed, but the additions will likely result in an increased rental vacancy rate in the overall market and prolonged soft market conditions."}, {"role": "assistant", "content": "Units under construction as of October 1, 2018. The forecast period is October 1, 2018, to October 1, 2021. Source: Estimates by analyst 3-Year Housing Demand Forecast Sales Units Rental Units Milwaukee-Waukesha-West Allis HMA Total Demand 4,100 0 Under Construction"}]}
{"messages": [{"role": "user", "content": "Primary Local Economic Factors The city of Milwaukee, on the shore of Lake Michigan, was founded and grew because of job opportunities in the manufacturing sector. Industries that required large amounts of water, including brewing, leather goods, and metals, thrived in the Milwaukee HMA during the 20th century. As recently as 2005, manufacturing was the largest employment sector in the HMA, with 16 percent of total nonfarm payrolls. Nationally recognized manufacturers in the industries that supported growth in the 20th century, including MillerCoors and Harley- Davidson, continue to produce goods in the HMA, but manufacturing payrolls have declined to account for only 14 percent of jobs currently. Currently, among the 10 largest employers, 6 are in the education and health services sector and only 2 are in manufacturing ( Numbers may not add to totals because of rounding. Total nonfarm payrolls is in thousands. Excludes government employment. Source: Metropolitan Milwaukee Association Chamber of Commerce The stronger growth was partially because of a shift from decline to growth in the manufacturing sector, which added 2,700 jobs, or 2.3 percent, during the past 12 months, compared with a loss of 1,500 jobs, or 1.3 percent, during the previous 12 months. The opening of the North American headquarters for Foxconn in downtown Milwaukee and a $36 million expansion of the Milwaukee Tool headquarters, which generated 500 new jobs, contributed to the recent job growth in the sector. During the most recent 12 months, eight sectors added jobs, compared with seven sectors during the previous 12 months. The education and health services sector had the largest increase in jobs, adding 3,000 jobs, or 1.8 percent, from a year earlier and continuing a trend of job growth in the sector that began in 2012. Froedtert & the Medical College of Wisconsin opened two new facilities earlier in 2018; a professional office building in Milwaukee and a medical clinic in Oak Creek supported ongoing expansion in the sector. Completion in August 2018 of the $524 million Fiserv Forum, where the Milwaukee Bucks play, and expected completion of the $124 million streetcar rail network, “The Hop,” in November 2018 contributed to job growth in the mining, logging, and construction and the leisure and hospitality sectors. Offsetting job gains during the 12 months ending September 2018 were losses in three sectors, including 1,400 jobs, or 2.7 percent, in the financial activities sector and 1,300 jobs, or 1.1 percent, in the wholesale and retail trade sector. Closure of bank branches for First Citizens Bank and Wells Fargo along with closure of retail stores including the Bon-Ton stores, Toys“R”Us, Kmart, and Sears contributed to losses. Current Conditions – Unemployment The unemployment rate is currently at a historical low, matching the all-time low recorded in 1999. The low during the previous period of job growth was 4.9 percent in 2006, and the high was 9.4 percent in 2010. Currently, the national unemployment rate is 4.0 percent. U.S. 12-Month Average Unemployment Rate in the Milwaukee HMA and the Nation From 2001 through 2003, payrolls declined by an average of 13,200 jobs, or 1.5 percent, annually, with nearly three-fourths of job loss in the manufacturing sector. Job losses during the period of decline included approximately 5,000 jobs in the machinery manufacturing industry and 2,000 jobs in the fabricated metal product manufacturing industry. A period of payroll growth occurred from 2004 through 2007, with job growth averaging 6,500, or 0.8 percent, annually. The education and health services sector added the most jobs during the period, accounting for 45 percent of job growth. Jobs in the manufacturing sector declined from 2004 through 2006 but at a slower rate than the 2001-through-2003 period and were unchanged in 2007. Nonfarm payrolls averaged in 2007, the highest level since 2001, but payrolls fell from 2008 through 2010 to an average of during 2010, the lowest level since 1994. Like the period of decline in the early 2000s, the manufacturing sector had the largest share of losses, accounting for nearly 40 percent of jobs lost from 2008 through 2010. Nonfarm payrolls have been rising since 2011, returning to 2007 levels during 2016, nearly 2 years after the nation recovered. Jobs added during 2017 and 2018 are considered postrecession expansion. Since 2017, job growth has averaged 5,000, or 0.6 percent, annually. From 2008 through 2010, payrolls fell by an average of 17,600 jobs, or 2.1 percent, annually. During the same period, payrolls in the nation fell by 1.9 percent annually. Payrolls in the HMA declined in 9 of the 11 sectors. Jobs in the goods-producing sectors accounted for nearly 60 percent of the loss, with the manufacturing sector declining an average of 6,800 jobs, or 5.4 percent, annually, and the mining, logging, and construction sector declining an average of 3,300 jobs, or 10.2 percent, annually. Declining sales in products manufactured in the HMA contributed to the job loss, as companies reduced payrolls. Shipments of domestic beer, which includes MillerCoors products, fell an average of nearly 6 percent a year, nationally (Beer Marketer’s Insights), and domestic shipments of Harley Davidson motorcycles fell an average of 18 percent, annually (Harley Davidson). Job growth in the education and health services sector partially offset losses. Payrolls in the sector increased by an average of 2,400 jobs, or 1.7 percent each year from 2008 through 2010. During the period, Children’s Hospital and Health System completed a 13-story addition, Froedtert Hospital opened a cancer research facility, and Columbia St. Mary’s and Wheaton Franciscan each built new or expanded existing healthcare facilities. 2011 through 2016 Payrolls in the Milwaukee HMA were in recovery from 2011 through 2016, taking 6 years to regain the jobs lost during the previous 3 years. The HMA added an average of 9,200 jobs, or 1.1 percent, annually, during the period. Total nonfarm payrolls exceeded the prerecession peak for the first time during 2016, averaging jobs, or 2,500 above the average of jobs in 2007. By comparison, the nation returned to prerecession payroll levels in 2014. Job losses in the education and health services sector in 2011 and in the manufacturing sector in 2016 offset gains in other sectors, contributing to the relatively slow recovery in the HMA. Despite adding jobs each year during the Great Recession, the education and health services sector had a short period of payroll decline as other sectors began to recover. The number of jobs in the sector fell by 2,000, or 1.4 percent, during 2011 before increasing by an average of 4,300 jobs, or 2.8 percent, annually from 2012 through 2016. The decline during 2011 was partially because of a loss of 1,200 jobs at hospitals. Multiple new healthcare facilities opened during the 2012-through-2016 period, including a $120 million transplant center, part of the Froedtert & the Medical College of Wisconsin system. Marquette University, the largest private university in the HMA, added approximately 100 employees, also contributing to job growth in the sector. The manufacturing sector added an average of 1,600 jobs, or 1.4 percent, annually from 2011 through 2015, the first period of gains for the sector since 1998. A new manufacturing industry, water technology, which builds on existing local expertise in water filtration, developed with the beer-brewing industry, emerged during the early 2010s, and supported job gains in the sector. Water-related manufacturing businesses supported $211.6 million in capital investment from 2010 through 2014 in the Water Technology District, an area south of downtown Milwaukee and were estimated to include more than 200 companies in the HMA (The Water Council). Despite growth in the early 2010s, some manufacturers struggled to return to prerecession levels of production. Harley-Davidson, which had an increase in domestic motorcycles shipped each year from 2011 through 2014, has had a decline in domestic shipments each year since 2015. During 2016, manufacturing jobs fell by 1,800, or 1.5 percent. Closure of a Joy Global crane manufacturing facility resulted in the loss of 130 jobs, contributing to the 1,000 jobs lost in the machinery manufacturing industry during 2016."}, {"role": "assistant", "content": "Employment Forecast During the next 3 years, payrolls are expected to increase an average of 0.5 percent annually, continuing at a pace similar to the average growth rate since 2017. Another expansion at Milwaukee Tool, adding up to 350 jobs, and a new plant with 450 additional jobs for the Komatsu Mining Corporation are expected to contribute to job growth. Also expected to support job growth during the 3-year forecast period is a new $100 million corporate venture capital fund that was announced in early 2018. Four companies with corporate offices in the HMA—Northwestern Mutual, Advocate Aurora Health, Johnson Controls, and Foxconn—will contribute to the fund, which is expected to invest in startup companies in the healthcare, technology, manufacturing, and financial services industries."}]}
{"messages": [{"role": "user", "content": "Population growth has slowed since 2010, partially because of the increasing share of residents age 60 and over. Population Trends Population growth has been relatively slow in the Milwaukee HMA since 2000 because of net out- migration. Since 2000, population growth in the HMA has generally been higher during periods of payroll decline and early recovery and lower during periods of job growth. Job growth in the HMA has tended to lag behind the nation during periods of economic expansion, giving residents incentive to move away for job opportunities elsewhere. Conversely, residents have been more likely to stay in the HMA during periods of job losses for the nation, as opportunities elsewhere are limited. Census Bureau population estimates as of July 1). Net natural change has declined during the current decade compared with the 2000s, further slowing population growth. From 2000 to 2003, a period of declining payrolls in the HMA, population growth averaged 5,850 people, or 0.4 percent, annually, including out- migration of 2,475. From 2003 to 2007, as the rate of job growth in the nation exceeded the rate in the HMA, population growth slowed to an average of 2,675 people, or 0.2 percent, annually, and net out-migration rose to 6,050 people annually. From 2007 to 2014, during the Great Recession and through recovery for the nation, population growth in the HMA averaged 6,350 people, or 0.4 percent a year, including net out-migration of 1,500 people a year. As payrolls in the nation shifted from recovery to expansion, net out-migration from the HMA accelerated and population growth slowed. Since 2014, population growth has averaged 530 people, or less than 0.1 percent, annually, including net out-migration of 5,700 people a year. Components of Population Change in the Milwaukee HMA, 2000 Through the Forecast Note: Net natural change and net migration totals are average annual totals over the time period. Sources: U.S. Census Bureau; Bureau of Labor Statistics"}, {"role": "assistant", "content": "Population by Age in the Milwaukee HMA Source: American Community Survey, 2010 and 2017, 1-year data Population Forecast Population growth is expected to be higher during the 3-year forecast period compared with the average annual increase since 2014 but lower than the average annual increase from 2007 to 2014. Recently announced expansions in the manufacturing industry are expected to reduce net out-migration. During the next 3 years, the population of the HMA is expected to increase by an average of 2,000, or 0.1 percent annually (Table 3). Enrollment at the largest university in the HMA, the University of Wisconsin- Milwaukee (UWM) has fallen from a high of 30,500 in 2010 to 25,400 in 2017. It is expected that enrollment changes had a limited effect on net migration because 70 percent of students resided in the HMA before enrolling (UWM, 2017) and the share of residents age 20 to 39 has remained relatively steady. Student households are estimated to currently compose 3 percent of all renter households, a relatively small share of renter households, compared with an estimated 12 percent of all renter households in the Madison, Wisconsin, metropolitan area, where the largest University of Wisconsin campus is located."}]}
{"messages": [{"role": "user", "content": "The fastest growing area in the HMA is the downtown area within the city of Milwaukee (Map 3), with population growth in downtown census tracts averaging more than 5 percent a year (2007–2011 and 2012–2016 American Community Survey 5-year data). The areas with the largest population decline are also in the city of Milwaukee, with several census tracts on the north and southwest sides each declining by an average of 2 percent annually."}, {"role": "assistant", "content": "Since 2010, the number of households has increased by an average of 1,850, or 0.3 percent, annually, compared with an increase of 3,450, or 0.6 percent, a year from 2000 to 2010. During the forecast period, the number of households is expected to increase more slowly, by an average of 1,475, or 0.2 percent, annually, partially because of the slowdown in population growth."}]}
{"messages": [{"role": "user", "content": "Recent household growth has been concentrated in the outlying counties, where population growth has been fastest. Approximately 90 percent of the increase in households since 2010 has occurred in Waukesha, Washington, and Ozaukee Counties."}, {"role": "assistant", "content": "Since 2010, all household growth has been attributed to renter households, which has resulted in declining homeownership. The homeownership rate is currently estimated at 58.9 percent. During the forecast period, the homeownership rate is expected to continue to decline but at a slower rate."}]}
{"messages": [{"role": "user", "content": "Current Conditions The home sales market in the Milwaukee HMA is currently slightly soft but improving. The average home sales price, including new and existing homes, has generally trended upward since 2014 and exceeded the prerecession high for the first time in 2017. The number of homes sold remained largely unchanged during the most recent 12 months but has trended upward since 2012 despite a significant decline in distressed sales. The average home sales price during the 12 months ending September 2018 was up 1 percent from a year earlier and 1 percent higher than the previous peak of in 2007 (CoreLogic, Inc., with adjustments by the analyst). Total home sales were 26,150, largely unchanged from the 12 months ending September 2017 ( CoreLogic, Inc., with adjustments by analyst during the past 24 months. Despite improving economic conditions since 2011, new home sales have remained relatively low due in part to the large inventory of comparable existing homes for sale at competitive prices. From 2012 through 2017, new home sales averaged 820 a year. During the 12 months ending September new homes were sold, down 7 percent from the 790 new homes sold during the previous 12 months. Existing Home Sales Existing home sales peaked in 2005, with 34,900 homes sold, and fell by an average of 3,400, or 14 percent, a year to a low of 14,450 in 2011. As payrolls recovered and expanded, existing home sales have also risen. From 2012 through 2017, existing home sales increased by an average of 1,850, or 10 percent, annually. Distressed sales, including real estate owned (REO) and short sales, constituted less than 1 percent of existing sales in 2005, peaked at 24 percent in 2011, and have fallen to approximately 6 percent of existing sales during the 12 months ending September 2018. Existing home sales totaled 25,450 during the past 12 months, relatively unchanged from the 25,400 homes sold during the previous 12 months. Delinquent Mortgages The rate of seriously delinquent (90 or more days delinquent or in foreclosure) home loans and REO properties in the HMA peaked below, and remains below, the nation. During September 2018, the rate was 1.6 percent, down from 2.0 percent a year earlier and down from a peak of 6.2 percent in early 2010 (CoreLogic, Inc.). The rate for the nation was 1.8 percent in September 2018, down from 2.2 percent in September 2017 and from a peak of 8.6 percent in early 2010. New Home Sales Prices Average new home sales prices exceeded the 2007 peak for the first time during 2017. 12-Month Average Sales Totals by Type of Sale in the Milwaukee HMA Source: CoreLogic, Inc., with adjustments by analyst During the 12 months ending September 2018, the average new home sales price was up 1 percent from a year earlier, and approximately $4,600, or 2 percent, above the average price for a new home in 2007. Existing Home Sales Prices Existing home sales prices also exceeded the 2007 peak for the first time during 2017, and prices have continued to rise as the number of distressed homes has declined. During 2007, existing home sales prices averaged but then fell by an average of $7,575, or 4 percent, annually to a low of in 2011. From 2012 through 2017, prices increased by an average of $6,250, or 3 percent, annually. During the 12 months ending September 2018, existing home sales prices averaged up 2 percent from the previous year and 5 percent above the average price for an existing home in 2007. Approximately one-half of existing home sales during the 12 months ending September 2018 were below . Homes priced between and accounted for 40 percent of sales, and homes priced above accounted for 6 percent of sales. A larger number of lower priced homes were in Milwaukee County, compared with the rest of the HMA. Sources: U.S. Census Bureau, Building Permits Survey; estimates by analyst Table 5. Permitting fell by an average of 890 homes a year from 2006 through 2009 and averaged only 960 homes a year from 2009 through 2011. The number of sales units permitted increased during the economic recovery, rising by an average of 150 homes a year from 2012 through 2016, peaking at 1,700 homes during 2016. Permitting slowed during the 12 months ending September 2017 but again increased during the 12 months ending September 2018 to 1,750 homes, up 8 percent from the previous 12 months (preliminary data). Development of new condominiums has been limited since the late 2000s. Less than 5 percent of homes built since 2009 have been condominiums. Annual Sales Permitting Activity in the Milwaukee HMA For-sale housing has accounted for approximately 40 percent of all housing units built since 2012, compared with approximately 75 percent of housing built from 2000 to 2005. Recent new for-sale housing development has been concentrated in the suburban parts of the HMA, where population growth has been fastest and undeveloped land is readily available. Approximately 40 percent of the single-family homes, townhomes, and condominiums built since 2012 are in Waukesha County, with one-fourth in Washington County and 15 percent in Ozaukee County. Only 10 percent of the for-sale housing units built in the HMA since 2012 are in Milwaukee County, which has the largest share of jobs and population but also the slowest rate of population growth and the smallest amount of vacant, undeveloped land."}, {"role": "assistant", "content": "Forecast During the next 3 years, demand is expected for an additional 4,100 homes (Table 5). The 680 homes under construction are expected to meet a portion of demand. Demand is expected to increase during each year of the forecast period as job growth continues but remain strongest for homes priced below in the outlying counties."}]}
{"messages": [{"role": "user", "content": "Rental Market Conditions and Recent Trends Rental housing market conditions are currently soft. The rental market vacancy rate in the Milwaukee HMA is currently estimated at 9.6 percent, up from 7.8 percent in 2010 ( The current date is October 1, 2018. Sources: Occupied rental unit data: American Community Survey, 2017 1-year data; apartment data: Real Page, Inc. Permitting fell to an average of only 1,025 units a year from 2007 through 2009 and then returned to levels similar to the early 2000s, with an average of 1,425 units permitted each year from 2010 through 2013. Rental permitting rose each year from 2014 through 2017, with an average increase of 630 units a year, to a high of 3,800 units permitted in 2017. During the 12 months ending September 2018, rental permitting slowed to 2,950 units, down from 3,525 units during the 12 months ending September 2017 (preliminary data), as developers waited to see the market reaction to the high number of recently completed units."}, {"role": "assistant", "content": "In the outlying counties, some apartment projects are being built in phases to allow for slower absorption. The first 35 units of the 172-unit Saxony Village apartments in the suburban community of Germantown, in Washington County, opened earlier in 2018. Asking rents are and $1,795 for studio, one-bedroom, two-bedroom, and three-bedroom units, respectively, but all rents are currently reduced by $200 per month to encourage lease up. An additional 35 units and clubhouse are under construction, expected to open in Spring 2019, with all units expected to be complete by 2021. Forecast No demand for additional rental units is expected during the 3-year forecast period ( Estimates by analyst"}]}
{"messages": [{"role": "user", "content": "The HMA is contained within the larger Chicago-Naperville-Elgin, IL-IN- WI Metropolitan Statistical Area (MSA). For purposes of this analysis, the HMA is divided into three submarkets: (1) the Central Counties submarket, which includes the six Illinois counties in the Chicago-Naperville-Arlington Heights, IL Metropolitan Division; (2) the Western Counties submarket, which includes the two Illinois counties in the Elgin, IL Metropolitan Division; and (3) the Northern Counties submarket, which includes the two counties in Illinois and Wisconsin that make up the Lake County-Kenosha County, IL-WI Metropolitan Division."}, {"role": "assistant", "content": "Units under construction as of April 1, 2019. The forecast period is April 1, 2019, to April 1, 2022. Source: Estimates by the analyst 3-Year Housing Demand Forecast Sales Units Rental Units Central Counties Total Demand Under Construction Western Counties Total Demand Under Construction Northern Counties Total Demand Under Construction Greater Chicago HMA Total Demand Under Construction The Greater Chicago HMA emerged from the Great Recession during 2011. From 2011 through 2015, nonfarm payrolls increased by an average of 68,200, or 1.7 percent, annually; however, since 2016, annual job growth has declined to 1.0 percent, or an average increase of only 42,800 jobs, annually. During the forecast period, nonfarm payroll growth is expected to slow further to an average rate of 0.7 percent annually."}]}
{"messages": [{"role": "user", "content": "The sales market in the HMA is slightly soft, with an estimated sales vacancy rate of 1.7 percent, down from 2.7 percent in 2010. During the 12 months ending March 2019, approximately new and existing homes sold, a decrease of 7,100 homes from a year earlier; 24 percent of this decline was among real estate owned (REO) home sales (Metrostudy, A Hanley Wood Company, with adjustments by the analyst). During the next 3 years, demand is estimated for 6,175 new sales units; the 2,600 units currently under construction will satisfy a portion of this demand. Rental market conditions are balanced, with a current estimated rental vacancy rate of 6.6 percent, down from 9.3 percent during 2010. Apartment market conditions are also balanced, with a 5.3-percent vacancy rate as of the fourth quarter of 2018, down from 5.8 percent a year earlier (RealPage, Inc.). Although demand is estimated for 18,050 new apartment units during the next 3 years, there are approximately 20,200 new units currently under construction. Sales Market Slightly Soft: During the 12 months ending March 2019, new and existing home sales declined nearly 5 percent. Institutions of higher education, including the University of Chicago in the city of Chicago and Northwestern University in the city of Evanston, and more than 60 additional 4-year institutions, make the HMA a center of higher education. The HMA is also a regional hub for health care, with several large research and teaching hospitals. Since the Great Recession, growth of the leisure and hospitality sector has been strong, and tourism counts have set records during the past 8 years. The transportation and utilities sector has also increased in significance in the HMA because of expansions at O’Hare International Airport and general economic growth, locally and regionally. Manufacturing sector jobs declined the most, falling nearly 6 percent, or by 31,100 jobs, annually and contributed more than 80 percent of nonfarm payroll losses. Job losses in the manufacturing sector included steel and automobile parts manufacturing and food manufacturing. In the service-providing sectors, the professional and business services sector Name of Employer Nonfarm Payroll Sector Number of Employees U.S. Government Government 41,500 City of Chicago Government 31,160 Cook County, Illinois Government 21,316 Advocate Health Care Education & Health Services 19,049 Northwestern Memorial Healthcare Education & Health Services 16,667 University of Chicago Education & Health Services 16,583 JPMorgan Chase & Co. Financial Activities 15,701 State of Illinois Government 14,690 Amazon.com, Inc. Wholesale & Retail Trade 13,240 United Continental Holdings Inc. Transportation & Utilities 12,994 Data are as of December . Source: Crain’s Chicago Business Notes: Total nonfarm payroll is in thousands. Percentages may not add to 100 percent due to rounding. 12-Month Average Nonfarm Payrolls in the Greater Chicago HMA Note: Twelve-month moving average. Sources: ; National Bureau of Economic Research 2005 Through 2007 From 2005 through 2007, economic conditions in the HMA recovered, although at a slower pace than the nation. Nonfarm payrolls in the HMA rose 1.1 percent annually, or by 44,500 jobs, compared with national job growth averaging 1.5 percent annually. The professional and business services sector recovered strongly in the HMA, gaining an average of 20,700 jobs, or 3 percent, a year, and contributing nearly one-half of the job growth during this time. The education and health services sector, continuing growth from the previous period, and the leisure and hospitality sector added an average of 12,600 and 7,800 jobs, or 2.4 and 2.2 percent, annually. The manufacturing sector continued to decline, albeit at a much slower rate, falling an average of 1.3 percent annually, or by 6,000 jobs each year. 2008 Through 2010 The Great Recession, which occurred nationally from December 2007 to June 2009, significantly impacted the HMA, with nonfarm payrolls declining an average of 2.3 percent, or by 97,100 jobs, annually from 2008 through 2010. By contrast, national nonfarm payroll job losses averaged 1.9 percent annually. During these 3 years, every payroll sector declined except the education and health services sector, which added an average of 14,400 jobs, or 2.6 percent, annually, and the government sector, which was relatively stable. The government sector benefited from a 1.5-percent average annual increase in federal government payrolls, primarily from temporary jobs added to support the 2010 Decennial Census effort. The worst single year for job losses in the HMA was during 2009, when payroll jobs fell 5.2 percent, or by jobs. As in previous periods, the manufacturing sector was particularly hard-hit, falling an average of 24,900 jobs, or nearly 6 percent, annually from 2008 through 2010. By 2010, the manufacturing sector was down by 21,700 jobs, or nearly 5 percent, each year and had become the sixth-largest sector during 2010 compared with the third-largest sector in 2000. Jobs in the wholesale and retail trade sector declined from 2008 through 2010 by an average of 19,000 jobs, or nearly 3 percent, annually. Jobs in the professional and business services and the financial activities sectors shrank, averaging losses of 18,700 and 13,000 jobs each, or 2.7 and 4.2 percent, annually and respectively. The HMA did not recover all the jobs lost during the Great Recession until September 2015; by contrast, nationally, nonfarm payroll jobs surpassed the pre-recession peak 1 year earlier, during September 2014. From 2011 through 2015, nonfarm payrolls in the HMA expanded by an average of 68,200 jobs or 1.7 percent annually, the same annual rate that jobs grew nationally. Job growth in the HMA was widespread, and only two payroll sectors declined: the information sector fell by an average of 100 jobs annually, or 0.2 percent, and the government sector declined by an average of 2,800 jobs, or 0.5 percent, annually. The Federal Government accounted for most of the decrease in the government sector, contracting by 1,400 jobs annually. The worst year for job losses in the government sector was 2011 when 10,100 government jobs were lost with 43 percent of those losses in the federal government subsector. State and local governments also shrank their payrolls because of declining revenues resulting from the Great Recession, as sales tax, property tax, and income tax receipts were all negatively impacted. The professional and business services sector, which added an average of 24,900 jobs, or 3.5 percent, annually, led growth in the HMA from 2011 through 2015. Among the largest increases in this sector during the period was Capital One Financial Corporation, which added more than 600 jobs at downtown and suburban locations of Chicago. Also during this time, Finland-based Nokia Corporation acquired the digital-mapping Navteq Corporation and added an undetermined number of jobs; currently, the company, now known as HERE Technologies, employs approximately 1,200 people in the Greater Chicago HMA. The education and health services sector added an average of 13,000 jobs, or 2.1 percent, annually from 2011 through 2015, maintaining steady growth reported since 2000. Because of the national economic recovery, tourism has risen strongly in the Greater Chicago HMA, and jobs in the leisure and hospitality sector rose by an average of 11,100, or 2.9 percent, annually. Nonfarm payroll job growth has continued to be positive in the HMA from 2016 through 2018, albeit at a slower rate than the previous period. While the national economy has continued adding jobs during this period at an average of 1.7 percent annually, nonfarm payroll job growth in the HMA has slowed 0.6 percentage point to an average of 1.1 percent, or 48,000 jobs added, annually. The unemployment rate recently peaked at 11.0 percent during May 2010, during the local economic contraction, and has trended down since. The current unemployment rate is slightly above the national rate of 3.8 percent and below the rate of 4.3 percent for the state of Illinois; in Wisconsin, the unemployment rate averaged 3.0 percent during the 12 months ending March 2019. 12-Month Average Unemployment Rate in the Greater Chicago HMA and the Nation Note: The current date is April 1, 2019. 36,800 jobs, during the previous 12 months. Leading job growth in the 12 months ending March 2019 was the education and health services sector, which added 11,500 jobs, or 1.7 percent, followed by the transportation and utilities and the professional and business services sectors, with growth of 9,500 and 8,800 jobs, or 4.2 and 1.1 percent, respectively. Growth in the sector has been concentrated in the health services and social assistance industry. Adding to jobs in this industry, the University of Chicago opened a 188-bed Level I Trauma Center near the south side of the Hyde Park neighborhood in the city of Chicago in April 2018. Adding to jobs in the transportation and utilities sector during the past 12 months, third-party logistics provider C. H. Robinson moved into a new office space in the city of Chicago during the summer of 2018 and, although job totals are not available, the customer base of the company has grown more than 25 percent during the past 5 years. Tourism From 2015 to the current date, the leisure and hospitality sector has had the largest number of net-job increases, averaging 10,900 jobs, or 2.7 percent, annually. Because of the economic recovery both in the HMA and nationally, tourism rebounded strongly after the Great Recession, and tourist visits to the Greater Chicago HMA have set records for the past 5 consecutive years Tourist Visits to the Chicago MSA and the Increase of Leisure and Hospitality Jobs Note: The number of leisure and hospitality jobs are based on 12-month average data for each year. Sources: Choose Chicago; Commuting Patterns Cook County, Illinois, which includes the city of Chicago, is the economic center of the HMA, and the Central Counties submarket currently accounts for approximately 85 percent of nonfarm payroll jobs in the HMA ( Columns may not add to 100 percent due to rounding. Source: 2015 U.S. Census Journey to Work close to 40 percent ( Estimates by the analyst The net natural change and net-migration trends identified for the HMA closely reflect the trends for this large submarket, and these trends are generally attributable to Cook County. During the previous decade, the population in the submarket rose an average 12,750 annually, or 0.2 percent, because net natural change averaging 54,550 people annually exceeded net out-migration averaging 41,800 people annually. From 2010 to 2013, following the recession in the HMA and the onset of the recovery, net out-migration fell to an average of 17,150 annually, and the population rose by 26,450 annually, or 0.4 percent. From 2013 to 2016, net out-migration surged, averaging 45,550 annually, and the population fell an average of 5,900 annually, with declines averaging 0.1 percent. This trend has intensified since 2016; net out-migration rose to average 51,350 annually and the rate of population loss rose to average 0.3 percent or 21,200 people annually. Within the submarket, population dynamics among counties vary. The fastest growing county in the HMA is Kendall County, where the population has grown an average of 1.3 percent annually since 2010 to an estimated as of July 1, 2018 (U.S. Census Bureau, Population Estimates Program). The other four counties in the submarket, excluding Kendall and Cook, are also estimated to have either grown since 2010 or reported very slight declines. Most of the population loss from the submarket is estimated to have come from the city of Chicago, where population loss outside of the downtown core is significant. By contrast, the population in the downtown core, and several proximate neighborhoods, is increasing. Please see the “Chicago Series: Focus on Downtown Chicago” for additional information on population dynamics in the city of Chicago. Western Counties Submarket The population of the Western Counties submarket is currently estimated at accounting for approximately 7 percent of the HMA population. The submarket consists of Kane and DeKalb Counties and is located west of the Central Counties submarket. Kane County contributes more than 80 percent of the population in the submarket and has grown an average of 0.4 percent annually from 2010 to 2018, while DeKalb County has declined slightly. From 2000 to 2005, relocation into the Western Counties submarket, largely from the city of Chicago and Cook County, led to net in-migration averaging 9,100 people and population growth of nearly 3 percent, or 15,400 people annually. Net in-migration fell modestly during the next 2 years, averaging 6,200 people annually from 2005 to 2007, and population growth averaged 12,850 annually, or 2.2 percent. From 2007 to 2012, including the Great Recession and the onset of recovery, net out-migration averaged 300 people annually, and the rate of population growth fell to 0.8 percent, averaging 5,150 annually. Since 2012, net out-migration has risen and population growth has fallen. Population growth averaged 2,675 annually from 2012 to 2014, and 1,800 annually since 2014, growth rates of 0.4 and 0.3 percent annually, respectively. Northern Counties Submarket The population of the Northern Counties submarket is currently estimated at contributing approximately 10 percent of the total population in the HMA. The submarket includes Lake County in Illinois and Kenosha County in Wisconsin. Lake County is in closer proximity to the city of Chicago and is the larger county by population, contributing 81 percent of the submarket’s total residents. This submarket has not recorded net in-migration since 2006. From 2000 to 2006, net-migration into the Northern Counties submarket averaged 1,775 people annually and the population rose by 9,200 annually, or 1.1 percent. From 2006 to 2011, migration shifted to net out-migration, averaging 2,725 people annually and population growth fell to average 0.4 percent, or 3,400 annually. From 2011 to 2013, net out-migration slowed slightly, to 2,675 people annually, on average, but because net natural change also fell, population growth dropped again, to 0.2 percent annually, an average of 1,650 annually. Since 2013, net natural change has continued to decline and net out-migration has increased, resulting in population decline of 460 annually, or 0.1 percent. Changes in households by submarket have generally followed population trends in direction; the increase in net out-migration from the HMA resulted in fewer households. Since 2010, households in the HMA rose 0.3 percent annually, on average, gains of 9,575 households annually; this is approximately one-half the annual gains during the previous decade, when households increased an average of 18,000 annually, or 0.6 percent. It is estimated that the number of households increased in the early 2010s, before declining around the same time that the population started to decline in 2014. By submarket, households rose by averages of and 1,325 annually since 2010, or growth rates averaging 0.2, 0.7, and 0.4 percent annually, for the Central Counties, Western Counties, and Northern Counties submarkets, respectively. As with the population trends, the 2010-to-current household changes are significantly below those recorded during the previous decade, when households grew at annual rates of 0.4, 2.4, and 1.1 percent annually, for the Central Counties, Western Counties, and Northern Counties submarkets, respectively. The homeownership rate fell in each submarket, but the declines were more significant in the Western Counties and Northern Counties submarkets. Homeownership rates fell after the Great Recession when significant numbers of owner households faced foreclosures and banks strengthened lending standards, making homeownership more difficult. In the Central Counties submarket, more heavily urban than the other two submarkets, there is a higher propensity to rent in general, a dynamic typically associated with city living. Contributing to this trend, recent arrivals in the city of Chicago, many who work in the growing professional and business services sector, are more likely to choose to rent. In the Central Counties submarket, the homeownership rate fell from 63.8 in 2010 to 62.2 percent currently. By comparison, in the more suburban Western Counties and Northern Counties submarkets, where the homeownership rate is higher than in the Central Counties submarket, homeownership rates fell further, generally because of the foreclosure crisis but also because of tenure preferences of new arrivals. Homeownership rates are currently estimated at 69.9 and 71.5 percent for the Western Counties and the Northern Counties submarkets, down from 73.8 and 74.8 percent in 2010, respectively. Because of expected employment growth, predominately in the Central Counties submarket, net out-migration from this submarket is estimated to fall slightly, averaging 49,000 people annually. In the Western Counties and Northern Counties submarkets, net out-migration is expected to average 2,000 and 4,300 people annually. Population in the Central Counties and the Northern Counties submarkets are expected to fall by 21,100 and 1,250 people annually, on average during the next 3 years, or declines averaging 0.3 and 0.1 percent, respectively. In the Western Counties submarket, by contrast, the population is expected to increase by an average of 1,250 annually, or 0.2 percent. During the next 3 years, households in the HMA are expected to be essentially stable at 3.29 million. Households will decline in the Central Counties submarket, by 2,575 annually, or 0.1 percent, and will increase in the Western and Northern Counties submarkets, by averages of 800 and 300 annually, or 0.4 and 0.1 percent, respectively. Current Conditions The sales housing market in the Greater Chicago HMA is currently slightly soft. The current vacancy rate is estimated at 1.7 percent, down from 2.7 percent in April 2010 ( Metrostudy, A Hanley Wood Company, with adjustments by the analyst REO = real estate owned. Source: Metrostudy, A Hanley Wood Company, with adjustments by the analyst at 35 percent during 2011 and comprised nearly 9 percent of all existing home sales during the current 12-month period. Regular resale home prices remained relatively steady since 2013, hovering around an average of from 2013 through 2017. The previous pre-recession high for average regular resale home prices was during 2008. The average home sales price for an REO home during the 12 months ending March 2019 was approximately 4 percent higher than a year earlier. New home sale prices, in contrast to new home sales, have exceeded pre-recession values, despite a recent downturn of less than 1 percent during the current 12-month period, when the average new home sales price was . Following a recent low of during 2011, the average new home sales price has increased an average of 6 percent annually, to during 2017. The average new home sales price of during 2018 was an all-time high for the HMA. REO Sales and Delinquent Mortgages In March 2019, 1.9 percent of home loans in the Greater Chicago HMA were seriously delinquent or had transitioned into REO status, down from 2.5 percent a year earlier, and well below the peak of 10.6 percent in January 2012 (CoreLogic, Inc.). The 1.9 percent rate of seriously delinquent mortgages in the HMA is slightly below the state of Illinois’ rate of 2.0 percent in March 2019, down from 2.4 percent a year earlier. The national rate, by contrast, is 1.6 percent as of March 2019, down from 2.3 percent a year earlier. Housing Affordability Homeownership in the Greater Chicago HMA is generally affordable. The National Association of Home Builders (NAHB) developed the Housing Opportunity Index (HOI), which represents the share of homes sold that would have been This index is available for metropolitan divisions, which were used to define the three submarkets in the HMA. For these submarkets, the HOI as of the first quarter of 2019 was 68.1 and 75.5, both increases from 66.5 and 71.5 a year earlier in the Central Counties and the Northern Counties submarkets, respectively. For both submarkets, the indices were approximately 50 during late 2008 and the onset of the Great Recession in 2009, which significantly impacted sales housing markets. Increased REO sales and foreclosures contributed to declining home sales prices. Following the recovery from the Great Recession, the index has not exceeded 80 for either submarket. The NAHB further ranks 239 metropolitan divisions and metropolitan areas according to their HOI ranking. As of the first quarter of 2019, the Central Counties, the Western Counties, and the Northern Counties submarkets ranked 138th, 102nd, and 108th, respectively, indicating that, among 239 metropolitan divisions and areas, the Central Counties submarket was more affordable for homebuying than 58 percent of areas, the Western Counties submarket was more affordable than 43 percent of areas, and the Northern Counties submarket was more affordable than 45 percent of areas."}, {"role": "assistant", "content": "Forecast During the 3-year forecast period, demand is estimated for 6,175 new single- family homes, townhomes, and condominiums in the HMA ( The forecast period is from April 1, 2019, to April 1, 2022. Source: Estimates by the analyst"}]}
{"messages": [{"role": "user", "content": "The current vacancy rate is estimated at 1.8 percent, down from 2.7 percent in April 2010, when conditions were soft. As of March 2019, the submarket had 3.2 months of available for-sale housing inventory, up from 3.1 months of supply a year earlier ( Metrostudy, A Hanley Wood Company, with adjustments by the analyst Single-Family Home and Townhome Sales Sales of new and existing single-family homes and townhomes in the submarket rose following the Great Recession, until approximately 2013, and have remained steady since then. During the 12 months ending March 2019, approximately 67,750 new and existing single-family homes and townhomes sold, 4 percent fewer than were sold a year earlier (Metrostudy, A Hanley Wood Company, with adjustments by the analyst). The current decline in sales is because of trends in population and households; the population in this submarket began to decline during 2013, declines that have intensified since 2016. From a recent low level of 39,150 single-family homes and townhomes sold during 2011, sales rose strongly, increasing more than 27 percent annually, on average, reaching 63,200 sales during 2013. Since 2013, sales have risen slowly, growing an average of 3 percent annually, before the current decline, which began in mid-2018. During the 12 months ending March 2019, sales of new and existing condominium units in the Central Counties submarket fell approximately 3 percent, to 46,450 units sold, following a 6-percent increase a year earlier. Condominium sales in this submarket are heavily concentrated in Cook County. Despite Cook County and the city of Chicago accounting for 71 and 37 percent of the submarket’s population, respectively, these areas accounted for 84 and 53 percent of condominium home sales in the submarket (2012–2017 American Community Survey [ACS], 5-year estimates). Home Sale Prices Although home sales totals for all unit types have recently declined, home sales prices, on average, are increasing. During the 12 months ending March 2019, the average home sales price for single-family homes and townhomes was more than 1 percent above the average sales price a year earlier. The average sales price for a condominium unit was or nearly 2 percent above the average a year earlier. Since 2012, average sales prices for each sales type have grown slowly, averaging increases of 4 percent annually for single-family homes and townhomes, to a 2018 average sales price of and averaging increases of 5 percent annually, to a 2018 average sales price of for condominium units. REO Properties and Delinquent Mortgages The rate of seriously delinquent home loans and REO properties in the Central Counties submarket has been higher than rates in the other two submarkets, the state of Illinois, or the nation, in part, because of the relatively higher unemployment rates among Chicago residents. The higher rate of seriously delinquent home loans and REO properties in the Central Counties submarket is also due to higher population loss, particularly in Cook County and parts of Chicago, leading to lower demand for homes in those areas. In March 2019, approximately 2 percent of loans in the submarket were seriously delinquent or had transitioned into REO status, down from 2.6 percent during March 2018, and below the peak level of 11.0 percent during January 2012 (CoreLogic, Inc.). Sales Construction Activity Sales building activity, as measured by the number of single-family homes, townhomes, and condominium units permitted, has been low since the Greater Chicago HMA emerged from the Great Recession. Construction intended for owner occupancy totaled 5,150 sales units during the 12 months ending March 2019, nearly 13 percent fewer than were permitted during the 12 months ending March 2018 (preliminary data with adjustments by the analyst). 12-Month Average Sales Price by Type of Sale in the Central Counties Submarket Source: Metrostudy, A Hanley Wood Company, with adjustments by the analyst Sales units permitted remained low from 2009 through 2010, averaging 2,950 units permitted each year. Since the impacts of the Great Recession ended in the HMA and demographic trends improved through 2012, sales units permitted have also increased. From 2011 through 2016, units permitted rose an average of 13 percent annually, to a 2016 level of 6,350. In addition, the proportion of condominium units to all sales units permitted has fallen; from 2001 through 2006, more than 30 percent of all sales units permitted were condominiums; during 2007, nearly 43 percent of all sales units permitted were for condominiums. That value declined to fewer than 13 percent of units permitted during 2013, before increasing to 20 percent of sales units permitted as condominiums during 2018."}, {"role": "assistant", "content": "New Construction Located in The Loop neighborhood in downtown Chicago, The Vista Tower is 101 stories tall and includes 396 condominium units, more than one-half of which have been sold. Pricing is variable; among sold units, prices range from to $18.5 million, and condominium units range from one to three bedrooms. The project also includes a luxury, 196-room hotel and is expected to be completed in the spring of 2020. In Joliet, Will County, Illinois, Silver Leaf is a new-construction neighborhood of single-family homes with three or four bedrooms and two or three bathrooms priced from through . The 265 home sites are approximately two-thirds built and sold. Forecast During the 3-year forecast period, demand is estimated for 3,200 new single- family homes, townhomes, and condominiums in the submarket (Table 9). The 2,250 homes under construction will generally satisfy demand during the first 2 years of the forecast period."}]}
{"messages": [{"role": "user", "content": "Sales Permitting Activity in the Central Counties Submarket Notes: Includes single-family homes, townhomes, and condominiums. Data for 2019 are through March 2019. Sources: U.S. Census Bureau, Building Permits Survey; 2000 through 2017—final data and estimates by the analyst; 2018 and 2019—preliminary data and estimates by the analyst Sales Units Demand 3,200 Units Under Construction 2,250 Units Table 9."}, {"role": "assistant", "content": "Demand for New Sales Units in the Central Counties Submarket During the Forecast Period Note: The forecast period is from April 1, 2019, to April 1, 2022. Source: Estimates by the analyst"}]}
{"messages": [{"role": "user", "content": "The current vacancy rate is estimated at 1.2 percent, down from 2.6 percent in April 2010 ( Metrostudy, A Hanley Wood Company, with adjustments by the analyst Although new home sales have recovered somewhat, they remain below pre-recession highs; during the 12 months ending March new home sales were recorded, more than 13 percent fewer than the 1,025 new home sales recorded a year earlier. By contrast, regular resale home sales have neared their pre-recession levels, although the pace of regular resale sales has recently slowed. From a recent high level of 9,975 regular resale sales during 2006 to a recent low of 3,450 sales during 2009, the decline averaged nearly 30 percent annually. Regular resale sales remained low, averaging 3,500 sales annually during and 2011, before beginning to increase from 2011 averaging 18 percent annually, to 9,525 sales during 2017. Closings of REO home sales totaled 710 during the 12 months ending March 2019, equal to 7.2 percent of all existing home sales. The ratio of REO sales to all existing home sales peaked at 40.9 percent during February 2012. Home Sales Prices Prices for all home sales types have not reached pre-recession levels. The average sales price for all home sales in the submarket during the 12 months ending March 2019 was an increase of 3 percent from the average sales price a year earlier. The average new sales price during this time was an increase of 2 percent above the average sales price a year earlier, and for a regular resale home sale, the value was or 3 percent above the value a year earlier. During 2006, before the Great Recession and its effects began to impact the HMA, the average sales prices were and for all sales, new sales, and regular resales, respectively. Current average sales prices are 1 percent below the 2006 values for all home sales; for new and regular resale home sales, the annual declines were 0.4- and 0.8-percent, respectively. The reason for the larger total sales price decline since 2006 is because REO sales prices, which averaged during the current annual period and are nearly unchanged from the value during 2006, presently account for more than 7 percent of all home sales in the submarket, while during 2006, the similar proportion was 4 percent of all home sales. Since these low levels, annual price gains have averaged 2 and 4 percent annual appreciation for new sales and all home sales, respectively, and averaged 2 percent annual appreciation for regular resale home sales, from their recent low levels during 2012 and 2013 to their 2018 average. 12-Month Average Sales Price by Type of Sale in the Western Counties Submarket REO = real estate owned. Source: Metrostudy, A Hanley Wood Company, with adjustments by the analyst REO Properties and Delinquent Mortgages In March 2019, 1.5 percent of loans in the submarket were seriously delinquent or had transitioned into REO status, down from 1.8 percent during March 2018 and a peak of 10.6 percent during January 2012 (CoreLogic, Inc.). The rate in this suburban market is below the rate of seriously delinquent loans for the In this submarket, with a homeownership rate higher than in the Central Counties submarket, owners likely had a higher equity stake in their homes before the Great Recession and its impacts on the owner market and were in a better financial position to survive the economic downturn. Having a higher equity stake also makes it less advantageous to return a principal residence to the lender as an REO property or to allow a lender to foreclose on the property. Sales Construction Activity Sales construction activity in the Western Counties submarket since 2006 has been significantly below pre-recession levels. This has helped the sales housing market in the submarket reach current balanced conditions from soft conditions during 2010. The recovery in permitting is ongoing, and from 2012 through 2013, permitting rose 49 percent annually, to 1,125 units permitted during 2013. Since 2013, the average annual permitting total has been steady, averaging 1,200 units. During the 12 months ending March 2019, sales building permits totaled 1,075 units, slightly below the 1,125 homes permitted a year earlier (preliminary data with adjustments by the analyst). Approximately 6 percent of the sales units permitted during the past 12 months are condominium units, higher than the 4-percent ratio a year earlier. From 2000 through 2012, approximately 11 percent of sales units built in the submarket were condominium units; since 2012, this ratio has fallen to approximately 4 percent. New Construction The Conservancy, in Gilberts, Kane County, Illinois, includes 51 home sites in the first phase, with approximately 148 additional home sites reserved for future phases. Home models include three different single-family plans, with three or four bedrooms and two bathrooms; prices for the three models of homes start at and . Marketing has just begun at this project. In Elgin, Kane County, Illinois, West Point Gardens South includes 39 sites, with 7 available in the current phase. Five different home plans are available with three to five bedrooms and two bathrooms and starting prices ranging from to . Sales Permitting Activity in the Western Counties Submarket Notes: Includes single-family homes, townhomes, and condominiums. Data for 2019 are through March 2019. Sources: U.S. Census Bureau, Building Permits Survey; 2000 through 2017—final data and estimates by the analyst; 2018 and 2019—preliminary data and estimates by the analyst"}, {"role": "assistant", "content": "Demand for New Sales Units in the Western Counties Submarket During the Forecast Period Note: The forecast period is from April 1, 2019, to April 1, 2022. Source: Estimates by the analyst Forecast During the 3-year forecast period, demand is estimated for 1,975 new single- family homes, townhomes, and condominiums in the submarket (Table 11). The 200 sales units currently under construction will satisfy some of this demand."}]}
{"messages": [{"role": "user", "content": "The current vacancy rate is estimated at 1.5 percent, down from 2.3 percent in April 2010 ( Metrostudy, A Hanley Wood Company, with adjustments by the analyst From 16,800 sales during 2006, regular resales also fell, to 5,425 during 2011, declines averaging 20 percent annually. Since 2011, regular resales rose to 13,600 sales during 2017, increases averaging 20 percent annually. REO home sales totaled 1,025 during the 12 months ending March 2019, equal to 8 percent of all existing home sales. The ratio of REO sales to all existing home sales peaked at 36 percent during March 2012. Home Sales Prices Home sales prices for all home sales have not reached pre-recession levels because regular resale prices remain comparatively low. Declining demographic trends in the submarket, including increased net out-migration, have contributed to lower demand, fewer sales, and lower average sales prices. The average sales price for all home sales in the submarket during the 12 months ending March 2019 was nearly 4 percent below the average sales price a year earlier. The average new sales price during this time was more than 1 percent higher than a year earlier, and for a regular resale home sale, the value was nearly 5 percent below the value a year earlier. During 2006, before the Great Recession and its effects began to impact the HMA, the average sales prices were and for all sales, new sales, and regular resales, respectively. Only current new sales prices are above their 2006 value, nearly 15-percent higher. Regular resales and overall sales prices are 15 and 16 percent below their 2006 values, respectively. For regular resales, the 2018 average sales price of is the lowest recent price recorded. REO Properties and Delinquent Mortgages In March 2019, 1.6 percent of home loans in the submarket were seriously delinquent or had transitioned into REO status, down from 1.9 percent during March 2018 and a peak of 9.0 percent during January 2012 (CoreLogic, Inc.). As in the Western Counties submarket, the rate in this suburban market is below the rate of seriously delinquent loans for the overall HMA and for Illinois and is currently equal to the national rate of 1.6 percent. In this submarket, with a homeownership rate higher than in the other two submarkets, owners likely had a higher equity stake in their homes before the Great Recession and were in a better financial position during the economic downturn. 12-Month Average Sales Price by Type of Sale in the Northern Counties Submarket REO = real estate owned. Source: Metrostudy, A Hanley Wood Company, with adjustments by the analyst Sales Construction Activity Sales construction activity in the Northern Counties submarket since 2007 has been significantly below pre-recession levels. This has helped the sales housing market in the submarket reach current slightly soft conditions, from soft conditions during 2010. Sales units permitted fell to 2,625 during 2007, a decline of 40 percent from 2006. Construction has remained comparatively low since then, averaging 750 units permitted annually from 2008 through 2012, and averaging 810 units permitted annually from 2012 through 2017. During the 12 months ending March 2019, there were 790 sales units permitted, 13 percent fewer than were permitted a year earlier (preliminary data with adjustments by the analyst). Fewer than 1 percent of the units permitted during the past 12 months are condominium units, below the 3-percent ratio a year earlier. From 2000 through 2013, condominium units as a percent of all sales units permitted ranged from 4 percent during 2012, to 34 percent during 2006. New Construction In Kenosha, Wisconsin, Parkview Heights is a new neighborhood with 38 single- family home lots, available for custom or semi-custom-built homes. Currently, lots are sold; available home models range in price from to and range in size from 1,560 to 2,857 square feet and include three or four bedrooms and two or three bathrooms. In Volo, Lake County, Illinois, Andare at Remington Pointe North is an active-adult community which will include 86 new ranch homes, ranging from 1,224 to 2,171 square feet, and priced from to ."}, {"role": "assistant", "content": "Forecast During the 3-year forecast period, demand is estimated for 1,000 new single- family homes, townhomes, and condominiums in the submarket (Table 13). The 150 sales units currently under construction will satisfy some of this demand."}]}
{"messages": [{"role": "user", "content": "Sales Permitting Activity in the Northern Counties Submarket Notes: Includes single-family homes, townhomes, and condominiums. Data for 2019 are through March 2019. Sources: U.S. Census Bureau, Building Permits Survey; 2000 through 2017—final data and estimates by the analyst; 2018 and 2019—preliminary data and estimates by the analyst Sales Units Demand 1,000 Units Under Construction 150 Units Table 13."}, {"role": "assistant", "content": "Demand for New Sales Units in the Northern Counties Submarket During the Forecast Period Note: The forecast period is from April 1, 2019, to April 1, 2022. Source: Estimates by the analyst"}]}
{"messages": [{"role": "user", "content": "Current Conditions and Recent Trends The rental housing market, including apartment units and single-family homes for rent, in the HMA is currently balanced. Conditions have been mostly balanced since 2012, because of the economic recovery in the HMA, improved demographic trends early in the decade, the foreclosure crisis which made homebuying more difficult, and a propensity to rent among new households. In 2017, an estimated 52 percent of all rental units were in larger structures with five or more units per structure; 19 percent of all rental units were in single- family homes, attached or detached. Since 2010, the number of rental units in single-family homes rose, likely because of the foreclosure crisis shifting homes from owner to renter-occupied; at the same time, the percent of renters in larger structures with five or more units per structure also rose slightly. The overall rental vacancy rate is 6.6 percent, down from 9.3 percent in 2010 ( The current date is April 1, 2019. Sources: 2010 and 2017 American Community Survey, 1-year data Apartment Rents and Vacancy Rates in the Greater Chicago HMA Q1 = first quarter. Note: Four-quarter running average. Source: RealPage, Inc. The HUD Rental Affordability Index, a measure of median renter household income relative to qualifying income for the median-priced rental unit, declined from 2008 to 2011 because renter household incomes declined while gross rents rose, albeit slowly. Since 2011, however, median renter household incomes have risen nearly twice as fast as rents and the index has, in turn, also risen. There are approximately 20,200 new units under construction which will satisfy all expected demand during the next 3 years. Accordingly, no additional large-scale apartment development is recommended to start construction during the forecast. Chicago MSA Rental Affordability MSA = metropolitan statistical area. Notes: Rental affordability data is for the larger Chicago-Naperville-Elgin, IL-IN-WI MSA, which includes 14 counties, and is larger than the HMA definition used in this report. Source: American Community Survey, 1-year data Note: The forecast period is April 1, 2019, to April 1, 2022. Source: Estimates by the analyst The current date is April 1, 2019. Sources: 2010 and 2017 American Community Survey, 1-year data Conditions in the apartment market are also balanced, unchanged from conditions in 2010. The apartment vacancy rate has ranged from 4.3 to During the first quarter of 2019, apartment vacancy rates ranged from 3.9 percent in the RealPage, Inc.-defined Central Cook County market area to 8.0 percent in the Naperville market area (DuPage County). During the first quarter of 2019, the average apartment rent in the submarket was $1,629, more than 7 percent higher than the average rent during the first quarter of 2018. Rent was highest in the Streeterville/River North market area at $2,438, and the fastest annual rate of growth was 8.1 percent, to $1,177 in the Will County market area. Units permitted dropped sharply, to 770, during 2009, which was the worst year for job losses in the HMA, before rebounding to 2,000 units permitted during 2010. From 2011 through 2014, rental units permitted averaged 5,300 annually, higher than the level of permitting before the Great Recession, but then surged upward, averaging 10,300 annually from 2015 through 2017. Despite this increase in rental production, the apartment and rental vacancy rates remained mostly stable and the markets remained in balance. Many of these newly permitted units were concentrated in the downtown Chicago neighborhood of The Loop and nearby areas, which have gained population rapidly, in contrast to the rest of the city of Chicago, Cook County, the submarket, and the HMA. During the 12 months ending March 2019, approximately 8,925 rental units were permitted, down 16 percent from 10,650 units permitted a year earlier (preliminary data with adjustments by the analyst). Rental Permitting Activity in the Central Counties Submarket Notes: Includes apartments and units designed for rental occupancy. Data for 2019 are through March 2019. Sources: U.S. Census Bureau, Building Permits Survey; 2000 through 2017—final data and estimates by the analyst; 2018 and 2019—preliminary data and estimates by the analyst Rental Construction Activity Rental construction activity, as measured by the number of rental units permitted, has been strong in the submarket since economic conditions began improving in 2010."}, {"role": "assistant", "content": "Forecast During the 3-year forecast period, demand is estimated for 15,800 new rental units (Table 17). The 17,200 units currently under construction will satisfy demand during the next 3 years."}]}
{"messages": [{"role": "user", "content": "Rental Market—Western Counties Submarket Market Conditions: Balanced Current Conditions and Recent Trends The rental housing market in the Western Counties submarket is currently balanced. In 2017, approximately 62 percent of all rental units were in structures with four or fewer units, up from 52 percent in 2010 (ACS 1-year data). This shift in tenure among single-family homes (detached and attached) and two- to four- unit structures is likely a result from the Great Recession and its impact on REO and foreclosed properties, as former homeowners shifted to rental status. The overall rental vacancy rate is estimated at 5.8 percent, down from 8.3 percent in 2010 (Table 18)."}, {"role": "assistant", "content": "Rental market conditions were soft in 2010 but tightened as economic conditions within the HMA improved and because of stronger demographic trends that are still identified today; this is the only submarket that is currently recording population growth and expected to grow during the next 3 years. In addition, there has been a shift to renter occupancy among existing households in the submarket and among new arrivals to the area. Note: The forecast period is April 1, 2019, to April 1, 2022. Source: Estimates by the analyst Rental Units Demand 15,800 Units Under Construction 17,200 Units The current date is April 1, 2019. Sources: 2010 and 2017 American Community Survey, 1-year data The apartment vacancy rate has ranged from 4.3 to 5.3 percent each quarter since 2010. During the first quarter of 2019, apartment vacancy rates ranged from 4.4 percent in the RealPage, Inc.-defined Far Northwest Chicago Suburbs market area to 5.2 percent in the Aurora market area (Kane County). During the first quarter of 2019, the average apartment rent in the submarket was $1,191, more than 3 percent higher than the average rent during the first quarter of 2018. Rent was highest in the Aurora market area at $1,328, which also increased 5 percent from a year earlier. Rental Construction Activity Rental construction activity, as measured by the number of rental units permitted, is highly variable in this submarket. Before the Great Recession, rental permitting declined steadily, from 880 units in 2000 to 110 units in 2004, declines averaging 41 percent annually. Following the end of the Great Recession and recovery in the submarket, rental permitting picked up modestly, averaging 120 units permitted annually from 2010 through 2016, including 1 year, 2013, with no rental units permitted. Apartment production increased to higher levels during 2017 and 2018, and units permitted averaged annually 1,050 during these 2 years. Significant new apartment construction during these years was in Saint Charles and South Elgin, both in Kane County. During the 12 months ending March 2019, approximately 880 rental units were permitted, down 12 percent from 990 units permitted a year earlier (preliminary data with adjustments by the analyst). Rental Permitting Activity in the Western Counties Submarket Notes: Includes apartments and units designed for rental occupancy. Data for 2019 are through March 2019. Sources: U.S. Census Bureau, Building Permits Survey; 2000 through 2017—final data and estimates by the analyst; 2018 and 2019—preliminary data and estimates by the analyst Q1 = first quarter. Note: Four-quarter running average. Source: RealPage, Inc. Forecast During the 3-year forecast period, demand is estimated for 1,300 new rental units (Table 19). The 1,500 units currently under construction will satisfy demand during the next 3 years. As in the Central Counties submarket, demand for new market-rate rental units during the next 3 years will be met by the current development pipeline."}]}
{"messages": [{"role": "user", "content": "Note: The forecast period is April 1, 2019, to April 1, 2022. Source: Estimates by the analyst Rental Units Demand 1,300 Units Under Construction 1,500 Units The current date is April 1, 2019. Sources: 2010 and 2017 American Community Survey, 1-year data The apartment vacancy rate has ranged from 2.5 to 4.9 percent each quarter since 2010. The average rent during the first quarter of 2019 was $1,151, approximately 2 percent above the average rent a year earlier. Apartment Rents and Vacancy Rates in the Northern Counties Submarket Rental Construction Activity Rental construction activity, as measured by the number of rental units permitted, is also quite variable in this submarket. Before the Great Recession, rental permitting was mostly steady, averaging 480 units permitted annually from 2000 through 2006; during 2001 and 2002, rental permitting was significantly lower, totaling 250 and 30 units, respectively. Eliminating these 2 years, the average increases to 620 units annually. During 2010 and 2011, rental permitting rose to 390 and 490 units, increases of 120 percent and 28 percent, respectively. Permitting then declined to 160 units during 2012 and again to 100 units during 2013 before increasing to an average of 690 units annually from 2014 through 2016. A recent high level of 1,000 units was permitted during 2017. During the 12 months ending March 2019, approximately 620 rental units were permitted, down 21 percent from 780 units permitted a year earlier (preliminary data with adjustments by the analyst). Rental Permitting Activity in the Northern Counties Submarket Notes: Includes apartments and units designed for rental occupancy. Data for 2019 are through March 2019. Sources: U.S. Census Bureau, Building Permits Survey; 2000 through 2017—final data and estimates by the analyst; 2018 and 2019—preliminary data and estimates by the analyst New Construction Breeze Terrace Apartments is currently under construction in Pleasant Prairie, Kenosha County, Wisconsin and is scheduled to be completed in the summer of 2019. It will include 213 one- and two-bedroom units with rents starting at $1,395 and $1,900, respectively. Somerset by the Lake apartments, in Lake Zurich, Lake County, Illinois, is a 48-unit apartment property, scheduled for completion in July 2019. One- and two-bedroom units are offered starting at Q1 = first quarter. Note: Four-quarter running average. Source: RealPage, Inc."}, {"role": "assistant", "content": "Forecast During the 3-year forecast period, demand is estimated for 950 new rental units ( The forecast period is April 1, 2019, to April 1, 2022. Source: Estimates by the analyst Rental Units Demand 950 Units Under Construction 1,500 Units Table 21. Demand for New Rental Units in the Northern Counties Submarket During the Forecast Period"}]}
{"messages": [{"role": "user", "content": "— After a strong and sustained surge in multifamily completions over the past two years, vacancy will edge down in 2025 due to robust tenant demand. Economic growth will support household formation but the still-high cost of home ownership will drive demand for apartments."}, {"role": "assistant", "content": "State of the Real Estate Cycle Commercial real estate fundamentals are in relatively good shape as we enter 2025, with even the distressed office sector benefiting from improved leasing activity. Our industry has suffered profound shocks over the past four years from the pandemic, high inflation, rising interest rates and a surge in construction completions. That real estate has weathered these formidable challenges is testimony to the asset class’s resilience and its role as the bedrock of business operations. While we expect that economic growth in 2025 will ignite a new real estate cycle, we know that potential risks loom. We look forward to helping our clients identify opportunities and navigate change to meet and exceed their goals in 2025. Although the refinancing of commercial real estate remains a work in progress, the U.S. banking sector has made itself more resilient, greatly reducing the likelihood of a financially led recession from a major bank failure."}]}
{"messages": [{"role": "user", "content": "A Soft Landing Amid a Changing World The U.S. enters 2025 with positive momentum in terms of economic growth and easing inflation. Consumers—the bedrock of the U.S. economy—remain in good shape with robust gains in wealth and income. The S&P 500 rose by 22.5% in 2024, house prices by 6.8%1 and real disposable income by 3.1%.2 This in turn should drive consumer spending growth of between 2% and 4% in 2025. Despite the recent slowdown in job growth, strong corporate earnings and falling interest rates should rekindle hiring in 2025. Households and businesses both remain sheltered from the full effects of high interest rates by the low fixed- interest mortgage and corporate debt that was taken out in the pandemic era. Although the outlook for government spending is uncertain at the time of this writing due to the re-election of Donald Trump as president, there still is a considerable level of support for the economy as we start the year. The avoidance of tax increases next year is a positive for consumption and investment. The Infrastructure & Jobs Act of 2021 will boost construction activity in 2025 and increased defense spending will support U.S. manufacturing. The prospect of lighter government regulations in certain sectors is also a plus for the economy. Positive momentum will help the economy adjust to higher import prices from tariffs, but reduced labor supply could prompt the Fed to slow the pace of interest rate cuts to prevent a flare up of inflation."}, {"role": "assistant", "content": "Although the refinancing of commercial real estate remains a work in progress, the U.S. banking sector has made itself more resilient, greatly reducing the likelihood of a financially led recession from a major bank failure. The relatively low consumer loan delinquency rate and reductions in the federal funds rate should support economic growth in 2025."}]}
{"messages": [{"role": "user", "content": "Global Risks The U.S. economy has avoided recession and pulled off a remarkable soft landing. Nevertheless, there are global risks to the outlook, the biggest of which is a recession in China. China accounts for 18% of world GDP—second only to the U.S. with 25%—and its demand for raw materials drives growth in many emerging markets. China’s housing market has collapsed, mainly due to oversupply, and its consumer spending is very weak. Although the Chinese government has announced significant stimulus, it may not be enough. A second global risk comes from Germany, which faces a big challenge from weak demand for manufactured exports. However, falling inflation and low unemployment will be enough to generate a consumer recovery in Germany next year. A longer-term risk to the U.S. economy is the federal budget deficit. This is not an immediate problem, since the overall debt-to-GDP ratio is rising slowly. President-elect Trump has proposed levying tariffs on foreign goods to reduce the deficit, offsetting some effects of the tax cut extension. However, the lack of a clear strategy to reduce the deficit likely means higher interest rates and mortgage rates for longer."}, {"role": "assistant", "content": "With the economy in relatively good shape, we should soon see the start of a new real estate cycle driven by tenant demand and falling vacancy rates. The Economy & Real Estate For the past 40 years, the real estate and economic cycles have been highly correlated. In the past three years, the end of the real estate cycle has not been accompanied by an economic recession. Moreover, the U.S. economy appears resoundingly at mid-cycle, with low levels of corporate and consumer debt. With the economy in relatively good shape, we should soon see the start of a new real estate cycle driven by tenant demand and falling vacancy rates."}]}
{"messages": [{"role": "user", "content": "Unemployment vs. Average Vacancy Rate Sectors Included: Office, Industrial, Retail, and Multifamily Source: CBRE Econometric Advisors, CBRE Research, Q3 2024."}, {"role": "assistant", "content": "Mega in Economy Artificial intelligence technology will be more widely deployed in 2025. Look for major advancements in medicine, a stronger revival of tech leasing as the nature of office work continues to evolve and a continued boom in data centers. Nuclear power will start to make a comeback."}]}
{"messages": [{"role": "user", "content": "Forecast Slow But Sure Investment Recovery CBRE expects a continued recovery for investment sales in 2025; however, investors and lenders will face several headwinds. The 10-year Treasury yield will remain above 4% as markets react to a persistently large budget deficit, stimulative fiscal policy and the potential for higher inflation. Nevertheless, strong economic growth driving positive fundamentals will support the recovery in investment activity, with volume up by as much as 10% next year."}, {"role": "assistant", "content": "Investors will focus on industrial and multifamily assets. Office properties will remain challenged, with investors still very discerning. Assuming minimal disruptions from tariffs, retail will continue to attract investors with its strong fundamentals and we expect some portfolio sales will ensure a robust year for this property type. Election Impact The second Trump presidency presents both opportunities and risks for commercial real estate. The industrial and retail sectors will be particularly affected by trade policy and shifting consumer spending patterns. Fiscal policy will also have some bearing on the cost of capital. Prospects for historically high budget deficits could keep long-term interest rates relatively high, weighing on the budding recovery in investment activity. On the other hand, higher interest rates will bolster multifamily fundamentals as homeownership affordability challenges support rental demand. Investors will also have greater certainty around capital gains and other tax policy, which we expect will remain favorable for the industry and investors. Cap Rates Cap rates will slightly compress in 2025. While Treasury yields and rents are the biggest drivers of cap rates, other significant factors include the risk premium and GDP growth. CBRE forecasts that cap rates will slowly fall and stabilize at higher levels than in the last cycle due to interest rates remaining higher than they were during the 2010s. This is driven by outsized budget deficits and continued economic growth, among other factors. From their peak in 2024 to the end of 2025, industrial cap rates will fall by 30 basis points (bps), retail by 24 bps, multifamily by 17 bps and office by 7 bps. This forecast is subject to changes in borrowing rates, which will impact activity and pricing. Investors should consider broader macroeconomic drivers that influence Fed policy to understand cap rate movements. Although macro factors determine the direction of cap rates, the extent of those changes can be influenced by the relative strength of each market and asset. As such, market and individual asset selection will be even more important considerations for investors during the current cycle's early phase."}]}
{"messages": [{"role": "user", "content": "Risks & Opportunities 02 Capital Markets Risks Geopolitical risks, potential fiscal or monetary policy errors and persistent inflation—potentially exacerbated by trade and immigration policy changes—could impact the nascent capital markets recovery."}, {"role": "assistant", "content": "Continued distress in the office sector and, to a lesser extent, the multifamily sector is likely. As a result, banks—particularly community and regional banks—will manage their exposure to commercial real estate amid continued regulatory scrutiny. Construction loans will remain relatively difficult to obtain from banks. There also is uncertainty around the reproposed Basel III rules that could compound issues for banks that lend to commercial real estate, impacting liquidity in the sector. However, following the election, we anticipate any implementation to be less disruptive than previously feared. Evolving supply chains and a relatively healthy consumer will continue to present opportunities in the industrial sector, particularly as trade policy impacts the flow of goods entering and leaving the country. For the multifamily sector, reduced levels of new supply and higher mortgage rates will result in healthy demand and better fundamentals. And investment opportunities will abound in the retail sector amid continued consumer strength and low levels of new supply, although the imposition of tariffs might weaken investor sentiment. We also expect more interest in alternatives, especially data centers. 02 Capital Markets — Pricing will rise for all property types, even office. — Major policy changes, including tax, trade, immigration and federal spending, will have varying impacts on commercial real estate and the overall investment environment. Office Market Stabilization Expected The U.S. office market is set for a pivotal shift in 2025, with stabilization paving the way for a new cycle. With office attendance reaching a steady state and a soft landing for the economy, occupiers can conduct portfolio planning with increased confidence."}]}
{"messages": [{"role": "user", "content": "Occupier sentiment will shift from a contraction-oriented approach to one of stabilization and even expansion, supporting office space absorption. This positive shift, along with a significant slowdown in new supply and declining interest rates, sets the stage for the most optimistic outlook in years. However, certain challenges will remain, including subpar office-using job growth, a substantial amount of sublease space and high vacancies in less desirable office properties."}, {"role": "assistant", "content": "Occupier Strategy More than one-third of respondents to CBRE’s 2024 Occupier Sentiment Survey plan to increase their portfolio requirements over the next two years, while 25% expect no change. This will support positive office absorption in 2025. Large companies with more than 10,000 employees will drive most of the downsizing, while small companies with less than 1,000 employees will drive most of the expansion. Although rightsizing will continue in 2025 due to pre-pandemic inefficiencies and space reductions from hybrid working, much of this adjustment has already taken place over the past four years. A healthy pipeline of tenants actively seeking office space is a precursor to a 5% rise in leasing volume in 2025. Smaller tenants looking for between 10,000 and 20,000 sq. ft. will account for more than half of total leasing volume. Manhattan, which was one of the worst-hit markets by the pandemic, will continue to rebound next year. The market’s active tenant pipeline is above its pre-pandemic average, indicating increased leasing volume ahead. Other markets with high demand that can be satisfied by new prime office deliveries include Austin, Nashville and Miami."}]}
{"messages": [{"role": "user", "content": "Many tenants will decide to renew their current leases due to high moving costs and difficulties in assessing landlords’ financial health."}, {"role": "assistant", "content": "Renewals will make up a large share of leasing volume compared with historical averages. Landlords will be more willing to negotiate favorable terms with large tenants rather than risk vacancy. Prime spaces will become more scarce due to the slowdown in new construction. By conservative estimates, vacancy in prime buildings is expected to return to its pre-pandemic rate of 8.2% by 2027. Market Divide The divide between high-quality and lower-quality office assets will widen in 2025. High-quality assets in vibrant mixed-use districts will continue to attract tenants. Occupiers of Class A space are the most likely to upgrade to better locations. More cost-conscious tenants in sectors such as government, healthcare and education will continue to drive demand for a large pool of available Class B and C space. Commodity buildings in less desirable and office-centric districts are the most at risk of losing tenants. Landlords of commodity buildings, who are also competing with the 175 million sq. ft. of discounted sublease space on the market, will have to lower asking rents. Prime spaces will become more scarce due to the slowdown in new construction. By conservative estimates, vacancy in prime buildings is expected to return to its pre-pandemic rate of 8.2% by 2027. However, prime space will be difficult to find in many districts next year, such as Midtown Manhattan and Downtown Miami. Tightening availability will give owners of prime buildings the upper hand in lease negotiations and rents will continue to rise. New Office Starts Plummet 03 Office/ Occupier The office construction pipeline is notably thin, with new supply expected to fall to 17 million sq. ft. in 2025, well below the 10-year average of 44 million sq. ft. While a few markets, including Austin, Nashville and Dallas, will experience near-term oversupply, the construction slowdown will be a welcome reprieve in most markets. The overall office vacancy rate is expected to peak at 19% in 2025. Demand Tailwinds & Headwinds 03 Office/ Occupier Tailwinds for the office sector include falling interest rates, greater corporate confidence in a soft landing for the economy, deregulation and office-using employment at a record level. There also will be a mild increase in office attendance rates. Against these positives will be lower future growth of office jobs due to labor shortages and the use of artificial intelligence for certain jobs. Transforming America’s Cities Cities will need to reinvent themselves in a post- pandemic world. Those with economic dynamism, demographic potential, lifestyle vibrancy, distinctive identity, responsive governance and resilient infrastructure will fare best. Markets with vibrant mixed-use districts will continue to outperform. Expanding these districts and creating new ones will be essential for cities to succeed in the future as occupiers seek to locate in walkable environments with many amenities. Limited Supply Will Hamper Retail Leasing Growth in 2025 Retail space availability will remain limited in 2025. Despite lower interest rates, the high cost of capital will make it challenging to finance new projects and expansions, especially in markets where rental rates may not justify the expense."}]}
{"messages": [{"role": "user", "content": "Forecast Net Absorption (L) Availability Rate (R) SF Millions % Consumer Shifts Will Alter Site Selection Strategies Changing consumer preferences pose certain opportunities and challenges for retailers. Economic uncertainty and high inflation have made consumers more budget-conscious, often prioritizing essential goods that account for approximately 65% of consumer spending, according to the U.S. Bureau of Economic Analysis. This will heighten retailers’ interest in grocery-anchored centers, which are among the best- performing retail property types."}, {"role": "assistant", "content": "The ongoing rise of e-commerce also continues to reshape the retail landscape, particularly in sectors like apparel and electronics. The online share of total retail sales, excluding autos and gasoline, is expected to exceed 30% by 2030, up from 23% in 2024."}]}
{"messages": [{"role": "user", "content": "As consumers increasingly favor online options, some retailers are consolidating locations and shrinking their footprints by approximately 2% per year, according to the National Retail Federation. Open-air neighborhood, community & strip centers will see increased demand next year as retailers focus more on facilitating pickups and returns of online purchases. Many retailers who had located primarily in malls will focus expansion plans on these centers due to the continued growth of e-commerce. As the retail industry continues to evolve, those markets that offer strong population and job growth, along with infrastructure improvements, will see significant retail demand in 2025. As mortgage rates ease and housing turnover accelerates, we can expect a further boost in demand for residential-related retail, including home goods, furniture and home improvement stores."}, {"role": "assistant", "content": "Dallas A robust economy, growing population and strong job market, particularly in tech and finance, make Dallas one of the country’s top retail markets. High levels of absorption, combined with consistently low availability, have created a competitive environment among retailers eager to establish a presence in this thriving market. Strong demand from both national and boutique brands is fueling development activity."}]}
{"messages": [{"role": "user", "content": "Phoenix Population growth from a mix of young families and retirees has turned this city into a top-performing retail market. The steady influx of residents supports a significant pace of retail development, particularly in expanding suburban areas. Bolstered by infrastructure improvements and strategic investments, Phoenix is a hotspot for both national brands and local businesses. This wave of development reflects confidence in Phoenix’s long-term growth potential, attracting retailers who want to tap into the city’s dynamic consumer base. Austin Rapid population growth and a thriving economy, primarily driven by the tech sector, are fueling this city’s retail market. Austin’s vibrant culture and reputation as a creative hub continue to attract young professionals, entrepreneurs and high- income residents, each fueling strong demand for diverse retail experiences. With increased development and an affluent population, Austin offers a prime opportunity for retailers."}, {"role": "assistant", "content": "Experiential Retail’s Rise Retailers are focusing on experiential retail strategies to attract and retain customers. Rather than expanding into new locations, brands are focusing on optimizing their existing spaces to offer unique, immersive experiences that differentiate them from their competitors and appeal to a more experience-oriented consumer base. This “retailtainment” trend combines shopping with other elements like dining, entertainment and activities, creating spaces that provide more immersive brand engagement with customers."}]}
{"messages": [{"role": "user", "content": "Forecast 2025 Will See a Return of Pre-Pandemic Demand Drivers The U.S. industrial market will enter a new cycle in 2025 with a return to pre-pandemic demand drivers. Industrial occupiers will focus on longer-term strategies to improve warehouse efficiency, ensure supply chain resiliency and meet the needs of an evolving consumer base. Demand for newly constructed space will drive up the vacancy rate of older buildings."}, {"role": "assistant", "content": "Companies will continue a flight to newly constructed and more modern space in 2025 to facilitate their use of automation and artificial intelligence and provide more employee amenities. Power capacity will become a top priority for site selection. Markets with reliable power grids, including Chicago, Phoenix and Las Vegas, will benefit most. Demand for new space will grow the most from third- party logistics (3PL) providers. Retailers and wholesalers outsource their distribution operations for three primary reasons: import flexibility, capital preservation and a focus on core competency. Labor disruptions, extreme weather events and geopolitical conflicts have led companies to diversify import locations. Utilizing 3PLs allows for more inventory flexibility, a key component to retailer success in times of uncertainty. It also allows companies to focus on core business competencies that drive revenue, such as product development, sales and customer service. The increase in outsourcing will keep 3PLs’ share of overall industrial leasing activity at or near 35% in 2025. Companies will continue a flight to quality in 2025 to facilitate their use of automation and artificial intelligence and provide more employee amenities. Forecast While leasing activity over the past 24 months has not reached the record levels of 2021 and 2022, it remains well above pre-pandemic levels. Leasing activity should stabilize at just above 800 million sq. ft. in 2025."}]}
{"messages": [{"role": "user", "content": "Despite robust leasing, net absorption will remain low as much of the new leasing will come at the expense of older facilities. Buildings constructed before 2000 accounted for more than 100 million sq. ft. of negative absorption in 2024, while those completed after 2022 posted more than 200 million sq. ft. of positive absorption. This trend will continue in 2025 as long as there still is first-generation space to lease."}, {"role": "assistant", "content": "Occupiers will continue to favor primary markets that meet consumer expectations and ensure supply chain resiliency. The e-commerce share of total retail sales, excluding autos and gasoline, hit a record-high 23.2% in Q3 2024 and is expected to reach 25.0% by year-end 2025, creating more demand for warehouse & distribution space. Perhaps the most important consideration in site selection is a market’s ability to offer supply chain resiliency. Core industrial markets like the Inland Empire, Dallas-Ft. Worth, Atlanta, Chicago and the New Jersey/ Pennsylvania region will remain leaders in leasing activity. However, there are emerging industrial markets that service manufacturing in both the U.S. and Mexico. These include Houston, Kansas City, Louisville, Nashville and Raleigh-Durham. Occupiers will continue to favor primary markets that meet consumer expectations, act as a prime location and ensure supply chain resiliency. Reshoring of Manufacturing A primary component of supply chain resiliency is a diverse source of products that lead to onshoring of manufacturing to North America. While the U.S. has seen a slight increase in manufacturing, companies will continue to seek lower labor costs for products like automobiles and computers. Mexico, for example, has a highly skilled and lower-cost labor force to manufacture products that require large warehouse & distribution operations."}]}
{"messages": [{"role": "user", "content": "However, Mexico’s record-low industrial vacancy rate will force companies to open more U.S. distribution centers, preferably either near the Mexico border or along the major north-south highways (Interstates 29 and 35) to store and distribute this product."}, {"role": "assistant", "content": "Cyclical Recovery Just Ahead With continued solid fundamentals, multifamily is the most preferred asset class for commercial real estate investors in 2025. For all the short-term negative effects brought on by rising interest rates and record levels of new supply, strong renter demand will drive improving occupancy and accelerating rent growth. This in turn will lead to increased multifamily investment activity. The average multifamily vacancy rate is expected to end 2025 at 4.9% and average annual rent growth at 2.6%."}]}
{"messages": [{"role": "user", "content": "Developers will add more multifamily units to the U.S. housing market than in any period since the 1970s. Most of this new supply will be in the Sun Belt and Mountain regions, where some markets will grow their inventories by nearly 20% in just a three-year period. However, many of these high-supply markets are now past their peak for deliveries, and occupancy rates have already begun recovering."}, {"role": "assistant", "content": "This recovery will accelerate next year and markets with negative rent growth in 2024 are expected to turn positive in 2025 as completions slow considerably following the marked slowdown in construction starts."}]}
{"messages": [{"role": "user", "content": "As the construction pipeline shrinks, strong renter demand will lower the vacancy rate and precipitate above-average rent growth in 2026."}, {"role": "assistant", "content": "Forecast Ten of the 16 markets with the largest supply pipelines (ranked by inventory growth) are expected to enter 2025 having already reached their peak in new deliveries. Supply in the remaining six (Charlotte, Fort Lauderdale, Phoenix, Raleigh, Riverside and San Antonio) will peak in 2025. Despite the negative supply-side pressures on market fundamentals, all of these markets are expected to benefit from improved average vacancy rates and rent growth for several years ahead."}]}
{"messages": [{"role": "user", "content": "By mid-2025, multifamily construction starts are expected to be 74% below their 2021 peak and 30% below their pre-pandemic average. As the construction pipeline shrinks, strong renter demand will lower the vacancy rate and precipitate above-average rent growth in 2026. This exceptional renter demand has come at a critical time and has already absorbed a large amount of this new supply wave. Job creation, population growth and the competitive discounts being offered by landlords to fill these new units is driving much of this demand, along with a relatively unaffordable single-family housing market."}, {"role": "assistant", "content": "The wide monthly premium between buying and renting a home will preserve existing renter demand in 2025. Many would-be homebuyers will remain dissuaded by high home prices and mortgage rates."}]}
{"messages": [{"role": "user", "content": "Vacancy rates across the Midwest, Northeast and six gateway markets have not exceeded their historical averages to the same extent that higher- supply Sun Belt and Mountain regional markets have. As a result, many of these markets are expected to have average annual rent growth of more than 3% in 2025, well above the 2.6% projected national average."}, {"role": "assistant", "content": "Shrinking construction pipelines, strong renter demand, rising occupancies and accelerating rent growth are expected across all markets in 2025. Investors will have to wait until 2026 or later for market fundamentals in the Sun Belt and Mountain regions to be as strong as those of the Midwest, Northeast and coastal regions. Nevertheless, the long-term prospects for these more challenged regions will continue to attract a disproportionate amount of investment. 06 Multifamily Shrinking construction pipelines, strong renter demand, rising occupancies and accelerating rent growth are expected across all markets in 2025. Cost-to-Buy Premium Will Continue to Favor Rental Market With average newly originated mortgage payments 35% higher than average apartment rents as of Q3 2024, many U.S. households continue to rent rather than buy a home. Even though the premium to buy a home is expected to come down over the next several years based on home-price, interest-rate and rent- growth forecasts, it will remain high enough to keep today’s renters renting for longer. We expect average multifamily rents to grow by 3.1% annually over the next five years, above the pre-pandemic average of 2.7%. This above-trend rent growth is expected to outpace home price appreciation and, along with lower mortgage rates, slightly narrow the cost gap between buying and renting. CBRE expects the premium to buy versus rent to ease to 32% from 35% by the end of 2025. Forecast Strong Demand Continues; Supply Growth Limited by Power Availability 07 Data Centers The rapid growth in digital services, cloud computing, artificial intelligence (AI) and 5G is driving a persistent surge in demand for data center capacity. Applications on cell phones, smart devices, laptops and desktops are constantly increasing the need for processing, storing and computing data."}]}
{"messages": [{"role": "user", "content": "Despite record construction activity, the data center market will struggle to keep pace with demand, leading to higher utilization rates in existing facilities and tighter vacancy rates. The average vacancy rate for primary markets fell to a record-low 2.8% and the average preleasing rate of new construction hit a record high in 2024. We expect these conditions will persist in 2025, with the average preleasing rate rising to 90% or more and rental rates rivaling the record highs of 2011- 2012."}, {"role": "assistant", "content": "More data center expansions in secondary and emerging markets are expected to alleviate reliance on major hubs. Tax incentives will be very important for new development in states that have not had notable supply growth. Site selection remains focused on power availability and fuel mix. We expect legacy nuclear partnerships providing colocation opportunities for data centers to continue, as well as unique opportunities for retired coal plants to convert to renewable energy with interconnection already in place. Forecast Under-Construction Boom 07 Data Centers Under-construction data centers are expected to reach record highs in 2025. Demand for modern data center facilities continues to soar, as hyperscalers and enterprises plan to expand their digital infrastructure. The sheer scale of data center development in 2025 will result in a 100+ megawatt (MW) project being the new norm. Energy Transition: Shift to Nuclear Power Data centers account for a significant share of energy consumption, creating a need for new energy solutions. The increasing demand for power provides both challenges and opportunities for renewable energy production. We expect that legacy coal plants with adequate topology, fiber and access will eventually transition to non-fossil-fuel power generation. Two major data center operators recently announced plans to utilize power generated by the Susquehanna and Three Mile Island nuclear power plants in Pennsylvania, setting the stage for a large-scale revival of nuclear power generation in the U.S. Driven by low carbon emissions and baseload reliability, nuclear is front and center with major developers for a power supply solution. As a result, we expect to see more companies exploring nuclear energy development—both large-scale and small reactors—as a viable carbon-free alternative to traditional energy sources."}]}
{"messages": [{"role": "user", "content": "The home sales market is currently balanced, improving from soft conditions in 2010. The sales vacancy rate is currently estimated at 1.3 percent, down from 2.3 percent in 2010. The average inventory of homes for sale increased to 3.1 months in December 2018, up from 2.8 months in December 2017. Total home sales fell 3 percent to 3,575 during 2018 but remain well above the historic low of 2,100 in 2010 (Metrostudy, A Hanley Wood Company, with adjustments by the analyst)."}, {"role": "assistant", "content": "During the 3-year forecast period, demand is estimated for 1,575 additional units. The 75 units under construction are expected to meet a portion of demand during the first year of the forecast period. The rental vacancy rate was 9.3 percent in 2010 and has fallen to an estimated 7.5 percent currently. The apartment market is tight, with a vacancy rate of 3.3 percent during the fourth quarter of 2018, down from 3.5 percent a year earlier (RealPage, Inc). Average apartment rent increased 4 percent during 2018, faster than the average increase of 2 percent annually from 2012 through 2017. During the 3-year forecast period, demand is expected for an additional 640 rental units. The 80 units under construction are expected to meet a portion of demand."}]}
{"messages": [{"role": "user", "content": "Sales Market Balanced: with the average home sales price up 9 percent from a year earlier, to during 2018."}, {"role": "assistant", "content": "Units under construction as of January 1, 2019. The forecast period is January 1, 2019 to January 1, 2022. Source: Estimates by the analyst 3-Year Housing Demand Forecast Sales Units Rental Units Racine HMA Total Demand Under Construction 75 80"}]}
{"messages": [{"role": "user", "content": "12-Month Average Nonfarm Payroll Jobs in the Racine HMA, by Sector 12 Months Ending December Months Ending December 2018 Absolute Change Percentage Change Total Nonfarm Payroll Jobs Goods-Producing Sectors Mining, Logging, & Construction 2.8 3.0 0.2 7.1 Manufacturing Service-Providing Sectors Wholesale & Retail Trade Transportation & Utilities 2.3 2.3 0.0 0.0 Information 0.5 0.5 0.0 0.0 Financial Activities 2.3 2.3 0.0 0.0 Professional & Business Services 6.6 6.7 0.1 1.5 Education & Health Services Leisure & Hospitality 7.8 8.1 0.3 3.8 Other Services 3.8 3.9 0.1 2.6 Government 9.5 9.3 -0.2 -2.1 Notes: Based on 12-month averages through December 2017 and December 2018. Numbers may not add to totals due to rounding. Numbers are in thousands. Current Conditions—Nonfarm Payrolls Job growth in the HMA during 2018 was higher than it was during 2017. Nonfarm payrolls rose by 500 jobs, or 0.6 percent, during the most recent year ( 12-month moving average. Economic Periods of Significance Source: U.S. The unemployment rate averaged 3.6 percent during 2018, down from 4.1 percent in 2017, and has fallen each year since reaching a high of 10.2 percent in 2010. For comparison, the national unemployment rate was 3.7 percent in 2018. The decline in the unemployment rate during the past year is partially because of a reduction in the labor force and relatively stable resident employment. During 2018, the labor force declined by 500, or 0.5 percent, compared with a year ago, and resident employment was relatively unchanged at 96,000. Jobs in the goods-producing sectors declined during 12 of the past 18 years, resulting in 6,400 fewer jobs in those sectors compared with the number of jobs in 2000. Job growth in the service-providing sectors, specifically the leisure and hospitality and the education and health services sectors, are up from levels in 2000, offsetting some of the losses in other sectors. During the first four years of recovery, job growth was relatively faster, despite a decline in 2013. Nonfarm payrolls in the HMA increased by an average of 700 jobs, or 0.9 percent, annually from 2011 through 2014. The manufacturing sector accounted for more than 85 percent of net payroll gains, adding an average of 600 jobs, or 3.6 percent, annually. Most of the manufacturing jobs added were at existing facilities, as production increased. During the early recovery period, job gains were offset by a decline in the government sector, which decreased by an average of 200 jobs, or 1.6 percent, annually from 2011 through 2014. The Wisconsin Budget Repair Bill (Wisconsin Act 10), which passed in 2011, contributed to the decline in the sector. Recovery slowed from 2015 through 2017 to an average increase of 300 jobs, or 0.4 percent, annually. Gains in 9 of the 11 sectors were offset by notable job loss in the manufacturing sector, which declined by an average of 400 jobs, or 2.0 percent, annually from 2015 through 2017. S.C. Johnson & Son, Inc. moved 175 jobs to downtown Chicago in 2015, contributing to the decline. Expansions and retentions, including 190 additional jobs at Seda North America, nearly 150 additional jobs at Applied Material Solutions, and retention of 400 jobs at Ardagh Group because of a new contract with New Glarus Brewing, were insufficient to increase total nonfarm payrolls in the manufacturing sector. 2001 through 2007 Total nonfarm payrolls peaked in 2000 at 81,700 jobs and then declined by an average of 1,200 jobs, or 1.5 percent, annually, from 2001 through 2003. Job loss in the manufacturing sector accounted for nearly all the decline. Closure in 2001 of Western Publishing, the company that published Little Golden Books, contributed to the overall decline. 2008 through 2010 The economy in the HMA, which had not yet recovered from job losses earlier in the decade, was further weakened by the Great Recession. From 2008 through 2010, nonfarm payrolls fell by an average of 2,000 jobs, or 2.6 percent, annually. Payrolls in 10 of the 11 sectors declined or had no gains. The manufacturing sector, which had added jobs during only 1 of the previous 7 years, declined by an average of 800 jobs, or 4.3 percent, annually from 2008 through 2010. Most of the losses resulted from reduced production at manufacturers. The only sector with job growth was the education and health services sector, adding an average of 300 jobs, or 2.3 percent, annually. 2011 through 2017 The economy in the HMA transitioned into recovery during 2011 and, aside from a decline in 2013, has added jobs every year from 2011 through 2017. Payrolls increased by an average of 500 jobs, or 0.7 percent, annually during the 2011-through-2017 period, including a decline of 500 jobs, or 0.7 percent, during 2013. The leisure and hospitality sector, one of only two sectors to grow by an average of more than 100 jobs annually, added an average of 200 jobs, or 2.6 percent, a year from 2011 through 2017. Reinvestment in downtown Racine, including a $4 million upgrade to a downtown hotel, increased use of the marinas along the Root River, and new restaurants in downtown Racine have contributed to growth in the sector. Payroll growth in the manufacturing"}, {"role": "assistant", "content": "Employment Forecast During the next 3 years, payrolls are expected to increase an average of 0.7 percent, annually, from current levels. To support modernizing the skills of current manufacturing workers and to train new workers, a $6.5 million expansion at Gateway Technical College is underway and expected to be complete in mid-2019. Planned construction of healthcare facilities, including a new $250 million Advocate Aurora hospital and a $42 million Froedtert South facility, are expected to contribute to job growth in the construction and healthcare industries; the number of jobs to be added are unannounced. A portion of the announced jobs at the Foxconn facility may also support growth during the 3-year forecast period."}]}
{"messages": [{"role": "user", "content": "Components of Population Change in the Racine HMA, 2000 Through the Forecast Note: Net natural change and net migration totals are average annual totals over the time period. Sources: 2000–2017—U.S. Census Bureau. 2017–current and current–forecast—estimates by the analyst Population and Households Current population: The relative affordability of the HMA and continued job growth have contributed to an increase in population growth since 2016. Population Trends Population growth has slowed in the Racine HMA during the current decade, partially because of lower levels of net natural increase (NNI). During the 2000s, population growth averaged 660, or 0.3 percent, annually, including an average NNI of 1,050 people. Since 2010, population growth has averaged 240, or 0.1 percent, annually ( Average annual changes and percentage changes are based on averages from 2000–to current, and current to forecast. Sources: 2000 and 2010—2000 Census and 2010 Census; current and forecast—estimates by the analyst American Community Survey, 2010 and 2017, 1-year data Population Forecast The anticipated job growth and relative affordability of the HMA are expected to contribute to an increase in population growth, including rising net in-migration, during the forecast period. During the next 3 years, the population is expected to increase by an average of 1,125, or 0.6 percent, annually. Households by Tenure and Homeownership Rate in the Racine HMA Sources: 2000 and 2010—2000 Census and 2010 Census; current—estimates by the analyst Household Trends and Forecast Household growth has slowed during the current decade, partially because of elevated levels of net out-migration earlier in the decade. From 2000 to 2010, the number of households increased by an average of 480, or 0.7 percent, annually. Since 2010, household growth has slowed to an average increase of 240, or 0.3 percent, annually. During the forecast period, the number of households is expected to increase faster than it did during the 2000s, up by an average of 620, or 0.8 percent, annually, partially because of the faster population growth during the forecast period. Source: U.S. Census Bureau Map 1. Population Change in the Racine HMA Areas of population growth and decline were mixed throughout the HMA during the most recent decade. Census tracts fully or partially overlapping the municipal boundaries of the city of Racine were among both the fastest and the slowest growing areas in the HMA (2008–2012 and 2013–2017 American Community Survey 5-year data). The previously undeveloped area east of I-94, close to the existing population center and the interstate, is where much of the new housing construction occurred and is expected to have absorbed much of the population growth. Other census tracts with relatively fast-growing population include tracts fully or partially overlapping the municipalities of Burlington, Caledonia, and Union Grove (Map 1)."}, {"role": "assistant", "content": "Household Tenure Approximately 60 percent of household growth from 2000 to 2010 was owner households. Since 2010, only 9 percent of household growth has been attributed to owner households, resulting in a further decline of the homeownership rate. The homeownership rate is currently estimated at 68.2 percent. During the forecast period, the homeownership rate is expected to continue to decline but at a slower rate."}]}
{"messages": [{"role": "user", "content": "Notes: Vacancy rate is as of the current date; home sales and prices are for the 12 months ending December 2018; and months of inventory and mortgage delinquency data are as of December 2018. Sources: Metrostudy, A Hanley Wood Company, with adjustments by the analyst; Wisconsin Realtors® Association; National Association of Realtors®; CoreLogic, Inc. Metrostudy, a Hanley Wood Company, with adjustments by the analyst Sales by Price Range During 2018 in the Racine HMA Source: Metrostudy, A Hanley Wood Company in REO sales and a relatively unchanged number of regular resales contributed to the recent decline in existing sales. Existing home sales increased by an average of 230, or 9 percent, annually from 2011 through 2017. The overall gain includes a 3-percent decline that occurred during 2014. The historical low of 1,975 homes sold occurred in 2010 after 5 years of year-over-year declines, with an average decline of 430 homes, or 14 percent, annually from 2006 through 2010. Existing Home Sales Prices Supported by speculation based on recent job announcements and an ongoing decline in REO sales, the average existing home sales price exceeded the prerecessionary peak for the first time during 2018. From 2014 through 2017, the average home sales price increased an average of 4 percent, or $6,350, a year. A decline in the number of REO sales, which had an average price approximately 50 percent below the average regular resale sales price, contributed to the increase in the average existing sales price. The previous peak in existing home sales prices occurred in 2008, with an average price of . The average existing home sales prices declined from 2009 through 2011 by an average of $11,650, or 7 percent, annually to the low of in 2011. REO sales accounted for 36 percent of all existing sales from 2011 through 2013, with existing home sales prices averaging . Existing homes accounted for 98 percent of all homes sold in the HMA during 2018. New Home Sales New home sales accounted for 2 percent of total home sales during 2018, down from 13 percent in 2005. During 2018, there were 85 new homes sold, down 10 percent from the 95 new homes sold during 2017. From 2011 through 2017, new home sales constituted 2 percent of total home sales, averaging 70 new homes sold annually. New home sales peaked in 2005 at 740 and then fell by an average of 95, or 30 percent, annually, to 75 in 2011. During 2018, new home sales prices averaged up 10 percent from 2017 and $62,900, or 29 percent, above the previous peak in 2008. New home sales prices peaked at an average of in 2008 and then declined by an average of $7,975, or 4 percent, annually to a low of in 2012. From 2013 through 2017, new home sales prices increased by an average of 6 percent, or $13,700, annually, exceeding the 2008 high in 2015. Approximately 80 percent of new home sales during 2018 were priced between and with approximately 10 percent priced below and 10 percent priced above . Delinquent Mortgages The rate of seriously delinquent (90 or more days delinquent or in foreclosure) home loans and REO properties in the HMA peaked below, and remains below, the rate for the nation. During December 2018, the rate was 1.5 percent, down from 1.9 percent a year earlier and down from a peak of 6.5 percent in early 2010 (CoreLogic, Inc.). The rate for the nation was 1.7 percent in December 2018, down from 2.4 percent in December 2017 and a peak of 8.6 percent in early 2010. Inventory of Homes for Sale by Price The supply of homes for sale, as measured by months of unsold inventory, was 3.1 months in December 2018, up from 2.8 months in December 2017 (Wisconsin Realtors® Association). Rising average home sales prices have contributed to an increase in the number of homes for sale. In the price ranges from to months of unsold inventory was approximately 4 months, down from more than 4 months during the same period a year earlier. The price range with the largest gain in months of inventory was homes priced above which rose from 6.2 months in December 2017 to 9.2 months in December 2018, partially because of higher listing prices in response to recent job announcements. Annual Average Sales Permitting Activity in the Racine HMA current decade. Despite the increase, construction activity is well below levels from the early 2000s. The number of homes permitted increased by an average of 25 homes a year from 2012 through 2017, to 250 homes permitted in 2017. In response to low inventory of homes for sale and rising new home sales prices, permitting of sales housing rose 22 percent from 2017 to 2018 (preliminary data, with adjustments by the analyst). Including a downtown lakefront high-rise condominium built in 2005, condominiums accounted for approximately 4 percent of for-sale homes permitted from 2000 through 2007. Since 2008, condominiums have accounted for less than 2 percent of all sales housing permitted."}, {"role": "assistant", "content": "Forecast During the 3-year forecast period, demand is expected for an additional 1,575 homes ( Estimates by the analyst"}]}
{"messages": [{"role": "user", "content": "Rental Market Conditions Market Conditions: Balanced, but tightening The first market-rate apartment property to be built in the HMA in more than a decade broke ground in 2018. Current Conditions and Recent Trends Rental market conditions in the Racine HMA are balanced but tightening. The rental market vacancy rate is currently estimated at 7.5 percent, down from 9.3 percent in 2010 (Table 6). With nearly all household growth since 2010 attributed to an increase in renter households and relatively few new rental units built, the rental market has shifted from soft conditions at the beginning of the decade to currently balanced conditions. Since 2010, approximately 360 new rental units have been constructed, nearly all of which were restricted to seniors or low-income households or are in small buildings with fewer than five units. The number of renter households of all ages and incomes increased by an estimated 1,900 since 2010. The majority of the recent renter household growth was accommodated in existing units that have shifted from owner to renter occupancy. Currently, an estimated 60 percent of all renter-occupied housing consists of single-family homes and buildings with fewer than five units, up from 56 percent in 2010. Apartment Market Conditions The market for market-rate apartment properties is slightly tight and has ranged from balanced to tight conditions since 2011. The average market-rate apartment rent during the fourth quarter of 2018 was $823, up 4 percent from a year earlier, rising faster than the average rent increase of 2 percent annually from 2012 through 2017. No market-rate apartment properties have been built in the HMA in more than a decade, contributing to the currently tight conditions. Annual Average Rental Permitting Activity in the Racine HMA Sources: U.S. Census Bureau, Building Permits Survey; 2000–2017 final data and analyst estimates; 2018 preliminary data and estimates by the analyst Rental Construction Activity Rental construction, as measured by the number of rental units permitted, has increased since 2016 but remains below levels from the early 2000s. Coinciding with the Great Recession and declining or stable population in the HMA during the early 2010s, rental permitting averaged 45 units a year from 2008 through 2015. The number of rental units permitted has increased in recent years, with an average of 80 units permitted annually from 2016 through 2018, but remains below levels from the early 2000s. Recently Completed Rental Properties Since 2000, nearly all rental housing built has been age or income restricted. Approximately 58 percent of recently built units were in senior housing properties, including affordable senior housing, and 38 percent were in low-income housing buildings with no age restrictions. The remaining units were market-rate apartments, most of which were built in the early 2000s. With the average cost of operating an apartment unit currently ranging from $600 to $800 (BizTimes Milwaukee, 2019) per month and current average rents only slightly above the cost of operation, construction of market-rate housing may not have been considered profitable by developers. Two apartment buildings built with low-income housing tax credits (LIHTC) in the early 2000s recently completed the initial 15-year compliance period requiring the units to be rented at affordable rates and have begun renting units to new tenants at market rate. Belle Harbor Lofts in downtown Racine, built in 2002 and recently converted to market-rate units, has asking rents of to $1,050, and $1,150 for one-bedroom, two-bedroom, and three-bedroom units, respectively. In Union Grove, one of the fastest growing communities in the HMA, a 73-unit apartment property broke ground in mid-2018."}, {"role": "assistant", "content": "The first building in the five- building property is expected to open in mid-2019. Rents are $1,150 for a one- bedroom unit and $1,450 to $1,600 for a two-bedroom unit. In anticipation of stronger job and population growth, at least a half-dozen additional apartment properties have been announced but have not yet begun construction. Estimates by the analyst Forecast During the next 3 years, demand is expected for an additional 640 rental units (Table 7). The 80 units currently under construction are expected to meet a portion of demand. Demand is expected to increase each year, as job growth continues."}]}
{"messages": [{"role": "user", "content": "The unprecedentedly large and rapid changes in many data series, and the similarly unprecedentedly large policy responses, make analysis of, and longer run predictions for, the economy and housing markets exceptionally difficult and uncertain."}, {"role": "assistant", "content": "HUD will continue to monitor market conditions in the HMA and provide an updated report/addendum in the future."}]}
{"messages": [{"role": "user", "content": "During the second quarter of 2020, nonfarm payrolls declined 12.0 percent, or by 51,100 jobs. For context, from 2011 through 2018, total nonfarm payrolls increased by 44,800 jobs, or an average of 5,600 jobs annually. Job growth slowed to 400, or 0.1 percent, in 2019, partially because of corporate relocations out of the HMA."}, {"role": "assistant", "content": "During the 3-year forecast period, jobs are expected to increase an average of 0.5 percent annually, with growth strengthening as businesses increase capacity and consumer confidence rises."}]}
{"messages": [{"role": "user", "content": "The average home sales price is up from the 2012 low but is below the 2007 high. During the 12 months ending June 2020, home sales totaled 14,800, down 8 percent from the previous 12 months, and the average home sales price was up 3 percent from a year earlier. Fewer homes on the market, combined with increased demand for larger homes because of an increase in working and attending school from home, contributed to the recent decline in sales and increase in prices."}, {"role": "assistant", "content": "During the 3-year forecast period, demand is expected for an additional 1,875 homes. The 220 homes currently under construction will meet a portion of forecast demand."}]}
{"messages": [{"role": "user", "content": "Apartment market conditions are also balanced. During the second quarter of 2020, the average apartment rent was $1,220—up 3 percent from a year ago, continuing a period of 3-percent year-over-year increases that began in 2018. The apartment vacancy rate was 4.0 percent during the second quarter of 2020, up 0.4 percentage point from a year earlier. Weak economic conditions have led to fewer households being able to pay rent. During the final week of June 2020, approximately 22 percent of renter households in the Chicago MSA had deferred or did not pay rent (U.S. Census Household Pulse Survey, Week 9). Most of those households had incomes of less than $35,000. During the forecast period, demand is expected for 1,050 additional rental units. The 810 units currently under construction represent approximately three- fourths of expected demand. Rental Market Balanced but Weakening: The overall rental vacancy rate is currently estimated at 6.3 percent, down from 8.5 percent in 2010. Sales Market Slightly Soft: From 2014 through 2019, total home sales declined an average of 1 percent annually and prices increased an average of 1 percent annually."}, {"role": "assistant", "content": "Units under construction as of July 1, 2020. The forecast period is July 1, 2020, to July 1, 2023. Source: Estimates by the analyst 3-Year Housing Demand Forecast Sales Units Rental Units Lake-Kenosha HMA Total Demand Under Construction"}]}
{"messages": [{"role": "user", "content": "Notes: Total nonfarm payroll is in thousands. Percentages may not add to 100 percent due to rounding. Based on 12-month averages through June 2020. Source: U.S. Share of Nonfarm Payroll Jobs in the Lake-Kenosha HMA, by Sector Naval Station Great Lakes in Lake County is the only bootcamp for the United States Navy. The station employs approximately 12,000 military and 9,000 civilian personnel on base and at the adjacent Captain James A. Lovell Federal Health Care Center. Each year, more than 38,000 recruits graduate from basic training, becoming sailors in the U.S. Navy. The base had an economic impact of $1.3 billion in Illinois in 2016 (Visit Lake County). The location of the HMA—approximately 50 miles north of downtown Chicago, 50 miles south of downtown Milwaukee, and bisected by Interstate 94—has enabled warehousing, packaging, and distribution to become an increasingly important part of the local economy. From 2011—the first year of job growth after the end of the Great Recession—through 2018, the transportation and utilities sector grew by nearly 200 percent, which was the fastest rate of growth among all sectors in the HMA. Much of the job growth is attributed to Uline—a Current Conditions— Nonfarm Payrolls Nonfarm payrolls have fallen sharply in the past 12 months. Job losses occurred in 9 of the 11 sectors but were largest in the leisure and hospitality sector, which fell by 5,400 jobs, or 13.0 percent ( 2Q = second quarter. Source: U.S. Sector Growth in the Lake–Kenosha HMA, 2Q 2020 Compared with 2Q 2019 Current Conditions— Unemployment The unemployment rate in the Lake-Kenosha HMA was at a 2-decade low of 4.1 percent in 2019, but temporary business closures and reduced spending since March 2020 have resulted in increased unemployment. More reflective of current conditions, however, the unemployment rate during the second quarter of 2020 was 13.0 percent—up from 3.6 percent during the second quarter of 2019. The previous second quarter high was 9.7 percent in 2010. Note: Based on the 12-month moving average. Source: U.S. 12-Month Average Unemployment Rate in the Lake-Kenosha HMA and the Nation Economic Periods of Significance 2000 Through 2008: Growth in the Service-Providing Sectors The early and mid-2000s were a period of economic growth, supported both by new residents that commuted to jobs outside the HMA and by service-sector jobs within the HMA generated, in part, by the new residents. The proportion of residents commuting to jobs outside the HMA increased from 43 percent in 2002 to 47 percent in 2008. From 2001 through 2008, nonfarm payrolls increased by an average of 2,900 jobs, or 0.7 percent, annually. All job gains were in the service-providing sectors, which increased by an average of 4,300 jobs, or 1.4 percent, annually. Jobs in sectors that primarily serve the local population— the education and health services, the wholesale and retail trade, the leisure and hospitality, and the government sectors—accounted for three-fourths of the gains. Notable gains at companies that produce goods or services for sale outside the HMA include 1,700 additional employees at Abbott Laboratories and 600 employees at Baxter International Inc., both headquartered in the HMA. Losses in the manufacturing sector—which averaged 1,400 jobs, or 2.1 percent, annually—partially offset gains elsewhere. 2011 Through 2018: Recovery and Expansion The 2010s were a period of relatively strong job growth. Payrolls expanded by an average of 5,600 jobs, or 1.4 percent, annually from 2011 through 2018—exceeding the 2008 high in 2015, 1 year after the nation had recovered. Payrolls in the professional and business services sector led gains, with an average increase of 1,700 jobs, or 2.7 percent, annually. Only two sectors declined: the government sector, down by an average of 200 jobs, or 0.3 percent, annually; and the information sector, down by an average of 100 jobs, or 2.5 percent, annually. The transportation and utilities sector continued to emerge as a source of job growth during the 2010s. 2019: Job Growth Slows Job growth slowed substantially in 2019 compared with earlier in the 2010s because of corporate relocations out of the HMA and an increased shift toward online shopping. Nonfarm payrolls increased by only 400 jobs, or 0.1 percent, during 2019. The professional and businesses services sector added 600 jobs, or 0.9 percent, which was approximately 1,100 jobs below the average annual increase during the previous 8 years. The wholesale and retail trade sector declined by 1,400 jobs, or 1.8 percent, in 2019, compared with an average annual gain of 600 jobs, or 0.8 percent, during the previous 8-year period. Nationwide, online spending has risen to 16 percent of total retail spending, up from 6 percent in 2010, which has reduced the need for brick-and-mortar retail stores. Store closures in the HMA in 2019 included Shopko and Payless Shoe Source. Corporate relocations have slowed economic growth, as companies moved from office parks in the HMA to larger central city downtowns. Walgreens Boots Alliance, Inc., Mondelēz International, Inc., and Takeda Pharmaceutical Company Limited announced plans in early 2019 to move workers out of the area by the end of 2020. A total of 1,700 workers at Walgreens Boots Alliance, Inc. and Mondelēz International, Inc. began transferring to offices in downtown Chicago, and 1,000 jobs at Takeda Pharmaceutical Company Limited began relocating to Boston in late 2019. The Walgreens Boots Alliance, Inc. headquarters designation and some employees will remain in the HMA."}, {"role": "assistant", "content": "Employment Forecast During the forecast period, nonfarm payrolls are expected to increase by an average of 0.5 percent annually. Total nonfarm payrolls at the end of the forecast period are expected to remain below the 2019 high. Weak economic conditions are expected in the early part of the forecast period, as individuals and local governments continue to take actions to limit the spread of COVID-19. The vast majority of job gains are expected to occur in the later years of the forecast period, as businesses reopen, increase capacity, and partially recover jobs lost. The rise in online purchasing is expected to continue, supporting job growth in the transportation and utilities sector but hampering the recovery of jobs in the retail trade subsector. In late March 2020, Uline announced plans to construct a new warehouse and add 350 jobs during the next 3 years. Increased production of pharmaceuticals used to address the pandemic are also expected to support job growth. Abbott Laboratories began manufacturing COVID-19 testing supplies in April 2020. Production is expected to continue to increase in the near term."}]}
{"messages": [{"role": "user", "content": "Population growth in the Lake-Kenosha HMA is affected by both job growth and demographic trends. In the 2000s, years of stronger population growth coincided with years of stronger job growth, but in the 2010s, slower recovery from the Great Recession than elsewhere and an aging population led to slower growth and then a decline of the population. 2000 to 2010 The population increased relatively quickly in the early 2000s but slowed in the later portion of the decade, averaging an additional 7,600 residents or a 0.9-percent increase annually from 2000 to 2010 (Table 3). From 2000 to 2006, the population grew the fastest, rising by an average of 9,200, or 1.1 percent, annually, including an average annual net natural increase of 7,425 people and average Population Quick Facts 2010 Current Forecast Population Average Annual Change Percentage Change 0.9 -0.1 -0.2 Household Quick Facts 2010 Current Forecast Households Average Annual Change Percentage Change 1.1 0.3 0.2 Notes: Average annual changes and percentage changes are based on averages from 2000 to to current, and current to forecast. The forecast period is from the current date (July 1, 2020) to July 1, 2023. Sources: 2000 and 2010—2000 Census and 2010 Census; current and forecast—estimates by the analyst Table 3. Lake-Kenosha HMA Population and Household Quick Facts Notes: Net natural change and net migration totals are average annual totals over the time period. The forecast period is from the current date (July 1, 2020) to July 1, 2023. Sources: U.S. Components of Population Change in the Lake-Kenosha HMA, 2000 Through the Forecast net in-migration of 1,775 people. Restructuring under the Base Realignment and Closure (BRAC) process at Naval Station Great Lakes in 2002 resulted in approximately 2,000 military personnel and their families relocating out of the HMA. In the years excluding the BRAC, net in-migration averaged 2,750 annually. From 2006 to 2010, population growth slowed to an average of 4,900, or 0.6 percent, annually. With the onset Net natural increase averaged 6,925 and net out-migration averaged 2,025 annually during the 2006-to-2010 period. 2010 to 2020 The population increased very slowly in the early 2010s and then declined in later years of the decade. During the period of recovery from the Great Recession, from 2010 to 2015, the population increased by an average of 350 people, or less than 0.1 percent, annually. Net natural increase continued to fall, averaging 4,250 people annually, and net out-migration accelerated to an average of 3,900 people annually. Since 2015, the population has declined by an average of 1,750 people, or 0.2 percent, annually, despite stronger job growth. Corporate relocations out of the HMA and a growing number of retirement-age residents moving out of the HMA contributed to net out-migration rising to an average of 4,850 people annually. The increase in older residents and a lower birthrate—which fell from 11.7 per 1,000 residents in 2011 to 10.5 per 1,000 residents in 2019—led to net natural increase falling to an average of 3,100 people annually since 2015. International in-migration offset a portion of domestic out-migration in the early 2010s, but recent declines in international in-migration have contributed to increased net out-migration. In 2018 and 2019, international in-migration averaged 740 people annually—down from an average of 1,725 people annually from 2011 to 2017."}, {"role": "assistant", "content": "The largest share of movers into the HMA came from Cook County, Illinois, which includes the city of Chicago, and accounted for 60 percent of net in-migration from the two-state area. Domestic out-migration to other parts of the nation offset local in-migration. The most common destinations outside Illinois and Wisconsin included San Diego County, California, which has a large concentration of U.S. Navy personnel, and Maricopa County, Arizona (Phoenix) and Clark County, Nevada (Las Vegas), which are popular retirement destinations. Population Forecast The population decline is expected to continue during the forecast period but at a slightly lower level compared with the period since 2015. The forecast population decline is expected to average 1,400, or 0.2 percent, annually. Net out- migration is expected to slow. In-migration from the city of Chicago and Cook County is expected to increase, partly offsetting a larger portion of out-migration to elsewhere in the nation. With some schools planning to hold classes remotely in the fall of 2020 and employers encouraging employees to work from home in the near term, areas with single-family homes and backyards, which includes much of the HMA, are expected to attract new residents from nearby places, such as the city of Chicago, which has smaller homes and more limited private outdoor space. Following local trends, net natural increase is expected to continue to slow, as the number of births declines and the share of older residents rises."}]}
{"messages": [{"role": "user", "content": "The four largest universities in the HMA—Carthage College, University of Wisconsin–Parkside, Lake Forest College, and Rosalind Franklin University—had a combined enrollment of 10,500 students in the fall of 2019. The universities require freshmen and sophomores to live on campus or with family in a commutable distance, and many undergraduates remain in university housing during their junior and senior years. Fewer than 1,000 student households are estimated to reside off campus in the HMA, or less than one- half of 1 percent of all households. Household Growth Trends and Forecast Household growth has also slowed in recent years, reflecting the slower population growth and recent decline. In the 2000s, when population growth was relatively strong—and especially the early 2000s, when mortgages were easier to obtain—household growth averaged 3,200, or 1.1 percent, annually."}, {"role": "assistant", "content": "Households by Tenure and Homeownership Rate in the Lake-Kenosha HMA When population growth slowed in the 2010s, household growth slowed too. From 2010 to the current date, household growth has averaged 1,050, or 0.3 percent, annually. During the 3-year forecast period, household growth is expected to average 770, or 0.2 percent, annually. Household growth is expected to continue to moderate but at a decelerating rate compared with the previous decade. Preference for single-family homes— the most common housing type in the HMA—is expected to increase, attracting more households from the city of Chicago and Cook County, where multifamily housing with smaller units is more common. Households by Tenure The homeownership rate in the Lake-Kenosha HMA is well above the Chicago MSA and the nation, but as in the Chicago MSA and the nation, the rate has fallen in recent years because the number of renter households has increased faster than the number of owner households. The homeownership rate in the Chicago MSA and the nation were 64.4 percent and 64.1 percent, respectively in 2019, also down from and 2019 American Community Survey [ACS] 1-year data). Since 2010, renter households in the HMA have increased by an average of 1,225, or 1.5 percent, annually, and owner households have decreased by an average of 160, or 0.1 percent, annually."}]}
{"messages": [{"role": "user", "content": "The inventory of homes for sale is relatively low, but price growth in the later 2010s has been limited, partially because of increasing out-migration and overall population decline. Despite strong job growth throughout the 2010s, the number of homes sold has also followed population trends, with a modest decline in the later 2010s. Total home sales—including new and existing single-family homes, townhomes, and condominiums—decreased an average of 1 percent annually from 2014 through 2019, and the average sales price increased 1 percent annually during the same period. The inventory of homes for sale was down from 13.2 months in 2010 to 4.5 months in 2019 (CoreLogic, Inc.). The economic impact of precautionary measures to limit the spread of COVID-19 have led to a decline in home sales and accelerating price growth since March 2020. The home sales vacancy rate is currently estimated at 1.4 percent—down from 2.3 percent in 2010, when the market was soft ( Distressed home sales include foreclosures and real estate owned properties. 12-Month Sales Totals by Type in the Lake-Kenosha HMA New home sales accounted for 3 percent of total sales during the second quarter of 2020, partially because new homes are unoccupied and can be easier to tour. Delinquent Mortgages The share of seriously delinquent mortgages and real estate owned (REO) properties increased sharply in June 2020. That increase likely reflects homeowners who stopped paying their mortgage at the onset of the COVID-19 pandemic in March 2020 becoming 90 days delinquent on their mortgage in June 2020. The share of seriously delinquent mortgages and REO properties was 3.8 percent in June 2020—up from 1.6 percent in May 2020 and 1.5 percent in June 2019 (CoreLogic, Inc.). Before the recent increase, the rate had been declining since early 2012. For context, the rates in the Chicago MSA and the nation were 4.5 percent and 4.0 percent, respectively, in June 2020—each up 2.4 percentage points from 1 month earlier. Historical Home Sales Price Trends The average home sales price in the HMA was at a historic high in 2007. In addition to weak economic conditions during the late 2000s and early 2010s, the high level of inventory of homes for sale—which was 7.5 months in 2012—contributed to the decline in the average home sales price. The changing mix of homes sold also affected the average price, with new homes—which had prices 15 to 35 percent above the average—becoming a smaller portion of total sales and distressed sales—which had prices approximately 50 percent below the average—becoming a larger portion of sales in the early 2010s. As the economy recovered during 2013 and 2014, the average price increased 5 percent annually, but price growth slowed to less than 1 percent annually from 2015 through 2019 because of a declining population and reduced demand for sales housing. Sales and Prices by Square Footage and Size Comparing the average sales price per square foot, prices in the HMA are below the average for the Chicago MSA and the nation. During the second quarter of 2020, prices in the HMA averaged $143 per square foot, compared with $171 in the MSA and $189 in the nation (Metrostudy, A Hanley Wood Company, with adjustments by the analyst). Homes also tend to be larger in the HMA relative to the other areas. REO = real estate owned. 12-Month Average Sales Price by Type of Sale in the Lake-Kenosha HMA"}, {"role": "assistant", "content": "With the increase in the number of people working and attending school from home since March 2020, home size and price per square foot are expected to be increasingly important factors in homebuying in the near term. The average size of a home sold in the HMA during the second quarter of 2020 was up 4 percent compared with a home sold during the second quarter of 2019. The size of a home sold in the MSA was up 3 percent and was relatively unchanged in the nation during the same period."}]}
{"messages": [{"role": "user", "content": "Sales Prices by Zip Code The current average home sales price has increased in nearly all Zip codes in the HMA since the historic low in 2012, but prices in areas with residents most likely to be affected by the corporate relocations have continued to decline. The Zip code with the largest percentage decline in price since 2012 was 60015, which corresponds to the Riverwoods and Deerfield, Illinois areas (Map 4). Walgreens Boots Alliance, Inc., Mondelēz International, Inc., and Takeda Pharmaceutical Company Limited—which all announced relocations in 2019— had offices in the Zip code. The only other Zip codes with a decline in prices since 2012 were the 60069 and 60045 Zip codes, which correspond to Lincolnshire and Lake Forest, Illinois, respectively, and are adjacent to 60015. For context, from the second quarter of 2012 through the second quarter of 2020, the average home sales price in the HMA increased 12 percent. Among the 34 Zip codes in the HMA with 20 or more sales during each of the two quarters of reference, 27 had an average price increase of 12 percent or more, 4 had increases between 1 and 11 percent, and 3 had a decline in prices. Map 4: Average Home Sales Price Change by Zip Code in the Lake-Kenosha HMA from 2Q 2012 to 2Q 2020 Sales Construction Activity Sales construction activity—as measured by the number of single-family homes, townhomes, and condominiums permitted—was elevated in the 2000s and had increased only modestly since the Great Recession-era lows. Sales Permitting continued at low levels from 2009 through 2011, averaging 620 homes annually, and increased slightly during the period of economic recovery in the HMA, averaging 750 homes annually from 2012 through 2015. As the economy shifted from recovery to expansion, permitting increased to 850 homes annually from 2016 through 2019. During the 12 months ending June 2020, permitting declined, totaling 720—down from 920 homes permitted during the previous 12 months. Economic uncertainty combined with limitations on in-person public meetings since March 2020 contributed to fewer homes permitted during the most recent 12 months. Homes priced at less than accounted for 15 percent of existing home sales, and homes priced at or more accounted for the remaining 30 percent of existing sales. New homes tend to be more expensive, with 75 percent of new home sales priced at more than . In outlying areas, farther from the interstate highways and Metra (the regional train network connecting to downtown Chicago) stations, new construction homes are available at prices below the average for the HMA. In Volo, a town in Lake County approximately 12 miles west of Interstate 94 and without a Metra station, 18 single-family homes in the 86-lot Remington Pointe subdivision sold for an average of during the past 12 months. In Vernon Hills, a town in southeast Lake County only 3 miles west of I-94 and with a Metra station, 21 homes in the 128-lot Residences at the Cuneo Mansion and Gardens subdivision sold for an average of during the most recent 12 months."}, {"role": "assistant", "content": "The forecast period is from July 1, 2020, to July 1, 2023. Source: Estimates by the analyst Forecast During the forecast period, demand is expected for an additional 1,875 homes (Table 6). The 220 homes currently under construction are expected to meet a portion of demand during the first year of the forecast period. Demand is expected to increase as economic conditions improve; however, continued weak economic conditions in the near term and slower household growth are expected to result in demand for fewer additional homes compared with recent years."}]}
{"messages": [{"role": "user", "content": "Current Rental Market Conditions and Recent Trends The rental market is currently balanced but is showing signs of weakening. The vacancy rate for all rental units—including apartments and renter-occupied single-family homes, townhomes, condominiums, and mobile homes—is currently estimated at 6.3 percent, down from 8.5 percent in 2010, when conditions were soft ( Real Page, Inc. Apartment Rents and Vacancy Rates in the Lake-Kenosha HMA rent in the MSA was $1,576—up less than 1 percent from a year ago and slowing from a 7-percent gain during the previous year. The vacancy rate in the MSA was 5.0 percent—also up 0.4 percentage point from the same quarter a year earlier and has fluctuated between 4.0 and 5.5 percent since 2015. Rental Construction Activity Rental construction, as measured by the number of rental units permitted, has been relatively elevated in recent years but is below levels from the early 2000s, when population growth was stronger. With weakening economic conditions from the Great Recession and early recovery, rental construction averaged only 310 units annually from 2007 through 2013. Stronger job growth, economic recovery from the Great Recession, and a growing number of renter households supported an increase in rental unit permitting, rising to an average of 850 units annually from 2014 through 2019. During the most recent 12 months, permitting totaled 830 units—unchanged from the previous 12 months (preliminary data). Data for 2020 are through June 2020. Sources: U.S. Average Annual Rental Permitting Activity in the Lake-Kenosha HMA Rental Construction Activity by Geography Rental property construction since 2014 has been concentrated in the southern portion of Lake County and the eastern portion of Kenosha County (Map 5). The growing share of seniors has resulted in a relatively large share of the new rental units being in age-restricted buildings. Senior housing accounted for 30 percent of units permitted, with most of that property type constructed in southern Lake County. General occupancy units accounted for the remaining 70 percent of units permitted, with the number of units evenly divided between Kenosha and Lake Counties. Map 5: Rental Properties Constructed in the Lake-Kenosha HMA since 2014 Rents at newly constructed apartments in Lake County tend to be higher than rents at newly constructed apartments in Kenosha County. Two general occupancy apartments opened in Lake County in 2019: The Atworth at Mellody Farm—a 260-unit property in Vernon Hills, with rents ranging from $1,390 for a studio to $3,212 for a three-bedroom unit—and 444 Social—a 302-unit property in Lincolnshire, with rents ranging from $1,435 for a studio to $3,665 for a three-bedroom unit. In Kenosha County, Breeze Terrace—a"}, {"role": "assistant", "content": "Forecast During the forecast period, demand is expected for an additional 1,050 rental units ( The forecast period is July 1, 2020, to July 1, 2023. Source: Estimates by the analyst Rental Units Demand 1,050 Units Under Construction 810 Units Table 8. Demand for New Rental Units in the Lake-Kenosha HMA During the Forecast Period"}]}
{"messages": [{"role": "user", "content": "HUD will continue to monitor national market conditions and provide an updated report/ addendum in the future. Forecasts of housing demand were made to bring the sales and rental markets into balance during the next 3 years. This report discusses select data for the 10 HUD regions—defined in the “Terminology Definitions and Notes” section at the end of the report. More than 1 million jobs were lost in March, followed by nearly 20 million jobs lost in April, a total loss of 14 percent of nonfarm payrolls during the 2 months. Monetary and fiscal policies were enacted throughout the year to lessen the economic impact and stimulate the economy. By the end of 2020, approximately 64 percent of the jobs lost had been recovered. During the next 3 years, nonfarm payrolls are expected to increase an average of 1.9 percent a year. The national sales housing market is very tight, with home sales and prices increasing at robust paces in 2020. Overall, the number of homes sold in 2020 was up 8 percent from 2019 (Census Bureau/HUD; NAR). Year-over-year, the median sales price for existing homes increased 9 percent to —the highest annual increase in 7 years (NAR). The median sales price for new homes grew 4 percent to after no average annual change during the previous 2-year period (Census Bureau/HUD). During the next 3 years, demand is estimated for 3.28 million sales units. The units already under construction will meet a portion of that demand. The national rental housing market is slightly tight, with an estimated 6.2 percent vacancy rate, up slightly from 2019 but down from 9.2 percent in 2010 when the market was soft. More than one-half of the rental supply in the nation is in structures with two or more units, typically apartments, making those types of structures highly influential on overall rental market conditions. The average monthly apartment rent decreased nearly 1 percent in the past year to $1,410, the first year that the average rent has declined since 2008 (RealPage, Inc.). Demand for rental units during the next 3 years is estimated at 1.11 million units. The rental units already under construction will satisfy a portion of that demand. Rental Market Slightly Tight: After steady rent increases and vacancy rate declines during the past decade, the tight rental market eased slightly in 2020."}, {"role": "assistant", "content": "Units under construction as of January 1, 2021. The forecast period is January 1, 2021, to January 1, 2024. Source: Estimates by the analyst 3-Year Housing Demand Forecast Sales Units Rental Units Nation Total Demand Under Construction"}]}
{"messages": [{"role": "user", "content": "Real gross domestic product (GDP) fluctuated significantly during 2020, with a large decline in the second quarter but a significant rebound in the third quarter. Real GDP was down 3.5 percent in 2020 relative to a year earlier, compared with an increase of 2.2 percent in 2019 (U.S. Bureau of Economic Analysis). Long-Term Economic Trends From 2001 through 2019, nonfarm payrolls in the nation grew by an average of 0.7 percent, or jobs, annually. Growth during that period was interrupted by two recessions: the dot-com recession from March through November 2001 and the Great Recession from December 2007 through June 2009. The years leading up to the Great Recession are often referred to as the housing boom; the economy received a boost from strong homebuilding and home sales activity. Although the Great Recession ended in June 2009, the U.S. economy continued to lose jobs through 2010. The economy then underwent a lengthy period of expansion, adding jobs every year from 2011 through 2019. With the impact of COVID-19 and the many countermeasures implemented to contain the spread of the virus, the economy lost a significant number of jobs in early 2020. Current Conditions—Nonfarm Payrolls The impacts of COVID-19 have not been uniform across the country. Map 1 shows the COVID-19 case rate per people as of mid-January 2021 Note: 12-month moving average. Sources: U.S. 12-Month Average Nonfarm Payrolls in the Nation Note: Data are from January 2020 to mid-January 2021. Source: Centers for Disease Control and Prevention, COVID Data Tracker The case rate is highest in the middle of the country. With the rise of COVID-19, many state and local governments instituted policies early in 2020 to contain or slow the spread of the virus. These policies varied across the country, but in many locations, they resulted in travel limitations and the temporary closure of stores, restaurants, and other types of social establishments. As restrictions were eased throughout the year, many establishments reopened with limited service and a general decrease in demand. Many consumers chose online or remote options to maintain social distancing. This caused significant job losses. During 2020, nonfarm payrolls were down 5.8 percent—or by 8.72 million jobs—to 142.18 million jobs, compared with an increase of 1.3 percent—or 2.00 million jobs—in 2019. Notes: Total nonfarm payroll is in thousands. Percentages may not add to 100 percent due to rounding. Based on 2020 annual data. Job losses occurred in every nonfarm payroll sector during 2020, ranging from a decline of less than 1 percent, or 30,600 jobs, in the financial activities sector to nearly 20 percent, or 3.26 million jobs, in the leisure and hospitality sector. Within the sector, the accommodations and food services industry accounted for 80 percent of all the sector losses, with a decline of 2.60 million jobs. Other sectors with more than 1 million jobs lost include the professional and business services sector, down 4.8 percent, or 1.03 million jobs, and the wholesale and retail trade sector, down 4.7 percent, or 1.02 million jobs ( U.S. Share of Nonfarm Payroll Jobs in the Nation, by Sector To lessen the economic impacts of COVID-19 and help stimulate the economy, the federal government implemented a number of fiscal and monetary policies during 2020. In March, Congress passed a $2 trillion stimulus measure, the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which included payments to qualifying individuals (typically billion in increased unemployment benefits, $350 billion in loans to small businesses, $500 billion for corporate loans, and nearly $340 billion in funding for state and local governments. In December, Congress passed another stimulus package, the Consolidated Appropriations Act 2021, which was worth $900 billion and included $600 payments to qualified individuals and extended unemployment benefits, among other items. In addition, the Federal Reserve instituted a variety of policies to generate economic growth, including lowering the federal funds rate to near 0 percent and increasing the money supply in the economy through the purchase of securities. Current Conditions— Regional Nonfarm Payrolls The rate of job loss varied significantly across the country during 2020, with the largest rates of decline occurring in the northeast (Map 2). The highest rate of job loss occurred in the New York/New Jersey region, down 9.7 percent, which was led by a 32.7-percent decline—or jobs—in the leisure and hospitality sector. The New England region had the second highest rate of decline, down 8.3 percent. The leisure and hospitality sector declined by jobs, or 28.3 percent, followed by the education and health services sector, with jobs lost, or 6.7 percent. No sectors added jobs in the New York/New Jersey or New England regions. Jobs in the Pacific region were down 7.3 percent, with leisure and hospitality sector jobs down or 26.9 percent. The transportation and utilities sector was the only sector to grow, adding 29,900 jobs, or 3.2 percent. Many consumers have turned to online purchasing and local restaurant meal delivery during the pandemic, Map 2. Nonfarm Payroll Growth by HUD Region, 2019–2020 contributing to job growth in the transportation and shipping industry. The Midwest and Mid-Atlantic regions were down 6.9 and 6.6 percent, respectively. The leisure and hospitality sector led declines in both regions with losses of or 22.4 percent, and or 25.3 percent, respectively. The transportation and utilities sector in the Midwest and Mid-Atlantic regions were up less than 1 percent each, with gains of 5,700 and 600 jobs, respectively. This was the only sector to add jobs in either region. The remaining five regions had lower rates of job loss than the 5.8-percent national rate of decline, ranging from 4.1 percent in the Rocky Mountain region to 5.3 percent in the Northwest region. Nearly 45 percent of the job decline in the Northwest region was in the leisure and hospitality sector, which declined by jobs, or 22.7 percent. The only sector to add jobs was the information sector, which added 1,000 jobs, or less than 1 percent. Map 3. As with the rest of the country, job declines were led in each region by the leisure and hospitality sector, which was down and 17.3 percent, respectively. In the Southeast/ Caribbean region, the only sector to add jobs was the financial activities sector, up 2,100 jobs, or less than 1 percent. The transportation and utilities sector was the only sector to add jobs in the Southeast and Rocky Mountain regions, up 12,000 jobs, or 1.4 percent, and 2,200 jobs, or 1.0 percent, respectively. All sectors in the Great Plains region declined during 2020. Progress of the Recovery By the end of December 2020, the national economy had recovered 64 percent of the nearly 21 million jobs that were lost in March and April. Map 3 shows the percent of nonfarm payrolls recovered at the state level by the end of the year. Idaho and Utah are the only two states that fully recovered the jobs lost due to the pandemic by the end of the year. Twenty-three additional states recovered a higher percentage of jobs than the national level, led by South Dakota and Montana, which had each recovered 92 percent of the jobs lost. The remaining states had rates of recovery less than the national average. The lowest rate was in the District of Columbia, which only recovered 16 percent of the jobs lost, followed by New Mexico, Alaska, and Hawaii at 21, 27, and 27 percent, respectively. Current Conditions—Unemployment During 2020, the unemployment rate averaged 8.1 percent, up from 3.7 percent in 2019. The unemployment rate in 2020 was the highest rate since 2012 when it was also 8.1 percent. The 12-month average unemployment rate previously peaked at 9.7 percent during 2010 but declined steadily through 2019. Notes: Percent of nonfarm payroll jobs lost in March and April 2020 that were recovered by the end of December 2020. Data are not seasonally adjusted. Note: Based on the 12-month moving average. Source: U.S. 12-Month Average Unemployment Rate in the Nation During 2001, job growth in the nation was flat. The manufacturing sector experienced significant losses, declining by jobs, or 4.8 percent. The wholesale trade subsector, the professional and business services sector, and the federal government subsector had significant declines of and jobs, or 2.7, 1.1, and 3.5 percent, respectively. The education and health services sector grew by jobs, or 3.7 percent, during the year, offsetting some of the losses in other sectors. 2005 Through 2006: The Housing Boom The rate of job growth in the nation increased significantly in 2005 and 2006, averaging gains of 2.33 million jobs, or 1.8 percent, each year. During these years, the fastest growing sector was the mining, logging, and construction sector, which was up an average of 5.2 percent, or jobs, annually. Nearly all the growth in that sector came from the construction subsector, which increased by jobs each year. The nominal annual value of construction (residential and nonresidential) averaged $1.14 trillion from 2005 through 2007—an increase of 31 percent compared with an average annual level of $875 billion during 2000 through 2004 (Census Bureau). Other sectors with significant payroll gains during 2005 and 2006 were the professional and business services, education and health services, and leisure and hospitality sectors, with average annual gains of and jobs, or 3.5, 2.6, and 2.4 percent, respectively. Declines continued in the manufacturing and the information sectors, but the rates of decline slowed. The manufacturing sector lost an average of 80,000 jobs, or 0.6 percent, annually, and the information sector was down an average of 40,000 jobs, or 1.3 percent, annually. 2007: The Slowdown Nonfarm payrolls continued to grow through 2007, but the rate of growth slowed to 1.1 percent, or 1.55 million jobs added. Growth continued in 7 of the 11 sectors during 2007, led by the education and health services sector, up by jobs, or 2.9 percent. The professional and business services sector continued to grow at a strong pace of 2.2 percent, or jobs, which was a noticeable slowdown from growth during the previous 2 years. The leisure and hospitality sector also had significant gains of jobs, or 2.4 percent, in 2007. The largest decline in jobs was in the manufacturing sector, down or 1.9 percent. Small declines occurred in the mining, logging, and construction; the 2008 Through 2010: The Great Recession The Great Recession officially lasted from December 2007 through June 2009, or 18 months (National Bureau of Economic Research). It was the longest recession since the Great Depression, which lasted 43 months from 1929 to 1933. The impacts from the Great Recession on the labor market lasted well into 2010. From 2008 through 2010, nonfarm payrolls in the country declined by an average of 2.55 million, or 1.9 percent, annually, and the nation lost 7.6 million jobs. With the exceptions of the education and health services and the government sectors, every sector lost jobs. The education and health services sector increased by an average of jobs annually, or 2.3 percent, and the government sector remained relatively stable, with modest growth averaging 90,700 new jobs, or 0.4 percent, annually. The most significant declines occurred in the goods-producing sectors: the manufacturing sector was down an average of jobs, or 6.0 percent, annually, and the mining, logging, and construction sector lost an average of jobs, or 9.3 percent, each year. Most notably, the construction subsector declined an average of 10.1 percent, or by jobs, annually during this period because of significant declines in both residential and commercial construction. The nominal annual value of construction reached a trough from 2008 through 2011, when it averaged $895 billion, down 22 percent from the 2005-through-2007 average. Most remaining sectors had average annual declines ranging from 2.3 to 3.7 percent, with even smaller declines in the leisure and hospitality and the other services sectors. The wholesale and retail trade sector was down by an average of jobs, or 2.6 percent. The professional and business services sector declined by an average of jobs, or 2.3 percent. 2011 Through 2016: The Expansion Annual job gains resumed in 2011, and jobs were added in the nation every year through 2019. From 2011 through 2016, nonfarm payrolls increased by an average of 2.33 million jobs, or 1.7 percent, annually. Every sector except for the government sector added jobs during that period. The professional and business services sector led growth, with an average gain of jobs, or 3.1 percent, a year. The leisure and hospitality and the education and health services sectors each increased by averages of more than jobs, or 3.1 and 2.1 percent, a year, respectively. The construction subsector was slower to recover, but by 2014 and 2015, the subsector was averaging gains of 5.0 percent, or jobs, a year. Not until 2014, however, did the economy recover all the jobs lost from 2008 through 2010. 2017 Through 2019: Recent Growth Job growth slowed slightly from 2017 through 2019, averaging gains of 2.19 million jobs annually, or 1.5 percent growth. Growth slowed partially because of fewer available workers; the nation had a historically low rate of unemployment, averaging 4.0 percent during the period, and many job openings were harder to fill. Every sector added jobs during the 3 years except the wholesale and retail trade sector, which declined by an average of 36,700 jobs, or 0.2 percent, partly reflecting growth in e-commerce. Average losses of 70,600, or 0.4 percent, in the retail trade subsector more than offset the increase of 33,900, or 0.6 percent, in the wholesale trade subsector. The education and health services, the professional and business services, and the leisure and hospitality sectors led gains during the period— up by average annual rates of 2.2, 1.9, and 1.9 percent, or and jobs,"}, {"role": "assistant", "content": "The fastest rate of growth was in the transportation and utilities sector, up 3.8 percent, or jobs, a year, followed by the mining, logging, and construction sector, up 3.6 percent, or jobs. Note: The current date is January 1, 2021. Source: U.S. Sector Growth in the Nation, 2011 to Current Employment Forecast During the next 3 years, nonfarm payroll jobs are anticipated to grow at an average of 1.9 percent annually. The distribution of COVID-19 vaccines will enable the economy to “open up” and eventually reduce the need to socially distance. In addition, more fiscal stimulus was enacted in 2021 ($1.9 trillion American Rescue Plan), and the Federal Reserve has committed to maintaining its pro-growth policies of low interest rates and increased money supply while maintaining a close watch on inflation as the labor market returns to and maintains a level of full employment. Job growth is expected to be moderate in the first year of the forecast, with nonfarm payrolls increasing by an estimated 1.3 percent, but will pick up significantly in the second year as more individuals get vaccinated and COVID-19 restrictions are rolled back in earnest. Growth is anticipated to average 2.3 percent during the second year but to return to a more sustainable long-run level of 2.0 percent in the third year. Growth during the forecast period is likely to be led by those sectors most impacted by the COVID-19 pandemic, such as the leisure and hospitality sector."}]}
{"messages": [{"role": "user", "content": "Population Trends From 2000 to 2005, a period including the 2001 recession and subsequent moderate economic expansion, the population of the United States grew by an average annual rate of 0.9 percent, or 2.69 million (Census Bureau decennial census counts and population estimates as of July 1). Net natural change accounted for 61 percent of the growth, or an average increase of 1.64 million people annually, and net in-migration to the United States averaged 1.05 million people, accounting for 39 percent of the population gain. Population growth increased from 2005 to 2008 to an average annual rate of 1.0 percent, or 2.86 million people. Net natural change increased significantly during the period to an average of 1.82 million people, accounting for 64 percent of population growth, and net in-migration averaged 1.04 million people, or 36 percent of the population gains. From 2008 to 2010, when the United States lost jobs due to the Great Recession, population Population Quick Facts 2010 Current Forecast Population Average Annual Change Percentage Change 0.9 0.6 0.5 Household Quick Facts 2010 Current Forecast Households Average Annual Change Percentage Change 1.0 0.8 0.7 Notes: Average annual changes and percentage changes are based on averages from 2000 to to the current date, and the current date to the end of the forecast period. The forecast period is from the current date (January 1, 2021) to January 1, 2024. Sources: 2000 and 2010—2000 Census and 2010 Census; current and forecast—estimates by the analyst Table 2. Population and Household Quick Facts for the Nation growth slowed to an average annual rate of 0.9 percent, or 2.66 million people. Net natural change declined to an average of 1.77 million people a year, partly reflecting fewer births during the recession, but accounted for 67 percent of population growth, as net in-migration slowed significantly to an average of people a year, or 33 percent of population growth. As the economy expanded from 2010 to 2016, the average level of net in-migration increased to people a year, accounting for 40 percent of population growth. Net natural change continued to decline at a significant rate, averaging 1.37 million people a year, or 60 percent of population growth. That decline was partly due to an aging population, with an increase in the number of deaths, along with birth rates remaining low following the recession. As a result, the total population increased by 2.27 million, or 0.7 percent, annually. The rate of population growth continued to slow, to an average annual rate of 0.5 percent, or 1.75 million people, from 2016 to the current date. Net in-migration slowed to an average of people a year but accounted for 44 percent of the population gains during the period, as net natural change declined to an average of people, or 56 percent of growth. During 2020, as a result of the impacts of COVID-19 and the policies enacted to contain its spread, both net natural change and net in-migration are estimated to have slowed more considerably than in recent years."}, {"role": "assistant", "content": "During the 3-year forecast period, the population is expected to increase at an average annual rate of 0.5 percent or 1.57 million people. Net natural change and net-in migration are expected to average and respectively. The population is expected to total 335.49 million by the end of the forecast period (Table 2)."}]}
{"messages": [{"role": "user", "content": "Mexico accounted for the greatest number of immigrants into the United States from 2010 through 2013, averaging 12 percent of all U.S. immigrants. China and India accounted for an average of 8 percent of immigrants during these years. In 2014, China (10 percent) surpassed Mexico (9 percent), and in 2015, India (10 percent) surpassed China (9 percent). From 2016 through 2018, China resumed the top spot, accounting for 10 percent of all immigrants, with Mexico and India each averaging 9 percent. In 2019, the largest number of immigrants to the United States came from Mexico (10 percent), followed by China (9 percent) and India (8 percent). During 2020, numerous policies were enacted that had the effect of restricting immigration to the United States, undertaken as part of the efforts to reduce the spread of COVID-19. These policies may be relaxed once the pandemic ends. Age Cohort Trends The median age in the United States in 2019 was 38.5 years, up from 37.2 years in 2010. The largest population by age range in the United States is the 20-to-39-year-old age cohort, which Notes: Net natural change and net international migration totals are average annual totals over the time period. The forecast period is from the current date (January 1, 2021), to January 1, 2024. Sources: U.S. Population by Age Range in the Nation The under-20 age cohort declined from 26.9 percent of the population in 2010 to 24.9 percent in 2019. In addition, the 40-to-59-year-old cohort also declined, from 27.7 percent of the total population to 25.1 percent during the same period. As the baby boom generation has aged, the 60-to-79-year-old age cohort has grown substantially. In 2010, this age group made up 14.8 percent of the total population, but by 2019 it had grown to 19.0 percent of the population. This helps explain the steady growth in healthcare-related services throughout the country, as this age group tends to be a major consumer of health services. The 80-and-older age group remained relatively stable during the period, rising from 3.7 percent of the total population in 2010 to 3.9 percent in 2019. Recent Regional Population Trends From 2019 to 2020, the population increased in 8 of the 10 HUD regions. Map 4 shows the population growth rates by region. The national increase in population was 0.4 percent during that period. Four regions had a rate of population growth higher than the national average, with the highest rates of 1.0 percent in the Northwest and Southwest regions. The population in the Rocky Mountains grew by 0.9 percent, followed by the Southeast/Caribbean region at 0.8 percent. In the Pacific region, the population increased by 0.2 percent while growing by 0.1 percent in both the Great Plains and Mid- Atlantic regions. The population remained unchanged in the New England region. The population in the New York/New Jersey region declined 0.5 percent during the period and was down by 0.1 percent in the Midwest region. Household Trends The number of households in the United States is currently estimated at 127.60 million—an average annual increase of 0.8 percent, or 1.01 million households, since 2010. From 2000 to 2010, the number of households increased at a somewhat faster average annual rate of 1.0 percent, or 1.12 million households, due largely to higher population growth compared with the 2010s. Map 4. Population Growth by HUD Region, 2019–2020 Source: U.S. Census Bureau Population Estimates Program Since 2010, owner households have increased 0.7 percent a year, and renter households have increased 1.1 percent a year, compared with respective rates of 0.9 and 1.3 percent from 2000 to 2010. Owner household growth was highly variable in the 2000s, as the rate of homeownership increased significantly during the years of the housing boom. After the housing bubble burst and the economy entered the Great Recession, overall tenure distribution shifted throughout the country among households with a number of households shifting from ownership to renting. In part, that shift occurred because younger households have been delaying homeownership compared with previous generations. In absolute terms, from 2000 to 2010, the number of owner households increased by an average of per year, whereas renter households increased by a year. Since 2010, owner household As a result, the rate of owner household growth has slowed since 2010, and the homeownership rate in the country has declined to a current estimated level of 64.2 percent, down from 65.1 percent in 2010 and down from a peak of 69.0 percent in 2004. Currently, an estimated 81.88 million owner households and 45.73 million renter households reside in the United States. During the next 3 years, households are expected to increase by an average of or 0.7 percent, annually, as the rate of population growth slows. Current Conditions The national home sales market is very tight, with the months’ supply of homes dropping from 3.9 months in 2019 to 3.1 months in 2020 (NAR). As the nation entered a severe economic downturn, home sales and prices rose and the inventory of homes for sale hit a new low. In 2020, there were 1.07 million active listings—a decrease of 23 percent from 2019 levels when the market was already tight. The low number of active listings in the past 12 months was exacerbated by the challenges of showing homes during the pandemic. In 2020, year-over-year, existing home sales increased 6 percent (NAR), but new home sales increased 19 percent—the largest annual increase in new home sales since 2012 when sales were recovering from lows reached during the housing crisis (Census Bureau/HUD). Home prices also rose in 2020, with the median existing home sales price increasing 9 percent to and the median new home sales price rising 4 percent to ( Seriously delinquent mortgages are those that are 90 or more days delinquent or in foreclosure. Source: CoreLogic, Inc. Seriously Delinquent Mortgages and REO Properties 180 days was mandated by the CARES Act for federally backed home loans. The borrower may request an additional 180 days for a total forbearance period of 360 days. In February 2021, further extensions of mortgage forbearance between 3 to 6 months were announced for federally backed home loans. Approximately 70 percent of mortgages nationwide are federally backed and qualify for mortgage forbearance as outlined in the CARES Act (Urban Institute). As of April an estimated 3.85 million borrowers representing 7.3 percent of the first lien market were in an active forbearance plan; this includes 6.7 percent of fully private mortgages that are not covered by the forbearance options mandated by the CARES Act (Black Knight Financial Technology Solutions, LLC). The number of active forbearance plans increased rapidly, rising by 24 percent nearly a month later, to 4.76 million borrowers on May 26, or 9.5 percent of first lien mortgages nationwide. Since then, the number of mortgages in active forbearance plans has declined to 2.74 million borrowers, or 5.2 percent of all first lien mortgages as of January . While the number of mortgages in forbearance plans has declined since the beginning of the pandemic, Black Knight Financial Technology Solutions, LLC projects that 24 percent of the loans in active forbearance plans will reach their expiration in March 2021. The extension of mortgage forbearance options will allow some of those borrowers an extra 3 to 6 months of delaying their payments. Currently, only 12 percent Current Regional Highlights The sales housing markets in the 10 HUD regions had mixed conditions during the fourth quarter of 2020, ranging from slightly soft to very tight. Sales markets in the Northwest region ranged from very tight to balanced, whereas the New York/New Jersey region was the only region with slightly soft sales markets. According to the CoreLogic, Inc. home price index (HPI) for repeat sales, price appreciation was highest in the states in the New England region from December 2019 to December 2020. Four of the top 10 states in the country for price appreciation were in the New England region, with price increases ranging from 15 percent in Maine to 13 percent in Rhode Island. Home prices in the Southwest region had some of the smallest increases: the HPIs in Texas Sources: National Association of Realtors®; U.S. National Home Sales and Louisiana each increased 6 percent. No state in the country had a price appreciation of less than 6 percent in the past year. For additional home sales market data by HUD region, visit the regional housing market information page on the PD&R U.S. Housing Market Conditions website. During that period, home sales rose as mortgage lending standards were more relaxed and more mortgages were issued to riskier borrowers, which helped to inflate home sales. From 2001 through 2006, subprime and near-prime loans increased from 9 to 40 percent of all mortgage originations (U.S. Economics Analyst, Goldman Sachs). During roughly the same period, from 2001 through their peak in 2005, existing home sales increased an average of 6 percent a year, and new home sales increased an average of 8 percent a year (NAR; Census Bureau/HUD). As mortgage interest rates increased in 2006, new and existing home sales declined 18 and 8 percent, respectively, with the decrease accelerating in 2007 after the housing bubble began to burst. National Home Sales Prices For the next few years, the home sales market in the United States was extremely soft. As a result, new and existing home sales continued to decline, with existing home sales bottoming out in 2008 and new home sales bottoming out in 2011. From peak to trough, new home sales declined at an average annual rate of 8 percent, and existing home sales declined at an average annual rate of 28 percent. Since their respective lows, new and existing home sales have trended upward as the economy improved and sales market conditions tightened. Most of the sales growth from 2009 through 2019 for existing homes and from 2012 through 2019 for new homes was concentrated in the early years of the recovery. From 2009 through 2016, existing home sales increased at an average annual rate of 4 percent. From 2017 through 2019, existing home sales decreased at an average annual rate of 1 percent. New home sales followed a similar pattern, increasing at an average annual rate of 13 percent from 2012 through 2016 and slowing to an average annual rate of 7 percent from 2017 through 2019. In 2020, home sales growth accelerated to 6 percent for existing homes and 19 percent for new homes. The median existing home sales price increased an average of 8 percent a year from 2001 through the peak in 2006, whereas the median new home sales price peaked a year later, increasing an average of 6 percent a year from 2001 through 2007 (NAR; Census Bureau/HUD). Sales prices declined for both new and existing home sales in the years that followed; however, the peak-to-trough decline in existing home sales prices (25 percent) was more severe than the decline in new home sales prices (13 percent) and lasted nearly twice as long. From 2008 through 2009, the median price for new homes sold declined an average of 7 percent a year, and from 2007 through 2011, the median price for existing homes sold decreased an average of 6 percent a year. In large part, this was because the proportion of existing sales that were REO properties swelled during this time, and the relatively low prices for REO home sales created downward pressure on overall existing home sales prices. REO sales constituted a small proportion of existing home sales from 2000 through 2007, averaging around 3 percent (CoreLogic, Inc.). With the onset of the Great Recession, that percentage skyrocketed to 32 percent in 2009—a year when the average sales price for an REO home was nearly 50 percent below the price of a regular resale home. The median home sales price for new homes increased an average of 4 percent a year from 2010 through 2020. Price growth for existing homes was also steady from 2012 through 2019, with the median sales price increasing an average of 6 percent a year. However, growth accelerated to 9 percent in 2020. The total increase in home prices from trough to 2020 was 54 percent for new homes and 79 percent for existing homes. From 2000 through 2005, when home sales and prices increased, the number of sales units permitted averaged 1.55 million units a year. During the next 4 years, the number of sales units permitted dropped precipitously, averaging units permitted a year or a decline of 39 percent from the previous period. Sales building activity stabilized at low levels from 2009 through 2011, at sales units permitted annually, as the housing market worked to absorb an excess supply of Note: Includes single-family homes, townhomes, and condominiums. Sources: U.S. Average Annual Sales Permitting Activity in the Nation sales inventory. Since 2012, the number of sales units permitted has averaged annually, an increase of 66 percent from the previous period. Although this increase in sales permitting is significant, it has not kept pace with the growth in demand and has contributed to the currently tight sales market conditions. The number of sales units permitted increased 12 percent in 2020, year over year, surpassing 1 million for the first time since 2007. Despite record low mortgage interest rates in 2020, the HOI declined by 4.9 percentage points in the past year alone because of increased home sales prices and decreased household income. First-time homebuyers face many affordability challenges when it comes to purchasing a home, regardless of where they live. For the nation, homeownership has become less affordable for households in the 25-to-44-year age cohort, a prime group for first-time homebuyers. The HUD First-Time Homebuyer Affordability Index measures the median household income for householders aged 25 to 44 years old relative to the income needed to purchase the 25th percentile-priced home. In 2019, the index increased slightly to 1.9 because of low interest rates and increased household income. When 2020 data are released, it is likely that the HUD First-Time Homebuyer Affordability Index will show a decline in affordability for first-time homebuyers, in part because of the strong home price increases in the past year and weak income growth."}, {"role": "assistant", "content": "Demand for New Sales Units in the Nation During the Forecast Period Sales Units Demand Units Under Construction Units Note: The forecast period is from January 1, 2021, to January 1, 2024. Source: Estimates by the analyst Forecast Despite signs of weakness in the housing market because of increased mortgage delinquencies during the past year, the outlook for the home sales market is positive. Demand is expected for 3.28 million sales units during the 3-year forecast period (Table 4). This forecast calls for an increase in the production of sales units to ease the extremely tight housing market conditions. Less than one-half of the demand during the first year will be met by units already under construction. Given the current economic and demographic forecast, the number of homes demanded should be relatively constant through the next 3 years."}]}
{"messages": [{"role": "user", "content": "Current Conditions and Recent Trends The national rental market is slightly tight, with an estimated vacancy rate of 6.2 percent—up from 6.1 percent in 2019, when the market was tight (Table 5). Sixty-two percent of the national rental supply is in multifamily structures with two or more units, typically apartment properties (2019 ACS 1-year data). Attached and detached single-family homes are also an important source of rental supply in the nation, with 33 percent of renters residing in that type of unit as of 2019, up 1 percentage point from 2010. During December 2020, the vacancy rate for professionally managed single-family rental units was 2.7 percent, up 0.1 percentage point from December 2019 (CoreLogic, Inc.). At the same time, the median rent for two-bedroom single-family homes that were professionally managed increased 7 percent, to $1,418. During a similar period, from the fourth quarter of 2019 to the fourth quarter of 2020, the average monthly effective rent for apartment units declined nearly 1 percent, whereas the apartment vacancy rate increased from 4.2 to 4.3 percent (RealPage, Inc.). A large portion of the rental supply in the nation is not captured in the aforementioned Rental Market Quick Facts 2010 (%) Current (%) Rental Vacancy Rate 9.2 6.2 Occupied Rental Units by Structure Single-Family Attached & Detached 34.0 33.0 Multifamily (2–4 Units) 19.0 17.0 Multifamily (5+ Units) 43.0 45.0 Other (Including Mobile Homes) 5.0 4.0 Current YoY Change Apartment Vacancy Rate 4.3 0.1 Average Monthly Rent $1,410 -0.6% YoY= year-over-year. Notes: The current date is January 1, 2021. Percentages may not add to 100 due to rounding. Sources: 2010 and 2019 American Community Survey, 1-year data; RealPage, Inc. Table 5. Rental and Apartment Market Quick Facts for the Nation survey data, which explains why the vacancy rates for apartments and professionally managed single- family rentals are below the current estimated vacancy rate of 6.2 percent for all rental units. It is likely that the severe economic downturn caused by the COVID-19 pandemic disproportionally harmed renter households in part because they were less secure financially before the pandemic. In addition, many renters were employed in industries hard hit by the pandemic and therefore were more likely to face job losses. In 2019, the median net worth of an owner household was 40 times the median net worth of a renter household, and the median income of an owner household was more than twice that of a renter household (Board of Governors of the Federal Reserve System, Survey of Consumer Finances). During mid-December 2020, an estimated 18 percent of all renter households were behind on their housing payment, versus 8 percent for all owner households (U.S. Census Bureau, Household Pulse Survey). At the same time, 17 percent of renter households that were not current on their rental payments thought it was very likely that they would have to leave their home because of eviction in the next 2 months. Several policies have been enacted at the federal level in the past year that have helped renters stay in their homes during the COVID-19 pandemic. The CARES Act included a 120-day moratorium on evictions and protections for tenants in certain rental properties with federal assistance or According to the Urban Institute, this covers 28 percent of rental units in the nation. In addition, state and local eviction moratoriums enacted in 2020 provided protections for a share of renters not covered by the CARES Act. Under Section 4024(b)(2) of the CARES Act, renter households living in covered dwellings were able to postpone rent payments until July without the threat of eviction or being charged fees or penalties for nonpayment of rent. After the moratorium expired, landlords were required to give a 30-day notice to evict a tenant in a covered dwelling unit, giving households until August . Following that date, an 11-day period occurred in which no eviction protection for renters existed at the federal level. On September 4, 2020, the Centers for Disease Control and Prevention (CDC) issued an order to temporarily halt residential evictions to prevent the further spread of COVID-19. While the eviction moratorium included in the CARES Act was intended to alleviate economic and public health consequences of eviction, the CDC order was focused on the public health consequences of eviction during the pandemic—a recognition of the increased risk of COVID-19 transmission associated with evictions. Like Section 4024(b)(2) of the CARES Act, the CDC order does not relieve any obligation to pay rent or make a housing payment; the order was set to expire on January but has been extended through March ."}, {"role": "assistant", "content": "Meanwhile, rental debt will continue to accrue. In October 2020, the Federal Reserve Bank of Philadelphia projected that an estimated 1.34 million renter households would owe $7.2 billion in rent or approximately $5,400 each in December 2020."}]}
{"messages": [{"role": "user", "content": "On December Congress passed the Consolidated Appropriations Act of 2021, which included $25 billion for the Department of Treasury to launch the Emergency Rental Assistance Program. The program, which provides funding to state and local governments, helps renter households struggling to pay rent and utilities because of the COVID-19 pandemic. Current Regional Highlights Rental market conditions varied throughout the 10 HUD regions from soft to tight during the fourth quarter of 2020. The Mid-Atlantic region was the only region containing soft markets, whereas most regions had a mix of balanced to tight markets. Year-over-year apartment rent growth during the fourth quarter of 2020 did not exhibit any pronounced trends at the regional level; however, it is worth noting that some metropolitan areas known for their high housing costs registered sharp rent declines. The average effective rent for the fourth quarter of 2020 decreased 19 percent in the San Francisco metropolitan area and 14 percent in the San Jose and New York City metropolitan areas (RealPage, Inc.). Additional rental market data by HUD region is available at the regional housing market information page on the PD&R U.S. Housing Market Conditions website. Apartment Vacancy Rates and Rents Since 2000 The national apartment market during the 2000s was more volatile than during the 2010s when there was a steady tightening of market conditions. During this period, the average monthly effective apartment rent was relatively unchanged. The rental market softened during this time because of an increased number of households shifting from renting to owning homes and an increased supply of single-family rentals that investors added to the market. The market tightened somewhat in 2005, with the vacancy rate declining by 1.2 percentage points and the average monthly effective rent increasing 3 percent. In the years that followed, the apartment vacancy rate increased by an average of 0.6 percentage point annually, and the average monthly effective rent increased an average of 1 percent a year through the fourth quarter of 2009. As was the case for the sales market during that period, the national apartment market was soft in 2009, in part because apartments faced increased competition from investor-owned condominiums and single-family homes entering the Apartment Rents and Vacancy Rates in the Nation rental market. During the housing crisis, the increase in condominium and single-family rentals came from two main sources: (1) investors buying foreclosed properties and offering them for rent and (2) households needing to relocate and move out of their homes but without enough equity to sell. In the years since the Great Recession, the average apartment vacancy rate has mostly trended downward, but the average monthly effective rent in the nation increased at a steady rate until 2020. From the fourth quarter of 2009 to the fourth quarter of 2019, the average apartment vacancy rate decreased from 8.0 to 4.2 percent, or an average of 0.4 percentage point a year. In the fourth quarter of 2020, the average apartment vacancy rate increased 0.1 percentage point to 4.3 percent (RealPage, Inc.). The average effective monthly rent increased an average of 4 percent annually, from $938 in the fourth quarter of 2009 to $1,419 in the fourth quarter of 2019 before declining 1 percent to $1,410 in the fourth quarter of 2020. Rental Construction Activity Rental building activity, as measured by the number of rental units permitted, averaged much higher levels during the 2010s in response to stronger growth in rental demand and tighter rental market conditions compared with the previous decade. As the rental market Note: Includes apartments and units intended for rental occupancy. Sources: U.S. Average Annual Rental Permitting Activity in the Nation Rental building activity began to recover in earnest in 2012 to approximately units, or more than double the average for the previous 3 years, and an average of rental units were permitted annually during the 2012-through-2014 period. Since 2015, an average of rental units have been permitted annually, increasing 10 percent from the average annual level during the previous 3 years. Housing Affordability: Rental Rental affordability across the nation increased through the 2010s, with the median income for renter households increasing at a faster rate than the median gross rent. From 2010 to 2019, the median income for renter households increased 38 percent, whereas the median gross rent increased 28 percent. It is likely that 2020 data will show a decline in rental affordability because of decreased income for renter households brought on by the pandemic. Although rental affordability improved during the 2010s, many renter households in the United States face some degree of cost burden, paying more than 30 percent of their income on rent. During the 2013-through-2017 period, an estimated 21.8 percent of all renter households in the nation were cost burdened, spending between 30 and 49 percent of their income on rent, whereas 22.9 percent were severely cost burdened, spending more than 50 percent of income toward rent ( The Gross Rent Affordability Index differs from the HUD Rental Affordability Index published on the U.S. Housing Market Conditions website in that it is based on combined rent and utilities expenditure. Gross Rent Affordability Index for the Nation Cost Burdened Severely Cost Burdened Renter Households with Income <50% HAMFI 25.6 50.1 Total Renter Households 21.8 22.9 “Cost-burdened” households spend between 30–49 percent of their income on rent, and “severely cost-burdened” households spend over 50 percent of their income on rent. Sources: Consolidated Planning/CHAS Data; American Community Survey 5-year estimates Source: Estimates by the analyst Rental Units Demand Units Under Construction Units Table 8. Demand for New Rental Units in the Nation During the Forecast Period burdens are significantly worse for very low-income renter households. For renter households with incomes less than 50 percent of the Area Median Family Income, 25.6 percent were cost burdened and 50.1 percent were severely cost burdened."}, {"role": "assistant", "content": "In addition to LIHTC, income-eligible residents may qualify for project-based rental assistance (PBRA) or housing choice vouchers (HCV) through the local public housing authority (PHA). Nationwide, PHAs administered approximately 2.3 million HCVs in 2019, an increase of more than 13 percent from 2010 (HUD’s Picture of Subsidized Households). The number of households served and the average monthly subsidy have increased by 3.9 and 0.1 percent, respectively, since 2010, whereas the monthly tenant contribution has decreased 0.5 percent (Table 7). Tenant income likely decreased in 2020 because of the COVID-19 pandemic, leading to increased subsidy and a decrease in tenant contributions. Despite nearly 4.6 million American households receiving rental assistance, funding limitations prevent three out of four eligible households from receiving housing assistance. Forecast During the 3-year forecast period, the slightly tight rental market is expected to ease as the rate of renter household growth moderates. In addition, a large number of potential evictions looms over the rental market, the effects of which are highly uncertain and may be influenced by government efforts to limit the impact. Demand for approximately 1.11 million rental units is expected nationwide for the next 3 years (Table 8). The rental units already under construction will satisfy nearly all of the estimated demand during the first year of the forecast period. Demand is expected to remain relatively constant during the 3-year period, given the economic and demographic outlook presented in this report."}]}
{"messages": [{"role": "user", "content": "Total Change Since 2010 Total Assisted Households Total Housing Voucher Households Average HCV Tenant Monthly Contribution $386 -0.5% Average Monthly HUD Subsidy $834 0.1% Dollar changes are inflation adjusted using the Consumer Price Index for All Urban Consumers (CPI-U). Source: HUD Picture of Subsidized Households Cost Burdened Spending more than 30 percent of household income on housing costs. Severely Cost Burdened is spending more than 50 percent of household income on housing costs."}, {"role": "assistant", "content": "Demand The demand estimates in the analysis are not a forecast of building activity. They are the estimates of the total housing production needed to achieve a balanced market at the end of the 3-year forecast period given conditions on the as-of date of the analysis, growth, losses, and excess vacancies. The estimates do not account for units currently under construction or units in the development pipeline."}]}
{"messages": [{"role": "user", "content": "Home sales prices averaged during the 12 months ending September 2021, up 12 percent from the previous 12 months, which was the fastest gain in over a decade (CoreLogic, Inc.). The inventory of homes for sale was 1.2 months, the lowest level in over a decade. Low mortgage interest rates, limited growth in new home construction since the mid-2010s, and the rise in telework in 2020, which shifted preferences in where people live and work, contributed to tight market conditions."}, {"role": "assistant", "content": "During the three-year forecast period, demand is expected for 6,025 additional homes. The 810 homes currently under construction are expected to meet a portion of that demand. To meet forecast demand, average annual construction will need to exceed the number of homes permitted during the most recent 12 months. Demand for additional rental units since 2010 has been met primarily by construction of large apartment buildings, often with 20 or more units, but construction slowed in 2018 and 2019, resulting in fewer units entering the market in recent years, despite renter household growth. The apartment market is tight, with the lowest vacancy rate in over two decades, at 2.1 percent, during the third quarter of 2021, and it had relatively rapid rent growth, up 3 percent from a year ago, compared with an average gain of 2 percent annually during the 2010s. During the 3-year forecast period, demand for an additional 8,600 units is expected. The 5,100 units under construction are expected to meet a portion of that demand. Permitting increased in 2020 and 2021 and will need to remain above 2018 and 2019 levels to meet forecast demand."}]}
{"messages": [{"role": "user", "content": "Rental Market Slightly Tight: The rental market vacancy rate is currently estimated at 3.0 percent, down from 6.7 percent in 2010. Sales Market Very Tight: In response to rapidly rising home sales prices and an extremely low inventory of homes for sale, the number of sales units permitted was at the highest level in over a decade, at 1,950 homes, during the 12 months ending September 2021."}, {"role": "assistant", "content": "Units under construction as of October 1, 2021. The forecast period is October 1, 2021, to October 1, 2024. Source: Estimates by the analyst"}]}
{"messages": [{"role": "user", "content": "Research at UW has helped launch private sector companies in high-tech and scientific research industries and attracted companies in similar industries to the area. University Research Park, a UW-affiliated office park that opened in 1984, is currently home to more than 125 companies, with over 3,500 employees, and it had a statewide economic impact of nearly $850 million in 2015. Tenants range from large national companies, such as Exact Sciences Corporation, maker of the Cologuard cancer screening test, and Fujifilm Cellular Dynamics, Inc., to the 17 small startup companies currently housed at the Forward BIOLABS incubator. The largest locally founded tech company is Epic Systems Corporation, a digital healthcare records management company. Share of Nonfarm Payroll Jobs in the Madison HMA, by Sector Name of Employer Nonfarm Payroll Sector Number of Employees University of Wisconsin-Madison (UW) Government 22,038 UW Hospital Government 15,358 Epic Systems Corporation Professional & Business Services 9,600 SSM Health Education & Health Services 6,444 American Family Insurance Co., S.I. Financial Activities 4,427 UnityPoint Health-Meriter Education & Health Services 3,500 UW Medical Foundation Education & Health Services 3,486 WPS Health Solutions Education & Health Services 3,000 Laboratory Corporation of America Holdings Professional & Business Services 2,091 CUNA Mutual Group Financial Activities 2,000 Excludes local school districts. Sources: City of Madison, Government of Dane County Notes: Total nonfarm payroll is in thousands. Percentages may not add to 100 percent due to rounding. Based on 12-month averages through September 2021. Large global tech companies Amazon.com, Inc., Microsoft Corporation, and Alphabet Inc. (parent company of Google) all have offices in the HMA. Despite the recent economic downturn, the number of high- tech and scientific research jobs has continued to increase. From April through October 2020, Madison had a 74-percent increase in the inflow of tech workers, gaining 1.77 tech workers for each one that left, up from 1.02 during the same period in 2019 (LinkedIn). Beyond the city of Madison and surrounding suburbs where government, high-tech, and scientific research employers are concentrated, specialized industries in smaller towns and rural parts of the HMA include food and beverage manufacturing and tourism. The state of Wisconsin is a leading cheese producer in the nation. In the HMA, milk production, the primary ingredient used to make cheese, had a market value of nearly $480 million (2017 Census of Agriculture). New Glarus Brewing Company, a beer company, brews and bottles its product in Green County. Despite selling the product exclusively in Wisconsin, the company was ranked 15th in sales among craft breweries and 25th in sales among all breweries nationally in 2019. In northwest Columbia County and adjacent Sauk County, the Wisconsin Dells, a tourist area described as the “Waterpark Capital of the World,” draws 4 million visitors annually and had a $1.4 billion economic impact statewide in 2020 (Wisconsin Dells Visitor and Convention Bureau). Current Conditions—Monthly Not Seasonally Adjusted Nonfarm Payrolls The economy in the Madison HMA is currently recovering from the steep job losses that occurred during March and April 2020, primarily caused by measures to limit the spread of COVID-19. During the 2-month recession, monthly nonfarm payrolls fell by a total of 52,100 jobs, but they have generally been increasing since May 2020 (monthly data; not seasonally adjusted). Jobs in the leisure and hospitality sector accounted for nearly 40 percent of the job losses during the recession, despite the sector only accounting for 12 Months Ending September Months Ending September 2021 Absolute Change Percentage Change Total Nonfarm Payroll Jobs Goods-Producing Sectors Mining, Logging, & Construction Manufacturing Service-Providing Sectors Wholesale & Retail Trade Transportation & Utilities 9.5 9.3 -0.2 -2.1 Information Financial Activities Professional & Business Services Education & Health Services Leisure & Hospitality Other Services Government Notes: Based on 12-month averages through September 2020 and September 2021. Numbers may not add to totals due to rounding. Data are in thousands. 9 percent of total nonfarm payrolls in February 2020. In September 2021, total nonfarm payrolls in the HMA were 40,900 jobs above the April 2020 low, or 79-percent recovered. Jobs in the leisure and hospitality sector had a similar rate of recovery as the HMA overall, with 78 percent of jobs recovered in September 2021. Current Conditions—Most Recent 12-Month Nonfarm Payrolls During the 12 months ending September 2021, total nonfarm payrolls averaged down by 2,800 jobs, or 0.7 percent, from the previous 12 months ( U.S. 12-Month Average Unemployment Rate in the Madison HMA and the Nation Economic Periods of Significance 2001 Through 2008 The early and mid-2000s were a period of economic expansion in the Madison HMA. All gains were in the service-providing sectors, with an average increase of 4,000 jobs, or 1.3 percent. The professional and businesses services sector, which includes many high-tech and scientific research jobs, had the largest sector-level increase, rising by an average of 1,200 jobs, or 3.2 percent, annually. Partially offsetting gains in other sectors, the manufacturing sector had the largest decline, decreasing by an average of 700 jobs, or 1.7 percent, annually. A decline in the food manufacturing industry accounted for about one-half of the jobs lost in the sector. Job losses in the HMA were concentrated in the goods-producing sectors. The manufacturing sector fell by 3,600 jobs, or 10.3 percent, with layoffs occurring in all manufacturing industries, including the food and beverage and durable goods industries. A sharp decline in residential construction in the late 2000s contributed to the decline of 2,800 jobs, or 17.2 percent, in the mining, logging, and construction sector. 2010 Through 2019 The period from 2010 through 2019 was a time of rapid recovery and economic expansion. Nonfarm payrolls increased by an average of 5,600 jobs, or 1.5 percent, annually from 2010 through 2019, exceeding the pre- Great Recession high in 2012, nearly 2 years before the nation. Similar to the early to mid-2000s, the professional and businesses services sector led gains, rising by an average of 1,300 jobs, or 2.8 percent, annually. The information sector had the fastest growth rate, up an average of 4.8 percent, or by 600 jobs, annually. Unlike the previous period of expansion, when manufacturing jobs declined, jobs in the sector increased by an average of 500, or 1.6 percent, annually. Industries that contributed to the gain include chemical manufacturing; beverage and tobacco product manufacturing; and electrical equipment, appliance, and component manufacturing. Job growth was faster earlier in the period and moderated in the later years of the decade. From 2010 through 2016, job growth averaged 6,100, or 1.6 percent, annually, but it slowed to an average of 4,300 jobs, or 1.1 percent, annually from 2017 through 2019. A decline in the wholesale and retail trade sector, as consumers shifted to online shopping, and a slowdown in gains in the professional and businesses services sector, contributed to slower growth in the later years of the decade. With the unemployment rate below 3 percent in the late-2010s contributing to a tight labor market, and with Federal policy changes leading to a reduction in international immigration, job growth was partly constrained by a lack of available workers. Change in Jobs by ZIP Code At the ZIP Code level, job growth was concentrated in central Dane County. Downtown Madison, which includes the state capital and central business district, was the ZIP Code area with the most jobs in 2019, and it had the largest gain from 2010 to 2019, up by 15,200 jobs (Map 1). The gain is primarily attributed to an increase in public administration, professional and businesses services, and leisure and hospitality sector jobs. Areas with a large decline in jobs include east Madison ZIP Codes 53714 and 53704, where losses were concentrated in public administration, and the Wisconsin Dells tourist area, ZIP Code 53965, where the loss was concentrated in the leisure and hospitality sector."}, {"role": "assistant", "content": "Forecast During the 3-year forecast period, job growth is expected to occur at a rate similar to the early to mid-2010s, with nonfarm payroll gains averaging 1.6 percent annually. Based on a 12-month moving average, full payroll recovery from losses that occurred during 2020 is expected during the second year of the 3-year forecast period."}]}
{"messages": [{"role": "user", "content": "The return of students to the UW campus and fans to UW sporting events for the Fall 2021 semester are expected to contribute to the ongoing recovery in the leisure and hospitality sector. Tight housing market conditions, which"}, {"role": "assistant", "content": "Jobs in high-tech industries and scientific research are also expected to continue to increase. Recent expansion announcements include a $65 million investment by MilliporeSigma, a life science company, to build new research facilities and add 50 employees; an $11.4 million grant from the U.S. Department of Defense to FluGen, Inc., a flu vaccine research company; and a $2.3 million round of seed funding for the biotech startup Immuto Scientific for equipment, staffing, and marketing."}]}
{"messages": [{"role": "user", "content": "Net natural increase also slowed during most years since 2010, further contributing to slower population growth in recent years. Population Trends and Forecast Population growth in the Madison HMA comes from both net natural increase and net in-migration. Net in-migration tends to be higher during periods of stronger economic growth and weaker when economic growth is slower. Since the end of the Great Recession, net natural increase has slowed, partially because of an increase in the senior population and a lower birth rate. In the 2000s, population growth averaged 7,000, or 1.2 percent, annually ( 2010 and 2019 American Community Survey, 5-year data Recession supported net in-migration, averaging 4,900 annually. Net natural increase was lower than in the 2000s, averaging 3,175 people annually. Since 2017, population growth slowed to an average of 5,200, or 0.8 percent, annually. Weaker job growth in the late 2010s, along with the onset of the COVID-19 pandemic and associated economic uncertainty, contributed to the slowdown. Net natural increase continued to moderate in the late 2010s and early 2020s, averaging 2,200 annually from 2017 to the current date. A more rapid decline in net natural increase has occurred since March 2020, partially because of the approximately 500 deaths attributed to COVID-19 (Wisconsin Department of Health Services). Net in-migration averaged 3,000 annually since 2017, with weaker economic conditions and increased restrictions on international immigration contributing to lower net in-migration."}, {"role": "assistant", "content": "During the 3-year forecast period, population growth is expected to average 0.9 percent a year, above the average from 2017 to the current date but below the growth rate of the early to mid-2010s. Net natural increase is expected to remain at lower levels as the birth rate continues to fall and health impacts from COVID-19 persist. Net in-migration is expected to increase from the current level, supported by job opportunities created by the continued expansion of the high-tech and scientific research industries and recovery of the leisure and hospitality sector."}]}
{"messages": [{"role": "user", "content": "The senior population age 60 and over is the fastest growing age cohort. The cohort population increased an average of 4.0 percent annually to 20 percent of the total population, up from 15 percent (2010 and 2019 ACS, 5-year data). The youth cohort age 19 and under increased 0.3 percent annually; the older working-age adult cohort, age 40 to 59, declined 0.4 percent annually. Paul-Bloomington (U.S. Census Bureau Migration Flows, 2015–2019, 5-year data). Combined, net in-migration from the three large metropolitan areas totaled 3,175 ( U.S. Census Bureau Migration Flows, 2015–2019 American Community Survey, 5-year data Source: U.S. Current Population in the Madison HMA, by County At the ZIP Code level, population growth occurred in most ZIP Codes in Dane County, and trends were mixed in the other three counties with areas of growth and decline. The fastest growing ZIP Code in Dane County was ZIP Code 53703, which includes downtown Madison, up an average of 4.2 percent, or 1,300 people, annually (Map 2). The area also had the largest increase in jobs during the 2010s. The far east side of the city of Madison, ZIP Code 53718, includes a highway directly connecting to the Milwaukee- Areas with notable declines include the south and near west sides of the city of Madison, ZIP Codes 53726 and 53713, down an average of 1.6 percent, each, or 370 and 100 people, annually; these areas also had a decline in jobs in the 2010s. Households by Tenure The number of renter households has increased faster than the number of owner households since 2010, resulting in a decline in the homeownership Map 2. Since 2010, owner households increased an average of 0.8 percent annually, and renter households increased an average of 2.1 percent annually. A portion of the faster growth in renter households is due to an increase in student household growth. Since 2010, enrollment at UW increased by an average of nearly 500 students, or 1.1 percent, annually, up from an increase of about 140, or 0.3 percent, annually in the 2000s. The number of student households residing off-campus is currently estimated at nearly 16,000, or about 5 percent of the total households in the HMA. Household Trends and Forecast Household growth followed a relatively similar trend as population growth, with a steady increase in the number of households since 2000. Households by Tenure and Homeownership Rate in the Madison HMA Note: The current date is October 1, 2021. Sources: 2000 and 2010—2000 Census and 2010 Census; current—estimates by the analyst"}, {"role": "assistant", "content": "During the forecast period, household growth is expected to moderate from the average gain since 2000 to 3,325 households, or 1.1 percent, annually. Slower population growth in the forecast period relative to the early to mid-2010s is expected to contribute to the lower forecast gain in households."}]}
{"messages": [{"role": "user", "content": "Current Conditions— Sales, Prices, and Inventory Home sales market conditions in the Madison HMA are very tight. The vacancy rate is currently estimated at 0.8 percent, down from 2.0 percent in 2010 (Table 5). During the 12 months ending September 2021, the average home sales price was up 12 percent from the previous 12-month period, the largest year-over-year increase since the housing boom in the mid- 2000s, and a faster increase than the 5 percent average annual increase from 2013 through 2020 (CoreLogic, Inc.). Annual price increases have only exceeded 10 percent two other times since 2000—in 2004, when prices increased 14 percent, and in 2006, when prices increased 13 percent. Home Sales Quick Facts Madison HMA Nation Vacancy Rate 0.8% NA Months of Inventory 1.2 1.8 Total Home Sales -Year Change 7% 12% Total Home Sales Price -Year Change 12% 18% Mortgage Delinquency Rate 0.8% 2.5% Table 5. Home Sales Quick Facts in the Madison HMA NA = data not available. Notes: The vacancy rate is as of the current date; home sales and prices are for the 12 months ending September 2021; and months of inventory and mortgage delinquency data are as of September 2021. The current date is October 1, 2021. Sources: Vacancy rate—estimates by the analyst; months of inventory—CoreLogic, Inc.; National and HMA home sales and prices—CoreLogic, Inc. Inventory has been below 6 months, which is considered balanced, since mid-2013. Despite uncertain economic conditions in 2020, home sales increased 7 percent during both the 12 months ending September 2021 and the 12 months ending September 2020, a reversal from the two previous 12-month periods when sales were declining. Sales during the most recent 12 months totaled 13,700, the highest number of sales since 2004. Current Conditions—Economic Factors: Mortgage Interest Rates, Telework, and Affordability Low mortgage interest rates also contributed to tight market conditions, with the lower rates attracting more prospective buyers. Rates were near 50-year lows during the most recent 12 months, averaging 2.9 percent for a 30-year fixed-rate mortgage, down from an average of 3.4 percent during the previous 12 months (FreddieMac). During the third quarter of 2021, the HMA was ranked the 59th most affordable place to live among 238 metropolitan areas (NAHB/Housing Opportunity Index). A median-income family in the HMA could afford 77.7 percent of homes for sale. By comparison, the Milwaukee, Chicago, and Minneapolis metropolitan areas, the three most common sources of net in-migration, had a smaller share of homes for sale that were affordable to median-income families in their respective areas, at 71.5, 62.3, and 76.9 percent. A portion of the higher level of affordability in the HMA is due to higher incomes. The median family income in the HMA is or $18,700 and $16,000 higher, respectively, than the Milwaukee and Chicago metropolitan areas, and it is only $1,800 below the median family income for the Minneapolis metropolitan area. Home Sales Historical Trends Home sales, including new and existing home sales, reached a post-Great Recession low in 2011. During the period of economic recovery and early expansion in the HMA in the early to mid-2010s, sales increased during most years but then declined in 2018 and 2019, when economic growth was slower. From 2012 through 2017, sales increased by an average of 980, or 10 percent, annually, to 13,200 in 2017, and then fell by an average of 460, or 4 percent, annually during 2018 and 2019 to 12,275 in 2019. With the onset of the COVID-19 pandemic, low mortgage interest rates, and a shift in where some work is performed, home sales increased, rising an average of 6 percent annually from 2020 through the current date to 13,700 during the 12 months ending September 2021. Home Sale Price Historical Trends Home sales prices have increased steadily since the HMA fully recovered from the Great Recession. From 2013 through 2019, a period of economic expansion, home sales prices increased steadily at an average rate of 5 percent, or $11,450, annually. Despite economic uncertainty in 2020, several factors—including a low inventory of homes for sale, low mortgage interest rates, and changes to where work is performed—contributed to an increase in demand for homebuying, accelerating price growth. From 2020 through the current date, home sales prices increased an average of 9 percent, or $24,900, annually. Although necessary to reduce construction in the early 2010s because of weaker economic conditions and the elevated level of inventory of homes for sale, inventory of available homes for sale fell below what would be considered balanced levels in mid-2013 and has continued to decline. Despite low inventory and steadily rising prices, permitting increased only modestly in the early- and mid-2010s and was steady later in the decade. In 2011, permitting was at a low of 770, but it increased by an average of 200 homes annually from 2012 through 2016 as the economy expanded, rising to 1,775 in 2016. Permitting remained relatively steady, averaging 1,700 annually from 2017 through 2019. In response to a tightening housing market, permitting increased to 1,950 during the 12 months ending September 2021, up from 1,700 during the previous 12 months. Construction by Geography Like job and population growth, a large majority of new home construction, as measured by single-family permitting, has been in Dane County. 12-Month Average Sales Price by Type of Sale in the Madison HMA REO = real estate owned. Average Annual Sales Permitting Activity in the Madison HMA 12ME = 12 months ending. Sources: U.S. Census Bureau, Building Permits Survey; 2000–2020 final data and estimates by the analyst; last 24 months of data—preliminary data and estimates by the analyst Prices for newly constructed single-family attached homes in the HMA start around and detached single-family homes start at . On the east side of the city of Madison is the large, multiphase Grandview Commons, a new urbanist style subdivision utilizing traditional neighborhood design principles such as front porches and rear garages. An attached 3-bedroom single-family home is currently listed for and a three-bedroom, 1,500-square-foot detached single-family home is listed starting at . In Sun Prairie, the West Prairie Village subdivision is nearly complete, with lots sold. Single-family detached homes with sizes ranging from 2,100 to 4,200 square feet are currently priced from to ."}, {"role": "assistant", "content": "Forecast During the three-year forecast period, demand is expected for an additional 6,025 homes ( The forecast period is from October 1, 2021, to October 1, 2024. Source: Estimates by the analyst"}]}
{"messages": [{"role": "user", "content": "Rental Market Conditions and Recent Trends Rental market conditions in the Madison HMA are slightly tight. The current overall rental market vacancy rate is estimated at 3.0 percent, down from 6.7 percent in 2010 ( Excludes properties in lease-up. Apartment Rents and Vacancy Rates in the Madison HMA Apartment Market Quick Facts Current Average Rent YoY Change Current Vacancy Rate YoY Change Madison HMA Columbia County Downtown Madison East Madison Fitchburg Iowa County Middleton Outlying Dane County Sun Prairie Verona West Madison YoY= year-over-year. Notes: Average rent and vacancy rates are as of the third quarter of 2021. Apartment vacancy rates include only stabilized properties. Survey data are not available for Green County. Source: Group Includes apartments and units intended for rental occupancy. Sources: U.S. Census Bureau, Building Permits Survey; 2000–2020 final data and estimates by the analyst; last 24 months of data—preliminary data and estimates by the analyst Most of the apartments that opened earlier in 2021 are fully occupied. Rosewood Place, a 57-unit apartment development in the city of Oregon, in the Outlying Dane County market area, had the lowest asking rents among apartments completed in 2021, with rents ranging from $888 for a studio to $1,595 for a three-bedroom unit. The property was fully occupied as of August 2021. West Washington Place, a 51-unit property in downtown Madison, had the highest rents among apartments completed in 2021, with rents ranging from $1,824 for a studio to $3,035 for a three-bedroom unit. The property was fully occupied as of October 2021. Nearly all apartments under construction are in Dane County and range in size from the 288-unit Authentix Cottage Grove in east suburban Cottage Grove to the 36-unit Broad Branch Apartments in west suburban Middleton. Student Housing The number of student households residing off-campus is currently estimated at approximately 16,000, or about 13 percent of all renter households in the HMA. Since 2010, apartment construction in the UW campus ZIP Code and two immediately adjacent ZIP Codes accounted for 56 percent of all rental unit The average rent per bed at student apartments increased faster than the overall apartment market in the HMA, but the vacancy rate is currently higher. During the third quarter of 2021, the average student apartment rent was $903 per bedroom, up 5 percent from a year earlier, the same rate of growth as the previous year and faster than the average gain of 3 percent annually from the third quarter of 2017 to the third quarter of 2019 ( Group). The student apartment vacancy rate was 3.9 percent during the third quarter of 2021, down from 6.0 percent a year earlier, when fewer students were on campus. Rent growth for the overall apartment market in the HMA was 2 percentage points lower, and the vacancy rate was 1.8 percentage points lower, during the third quarter of 2021."}, {"role": "assistant", "content": "Forecast During the 3-year forecast period, demand is expected for an additional 8,600 units ( The forecast period is October 1, 2021, to October 1, 2024. Source: Estimates by the analyst Rental Units Demand 8,600 Units Under Construction 5,100 Units Table 9. Demand for New Rental Units in the Madison HMA During the Forecast Period"}]}
{"messages": [{"role": "user", "content": "Forecasts of housing demand were made to bring the sales and rental markets into balance during the next 3 years. This report discusses select data for the 10 HUD regions defined in the “Terminology Definitions and Notes” section at the end of the report. In 2020, many policies that were enacted to slow the spread of COVID-19 had negative economic consequences. More than 1 million jobs were lost in March, followed by nearly 20 million jobs lost in April, a total loss of 14 percent of nonfarm payrolls during the 2 months. Monetary and fiscal policies were enacted to lessen the economic impact and stimulate the economy, and many COVID-19- related policies have been relaxed or eliminated over time. By the end of 2021, approximately 97 percent of the jobs lost had been recovered on a monthly basis at the national level (monthly data, not seasonally adjusted). During the next 3 years, nonfarm payrolls are expected to increase an average of 2.3 percent a year. The national sales housing market is very tight, with an estimated 1.1 percent vacancy rate, down from 2.4 percent in 2010 when the market was soft. Although the sales housing market has been varying degrees of tight for the past few years, certain measures of housing market conditions in 2021 were indicative of an extreme shortage of sales housing. In 2021, the supply of existing homes for sale declined to 2.3 months, down from 3.1 months in 2020 (National Association of REALTORS® [NAR]). Since 2012, the median existing home sales price has doubled, with a 17-percent increase in 2021 alone. Overall, the total number of homes sold in 2021 was up 7 percent from 2020 (U.S. Census Bureau/HUD; NAR). During the next 3 years, demand is estimated for 2.69 million sales units. The units already under construction will meet a portion of that demand. The national rental housing market is very tight, with an estimated 5.8 percent vacancy rate, down from 9.2 percent in 2010 when the market was soft. The average monthly apartment rent increased 15 percent in the past year to $1,627, the highest year-over-year rent increase in at least 20 years (RealPage, Inc.). Single-family rental homes, which make up a smaller portion of the overall rental market than apartments, also had a significant increase in rents during the past year. From December 2020 to December 2021, the median rent for two-bedroom single-family homes that were professionally managed increased 12 percent to $1,592. Demand for rental units during the next 3 years is estimated at 1.90 million units. The rental units already under construction will satisfy a portion of that demand. Sales Market Very Tight: Home prices rose sharply in 2021, with double-digit gains in average sales prices for both new and existing home sales."}, {"role": "assistant", "content": "Units under construction as of January 1, 2022. The forecast period is January 1, 2022, to January 1, 2025. Source: Estimates by the analyst"}]}
{"messages": [{"role": "user", "content": "Long-Term Economic Trends From 2001 through 2019, nonfarm payrolls in the nation grew by an average of 0.7 percent, or jobs, annually. Growth during that period was interrupted by two recessions: the dot-com recession from March through November 2001 and the Great Recession from December 2007 through June 2009. The years leading up to the Great Recession are often referred to as the housing boom; the economy received a boost from strong homebuilding and home sales activity. Although the Great Recession ended in June 2009, the U.S. economy continued to lose jobs through 2010. The economy then underwent a lengthy period of expansion, adding jobs every year from 2011 through 2019. With the impact of COVID-19 and the many countermeasures implemented to contain the spread of the virus, the economy lost a significant number of jobs in early 2020. As more of the population became vaccinated and most of the countermeasures were lifted, the economy resumed growth in 2021. Growth during 2021 was led by the leisure and hospitality sector, which added jobs, or 7.2 percent. At the onset of the COVID-19 pandemic in 2020, this sector had the most job losses because of the closure or limited in-person availability of many restaurants and bars; reduced travel impacting hotels and places of recreation also contributed to losses in this sector. In 2020, the sector lost 3.44 million jobs, a decline of 20.7 percent. Within the sector, the accommodation and food services industry accounted for 80 percent of all the sector losses, with a decline of 2.80 million jobs. Although the leisure and hospitality sector accounted for 11 percent of all jobs in the nation during 2019, the sector represented 37 percent of the total jobs lost during 2020 and accounted for only 9 percent of all jobs during 2020. With the gains in 2021, the sector currently accounts for 10 percent of all nonfarm payrolls in the Note: 12-month moving average. Sources: U.S. 12-Month Average Nonfarm Payrolls in the Nation Approximately 78 percent of the sector gains in 2021 were in the accommodation and food services industry; restaurants reopened and people began to resume travelling. In 2021, there were 14.10 million jobs in the leisure and hospitality sector, still down 2.49 million jobs from the recent high in 2019. The professional and business services sector also added a significant number of jobs in 2021, up 4.6 percent, or by jobs, as many companies began to return to some form of in-person work, resulting in a greater demand for support services."}, {"role": "assistant", "content": "The fastest rate of growth during the past year occurred in the transportation and utilities sector, at 7.3 percent, or new jobs. Included in this sector are distribution centers, which continue to grow in number and size to support an increase in e-commerce that has accelerated in the past year. E-commerce sales increased 47 percent during the first quarter of 2021 relative to the first quarter of 2020 (U.S. Census Bureau News, Quarterly Retail E-Commerce Sales, U.S. Department of Commerce, May . Gains in e-commerce sales ranged from 9 to 15 percent during the other quarters of 2021. By the fourth quarter of 2021, e-commerce sales accounted for 16 percent of all retail sales, up from 12 percent in the fourth quarter of 2019, and that share has continued to rise. To lessen the economic impacts of the COVID-19 pandemic and help stimulate the economy, the federal government implemented several Notes: Total nonfarm payroll is in thousands. Percentages may not add to 100 percent due to rounding. Based on 2021 annual data. Source: U.S. Share of Nonfarm Payroll Jobs in the Nation, by Sector fiscal and monetary policies during 2020. In March, Congress passed a $2.2 trillion stimulus measure, the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which included payments to qualifying individuals (typically billion in increased unemployment benefits, $350 billion in loans to small businesses, $500 billion for corporate loans, and nearly $340 billion in funding for state and local governments. In December 2020, Congress passed another stimulus package, the Consolidated Appropriations Act 2021, which was worth $920 billion and included $600 payments to qualified individuals and extended unemployment benefits, among other items. In March 2021, the government passed the American Rescue Plan Act of 2021 (also known as the American Rescue Plan), which included $1.9 trillion of economic stimulus. The American Rescue Plan extended the expanded unemployment benefits in previous stimulus measures, included $1,400 direct payments to qualified individuals, extended food stamp benefits, provided funds to state, local, and tribal governments, provided additional funding Real gross domestic product (GDP) increased 5.7 percent during 2021 after declining 3.4 percent in 2020. Growth was strong throughout most of the year, with gains of more than 6 percent each quarter (seasonally adjusted annual rates), except during the third quarter, when real GDP increased at a rate of 2.3 percent (U.S. Bureau of Economic Analysis). The annual rate of inflation averaged 4.7 percent during 2021 and reached 7.0 percent in December 2021 (Consumer Price Index for All Urban Consumers, not seasonally adjusted, ). Current Conditions— Regional Nonfarm Payrolls The number of jobs increased in all 10 HUD regions during 2021, ranging from 1.9 percent in the Great Plains region to 3.8 percent in the Southeast/Caribbean region (Map 1). The leisure and hospitality sector led growth in every region both in terms of the total number of jobs added and the rate of increase. Sector gains ranged from 8.6 percent in the Great Plains region to 14.3 percent in the New York/New Jersey region. In the Southeast/Caribbean region, the jobs added in the leisure and hospitality sector, or 9.3 percent gain, was followed closely by new jobs in the professional and business services sector, up 6.2 percent. The two sectors combined accounted for nearly half the net jobs added in the region. Growth of more than 3.0 percent also occurred in the Rocky Mountain (3.7), Pacific (3.5), New England (3.4), and New York/New Jersey (3.1) regions. In addition to the 67,200 jobs, or 11.8 percent, added to the leisure and hospitality sector in the Rocky Mountain region, the professional and business services sector gained 38,500 jobs, or 4.9 percent, and the retail trade subsector grew by 29,000 jobs, or 4.7 percent. The pattern was similar in the Pacific region, with the largest gains also in the leisure and hospitality sector, professional and business services sector, and retail trade subsector, which were up by and jobs, or 11.0, 3.9, and 4.9 percent, respectively. The transportation and utilities sector had the second fastest rate of growth in the Pacific region, up 8.4 percent, or by 81,500 jobs. The professional and business services sector added the second largest number of jobs in both Absolute Change Percentage Change Total Nonfarm Payroll Jobs Goods-Producing Sectors Mining, Logging, & Construction Manufacturing Service-Providing Sectors Wholesale & Retail Trade Transportation & Utilities Information Financial Activities Professional & Business Services Education & Health Services Leisure & Hospitality Other Services Government Notes: Based on 2020 and 2021 annual data. Numbers may not add to totals due to rounding. Data are in thousands. Table 1. Nonfarm Payroll Jobs (1,000s) in the Nation, by Sector"}]}
{"messages": [{"role": "user", "content": "Nonfarm payroll growth was below 3.0 percent in the remaining five regions. In the Southwest region, where jobs were up 2.9 percent, the leisure and hospitality and professional and business services sectors accounted for more than 58 percent of the total job gains, with additions of or 8.9 percent, and or 6.3 percent, respectively. Similarly, in the Northwest region, the leisure and hospitality and professional and business services sectors accounted for 47 percent of the new jobs. The retail trade subsector added 31,900 jobs, up 4.5 percent. In the Midwest region, approximately half of all new jobs were in the leisure and hospitality and professional and business services sectors, with gains of or 9.1 percent, and or 3.8 percent, respectively. In the Mid-Atlantic region, these same two sectors accounted for nearly 59 percent of all new jobs in 2021, with the leisure and hospitality sector up by jobs, or 10.5 percent, and the professional and business services sector up by 67,300 jobs, or 3.0 percent. Retail trade subsector gains were also notable in the Mid-Atlantic region, with the addition of 54,500 jobs, or 4.0 percent. Finally, in the Great Plains region, the most job gains occurred in the Map 1. Nonfarm Payroll Growth by HUD Region, 2020–21 leisure and hospitality sector, up by 48,100 jobs, or 8.6 percent, and the retail trade subsector, up by 19,700 jobs, or 2.8 percent. Progress of the Recovery By the end of December 2021, on a monthly basis, the national economy recovered 97 percent of the nearly 21 million jobs that were lost in March and April of 2020. Map 2 shows the percent of nonfarm Nineteen states fully recovered the jobs lost due to the pandemic, with 17 of those states surpassing prepandemic job levels. The two states with the highest rates of recovery were Utah and Idaho, with 161 percent and 158 percent of the total jobs recovered. Maine and New Jersey both recovered 100 percent of the jobs lost. Nevada and Nebraska recovered more than the national rate but were not quite fully recovered by the end of 2021. There are six states that, along with the District of Columbia, recovered less than 80 percent of the jobs lost from the COVID-19 pandemic, including North Dakota, Kansas, Minnesota, Louisiana, Hawaii, and Alaska. Approximately 52 percent of the jobs lost in the District of Columbia were recovered by the end of 2021. Current Conditions— Unemployment During 2021, the unemployment rate averaged 5.3 percent, down from an average of 8.1 percent in 2020, and it was the same level that it had averaged in 2015. The 12-month average unemployment rate previously peaked at 9.7 percent during 2010, but it declined steadily through 2019, reaching a prepandemic average low of 3.7 percent during the 12 months ending March 2020. As a result of the COVID-19 recession, the unemployment rate rose to a high Map 2. Percent of Nonfarm Payroll Jobs Recovered by December .7 percent during the 12 months ending March 2021. The number of unemployed people rose from 6.00 million in 2019 to 12.95 million in 2020, the highest yearly total since 13.75 million people were unemployed in 2011. During 2021, the number of unemployed people declined to 8.62 million. Large fluctuations in the labor force have also occurred in the past couple of years. During 2020, the labor Economic Periods of Significance Note: Based on the 12-month moving average. Source: U.S. 12-Month Average Unemployment Rate in the Nation 2000 Through 2004: Recession and Recovery The recession in the early 2000s officially lasted 8 months, from March 2001 through November 2001 (National Bureau of Economic Research [NBER]). During 2001, job growth in the nation was flat. The manufacturing sector experienced significant losses, declining by jobs, or 4.8 percent. The wholesale trade subsector, the professional and business services sector, and the federal government subsector had significant declines of and jobs, or 2.7, 1.1, and 3.5 percent, respectively. The education and health services sector grew by jobs, or 3.7 percent, during the year, offsetting some of the losses in other sectors. 2005 Through 2006: The Housing Boom The rate of job growth in the nation increased significantly in 2005 and 2006, averaging gains of 2.33 million jobs, or 1.8 percent, each year. During these years, the fastest growing sector was the mining, logging, and construction sector, which was up an average of 5.2 percent, or jobs, annually. Nearly all the growth in that sector came from the construction subsector, which increased by jobs each year. The nominal annual value of construction (residential and nonresidential) averaged $1.14 trillion from 2005 through 2007—an increase of 31 percent compared with an average annual level of $875 billion during 2000 through 2004 (U.S. Census Bureau). Other sectors with significant payroll gains during 2005 and 2006 were the professional and business services, education and health services, and leisure and hospitality sectors, with average annual gains of and jobs, or 3.5, 2.6, and 2.4 percent, respectively. Declines continued in the manufacturing and the information sectors, but the rates of decline slowed. The manufacturing sector lost an average of 80,000 jobs, or 0.6 percent, annually, and the information sector was down an average of 40,000 jobs, or 1.3 percent, annually. 2007: The Slowdown Nonfarm payrolls continued to grow through 2007, but the rate of growth slowed to 1.1 percent, or 1.55 million jobs added. Growth continued in 7 of the 11 sectors during 2007, led by the education and health services sector, up by jobs, or 2.9 percent. The professional and business services sector continued to grow at a strong pace of 2.2 percent, or jobs, which was a noticeable slowdown from growth during the previous 2 years. The leisure and hospitality sector also had significant gains of jobs, or 2.4 percent, in 2007. The largest decline in jobs was in the manufacturing sector, down or 1.9 percent. Small declines occurred in the mining, logging, and construction; the financial activities; and the information sectors, with average decreases ranging from 0.2 to 0.3 percent. The construction subsector had a decline of 0.8 percent, or 61,000 jobs, during 2007, because the housing market began to soften following the bursting of the housing bubble. This was partly offset by a gain of 40,000 jobs, or 5.8 percent, in the mining and logging subsector. 2011 Through 2016: The Expansion Annual job gains resumed in 2011, and jobs were added in the nation every year through 2019. From 2011 through 2016, nonfarm payrolls increased by an average of 2.33 million jobs, or 1.7 percent, annually. Every sector except for the government sector added jobs during that period. The professional and business services sector led growth, with an average gain of jobs, or 3.1 percent, a year. The leisure and hospitality and the education and health services sectors each increased by an average of more than jobs, or 3.1 and 2.1 percent, a year, respectively. The construction subsector was slower to recover, but by 2014 and 2015, the subsector was averaging gains of 5.0 percent, or jobs, a year. Not until 2014, however, did the economy recover all the jobs lost from 2008 through 2010. 2017 Through 2019: Continued Growth Job growth slowed slightly from 2017 through 2019, averaging gains of 2.19 million jobs annually, or 1.5 percent growth. Growth slowed partially because of fewer available workers; the nation had a historically low level of unemployment, averaging 4.0 percent during the period, and many job openings were harder to fill. Every sector added jobs during the 3 years except the wholesale and retail trade sector, which declined by an average of 36,700 jobs, or 0.2 percent, partly reflecting growth in e-commerce. Average losses of 70,600, or 0.4 percent, in the retail trade subsector more than offset the increase of 33,900, or 0.6 percent, in the wholesale trade subsector. The education and health services, the professional and business services, and the leisure and hospitality sectors led gains during the period—up by average annual rates of 2.2, 1.9, and 1.9 percent, or and jobs, respectively. The fastest rate of growth was in the transportation and utilities sector, up 3.8 percent, or jobs, a year, followed by the mining, logging, and construction sector, up 3.6 percent, or jobs."}, {"role": "assistant", "content": "Forecast During the next 3 years, nonfarm payroll jobs are anticipated to grow at an average of 2.3 percent annually. Growth is anticipated to be strongest in the first year and gradually slow in years 2 and 3. On a monthly basis, nonfarm payrolls should be fully recovered at the national level in the first year of the forecast. The Federal Reserve System (The Fed) has begun to take aggressive steps towards reducing inflation by raising the federal funds rate. The Fed has signaled that they are likely to continue to raise rates throughout 2022, which will likely cause economic growth to dampen and contribute to the more subdued rates of job growth in the later years of the forecast. The transportation and utilities sector is expected to continue to have strong gains with the increasing popularity of e-commerce. The leisure and hospitality sector is also expected to have significant growth as people continue to become more comfortable with social interaction, increasing business for restaurants, travel, and tourism."}]}
{"messages": [{"role": "user", "content": "Population Trends From 2000 to 2005, a period including the 2001 recession and the subsequent moderate economic expansion, the population of the United States grew by an average annual rate of 0.9 percent, or 2.69 million (U.S. Census Bureau decennial census counts and population estimates as of July 1). Net natural change accounted for 61 percent of the growth, or an average increase of 1.64 million people annually, and net in-migration to the United States averaged 1.05 million people, accounting for 39 percent of the population gain. Population growth increased from 2005 to 2008 to an average annual rate of 1.0 percent, or 2.86 million people. Net natural change increased significantly during the period to an average of 1.82 million people, accounting for 64 percent of population growth, and net in-migration averaged 1.04 million people, or 36 percent of the population gains. From 2008 to 2010, when the United States lost jobs due to the Great Recession, population growth slowed to an average annual rate of 0.9 percent, or 2.66 million people. Net natural change declined to an average of 1.77 million people a year, partly reflecting fewer births during the recession, but accounted for 67 percent of population growth, and net in-migration slowed significantly to an average of people a year, or 33 percent of population growth. As the economy expanded from 2010 to 2016, the average level of net in- migration increased to 1.13 million people a year, accounting for 45 percent of population growth. Net natural change continued to decline at a significant rate, averaging 1.37 million people a year, or 55 percent of population growth. That decline was partly due to an aging population, with an increase in the number of deaths, along with birth rates remaining low following the recession. As a result, the total population increased by 2.50 million, or 0.8 percent, annually. The rate of population growth continued to slow, to an average annual rate of 0.6 percent, or 1.90 million people, from 2016 to 2020. Net in-migration slowed to an average of people a year, but it accounted for 47 percent of the population gains during the period, and net natural change declined to an average of 1.01 million people, or 53 percent of growth. Since 2020, as a result of the impacts of COVID-19 and the policies enacted to contain its spread, both net natural change and net in-migration are estimated to have slowed considerably. From 2020 to the current date, the population grew at an average annual rate of 0.2 percent, or . With many deaths associated with COVID-19, the rate of net natural change slowed to an average of people a year, representing 27 percent of the total growth in population during the period. Net in-migration also slowed considerably because of COVID-19 and averaged a year, accounting for 73 percent of the total population growth since 2020."}, {"role": "assistant", "content": "During the 3-year forecast period, the population is expected to increase at an average annual rate of 0.4 percent, or approximately 1.50 million people. Net natural change and net-in migration are expected to average and 1 million people a year, respectively. The population is expected to total 336.89 million by the end of the forecast period (Table 2). The forecast period is from the current date (January 1, 2022) to January 1, 2025. Sources: 2000 and 2010—2000 Census and 2010 Census; current and forecast—estimates by the analyst Table 2. Population and Household Quick Facts for the Nation"}]}
{"messages": [{"role": "user", "content": "International Migration From 2010 through 2019, the largest number of immigrants to the United States came from Mexico, China (defined as China, Hong Kong, Macau, and Paracel Islands), and India (American Community Survey [ACS] 1-year data, Public Use Microdata Sample). Mexico accounted for the greatest number of immigrants into the United States from 2010 through 2013, averaging 12 percent of all U.S. immigrants. China and India accounted for an average of 8 percent of immigrants during these years. In 2014, China (10 percent) surpassed Mexico (9 percent), and in 2015, India (10 percent) surpassed China (9 percent). From 2016 through 2018, China resumed the top spot, accounting for 10 percent of all immigrants, with Mexico and India each averaging 9 percent. In 2019, the largest number of immigrants to the United States came from Mexico (10 percent), followed by China (9 percent) and India (8 percent). During 2020, numerous policies were enacted that had the effect of restricting immigration to the United States, undertaken as part of the efforts to reduce the spread of COVID-19. Many of these policies have since been lifted. Age Cohort Trends The median age in the United States in 2021 was 38.8 years, up from 37.2 years in 2010. The largest population by age range in the United States is the 20-to-39-year-old age cohort, which constituted 26.9 percent of the total population as of 2021, compared with 26.8 percent in 2010 (U.S. Census Bureau Population Estimates). The under-20 age cohort declined from 26.9 percent of the population in 2010 to 24.8 percent in 2021. In addition, the 40-to-59-year-old cohort also declined, from 27.7 percent of the total population to 25.1 percent during the same period. As the baby boom generation has aged, the 60-to-79-year-old age cohort has grown substantially. In 2010, this age group made up 14.9 percent of the total population, but by 2021 it had grown to 19.5 percent of the population. This helps explain the steady growth in healthcare-related services throughout the country, because this age group tends to be a major consumer of health services. The 80-and-older age group remained stable during the period, accounting for 3.7 percent of the total population in 2010 and 2021. Components of Population Change in the Nation, 2000 Through the Forecast Notes: Net natural change and net international migration totals are average annual totals over the period."}, {"role": "assistant", "content": "The forecast period is from the current date (January 1, 2022), to January 1, 2025. Sources: U.S. Census Bureau; current and forecast—estimates by the analyst"}]}
{"messages": [{"role": "user", "content": "Map 3 shows the population growth rates by region. The national population remained relatively unchanged during that period, increasing by only 0.1 percent. The highest rate of growth occurred in the Rocky Mountain region, up 0.9 percent, followed by the Southeast/Caribbean region at 0.8 percent and the Southwest region at 0.7 percent. The Northwest region increased 0.5 percent, whereas the population in the Great Plains region nudged up 0.1 percent. Population declined in the other HUD regions, led by a 1.1 percent drop in the New York/New Jersey region. In the Pacific region, the population decreased 0.3 percent, and the population in the Midwest region fell 0.2 percent. The populations were down slightly in the New England and Mid-Atlantic regions by 0.1 percent each. Source: 2010 and 2021 U.S. Population by Age Range in the Nation Map 3. Population Growth by HUD Region, 2020–21 Source: U.S. Census Bureau Population Estimates Program Household Trends The number of households in the United States is currently estimated at 128.19 million, representing an average annual increase of 0.8 percent, or households, since 2010. From 2000 to 2010, the number of households increased at a somewhat faster average annual rate of 1.0 percent, or 1.12 million households, due largely to higher population growth compared with the 2010s. After the housing bubble burst and the economy entered the Great Recession, overall tenure distribution shifted from ownership to renting among households throughout the country. In part, that shift occurred because younger households have been delaying homeownership compared with previous generations. In absolute terms, from 2000 to 2010, the number of owner households increased by an average of per year, whereas renter households increased by a year. Since 2010, owner household growth slowed to a year, and renter household growth averaged annually. As a result, the rate of owner household growth has slowed since 2010, and the homeownership rate in the country has declined to a current estimated level of 64.6 percent, down from 65.1 percent in 2010 and down from a peak of 69.0 percent in 2004. Currently, an estimated 82.79 million owner households and 45.40 million renter households reside in the United States. During the next 3 years, households are expected to increase by an average of or 0.6 percent, annually, as the rate of population growth slows compared with the 2010s. Current Conditions The national home sales market continued to be very tight in 2021, with an estimated 1.1 percent vacancy rate as the supply of homes for sale reached an extremely low level. The home sales market was already tight in 2020, with a 3.1-month supply of existing homes for sale, before dropping to a 2.3-month supply in 2021 (NAR). In contrast to a typical recessionary period, when a weak economy negatively affects the home sales market, the national recession in March and April 2020 did not result in a lower demand for homes. The inventory of homes for sale dropped below 1 million in 2021—a 17-percent decline from 2020 and a 37-percent decline from 2019. In 2021, year-over-year existing home sales increased 9 percent (NAR), but new home sales declined 6 percent—the first decline in the number of new homes sold in 10 years (U.S. Census Bureau/HUD). The decline in new home sales in 2021 can be partly attributed to new homes becoming increasingly expensive and out of reach for many homebuyers. Because of the limited supply of homes for sale, prices increased in 2021 at rates even higher than during the housing bubble of the 2000s. The median new home sales price rose 18 percent to and the median existing home sales price increased 17 percent to compared with 2020 ( Seriously delinquent mortgages are those that are 90 or more days delinquent. Source: CoreLogic, Inc. Current Regional Highlights The sales housing markets in the 10 HUD regions had mixed conditions during the fourth quarter of 2021, ranging from balanced to very tight. The Southeast region was the only region with balanced sales markets, whereas sales markets in the other nine HUD regions all had varying degrees of tight conditions. Despite the Southeast region having some balanced markets, which were limited to the state of Mississippi, the vast majority of sales markets in the region were tight. According to the CoreLogic, Inc. home price index (HPI) for repeat sales, price appreciation was highest in the states in the Southeast region from December Four of the top 10 states in the country for price appreciation were in the Southeast region, with price increases ranging from 13 percent in Kentucky to 27 percent in Florida. Home prices increased in the double- digits in 46 of the 50 states, but all states had an increase in the HPI. No state in the country had a price appreciation of less than 7 percent in the past year. For additional home sales market data by HUD region, visit the regional housing market information page on the PD&R U.S. Housing Market Conditions website. Home Sales Trends: 2000 to Current Before the housing crisis during the latter half of the 2000s, home sales growth in the nation was rapid, with home sales reaching a peak of 8.36 million in 2005 (NAR; U.S. During that period, home sales rose because mortgage lending standards were more relaxed and more mortgages were issued to riskier borrowers, which helped to inflate home sales. From 2001 through 2006, subprime and near-prime loans increased from 9 to 40 percent of all mortgage originations (U.S. Economics Analyst, Goldman Sachs). During roughly the same period, from 2001 through their peak in 2005, existing home sales increased an average of 6 percent a year, and new home sales increased an average of 8 percent a year (NAR; U.S. Census Bureau/HUD). National Home Sales Sources: National Association of REALTORS®; U.S. Census Bureau/HUD rates increased in 2006, new and existing home sales declined 18 and 8 percent, respectively, with the decrease accelerating in 2007 after the housing bubble began to burst. For the next few years, the home sales market in the United States was extremely soft. As a result, new and existing home sales continued to decline, with existing home sales bottoming out in 2008 and new home sales bottoming out in 2011. From peak to trough, new home sales declined at an average annual rate of 8 percent, and existing home sales declined at an average annual rate of 28 percent. After their respective lows, new and existing home sales trended upward as the economy improved and sales market conditions tightened. From 2009 through 2016, existing home sales increased at an average annual rate of 4 percent before declining from 2017 through 2019 at an average annual rate of 1 percent. New home sales also had faster growth during the earlier years of the recovery from the housing crisis, increasing at an average annual rate of 13 percent from 2012 through 2016 and slowing to an average annual rate of 7 percent from 2017 through 2019. Since 2019, existing home sales have picked up, increasing 7 percent a year, and new home sales have slowed slightly to an average increase of 6 percent annually. The median existing home sales price increased an average of 8 percent a year from 2001 through the peak in 2006, whereas the median new home sales price peaked a year later, increasing an average of 6 percent a year from 2001 through 2007 (NAR; U.S. Census Bureau/HUD). Sales prices declined for both new and existing home sales in the years that followed; however, the peak-to-trough decline in existing home sales prices (25 percent) was more severe than the decline in new home sales prices (13 percent) and lasted nearly twice as long. From 2008 through 2009, the median price for new homes sold declined an average of 7 percent a year, and from 2007 through 2011, the median price for existing homes sold decreased an average of 6 percent a year. In large part, this was because the proportion of existing sales that were REO properties swelled during this time, and the relatively low prices for REO home sales created downward pressure on overall existing home sales prices. REO sales constituted a small proportion of existing home sales from 2000 through 2007, averaging around 3 percent (CoreLogic, Inc.). With the onset of the Great Recession, that percentage skyrocketed to 32 percent in 2009, a year when the average sales price for an REO home was nearly 50 percent below the price of a regular resale home. After median sales prices reached lows of for new homes in 2009 and for existing homes in 2011, price growth was relatively steady through the 2010s (U.S. Census Bureau/HUD; NAR). The median sales price for new homes increased an average of 4 percent a year from 2010 through 2019. Price growth for existing homes was also steady from 2012 through 2019, with the median sales price increasing an average of 6 percent a year. As the COVID-19 pandemic began and the housing market tightened, home price growth accelerated. From 2020 through 2021, the median price for new home sales increased an average of 11 percent annually, and the median price for existing home sales increased an average of 13 percent annually. In 2021, the price difference between the median existing home sales price and the median new home sales price declined to 14 percent—the smallest difference between the two sales types since 2007. National Home Sales Prices Sources: National Association of REALTORS®; U.S. Census Bureau/HUD From 2000 through 2005, when home sales and prices increased, the number of sales units permitted averaged 1.56 million units a year. During the next 4 years, the number of sales units permitted dropped precipitously, averaging units permitted a year, or a decline of 38 percent from the previous period. Sales building activity stabilized at low levels from 2009 through 2011, at sales units permitted annually, as the housing market worked to absorb an excess supply of sales inventory. In the years that followed, the number of sales units permitted increased at a steady rate of 9 percent a year to approximately in 2019. Since then, the pace of sales construction has accelerated to an average of 13 percent a year to approximately 1.16 million sales units permitted in 2021, the highest level since 2007."}, {"role": "assistant", "content": "Forecast Strong demand for sales housing is expected to continue during the forecast period as the economy continues to grow in the aftermath of the pandemic- induced downturn. HUD First-Time Homebuyer Affordability Index for the Nation period ( The forecast period is from January 1, 2022, to January 1, 2025. Source: Estimates by the analyst"}]}
{"messages": [{"role": "user", "content": "Current Conditions and Recent Trends The national rental market is very tight, with an estimated vacancy rate of 5.8 percent—down from 9.2 percent in 2010, when the market was soft ( RealPage, Inc. Apartment Rents and Vacancy Rates in the Nation apartments faced increased competition from investor-owned condominiums and single-family homes entering the rental market. During the housing crisis, the increase in condominium and single-family rentals came from two main sources: (1) investors buying foreclosed properties and offering them for rent and (2) households needing to relocate and move out of their homes but without enough equity to sell. In the years since the Great Recession, the average apartment vacancy rate has mostly trended downward, but the average monthly effective rent in the nation increased at a steady rate until 2020. From the fourth quarter of 2009 to the fourth quarter of 2019, the average apartment vacancy rate decreased from 7.7 to 4.2 percent, or an average of 0.4 percentage point a year (RealPage, Inc.). At the same time, the average effective monthly rent increased an average of 4 percent annually, from $942 in the fourth quarter of 2009 to $1,423 in the fourth quarter of 2019. The COVID-19 pandemic and 2020 recession led to a brief softening of the apartment market as the average monthly effective rent declined 1 percent and the average vacancy rate increased by 0.1 percentage point from the fourth quarter of 2019 to the fourth quarter of 2020. The slowdown in rental demand was short-lived, however, and by the fourth quarter of 2021, the average rent for apartments was up 15 percent, year-over-year, and the average vacancy rate was down by 1.8 percentage points. The fourth quarter of 2021 had the Rental Construction Activity Rental building activity (see Rental Construction), as measured by the number of rental units permitted, averaged much higher levels during the 2010s in response to stronger growth in rental demand and tighter rental market conditions compared with the previous decade. As the rental market softened considerably in 2009, rental permitting dropped and remained at relatively low levels for 3 years, averaging units permitted annually through 2011, or nearly half the average annual level during the previous 9 years. Rental building activity began to recover in earnest from 2012 through 2015, increasing at an average annual rate of 24 percent. For the next 5 years, the number of rental units permitted was fairly steady, averaging units per year. As the rental market tightened and rents rose rapidly in 2021, the number of rental units permitted reached a high of approximately units. Housing Affordability: Rental Rental affordability across the nation increased through the 2010s, with the median income for renter households increasing at a faster rate than the median gross rent. From 2010 to 2019, the median income for renter households increased 38 percent, whereas the median gross rent increased 28 percent. It is likely that rental affordability has declined substantially since 2019 because of the rapid rent growth during the past year. Note: Includes apartments and units intended for rental occupancy. Sources: U.S. Annual Rental Permitting Activity in the Nation Note: The Gross Rent Affordability Index differs from the HUD Rental Affordability Index published on the U.S. Housing Market Conditions website in that it is based on combined rent and utilities expenditure. Gross Rent Affordability Index for the Nation During the 2014-through-2018 period, an estimated 21.8 percent of all renter households in the nation had a moderate to high cost burden, spending between 31 and 50 percent of their income on rent, whereas 22.6 percent were severely cost burdened, spending more than 50 percent of income toward rent (Table 6). The cost burdens are significantly worse for very low- income renter households. For renter households with incomes less than 50 percent of the Area Median Family Income, 24.7 percent experienced moderate to high cost burden and 51.2 percent were severely cost burdened. Income-eligible residents may qualify for project- based rental assistance (PBRA) or housing choice vouchers (HCV) through their local public housing authority (PHA). Nationwide, PHAs administered approximately 2.3 million HCVs in 2021, an increase of more than 14 percent from 2010 (HUD’s Picture of Subsidized Households). The average monthly subsidy has increased 1.5 percent since 2010, whereas the monthly tenant contribution has decreased 2.5 percent (Table 7). Despite nearly 4.6 million American households receiving rental assistance, funding limitations prevent three out of four eligible households from receiving housing assistance."}, {"role": "assistant", "content": "Moderate to High Cost Burden: 31–50 Percent of Income Toward Housing Costs Severe Cost Burden: 51 Percent or More of Income Toward Housing Costs Renter Households with Income <50% HAMFI 24.7 51.2 Total Renter Households 21.8 22.6 Dollar changes are inflation-adjusted using the Consumer Price Index for All Urban Consumers (CPI-U). Source: HUD Picture of Subsidized Households The forecast period is January 1, 2022, to January 1, 2025. Source: Estimates by the analyst"}]}
{"messages": [{"role": "user", "content": "Cost Burdened Spending more than 30 percent of household income on housing costs. Moderate to high-cost burden refers to households spending 31 to 50 percent of income on housing costs. Severe cost burden refers to households spending 51 percent or more of income on housing costs."}, {"role": "assistant", "content": "Demand The demand estimates in the analysis are not a forecast of building activity. They are the estimates of the total housing production needed to achieve a balanced market at the end of the 3-year forecast period given conditions on the as-of date of the analysis, growth, losses, and excess vacancies. The estimates do not account for units currently under construction or units in the development pipeline."}]}
{"messages": [{"role": "user", "content": "The rental market vacancy rate is currently estimated at 7.0 percent compared with 7.8 percent in 2010. Apartment market conditions are slightly tight but easing from a year ago. Among apartments, which account for 42 percent of rental units in the Milwaukee HMA, the vacancy rate was at an historic low during the fourth quarter of 2021 but then increased 0.8 percentage point to 4.1 percent as of the fourth quarter of 2022 ( Group). The current rate is below the historical averages of 5.5 percent from 2017 to 2019 and 4.9 percent from 2010 to 2016."}, {"role": "assistant", "content": "During the 3-year forecast period, demand is expected for an additional 9,075 rental units, with slightly more than one-half of the demand in Milwaukee County. The 6,350 units currently under construction are expected to meet demand during the first two years of the forecast period. Units under construction as of January 1, 2023. The forecast period is January 1, 2023, to January 1, 2026. Source: Estimates by the analyst"}]}
{"messages": [{"role": "user", "content": "Current payrolls are 32,400 jobs, or 3.7 percent below 2019, which was the prepandemic peak. The HMA lags behind the recovery in the nation, where 2022 payrolls were 1.1 percent above 2019 levels. Despite the HMA gaining jobs in 2022, three sectors had declines—the financial activities, the education and health services, and the other services sectors. The fastest decline was in the financial activities sector, down by 2,100 jobs, or 4.2 percent. An increase in home mortgage interest rates in 2022 contributed to a reduction in home sales and fewer mortgage applications, which led to a decline in employment in the consumer lending industry. Current Conditions—Unemployment The unemployment rate has been falling year over year during the past 2 years as economic conditions improved from the early 2020 recession. The 2022 rate is relatively similar to the late 2010s when the rate averaged 3.3 percent from 2017 through 2019. The decline in unemployment during 2022 was primarily because of a decline in the labor force, which was down by 7,300, or 0.9 percent, from a year earlier. The labor force declined each year from 2018 through 2020, down an average of 3,900, or 0.5 percent, annually and increased by 2,400, or 0.3 percent, in 2021, as some workers who temporarily left the labor force in 2020 returned. 12-Month Average Unemployment Rate in the Milwaukee HMA and the Nation Note: Based on the 12-month moving average. Nonfarm payrolls were at a historic high in 2000 but declined from 2001 through 2003 by an average of 13,200 jobs, or 1.5 percent, annually, with nearly three-fourths of job losses occurring in the manufacturing sector, which lost an average of 9,500 jobs, or 6.1 percent, a year. The education and health services sector was one of only four sectors to add jobs during the period. A period of payroll growth from 2004 through 2007—which averaged 6,500 jobs, or 0.8 percent, annually—supported a partial recovery. The education and health services sector added the most jobs, accounting for nearly 45 percent of job growth and becoming the largest employment sector in the HMA during 2006. Manufacturing jobs continued to decline from 2004 through 2007 but at a slower rate than during 2001 through 2003, with declines averaging 800 jobs, or 0.6 percent, a year. In 2007, payrolls peaked at jobs, which was 13,400 jobs, or 1.5 percent, below the historic peak in 2000. 2011 Through 2019 The 2010s were a period of economic recovery and expansion, but the pace of gains lagged behind those of the nation. Nonfarm payroll growth in the HMA averaged 7,400 jobs, or 0.9 percent, annually from 2011 through 2019, compared with the faster rate of 1.6 percent annually in the nation. Total nonfarm payrolls in the HMA surpassed 2007 levels in 2016, 2 years after the nation met a similar milestone in recovery from the Great Recession. In 2019, payrolls in the HMA surpassed the historic high reached in 2000. The manufacturing sector reversed the trend of declines that occurred during the 2000s, adding jobs during Source: U.S. Sector Growth in the Milwaukee HMA, 2011 to 2019 Total job growth was slower from 2016 through 2019, partially because of declines in the wholesale and retail, the professional and business services, and the government sectors. Dane County, which includes the city of Madison and is approximately 80 miles west of downtown Milwaukee, was the most common place to work outside the HMA, with 15,300 HMA residents holding jobs in the county (Map 1). Racine and Kenosha Counties were the second and third most common places to work outside the HMA, with 10,800 and 5,700 HMA residents working in those counties. Cook County, which includes the city of Chicago and is 90 miles south of downtown Milwaukee, drew 4,300 workers from the HMA in 2019. Nationally, about 5 percent of paid workdays were worked from home in 2019; the share increased to 62 percent in May 2020, averaged 34 percent in 2021, and declined to 30 percent in 2022 (WFH Research)."}, {"role": "assistant", "content": "Forecast During the 3-year forecast period, nonfarm payrolls are expected to increase an average of 1.0 percent annually, moderating from gains during 2021 and 2022 but slightly above the average from the 2010s. Among the jobs lost in the March and April 2020 recession, most have either returned or are not expected to come back. However, some sectors, such as the leisure and hospitality sector, are still Map 1. Where Residents of the Milwaukee HMA Worked in 2019 Note: Excludes counties with 1,000 or fewer jobs worked by HMA residents. Source: U.S. Census Bureau OnTheMap, 2019 The number of days per week worked from offices is rising, and jobs to support office workers, especially those in the leisure and hospitality sector, are expected to increase. Companies in the HMA are moving from suburban offices to offices in downtown Milwaukee and are expected to add more workers. Milwaukee Electric Tool Corporation moved its offices from west suburban Brookfield to downtown Milwaukee earlier in 2022 and is expected to add up to 600 workers. Fiserv, Inc., plans to move 530 workers from Brookfield to downtown Milwaukee and add 250 workers at the downtown office. Several large healthcare facilities have expansion projects under construction, including the Children’s Wisconsin and Medical College of Wisconsin Cancer Research Center and are expected to add workers at the new facilities on completion in 2024."}]}
{"messages": [{"role": "user", "content": "Population Trends In the Milwaukee HMA, population growth fluctuated in the 2000s, generally slowed from 2010 to 2020, and has shifted to decline since 2020. Net migration fluctuates based on economic conditions in the HMA and nation, with net out-migration occurring most years since 2000. Stronger net out-migration occurred in years when national economic conditions were relatively strong, and lower levels of net out-migration occurred in years when the national economy was weaker. Net natural change was relatively steady in the 2000s but has declined most years since 2010 because of a lower birth rate and an aging population. The COVID-19 virus has further accelerated the decline in net natural change since 2020. In the 2000s, relatively higher net natural change offset net out-migration, resulting in an average population increase of 5,500, or 0.4 percent, annually from 2000 to 2010 (Table 3). From 2010 Table 3. Milwaukee HMA Population and Household Quick Facts Population Quick Facts 2010 Current Forecast Population Average Annual Change Percentage Change 0.4 0.0 -0.1 Household Quick Facts 2010 Current Forecast Households Average Annual Change Percentage Change 0.6 0.5 0.3 Notes: Average annual changes and percentage changes are based on averages from 2000 to to current, and current to forecast. The forecast period is from the current date (January 1, 2023) to January 1, 2026. Components of Population Change in the Milwaukee HMA, 2000 Through the Forecast Notes: Data displayed are average annual totals. The forecast period is from the current date (January 1, 2023) to January 1, 2026. Sources: U.S. Census Bureau; current to forecast—estimates by the analyst to 2020, net natural change was lower, and net out-migration was higher compared with the previous decade. Population growth averaged 1,875, or 0.1 percent, annually from 2010 to 2020. Since 2020, net natural change has declined further, and net out-migration has increased, resulting in the population declining by an estimated average of 5,225, or 0.3 percent, annually. Population growth, including net migration and net natural change, averaged 5,850 from 2000 to 2003 and fell to 1,375 annually from 2003 to 2006. In the late 2000s, slower economic growth in the nation, the Great Recession, and the early period of recovery contributed to fewer residents leaving the HMA, and net out-migration fell to an average of 1,700 annually from 2006 to 2014. Population growth averaged 6,300 annually from 2006 to 2014 as fewer people moved away. In the mid-2010s, as the national economy shifted from recovery to expansion, net out-migration increased to an average of 6,750 people annually from 2014 to 2018, and the population declined by an average of 750 annually. Slowing economic growth in 2019 and the onset of the COVID-19 pandemic in 2020 contributed to a reduction in net out-migration, averaging 3,125 annually from 2018 to 2020, and the population increased by an average of 2,000 annually. Since the end of the 2020 recession, the national economy has been Sources: Population aged 65 or older—2010–2019 and 2021 American Community Survey 1-year data and 2020 estimates by the analyst; births per 1,000 residents—U.S. Senior Population and Births in the Milwaukee HMA recovering faster than the HMA. Net out-migration has averaged an estimated 6,650 people annually since mid-2020, and the population has declined by an average of 5,225 annually as more people moved away and net natural change declined sharply. Net Natural Change, the Birth Rate, and Senior Population In the 2000s, net natural change was relatively steady, but in the decade following the Great Recession, fewer births and an aging population led to a decline. Deaths from COVID-19 further accelerated the decline. From 2000 to 2010, net natural change averaged 8,675 people annually. From 2010 to 2019, net natural change declined by an average of nearly 400, or 6 percent, annually. In 2019, the birth rate declined to 12.0 births, and the population aged 65 or older increased to 16.1 percent of the total, or people. The onset of the COVID-19 pandemic further In 2021, the birth rate declined further, and the share of the population aged 65 or older increased. Since 2020, net natural change has averaged an estimated 1,425 people annually. Population by Geography Within the HMA, population growth from 2010 to 2020 was strongest in downtown Milwaukee and the closer-in areas of the suburban counties, including southern Ozaukee and Washington Counties and eastern Waukesha County (Map 2). The population had the sharpest decline on the north side of the city of Milwaukee. At the county level, all three suburban counties in the HMA have gained population since 2010, but Milwaukee County has lost population. Waukesha County had the largest gain, averaging 1,700 people, or 0.4 percent, annually from 2010 to 2020, (Table 4) and a relatively similar level of growth since 2020. Milwaukee County declined by an average of 820 people, or 0.1 percent, annually from 2010 to 2020, and the population has declined faster since 2020. The current estimated population of Milwaukee County accounts for 59 percent of the total HMA population, down from 61 percent in 2010 and 63 percent in 2000."}, {"role": "assistant", "content": "The population is expected to decline by an average of 1,325, or 0.1 percent, annually. Deaths from COVID-19 declined in the second half of 2022 and are expected to continue at lower levels during the 3-year forecast period, contributing to an increase in net natural change relative to the 2020-to-current period. Net out- migration is also expected to slow compared with the 2020-to-current period, partly because of the expected slowdown in the national economy in response to Federal Reserve policies. The forecast population decline is expected to be concentrated in Milwaukee County, offsetting expected gains in the three suburban counties."}]}
{"messages": [{"role": "user", "content": "Household Trends and Forecast Household growth in the HMA has also slowed in recent years, reflective of slower population growth. From 2000 to 2010, the number of households increased by an average of 3,475, or 0.6 percent, annually. As net natural change fell throughout the 2010s and net out-migration was elevated in the mid-2010s and has been elevated again since 2020, household growth has slowed to an average of 2,875, or 0.5 percent, annually since 2010. At the county level, the number of households increased at a slower rate in Milwaukee County, up an average of 0.2 percent annually since 2010 compared with an average increase of 0.8 percent annually in the suburban counties."}, {"role": "assistant", "content": "Household growth is expected to average 2,200, or 0.3 percent, annually, a faster pace compared with population growth. Despite the expected population decline, the declining birth rate, which has contributed to a reduction in net natural change since 2010, has a limited effect on household growth because the generation born since 2010 has not yet reached their household formation years. At the county level, nearly all the household growth is expected to occur in the suburban counties, and the number of households in Milwaukee County is expected to be relatively unchanged. In Milwaukee County, gains are expected in the downtown Milwaukee area as the effects of the COVID-19 pandemic fade, but a decline in the number of households elsewhere in the county will offset those gains."}]}
{"messages": [{"role": "user", "content": "Current Conditions: Calendar Year 2022 The home sales market in the Milwaukee HMA is currently slightly tight but easing from tighter conditions a year ago. Home sales market conditions were slightly soft in the early 2010s, when the inventory of homes for sale was elevated. The current home sales vacancy rate is estimated at 1.0 percent, down from 1.9 percent in 2010 ( New and existing sales include single-family homes, townhomes, and condominium units. Share of Overall Sales by Price Range During the 12 Months Ending December 2022 in the Milwaukee HMA Table 5. Home Sales Quick Facts in the Milwaukee HMA Home Sales Quick Facts Milwaukee HMA Nation Vacancy Rate 1.0% NA Months of Inventory 1.4 2.2 Total Home Sales -Year Change -16% -19% Total Home Sales Price -Year Change 8% 9% Mortgage Delinquency Rate 1.0% 1.2% NA = data not available. Notes: The vacancy rate is as of the current date; home sales and prices are for the 12 months ending December 2022; and months of inventory and mortgage delinquency data are as of December 2022. The current date is January 1, 2023. Sources: Vacancy rate—estimates by the analyst; months of inventory and mortgage delinquency rate— CoreLogic, Inc.; home sales and prices—Zonda was 1.4 months in 2022 compared with 1.3 months in 2021 and 1.5 months in 2020 (CoreLogic, Inc.). Inventory has declined since 2010, when it peaked at a 13.6-month supply, and has been below a 6-month supply since 2015. Home sales during 2022, including new and existing home sales, declined 16 percent from a year ago to 25,850, the fewest sales since 2015 (Zonda). During 2022, the average price for existing homes, which accounted for 97 percent of all sales, was and the average new home price was . Homes priced below were 32 percent of sales, and homes priced at and above were 25 percent of sales. Total home sales declined 32 percent to 5,150 homes sold compared with an average of 7,700 homes sold during the fourth quarters of 2021 and 2020. Home sales during the fourth quarter of 2022 were the lowest since 2015. The average home sales price increased 4 percent, compared with an average increase of 7 percent annually during the previous 2 years, but was similar to the average change during the fourth quarters from 2012 to 2019, when prices increased 4 percent annually. Housing Affordability Affordability of homebuying, as measured by the National Association of Home Builders/ Wells Fargo Housing Opportunity Index (NAHB/ HOI), has declined from a year ago. In the HMA, a household earning the local median family income could afford 63.2 percent of homes sold during the fourth quarter of 2022, down from 76.5 percent of homes for sale a year earlier. Nationally, the rates were 38.1 percent, down from 54.2 percent a year ago. The primary factor affecting affordability throughout the nation is the increase in the mortgage interest rate. Despite the reduction in affordability, the HMA is among the top 25 percent of the most affordable metropolitan areas in the nation, ranked 54th most affordable among 235 metropolitan areas during the fourth quarter of 2022 (NAHB/HOI). The HMA is ranked more affordable than the Madison and Chicago-Naperville-Elgin metropolitan areas, which have high levels of commuting and migration. As the economy recovered, total home sales increased by an average of 1,675, or 8 percent, annually from 2011 through 2016. The increase slowed to an average of 350, or 1 percent, annually from 2017 through 2019 as economic growth slowed. The onset of the COVID-19 pandemic in 2020 led to an increase in working from home and a decrease in mortgage interest rates, which both contributed to increased demand for homebuying. Home sales increased by an average of 2,000, or 7 percent, annually during 2020 and 2021 to a recent peak of 30,950 in 2021. Rising mortgage interest rates contributed to falling sales in 2022, down by 5,100, or 16 percent, to 25,850. Price growth accelerated at the onset of the COVID-19 pandemic, up an average of 8 percent, or $21,800, annually since 2020. The increase in mortgage interest rates had a limited effect on the average home sales price in 2022. Sales Construction Sales construction activity—as measured by the number of building permits for sales housing, including single-family homes, townhomes, and condominiums permitted—increased in response to the stronger demand for home sales at the onset of the COVID-19 pandemic. Permitting since 2020 has been above the average during the 2010s but below levels from the early 2000s when population growth was stronger, lending standards were looser, and competition from new construction apartments built for moderate- and upper-income households was less. In response to changing preferences and an increase in working from home at the onset of the COVID-19 pandemic, permitting increased by an average of 200 homes annually during 2020 and 2021 to a 14-year high of 2,075 in 2021. The rising mortgage interest rate and decline in home sales contributed to a decline in permitting during 2022, down by 225 homes, or 11 percent, to 1,850."}, {"role": "assistant", "content": "An increasing share of for-sale housing has been built in the three suburban counties in the HMA. Since 2020, homes built in the suburban counties have accounted for 90 percent of homes permitted, up from 87 percent from 2010 to 2019 and 73 percent from 2000 through 2009. Most land in Milwaukee County has already been developed, and little is available for new construction. One of a limited number of new developments in Milwaukee County is Lakeshore Commons, a 648-home master-planned community in Oak Creek on the shore of Lake Michigan. Approximately one-half of the planned units will be in apartment buildings, and one-half will consist of homes built for sale, including a mix of townhomes and single-family homes. Homes listed for sale range from for a two-bedroom, two-bathroom 1,700-square-foot townhome to for a four-bedroom, three-bathroom 2,100-square-foot single-family home with upgraded finishings. Arrowood, a 42-lot first phase of a larger subdivision in Oconomowoc, a far western suburb in Waukesha County, is more typical for the HMA. Homes listed for sale in the subdivision have three or four bedrooms, and prices range from to . The Oconomowoc 53066 ZIP Code, the location of Arrowood, had the most home sales of any ZIP Code among the three suburban counties in the HMA in 2022 and the most home sales among all ZIP Codes in the HMA in 2019 and 2020. Forecast During the 3-year forecast period, demand is expected for an additional 5,575 for-sale units ( The forecast period is from January 1, 2023, to January 1, 2026. Source: Estimates by the analyst"}]}
{"messages": [{"role": "user", "content": "Current Conditions Rental market conditions in the Milwaukee HMA are currently slightly tight compared with tighter conditions a year ago and slightly soft conditions in the 2010s. The vacancy rate for all rental units—including apartments, renter occupied single-family homes, townhomes, condominiums, and mobile homes—is currently estimated at 7.0 percent, down from 7.8 percent in 2010 ( Group Apartment Market Conditions by Geography In the Group-defined market areas, rent growth tended to be stronger in areas farther from downtown Milwaukee, and the vacancy rate tended to be lower in those areas (Maps 3a and 3b). The downtown Milwaukee market area is heavily affected by changes in employer work from home policies, and the average rent is well above the HMA average. As of the fourth quarter of 2022, the average rent in downtown Milwaukee increased 2 percent to $1,444, and the vacancy rate was 5.4 percent. In the remainder of the HMA, rent increased by an average of 4 percent, or 2 percentage points faster than the increase in downtown Milwaukee, and the average apartment vacancy rate was 3.8 percent, or 1.6 percentage points less than the downtown Milwaukee market area. One year earlier, the differences were larger (Maps 3c and 3d), with the average rent in the remainder of the HMA increasing 6 percentage points faster than in downtown Milwaukee, and the average vacancy rate was 1.9 percentage points lower in the remainder of the HMA. Permitting averaged 1,175 units annually from 2000 through 2009. Rental construction increased from 2010 through 2017 by an average of 400 units, or 21 percent, annually to a prepandemic high of 4,100 in 2017. Permitting moderated slightly in 2018 to 4,025, then declined to 2,600 in 2019 to allow for the absorption of units permitted during previous years. From 2020 through 2022, in response to low apartment vacancy and above average rent growth, permitting increased by an average of 570 units annually to 4,300 in 2022, which was the most units permitted since at least 2000. Rental construction has accounted for the majority of housing units permitted in the HMA since 2014. The rental units built were mostly apartments in established areas close to employment centers where surrounding land uses, land costs, and availability of land supported higher housing density construction. From 2010 through percent of all rental units permitted in the HMA were in Milwaukee County. However, with the increase in vacancy in downtown Milwaukee apartments at the onset of the pandemic, permitting shifted in 2021, with only 53 percent of units permitted in Milwaukee County. Permitting shifted back in 2022, with 66 percent of rental units permitted in Milwaukee County. Housing Affordability: Rental Rental housing is relatively affordable in the HMA, and affordability has generally been rising since 2011. Median renter incomes increased faster than gross rents most years during the past decade. As a result, the Gross Rent Affordability Index, which measures median renter household income relative"}, {"role": "assistant", "content": "Forecast During the 3-year forecast period, demand is expected for an additional 9,075 units ( The forecast period is from January 1, 2023, to January 1, 2026. Source: Estimates by the analyst"}]}
{"messages": [{"role": "user", "content": "Forecasts of housing demand were made to bring the sales and rental markets into balance during the next 3 years. This report discusses select data for the 10 HUD regions defined in the “Terminology Definitions and Notes” section at the end of the report. During March and April of 2020, more than 20.7 million jobs, or 14 percent of total jobs, were lost in the country as policies enacted to slow the spread of COVID-19 had a significant negative impact on the economy. Over time, policies were relaxed or eliminated, vaccines and other treatments were introduced, and the government enacted monetary and fiscal policies to help the economy recover. Total nonfarm payrolls have increased since May 2020. As of April 2022, nonfarm payrolls surpassed the level of jobs that existed in February 2020, the last month before the COVID-19 impact (monthly data, not seasonally adjusted). Despite total jobs fully recovering, not all sectors have fully recovered the jobs lost because of the pandemic."}, {"role": "assistant", "content": "During the next 3 years, nonfarm payrolls are expected to increase an average of 1.0 percent a year."}]}
{"messages": [{"role": "user", "content": "The national sales housing market is tight, with an estimated 1.0 percent vacancy rate, down from 2.4 percent in 2010 when the market was soft. A shortage of sales housing continued in 2022, although the market is less tight than it was during the previous year. In 2022, the supply of existing homes for sale increased to 2.7 months, up from 2.3 months in 2021 (National Association of REALTORS® [NAR]). During the same period, the total number of homes sold was down 18 percent (Census Bureau/HUD; NAR). Despite the decline in sales, home prices continued to increase by double-digits in 2022; the median existing home sales price increased 10 percent, and the median new home sales price increased 15 percent compared with 2021. During the next 3 years, demand is estimated for 2.90 million sales units. The units already under construction will meet a portion of that demand. The national rental housing market is tight, with an estimated 5.4-percent vacancy rate, down from 9.2 percent in 2010 when the market was soft. The apartment market, which makes up more than one-half of the rental supply in the nation, is slightly tight with a 6.3-percent vacancy rate as of the fourth quarter of 2022. Year over year, the average monthly apartment rent increased 4 percent to $1,612 as of the fourth quarter of 2022, which was a significant slowdown from the year-over-year increase of 12 percent measured in the fourth quarter of 2021 ( Group). For the past 2 years, the pace of rental construction has been extremely high, and the completion of these units has helped relieve some of the rental housing shortage. Demand for rental units during the next 3 years is estimated at 2.15 million units. The rental units already under construction will satisfy a portion of that demand. Sales Market Tight: Home prices continued to increase in 2022, albeit at a slower rate than in 2021."}, {"role": "assistant", "content": "Units under construction as of January 1, 2023. The forecast period is January 1, 2023, to January 1, 2026. Source: Estimates by the analyst"}]}
{"messages": [{"role": "user", "content": "Long-Term Economic Trends From 2001 through 2019, nonfarm payrolls in the nation grew an average of 0.7 percent, or jobs, annually. Growth during that period was interrupted by two recessions: the dot-com recession from March through November 2001 and the Great Recession from December 2007 through June 2009. The years leading up to the Great Recession are often referred to as the housing boom; the economy received a boost from strong homebuilding and home sales activity. Although the Great Recession ended in June 2009, the U.S. economy continued to lose jobs through 2010. The economy then underwent a lengthy period of expansion, adding jobs every year from 2011 through 2019. With the impact of COVID-19 and the countermeasures implemented to contain the spread of the virus, the economy lost a significant number of jobs in early 2020. As more of the population became vaccinated and most of the countermeasures were lifted, the economy gained jobs in 2021. During 2022, nonfarm payrolls increased significantly, and the annual average total number of jobs surpassed the average level of jobs that existed in 2019, the last year before the COVID-19 impact. Note: 12-month moving average. Sources: U.S. 12-Month Average Nonfarm Payrolls in the Nation Current Conditions Job gains were strong during 2022."}, {"role": "assistant", "content": "Total nonfarm payrolls increased 4.3 percent, or by 6.29 million jobs relative to 2021, which was the fastest rate of growth since the 4.7-percent rate during 1984 ( U.S. The accommodation and food services industry accounted for nearly 81 percent of the new jobs in the sector as more restaurants, bars, hotels, and vacation destinations continued to move toward their prepandemic levels of activity. The professional and business services sector gained 1.19 million new jobs, or 5.5 percent, as companies across the country continued to reopen offices. E-commerce sales remained strong in 2022, representing 16 percent of total sales during the fourth quarter, relatively unchanged from the fourth quarter of 2021 (U.S. Census Bureau News, Quarterly Retail E-Commerce Sales, U.S. Department of Commerce, February contributing to the 7.7-percent increase, or new jobs, in the transportation and utilities sector. Other sectors with gains of 3.0 percent or more included information; mining, logging, and construction; manufacturing; education and health services; and other services. Real gross domestic product (GDP) increased 2.1 percent during 2022, which is slightly higher than the average pace from 2001 through .0 percent but lower than the longer-term average trend of 3.0 percent since 1960 (U.S. Bureau of Economic Analysis). After declining by 1.6 and 0.6 percent during the first and second quarters of 2022, real GDP grew by 3.2 and 2.7 percent in the third and fourth quarters, respectively. Price increases averaged 8.0 percent during 2022, up from 4.7 percent during 2021, and were at the highest level since the 10.3-percent increase in 1981 (Consumer Price Index for All Urban Consumers [CPI-U], Bureau of Labor Statistics). By comparison, the rate of inflation averaged 2.1 percent from 2000 through 2021, which is slightly higher than the 2.0-percent target rate for the Federal Reserve System (the Fed). In an effort to reduce the high inflation of the past 2 years, the Fed raised the effective federal funds rate in 2022 from 0.08 percent at the beginning of the year to 4.33 percent by the end of the year. The higher interest rate has made new loans, including mortgages, more expensive. Current Conditions— Regional Nonfarm Payrolls The number of jobs increased in all 10 HUD regions during 2022, ranging from 2.5 percent in the Great Plains region to 5.6 percent in the Pacific region (Map 1). The leisure and hospitality and professional and business services sectors added the most jobs in every region of the country. The leisure and hospitality sector, which lost the most jobs as a result of the COVID-19 pandemic, accounted for the most jobs added in every region during 2021. The trend nearly repeated in 2022, with the leisure and hospitality sector leading job gains in all regions except in the Southwest region, where the professional and business services sector added the most jobs. In the other Map 1. Nonfarm Payroll Growth by HUD Region, 2021–22 nine regions, the professional and business services sector added the second largest number of jobs, and leisure and hospitality added the second most in the Southwest region. Gains in the leisure and hospitality sector ranged from 44,900 jobs, or 7.3 percent, in the Great Plains region to jobs, or 16.2 percent, in the Pacific region. The gains in the Pacific region represented the second largest percentage gain in the sector among regions, behind the 17.9-percent increase, or jobs, in the New York/New Jersey region. Additions in the professional and business services sector ranged from 30,700 jobs in the Great Plains region, or 3.8 percent, to jobs, or 6.5 percent, in the Southeast/Caribbean region. Nonfarm payroll growth was below the national average gain of 4.3 percent in the remaining five regions during 2022. Gains of 3.7 percent occurred in the Rocky Mountain region, with mining, logging, and construction sector jobs up by 24,900, or 5.3 percent. The New England region grew 3.5 percent in 2022, with the third largest number of gains in the education and health services sector, which was up by 29,100 jobs, or 1.9 percent. The education and health services sector also added the third largest number of jobs in the Mid-Atlantic region, up by 58,600 jobs, or 2.3 percent, contributing to total payroll gains of 3.3 percent in the region. Jobs in the Midwest and Great Plains regions were up 3.2 and 2.5 percent, respectively, with the manufacturing sector adding the third largest number of jobs in each region at 92,500, or 3.0 percent, and 28,900, or 3.9 percent, respectively. Progress of the Recovery By April 2022, on a monthly basis, the national economy recovered all of the nearly 21 million jobs that were lost in March and April of 2020 as a result of the COVID-19 pandemic (monthly, not seasonally adjusted). Map 2 shows the percent of nonfarm payrolls recovered at the state level by the end of 2022 Map 2. Percent of Nonfarm Payroll Jobs Recovered by December 2022 Current Conditions— Unemployment During 2022, the unemployment rate averaged 3.6 percent, down from an average of 5.3 percent in 2021 and equivalent to the rate prior to the COVID-19 impact. It was the lowest yearly rate since the 3.5-percent average in 1969. The 12-month average unemployment rate previously peaked at 9.7 percent during 2010, but it declined steadily through 2019, reaching a prepandemic average low of 3.6 percent during the 12 months ending February 2020. As a result of the COVID-19 recession, the unemployment rate rose to a high of 8.7 percent during the 12 months ending March 2021. The number of unemployed people rose from an average of 6.00 million in 2019 to an average of 12.95 million in 2020, the highest yearly total since an average of 13.75 million people were unemployed in 2011. During 2021, the number of unemployed people declined to an average of 8.62 million and further declined to an average of 6.00 million during 2022. Large fluctuations in the labor force have also occurred in the past couple of years. During 2020, the labor force declined by 2.80 million from 2019. Approximately people returned to the labor force in 2021. During 2022, the labor force increased by 3.08 million people to an annual average of 164.29 million, the largest ever in the history of the country. Note: Based on the 12-month moving average. Source: U.S. 12-Month Average Unemployment Rate in the Nation During 2001, job growth in the nation was flat. The manufacturing sector experienced significant losses, declining by jobs, or 4.8 percent. The wholesale trade subsector, the professional and business services sector, and the federal government subsector had significant declines of and jobs, or 2.7, 1.1, and 3.5 percent, respectively. The education and health services sector grew by jobs, or 3.7 percent, during the year, offsetting some of the losses in other sectors. 2005 Through 2006: The Housing Boom The rate of job growth in the nation increased significantly in 2005 and 2006, averaging gains of 2.33 million jobs, or 1.8 percent, each year. During these years, the fastest growing sector was the mining, logging, and construction sector, which was up an average of 5.2 percent, or jobs, annually. Nearly all the growth in that sector came from the construction subsector, which increased by jobs each year. The nominal annual value of construction (residential and nonresidential) averaged $1.14 trillion from 2005 through 2007—an increase of 26 percent compared with an average annual level of $909 billion from 2002 through 2004 (Census Bureau). Other sectors with significant payroll gains during 2005 and 2006 were the professional and business services, education and health services, and leisure and hospitality sectors, with average annual gains of and jobs, or 3.5, 2.6, and 2.4 percent, respectively. Declines continued in the manufacturing and the information sectors, but the rates of decline slowed. The manufacturing sector lost an average of 80,000 jobs, or 0.6 percent, annually, and the information sector was down an average of 40,000 jobs, or 1.3 percent, annually. 2007: The Slowdown Nonfarm payrolls continued to grow through 2007, but the rate of growth slowed to 1.1 percent, or 1.55 million jobs added. Growth continued in 7 of the 11 sectors during 2007, led by the education and health services sector, up by jobs, or 2.9 percent. The professional and business services sector continued to grow at a strong pace of 2.2 percent, or jobs, which was a noticeable slowdown from growth during the previous 2 years. The leisure and hospitality sector also had significant gains of jobs, or 2.4 percent, in 2007. The largest decline in jobs was in the manufacturing sector, down or 1.9 percent. Small declines occurred in the mining, logging, and construction; the financial activities; and the information sectors, 2008 Through 2010: The Great Recession The Great Recession officially lasted from December 2007 through June 2009, or 18 months (National Bureau of Economic Research). It was the longest recession since the Great Depression, which lasted 43 months from 1929 to 1933. The impacts from the Great Recession on the labor market lasted well into 2010. From 2008 through 2010, nonfarm payrolls in the country declined by an average of 2.55 million, or 1.9 percent, annually, and the nation lost 7.6 million jobs. With the exceptions of the education and health services and the government sectors, every sector lost jobs. The education and health services sector increased by an average of jobs annually, or 2.3 percent, and the government sector remained relatively stable, with modest growth averaging 90,700 new jobs, or 0.4 percent, annually. The most significant declines occurred in the goods-producing sectors. The manufacturing sector was down an average of jobs, or 6.0 percent, annually, and the mining, logging, and construction sector lost an average of jobs, or 9.3 percent, each year. Most notably, the construction subsector declined an average of 10.1 percent, or by jobs, annually during this period because of significant declines in both residential and commercial construction. The nominal annual value of construction reached a trough from 2008 through 2011, when it averaged $897 billion, down 21 percent from the 2005-through-2007 average. Most remaining sectors had average annual declines ranging from 2.3 to 3.7 percent, with even smaller declines in the leisure and hospitality and the other services sectors. The wholesale and retail trade sector was down by an average of jobs, or 2.6 percent. The professional and business services sector declined by an average of jobs, or 2.3 percent. 2011 Through 2016: Recovery and Expansion Annual job gains resumed in 2011, and jobs were added in the nation every year through 2019. From 2011 through 2016, nonfarm payrolls increased by an average of 2.33 million jobs, or 1.7 percent, annually. Every sector except for the government sector added jobs during that period. The professional and business services sector led growth, with an average gain of jobs, or 3.1 percent, a year. The leisure and hospitality and the education and health services sectors each increased by an average of more than jobs, or 3.1 and 2.1 percent, a year, respectively. The construction subsector was slower to recover, but by 2014 and 2015, the subsector was averaging gains of 5.0 percent, or jobs, a year. Not until 2014, however, did the economy recover all the jobs lost from 2008 through 2010. 2017 Through 2019: Continued Growth Job growth slowed slightly from 2017 through 2019, averaging gains of 2.19 million jobs annually, or 1.5-percent growth. Growth slowed partially because of fewer available workers; the nation had a historically low level of unemployment, averaging 4.0 percent during the period, and many job openings were harder to fill. Every sector added jobs during the 3 years except the wholesale and retail trade sector, which declined by an average of 38,700 jobs, or 0.2 percent, partly reflecting growth in e-commerce. Average losses of 72,600, or 0.5 percent, in the retail trade subsector more than offset the increase of 33,900, or 0.6 percent, in the wholesale trade subsector. The education and health services, the professional and business services, and the leisure and hospitality sectors led gains during the period—up by average annual rates of 2.2, 1.9, and 1.9 percent, or and jobs, respectively. The fastest rate of growth was in the transportation and utilities sector, up 3.8 percent, or jobs, a year, followed by the mining, logging, and construction sector, up 3.6 percent, or jobs. Source: U.S. Sector Growth in the Nation, 2011 to Current 2020: COVID-19 and the Recession Every nonfarm payroll sector declined during 2020 as countermeasures designed to reduce the spread of COVID-19 were put in place. While the recession officially only lasted during March and April, the impacts were significant. Nonfarm payrolls declined by 8.72 million, or 5.8 percent, during 2020. Approximately 39 percent of the total losses during the year were in the leisure and hospitality sector, which was down 3.44 million jobs, or 20.7 percent. This sector had the most job losses because of the closure or limited in-person availability of many restaurants and bars; reduced travel impacting hotels and places of recreation also contributed to losses in this sector. Within the sector, the accommodation and food services industry accounted for 80 percent of all the sector losses, with a decline of 2.80 million jobs. Although the leisure and hospitality sector accounted for 11 percent of all jobs in the nation during 2019, the sector accounted for only 9 percent of all jobs during 2020. The professional and business services sector was down by jobs, or 4.5 percent, with many companies operating on full telework status. The education and health services sector lost jobs, or 3.7 percent, with many nonessential services and surgeries canceled. The retail trade subsector lost jobs, or 4.8 percent, with many stores facing temporary (or in some cases, permanent) closures. Manufacturing sector jobs were down 5.1 percent, or by jobs. The government sector also had significant declines of jobs, or 2.8 percent, with all the losses at the state and local levels, whereas the federal subsector added 99,000 jobs, or 3.5 percent. 2021: Beginning of the Recovery The recovery officially began in May 2020 after 2 months of extraordinary job losses in March and April. During 2021, total nonfarm payrolls increased 2.9 percent, or by 4.10 million jobs. The largest gain occurred in the professional and business services sector, which added 1.01 million jobs, or 5.0 percent, as many companies began to return to some form of in-person work, resulting in a greater demand for support services. The fastest rate of growth during 2021 occurred in the transportation and utilities sector, at 8.2 percent, or new jobs. Included in this sector are distribution centers, which grew in number and size to support an increase in e-commerce that accelerated in response to the pandemic. E-commerce sales increased 47 percent during the first quarter of 2021 relative to the previous year (U.S. Census Bureau News, Quarterly Retail E-Commerce Sales, U.S. Department of Commerce, May . Gains in e-commerce sales ranged from 9 to 15 percent during the other quarters of 2021. By the Growth is anticipated to be strongest in the first year and gradually slow in years 2 and 3. The Fed is likely to continue raising the federal funds rate during 2023, or at least keep it at an elevated level, to reduce inflation which will have a cooling effect on economic growth. The leisure and hospitality sector is expected to have significant growth as it continues to recover the jobs lost during the COVID-19 pandemic. Growth is likely to continue to be strong in the professional and business services sector as well. The transportation and utilities sector is also expected to continue to have strong gains with the increasing popularity of e-commerce."}]}
{"messages": [{"role": "user", "content": "fourth quarter of 2021, e-commerce sales accounted for 16 percent of all retail sales, up from 12 percent in the fourth quarter of 2019. The leisure and hospitality sector added 1.00 million jobs, or 7.6 percent, during 2021. Approximately 78 percent of the sector gains in 2021 were in the accommodation and food services industry; restaurants reopened and people began to resume travel. In 2021, there were 14.10 million jobs in the leisure and hospitality sector, still down 2.44 million jobs, or 15 percent, from the recent high in 2019. Real GDP increased 5.9 percent during 2021 after declining 2.8 percent in 2020. The annual rate of inflation averaged 4.7 percent during 2021 based on the CPI-U, which was the highest in the country since the 5.4-percent rate in 1990. Population Trends From 2000 to 2005, a period including the 2001 recession and the subsequent moderate economic expansion, the population of the United States grew by an average annual rate of 0.9 percent, or 2.69 million (Census Bureau decennial census counts and population estimates as of July 1). Net natural change accounted for 61 percent of the growth, or an average increase of 1.64 million people annually, and net in-migration to the United States averaged 1.05 million people, accounting for 39 percent of the population gain. Population growth increased from 2005 to 2008 to an average annual rate of 1.0 percent, or 2.86 million people. Net natural change increased significantly during the period to an average of 1.82 million people, accounting for 64 percent of population growth, and net in-migration averaged 1.04 million people, or 36 percent of the population gains. From 2008 to 2010, when the United States lost jobs due to the Great Recession, population growth slowed to an average annual rate of 0.9 percent, or 2.66 million people. Net natural change declined to an average of 1.77 million people a year, partly reflecting fewer births during the recession, but accounted for 67 percent of population growth, and net in- migration slowed significantly to an average of people a year, or 33 percent of population growth. The average level of net in-migration increased to 1.13 million people a year from 2010 to 2016 as the economy added jobs, accounting for 45 percent of population growth. Net natural change continued to decline at a significant rate, averaging 1.37 million people a year, or 55 percent of population growth. That decline was partly due to an aging population, with an increase in the number of deaths, along with birth rates remaining low following the recession. As a result, the total population increased by 2.50 million, or 0.8 percent, annually. Population growth continued to slow to an average annual rate of 0.5 percent, or 1.79 million people, from 2016 to 2020. Net in-migration slowed to an average of people a year and accounted for 47 percent of the population gains during the period, and net natural change declined to an average of people, or 53 percent of growth. As a result of the impacts of COVID-19 and the policies enacted to contain its spread, including policies that had the effect of restricting immigration to the United States, both net natural change and net in-migration slowed considerably from 2020 to 2021, resulting in the overall population growing 0.2 percent. Net in-migration declined to and net natural change decreased to largely because of the significant increase in COVID-19-related deaths. Since 2021, many of the COVID-19-related policies regarding immigration have been lifted, and population growth has increased by an average annual rate of 0.4 percent, with net in-migration averaging 1.11 million and net natural change averaging ."}, {"role": "assistant", "content": "During the 3-year forecast period, the population is expected to increase at an average annual rate of 0.5 percent, or approximately 1.78 million people each year. Net natural change and net-in migration are expected to average and 1.03 million people a year, respectively. The population is expected to total 339.57 million by the end of the forecast period (Table 2). Table 2. Population and Household Quick Facts for the Nation Population Quick Facts Type010 Current Forecast Population Average Annual Change Percentage Change 0.9 0.6 0.5 Household Quick Facts 2010 Current Forecast Households Average Annual Change Percentage Change 1.0 0.8 0.7 Notes: Average annual changes and percentage changes are based on averages from 2000 to to the current date, and the current date to the end of the forecast period. The forecast period is from the current date (January 1, 2023) to January 1, 2026. Sources: 2000 and 2010—2000 Census and 2010 Census; current and forecast—estimates by the analyst"}]}
{"messages": [{"role": "user", "content": "Mexico has consistently accounted for 14 percent of immigration each year since 2010. India accounted for a total of 6 percent of all immigration from 2010 to 2020, whereas China accounted for 7 percent of immigration from 2010 to 2019 and 6 percent during 2020. During 2021, approximately 8 percent of immigrants to the U.S. came from Europe, down from 10 percent in 2020. Approximately 38 percent of all immigrants came from Asia during 2021, a relatively unchanged percent since 2010. Immigrants from South America accounted for 9 percent of all immigrants during 2021, unchanged from 2020. Similarly, immigrants from Africa also accounted for 9 percent of immigrants, down from 11 percent in 2020. Age Cohort Trends The median age in the United States in 2021 was 38.8 years, up from 37.2 years in 2010. The largest population by age range in the United States is the 20-to-39-year-old age cohort, which constituted 27.0 percent of the total population as of 2021, compared with 26.8 percent in 2010 (U.S. Census Bureau Population Estimates). The under-20 age cohort declined from 26.9 percent of the population in 2010 to 24.9 percent in 2021. In addition, the 40-to-59-year-old cohort also declined, from 27.7 percent of the total population to 25.1 percent during the same period. As the baby boom generation has aged, the 60-to-79-year-old age cohort has grown substantially. In 2010, this age group made up 14.8 percent of the total population, but by 2021 it had grown to 19.0 percent of the population. That increase helps explain the steady growth in healthcare-related jobs throughout the country, because this age group tends to be a major consumer of health services. The 80-and-older age group remained relatively stable during the period, accounting for 3.7 percent of the total population in 2010 and 3.9 percent in 2021."}, {"role": "assistant", "content": "Notes: Data are average annual totals. The forecast period is from the current date (January 1, 2023), to January 1, 2026. Sources: U.S. Components of Population Change in the Nation, 2000 Through the Forecast Source: 2010 and 2021 U.S. Population by Age Range in the Nation"}]}
{"messages": [{"role": "user", "content": "Map 3 shows the population growth rates by region. The national population increased by 0.4 percent during that period. The highest rate of growth among the HUD regions occurred in the Southeast/ Caribbean region, at 1.3 percent, followed by the Southwest region at 1.1 percent. The population increased 0.8 percent in the Rocky Mountain region, followed by a 0.4-percent increase in the Northwest region. The rate of population growth was 0.1 percent in both the New England and the Great Plains regions. In the Pacific region, the population remained relatively unchanged, but the population in both the Mid-Atlantic and Midwest regions declined slightly by 0.1 percent. The largest decline occurred in the New York/New Jersey region, which was down by 0.6 percent. Household Trends The number of households in the United States is currently estimated at 128.81 million, representing an average annual increase of 0.8 percent, or households each year, since 2010. From 2000 to 2010, the number of households increased at a somewhat faster average annual rate of 1.0 percent, or 1.12 million households each year, due largely to higher population growth compared with the 2010s. Since 2010, owner households have increased 0.7 percent a year, and renter households have Map 3. Population Growth by HUD Region, 2021–22 Source: U.S. Census Bureau Population Estimates Program increased 0.8 percent a year, compared with respective rates of 0.9 and 1.3 percent from 2000 to 2010. During the housing boom of the 2000s, owner household growth was faster than renter household growth, increasing the homeownership rate significantly. After the housing bubble burst and the economy entered the Great Recession, renting became more common, and the homeownership rate declined. In part, that shift occurred because younger households have been delaying homeownership compared with previous generations. The homeownership rate in the country has declined to an estimated 64.8 percent, down"}, {"role": "assistant", "content": "Households by Tenure and Homeownership Rate in the Nation Note: The current date is January 1, 2023. Sources: 2000 and 2010—2000 Census and 2010 Census; current—estimates by the analyst from 65.1 percent in 2010 and down from a peak of 69.0 percent in 2004. Currently, an estimated 83.47 million owner households and 45.38 million renter households reside in the United States. During the next 3 years, households are expected to increase by an average of or 0.7 percent, annually, with population growth slightly lower than the average annual rate from 2010 to the current date. From 2010 to the current date, it is estimated that approximately 30,400 households switched tenure from owner to renter status (household tenure shift) each year. During the forecast period, this trend is likely to continue but at a slightly reduced pace of 20,000 households per year. It is anticipated that future household formation will be influenced by rising international immigration and the growing younger age cohort of 20 to 39 year olds, of which both groups tend to have a stronger demand for rental rather than owner units."}]}
{"messages": [{"role": "user", "content": "Current Conditions The national home sales market eased somewhat in 2022 when a rapid increase in mortgage rates had a negative effect on the demand for sales housing. The market was still tight for the year, however, with an estimated sales vacancy rate of 1.0 percent. Although the level of available housing inventory is still historically low, the number of homes for sale was up 10 percent from December 2021 to December 2022. New and existing home sales declined 16 and 18 percent, respectively, from 2021 to 2022 (Census Bureau/HUD; NAR). Along with declining inventory and home sales, home prices continued to rise in 2022 compared with the previous year. Median sales prices increased 10 percent for existing homes and 15 percent for new homes ( Seriously delinquent mortgages are those that are 90 or more days delinquent or in foreclosure. Source: CoreLogic, Inc. Seriously Delinquent Mortgages and REO Properties The severe economic shock to the nation at the beginning of the pandemic caused the percentage of seriously delinquent mortgages and real estate owned (REO) properties to increase rapidly. Since then, as the economy recovered, the share of mortgages in this category has declined at a steady pace. The latest rate is below the prepandemic low of 1.3 percent in February 2020. The increase in the share of seriously delinquent mortgages and REO properties in 2020 was steeper than the increase during the housing crisis of the late 2000s, but the 2020 peak was significantly lower than the high of 8.6 percent reached in January 2010. The substantial increase in the rate of seriously delinquent mortgages and REO properties in 2020 was due entirely to increases in mortgages that were 90 or more days delinquent and not increases of foreclosures and REOs. In December 2020, the number of mortgages that were 90 or more days delinquent was up 313 percent year over year, whereas foreclosures and REO properties were down 31 percent and 61 percent, respectively. Current Regional Highlights The sales housing markets in the 10 HUD regions had mixed conditions during the fourth quarter of 2022, ranging from balanced to tight. The Southeast, Rocky Mountain, and Pacific regions all had a mix of balanced to slightly tight markets. The Southwest region had a mix of balanced to tight markets, whereas the remaining HUD regions had varying degrees of tight conditions. During the past year, the easing of sales markets nationwide was evident in the state-level changes in average home sales prices. In 2021, there were 6 states where average home prices increased less than 10 percent year over year, whereas in 2022 there were 25 states where average home prices increased less than 10 percent. The Pacific region led home price growth in the past year, with price increases of 16 percent in Arizona and California, 13 percent in Hawaii, and 9 percent in Nevada. The states with the lowest price growth in 2022 were Wisconsin (Midwest region) and Wyoming (Rocky Mountain region), where the average home sales price National Home Sales Sources: National Association of REALTORS®; U.S. Census Bureau/HUD increased 2 percent. For additional home sales market data by HUD region, visit the regional housing market information page on the PD&R U.S. Housing Market Conditions website. During that period, home sales rose because mortgage lending standards were more relaxed and more mortgages were issued to riskier borrowers, which helped to inflate home sales and prices. From 2001 through 2006, subprime and near-prime loans increased from 9 to 40 percent of all mortgage originations (U.S. Economics Analyst, Goldman Sachs). During roughly the same period, from 2001 through their peak in 2005, existing home sales increased an average of 6 percent a year, and new home sales increased an average of 8 percent a year (Census Bureau/HUD; NAR). As mortgage interest rates increased in 2006, new and existing home sales declined 18 and 8 percent, respectively, with the decrease accelerating in 2007 after the housing bubble began to burst. For the next few years, the home sales market in the United States was extremely soft. As a result, new and existing home sales continued to decline, with existing home sales bottoming out in 2008 and new home sales bottoming out in 2011. From peak to trough, new home sales declined at an average annual rate of 21 percent, and existing home sales declined at an average annual rate of 17 percent. After their respective lows, new and existing home sales trended upward as the economy improved and sales market conditions tightened. From 2009 through 2016, existing home sales increased at an average annual rate of 4 percent before declining from 2017 through 2019 at an average annual rate of 1 percent. New home sales also had faster growth during the earlier years of the recovery from the housing crisis, increasing at an average annual rate of 13 percent from 2012 through 2016 and slowing to an average annual rate of 7 percent from 2017 through 2019. As the COVID-19 pandemic began, existing home sales increased at a faster rate from 2020 through 2021, averaging 7 percent a year, whereas new home sales slowed slightly to an average increase of 6 percent a year. Sales of both new and existing homes dropped in 2022, decreasing 18 and 16 percent, respectively. The median existing home sales price increased an average of 8 percent a year from 2001 through the peak in 2006, while the median new home sales price peaked a year later, increasing an average of 6 percent a year from 2001 through 2007 (Census Bureau/HUD; NAR). Sales prices declined for both new and existing home sales in the years that followed; however, the peak-to-trough decline in existing home sales prices (25 percent) was more severe than the decline in new home sales prices (13 percent) and lasted nearly twice as long. From 2008 through 2009, the median price for new homes sold declined an average of 7 percent a year, and from 2007 through 2011, the median price for existing homes sold decreased an average of 6 percent a year. In large part, the extended decline in existing home sales prices compared to new home sales prices was because the proportion of existing sales that were REO properties swelled during this time, and the relatively low prices for REO home sales created downward pressure on overall existing home sales prices. REO sales constituted a small proportion of existing home sales from 2000 through 2007, averaging around 3 percent (CoreLogic, Inc.). With the onset of the Great Recession, that percentage skyrocketed to 32 percent in 2009, a year when the average sales price for an REO home was nearly 50 percent below the price of a regular resale home. After median sales prices reached lows of for new homes in 2009 and for existing homes in 2011, price growth was relatively steady through the 2010s (Census Bureau/HUD; NAR). The median sales price for new homes increased an average of 4 percent a year from 2010 through 2019. Price growth for existing homes was also steady from 2012 through 2019, with the median sales price increasing an average of 6 percent a year. As the COVID-19 pandemic began and the housing market tightened, home price growth accelerated. From 2020 through 2022, the median price for new and existing home sales each increased an average of 12 percent annually. Note: New and existing sales include single-family homes, townhomes, and condominium units. Share of Overall Sales by Price Range During 2022 in the Nation Sources: National Association of REALTORS®; U.S. National Home Sales Prices Annual Sales Permitting Activity in the Nation Sources: U.S. From 2000 through 2005, when home sales and prices increased, the number of sales units permitted averaged 1.56 million units a year. During the next 4 years, the number of sales units permitted dropped precipitously, averaging units permitted a year, representing a decline of 38 percent from the previous period. Sales building activity stabilized at low levels from 2009 through 2011, with sales units permitted annually as the housing market worked to absorb an excess supply of sales inventory. In the years that followed, the number of sales units permitted increased at a steady rate of 9 percent a year to approximately in 2019. For the next 2 years, sales construction increased by an average of 12 percent a year to approximately 1.15 million sales units permitted in 2021, the highest level since 2006. As home sales declined from 2021 through 2022, the number of sales units permitted decreased 12 percent. Housing Affordability: Sales The affordability of owning a home in the United States varies significantly depending on geography, but homeownership in general has become less affordable during the past decade. The HOI declined by 16.1 percentage points in the past year alone because of higher mortgage rates and home prices."}, {"role": "assistant", "content": "HUD First-Time Homebuyer Affordability Index for the Nation NAHB = National Association of Home Builders. 4Q = fourth quarter. NAHB/Wells Fargo Housing Opportunity Index for the Nation Forecast During the forecast period, housing demand is expected to be relatively strong, totaling 2.90 million sales units during the 3-year forecast period ( The forecast period is from January 1, 2023, to January 1, 2026. Source: Estimates by the analyst"}]}
{"messages": [{"role": "user", "content": "Current Conditions and Recent Trends The national rental market is tight, with an estimated vacancy rate of 5.4 percent—down from 9.2 percent in 2010 when the market was soft ( Dollar changes are inflation-adjusted using the Consumer Price Index for All Urban Consumers (CPI-U). Source: HUD Picture of Subsidized Households The forecast period is from January 1, 2023, to January 1, 2026. Source: Estimates by the analyst Table 8. Demand for New Rental Units in the Nation During the Forecast Period declined significantly from 2019 through 2021 because of a slowdown in income growth and a higher increase in the median gross rent. Many renter households in the United States face some degree of cost burden, meaning they pay more than 30 percent of their income on rent. During the 2015-through-2019 period, an estimated 21.7 percent of all renter households in the nation had moderate to high cost burdens, spending between 31 and 50 percent of their income on rent, whereas 22.2 percent were severely cost-burdened, spending more than 50 percent of income toward rent (Table 6). Very low-income renter households face significantly higher cost burdens. For renter households with incomes less than 50 percent of the Area Median Family Income, 27.5 percent experienced moderate to high cost burden, and 47.4 percent were severely cost-burdened. Income-eligible residents may qualify for project-based rental assistance (PBRA) or housing choice vouchers (HCV) through their local public housing authority (PHA). Nationwide, PHAs administered approximately 2.4 million HCVs in 2022, representing an increase of more than 15 percent from 2010 (HUD’s Picture of Subsidized Households). The average monthly subsidy has increased 0.9 percent since 2010, whereas the monthly tenant contribution has decreased 4.0 percent (Table 7). Despite more than 4.5 million American households receiving rental assistance, funding limitations prevent three out of four eligible households from receiving housing assistance."}, {"role": "assistant", "content": "In the United States, approximately people were homeless in 2022, and 40 percent were unsheltered homeless (2022 Point-in-Time Count). The two states with the highest populations, California and New York, accounted for 42 percent of the homeless population in the nation. Although 67 percent of the homeless population in California were unsheltered, only 5 percent of the homeless population in New York were unsheltered. Forecast During the 3-year forecast period, rental demand is expected to remain strong, especially if mortgage rates continue to rise and increase the cost of homeownership. Demand for approximately 2.15 million rental units is expected nationwide for the next 3 years (Table 8). This level of demand is lower than the pace of rental unit construction during the past few years after accounting for nonpermitted additions to the rental supply. The rental units already under construction will satisfy nearly all of the estimated demand during the first year of the forecast period. Demand is expected to remain relatively constant during the 3-year period, given the economic and demographic outlook presented in this report."}]}
{"messages": [{"role": "user", "content": "Cost Burdened Spending more than 30 percent of household income on housing costs. Moderate to high-cost burden refers to households spending 31 to 50 percent of income on housing costs. Severe cost burden refers to households spending 51 percent or more of income on housing costs."}, {"role": "assistant", "content": "Demand The demand estimates in the analysis are not a forecast of building activity. They are the estimates of the total housing production needed to achieve a balanced market at the end of the 3-year forecast period given conditions on the as-of date of the analysis, growth, losses, and excess vacancies. The estimates do not account for units currently under construction or units in the development pipeline."}]}
{"messages": [{"role": "user", "content": "The analysis uses a methodology developed by HUD’s Economic and Market Analysis Division (EMAD) as described in detail here."}, {"role": "assistant", "content": "In EMAD methodology, the ideal production level during the forecast period is one that brings the sales and rental markets into balance. Although supply and demand are dynamic across these tenure types, the methodology bifurcates sales and rental markets so that EMAD economists can provide forecasts of rental demand to the Federal Housing Administration (FHA) for their work in reviewing applications for mortgage insurance on rental properties. This report discusses select data for the 10 HUD regions defined in the “Terminology Definitions and Notes” section at the end of the report."}]}
{"messages": [{"role": "user", "content": "Job gains continued at a slower pace of 2.3 percent during 2023 compared with the increase of 4.3 percent, or 6.29 million jobs, during 2022. Despite the slowdown during the past year, job growth remained elevated compared with the average increase of 1.6 percent a year from 2011 through 2019. Annual growth in real gross domestic product (GDP) was strong during the fourth quarter of 2023, whereas the rate of inflation slowed significantly during 2023. During the next 3 years, nonfarm payrolls are expected to increase an average of 1.5 percent a year. The national sales market became slightly tight in 2023 after being tight during the previous 2 years. The supply of existing homes for sale increased from 2.7 months in 2022 to 3.1 months in 2023, and the inventory of existing homes for sale increased 4 percent during the same period (National Association of REALTORS® [NAR]). Year over year, total home sales were down 16 percent (NAR; Census Bureau/HUD). Despite the decline in home sales, the median sales price for existing homes increased 1 percent. The median price for new home sales decreased 7 percent. During the next 3 years, demand is estimated for 3.23 million sales units. The units already under construction will meet a portion of that demand. The national rental housing market is soft, with an estimated 8.9-percent vacancy rate, up from 7.5 percent in 2020. The apartment market, which makes up more than one-half of the rental supply in the nation, is also soft, with a 7.5-percent vacancy rate in 2023, up from 6.5 percent in 2022 ( Group). The average effective rent for apartments increased 1 percent in the past year to $1,646. By comparison, rent growth averaged 7 percent a year during the previous 2 years. The number of rental units permitted was at record highs in the 2 years following the pandemic and has contributed to an excess in the supply of rental units. Demand for rental units during the next 3 years is estimated at units. The rental units already under construction will satisfy all of that demand. Rental Market Soft: The average apartment vacancy rate is at its highest level in more than 20 years. Sales Market Slightly Tight: Home sales declined in 2023 as higher mortgage rates lessened the demand for sales housing."}, {"role": "assistant", "content": "Units under construction as of January 1, 2024. The forecast period is January 1, 2024, to January 1, 2027. Source: Estimates by the analyst"}]}
{"messages": [{"role": "user", "content": "Long-Term Economic Trends Although the Great Recession officially lasted from December 2007 through June 2009, the U.S. economy continued to lose jobs through 2010. The economy then underwent a lengthy recovery that lasted through 2014, followed by an expansion through 2019. With the impact of the COVID-19 pandemic and the countermeasures implemented to contain the spread of the virus, the economy lost a significant number of jobs in early 2020. As vaccines for COVID-19 became widely available and most of the countermeasures were lifted, the economy gained jobs in 2021. During 2022, nonfarm payrolls increased significantly, and the average number of jobs surpassed the average level of jobs in 2019, the last year before the pandemic. Recovery transitioned to growth during 2022. Although job growth slowed in 2023 compared with 2022, the rate remained elevated relative to the 2011-through-2019 period. Current Conditions Strong job growth continued during 2023 but at a slower pace than during the previous year. Total nonfarm payrolls increased 2.3 percent during 2023, or by 3.57 million jobs, following a gain of 4.3 percent during 2022 ( U.S. Share of Nonfarm Payroll Jobs in the Nation, by Sector jobs in the sector. Other sectors with notable gains include the government sector, up by jobs, or 2.5 percent, and the mining, logging, and construction sector, up by jobs, or 3.0 percent. Real GDP increased at a seasonally adjusted annual rate of 3.2 percent during the fourth quarter of 2023, compared with 2.6 percent a year ago. The current rate is above the longer-term average of 3.0 percent since 1960 (U.S. Bureau of Economic Analysis). Real GDP has increased for 6 consecutive quarters after declining by 2.0 and 0.6 percent during the first and second quarters of 2022, respectively. The rate of inflation slowed significantly during 2023 compared with the previous 2 years. During 2021 and 2022, the year-over-year rate of inflation Louis). The rate of inflation declined to 3.7 percent during 2023, remaining higher than the 2.0-percent target rate for the Federal Reserve System (the Fed). In an effort to reduce the high inflation of the past 3 years, the Fed raised the effective federal funds rate from 0.08 percent at the beginning of 2022 to 5.33 percent by August of 2023. The rate remained unchanged through the end of the year. The higher interest rate has made new loans, including mortgages, more expensive. Current Conditions— Regional Nonfarm Payrolls The number of jobs increased in all 10 HUD regions during 2023, ranging from 1.7 percent in the Great Lakes region to 3.2 percent in the Southwest region (Map 1). The leisure and hospitality sector was the fastest growing sector in the United States during 2023, a trend that was mirrored in nearly every region. In 7 of the 10 HUD regions, the highest rate of nonfarm payroll growth occurred in the leisure and hospitality sector. The exceptions were in the New England and the Southeast/Caribbean regions, which were led by the education and health services sector with rates of 3.2 and 5.3 percent, respectively, and the Southwest region, which was led by the mining, logging, and construction sector at 5.3 percent. The rates of growth in the leisure and Map 1. Nonfarm Payroll Growth by HUD Region, 2022–23 hospitality sector ranged from 3.1 percent, or 22,300 jobs, in New England to 5.9 percent, or 73,100 jobs, in New York/New Jersey. The largest numerical gain in the number of jobs in the leisure and hospitality sector was or 4.8 percent, in the Southeast/Caribbean region, followed closely by jobs, or 5.7 percent, in the Pacific region. The education and health services sector increased 5.3 percent in the New York/New Jersey region, similar to the Southeast/Caribbean region. The lowest rate of gain in this sector occurred in the Rocky Mountain region, up 2.7 percent. Growth was led by a gain of 3.2 percent, or jobs, in the Southwest region. In addition to the gain of 5.3 percent, or 72,700 jobs, in the mining, logging, and construction sector, the next two fastest growing sectors in the region were education and health services at 4.6 percent, or jobs, and leisure and hospitality at 4.2 percent, or 83,700 jobs. Jobs increased 2.7 percent in the Northwest region, where jobs were added to the economy. The leisure and hospitality sector was up 5.1 percent, or by 33,100 jobs, followed by a 5.0-percent gain in the education and health services sector with the addition of 49,600 jobs. The Southeast/Caribbean region was close behind with a growth rate of 2.6 percent, or jobs. The 5.3-percent gain in the education and health services sector represented an increase of jobs. Growth in the Pacific region matched the national gain at 2.3 percent, with jobs added. In addition to the aforementioned job growth in the leisure and hospitality sector, the education and health services sector grew 5.2 percent, or by jobs. Nonfarm payrolls in the remaining six regions grew at rates below the national average, ranging from 1.7 percent in the Great Lakes region to 2.0 percent in the New England, New York/New Jersey, and Mid-Atlantic regions. The New England region added jobs during 2023. The education and health services sector led the rates of growth in New England, up 3.2 percent, or by 49,500 jobs. The New York/New Jersey and the Mid-Atlantic regions added and jobs, respectively. The New York/New Jersey and Mid-Atlantic regions were both led by the leisure and hospitality sector, up 5.9 percent, or by 73,100 jobs, and 4.6 percent, or by 62,400 jobs, respectively. Similarly in both regions, the education and health services sector had the second highest rate of growth at 5.3 percent in the New York/ New Jersey region, with jobs added, and 3.7 percent in the Mid- Atlantic region, reflecting an increase of 97,200 jobs. Payrolls in the Rocky Mountain region grew 1.9 percent, or by jobs, during 2023. The mining and logging subsector grew 7.5 percent, or by 5,300 jobs. The rate of job growth in the Great Plains region was 1.8 percent, with jobs, led by a 4.3-percent increase, or 28,200 jobs, in the leisure and hospitality sector. The Great Lakes region added jobs during 2023. In addition to the 4.5-percent growth, or jobs added to the leisure and hospitality sector, the mining, logging, and construction sector had the second highest rate of growth at 3.7 percent, or 40,500 jobs. Current Conditions—Unemployment During 2023, the unemployment rate averaged 3.6 percent, unchanged from a year ago. The 12-month average unemployment rate previously peaked at 9.7 percent during 2010, but it declined steadily through 2019, reaching a prepandemic average low of 3.6 percent during the 12 months ending February 2020. As a result of the COVID-19 recession, the unemployment rate rose to a high of 8.7 percent during the 12 months ending March 2021. The number of unemployed people rose from an average of 6.00 million in 2019 to an average of 12.95 million in 2020, the highest yearly total since an average of 13.75 million people were unemployed in 2011. During 2021, the number of unemployed people declined to an average of 8.62 million and further declined to an average of 6.00 million during 2022. The number of unemployed rose slightly during 2023 to 6.08 million. Large fluctuations in the labor force have also occurred in the past couple of years. During 2020, the labor force declined by 2.80 million from 2019. Approximately people returned to the labor force in 2021. During 2022 and 2023, the labor force increased by 3.08 million and 2.83 million people, respectively, to an average of 167.12 million in 2023, the largest ever in the history of the country. The economy did not fully recover all of the jobs lost from 2008 through 2010 until 2014. Job gains occurred every year from 2011 through 2019; however, job growth was strongest through 2016. From 2011 through 2016, nonfarm payrolls increased by an average of 2.33 million jobs, or 1.7 percent, annually. Every sector except for the government sector added jobs during that period. The professional and business services sector led growth, with an average gain of jobs, or 3.1 percent, a year. The leisure and hospitality and the education and health services sectors each increased by an average of more than jobs, or 3.1 and 2.1 percent, a year, respectively. The construction subsector was slower to recover, but by 2014 and 2015, the subsector was averaging gains of 5.0 percent, or jobs, a year. 2017 Through 2019: Continued Growth Job growth slowed slightly from 2017 through 2019, averaging gains of 2.19 million jobs annually, or 1.5-percent growth. Growth slowed partially because of fewer available workers; the nation had a historically low unemployment rate, averaging 4.0 percent during the period, and some job openings were difficult to fill. Every sector added jobs during the 3 years except the wholesale and retail trade sector, which declined by an average of 38,700 jobs, or 0.2 percent annually, partly because shopping at brick- and-mortar stores continued to lose popularity compared to online shopping. Average annual losses of 72,600, or 0.5 percent, in the retail trade subsector more than offset the average annual increase of 33,900, or 0.6 percent, in the wholesale trade subsector. The education and health services, the professional and business services, and the leisure and hospitality sectors led gains during the period—up by average annual rates of 2.2, 1.9, and 1.9 percent, or and jobs, respectively. The fastest rate of growth was in the transportation and utilities sector, up 3.8 percent, Note: Based on the 12-month moving average. Source: U.S. 12-Month Average Unemployment Rate in the Nation 2020: COVID-19 and the Recession Every nonfarm payroll sector declined during 2020 as countermeasures designed to reduce the spread of COVID-19 were put in place. Although the recession only lasted during March and April, the impacts were significant. Nonfarm payrolls declined by 8.72 million, or 5.8 percent, during 2020. Approximately 39 percent of the total losses during the year were in the leisure and hospitality sector, which was down 3.44 million jobs, or 20.7 percent. This sector had the most job losses because of the closure or limited in-person availability of many restaurants and bars; reduced travel impacting hotels and places of recreation also contributed to losses in this sector. Within the sector, the accommodation and food services industry accounted for 80 percent of all the sector losses, with a decline of 2.80 million jobs. Although the leisure and hospitality sector accounted for 11 percent of all jobs in the nation during 2019, the sector accounted for only 9 percent of all jobs during 2020. The professional and business services sector was down by jobs, or 4.5 percent. The education and health services sector lost jobs, or 3.7 percent, with many Note: Current data are 2023 annual data. Source: U.S. Sector Growth in the Nation, 2011 to Current nonessential services and surgeries canceled. The retail trade subsector lost jobs, or 4.8 percent, with numerous stores facing temporary (or, in some cases, permanent) closures. Manufacturing sector jobs were down 5.1 percent, or by jobs. The government sector also had significant declines of jobs, or 2.8 percent, with all the losses at the state and local levels, whereas the federal subsector added 99,000 jobs, or 3.5 percent. 2021 and 2022: The Recovery The recovery began in May 2020 after 2 months of extraordinary job losses in March and April. During 2021, total nonfarm payrolls increased 2.9 percent, or by 4.10 million jobs, and then rose by 4.3 percent, or 6.29 million jobs, during 2022. The largest gain during the 2-year period occurred in the leisure and hospitality sector, which increased by an average of 1.34 million jobs, or 9.7 percent, annually. Nearly 80 percent of the job gains in the sector were in the accommodation and food services industry as people returned to their prepandemic lifestyles, including eating at restaurants and resuming travel. The professional and business services sector added an average of 1.10 million jobs, or 5.3 percent, a year as many companies resumed The second fastest rate of growth during the 2-year period occurred in the transportation and utilities sector, averaging an increase of 8.0 percent, or jobs, each year. Included in this sector are distribution centers, which grew in number and size to support an increase in e-commerce that accelerated in response to the pandemic. Year-over-year e-commerce sales were up 47 percent as of the first quarter of 2021 (U.S. Census Bureau News, Quarterly Retail E-Commerce Sales, U.S. Department of Commerce, May . Gains in e-commerce have continued but at more subdued rates of 11 percent as of the third quarter of 2022 and 8 percent as of the third quarter of 2023. By the third quarter of 2023, e-commerce sales accounted for 16 percent of all retail sales, up from 12 percent in the fourth quarter of 2019."}, {"role": "assistant", "content": "Forecast During the next 3 years, nonfarm payroll jobs are anticipated to grow at an average of 1.5 percent annually. Growth is anticipated to be slightly lower in year 1, with higher rates of growth expected in years 2 and 3. Strong gains in the leisure and hospitality sector in recent years are not expected to continue, and the sector is anticipated to resume a more historical growth trend after having recovered the jobs lost from the impacts of the COVID-19 pandemic. Growth in education and health services is likely to continue to be strong as the population continues to age, increasing the demand for health care."}]}
{"messages": [{"role": "user", "content": "Population Trends From 2010 to 2016 population growth averaged 2.52 million, or 0.8 percent, a year. Net in-migration averaged 1.15 million people a year, accounting for 46 percent of population growth, while net natural change averaged 1.37 million people a year, or 54 percent of population growth (Census Bureau decennial census counts and population estimates as of July 1). Population growth slowed to an average annual rate of 0.6 percent, or 1.86 million people, from 2016 to 2020. During this period, net in-migration slowed to an average of people a year and accounted for 47 percent of the population gains, and net natural change declined to an average of people, or 53 percent of the growth. The COVID-19 pandemic led to a considerable slowdown in net natural change and net in-migration, which was affected by policies restricting immigration to the United States. From 2020 to 2021, the population increased at an average annual rate of 0.1 percent, or . Net in-migration declined to an average of annually, and net natural change decreased to an average of annually, largely because of the significant increase in COVID-19-related deaths. Since 2021, population growth has averaged 0.5 percent, or nearly 1.63 million people, a year, with net in-migration averaging 1.19 million and net natural change averaging . International Migration When examining the country of origin for immigration to the United States, the largest percentage of immigrants during 2022 came from India and Mexico, with each country accounting for 12 percent of total immigration, followed by China at 6 percent (Department of Homeland Security, Office of Immigration Statistics). Mexico accounted for 14 percent of immigration from 2010 to 2021. India accounted for 6 percent of all immigration from 2010 to 2020 but accounted for 12 percent in 2021. China accounted for 7 percent of immigration from 2010 to 2019 and 6 percent during 2020 and 2021. During 2022, approximately 7 percent of immigrants to the U.S. came from Europe, down from 8 percent in 2021 and 10 percent in 2020. Approximately 37 percent of all immigrants came from Asia during 2022, down slightly from 38 percent a year ago. Immigrants from South America accounted for 8 percent of all immigrants during 2022, down from 9 percent in 2021. Similarly, immigrants from Africa also accounted for 8 percent of immigrants, down from 9 percent in 2021. Immigrants from the Caribbean accounted for 9 percent of immigration in 2022, down from 10 percent a year ago. Age Cohort Trends The median age in the United States in 2022 was 39.0 years, up from 37.2 years in 2010. The youngest cohort, representing people under 20 years of age, has declined from 27 percent of the population in 2010 to 24 percent in 2022 (American Community Survey [ACS] 1-year data). The 40-to-64-year- old age cohort also declined during the same period from 33 percent to 31 percent, whereas the 20-to-39-year-old age cohort remained unchanged at 27 percent of the population. The only age cohort to increase was the 65 and older cohort; as the baby boom generation has aged, the 65 and older cohort has grown substantially. In 2010, this age group made up 13 percent of the total population, but by 2022 it had grown to 17 percent of the population. That increase helps explain the steady growth in healthcare- related jobs throughout the country because this age group tends to be a major consumer of health services. Population by Age Range in the Nation Note: Sum of percentages for each year may not add to 100 percent because of rounding. Source: 2010 and 2022 American Community Survey 1-year data Recent Regional Population Trends From 2022 to 2023, the population increased in 8 of the 10 HUD regions. Map 2 shows the population growth rates by region. The national population increased 0.5 percent during that period. The highest rate of growth among the HUD regions occurred in the Southeast/Caribbean and Southwest regions, each at 1.2 percent, followed by the Rocky Mountain region at 0.8 percent. The rate of population growth was 0.3 percent each in the New England, Great Plains, and Northwest regions. The population in the Mid-Atlantic region was up 0.2 percent, and the Great Lakes region grew 0.1 percent. In the Pacific region, the population remained relatively unchanged, whereas the population declined in the New York/New Jersey region by 0.2 percent. Map 2. Population Growth by HUD Region, 2022–23 Source: U.S. Census Bureau Population Estimates Program Household Trends The number of households in the United States is currently estimated at 130.54 million, representing an average annual increase of 0.8 percent, or households, since 2020. From 2010 to 2020, the number of households increased at the same pace of 0.8 percent, or 1.01 million households, a year. Since 2020, owner and renter households have each increased an average of 0.8 percent a year, compared with respective average annual rates of 0.5 and 1.4 percent from 2010 to 2020. Renting became more common in the years after the Great Recession, and the homeownership rate declined."}, {"role": "assistant", "content": "Households by Tenure and Homeownership Rate in the Nation Note: The current date is January 1, 2024. Sources: 2010 and 2020—2010 Census and 2020 Census; current—estimates by the analyst Forecast During the 3-year forecast period, the population is expected to increase at an average annual rate of 0.6 percent, or approximately 1.94 million people. Net natural change and net-in migration are expected to average and 1.19 million people a year, respectively. The population is expected to total 341.93 million by the end of the forecast period (Table 2). During the next 3 years, households are expected to increase by an average of 1.05 million, or 0.8 percent, annually. Population Quick Facts 2020 Current Forecast Population Average Annual Change Percentage Change 0.7 0.4 0.6 Household Quick Facts 2020 Current Forecast Households Average Annual Change Percentage Change 0.8 0.8 0.8 Notes: Average annual changes and percentage changes are based on averages from 2010 to to current, and current to forecast. The forecast period is the current date (January 1, 2024) to January 1, 2027. Sources: 2010 and 2020—2010 Census and 2020 Census; current and forecast—estimates by the analyst Table 2. Components of Population Change in the Nation, 2010 Through the Forecast Notes: Data are average annual totals. The forecast period is the current date (January 1, 2024) to January 1, 2027. Sources: U.S. Census Bureau; current and forecast—estimates by the analyst"}]}
{"messages": [{"role": "user", "content": "Current Conditions The national home sales market became slightly tight in 2023 as higher mortgage rates lowered the demand for sales housing and relieved some of the tightness that had been present in the market a year ago. The sales vacancy rate is estimated at 1.5 percent, on par with the vacancy rate in 2020. In the past year, the supply of existing homes for sale increased from 2.7 months in 2022 to 3.1 months in 2023 (NAR). The inventory of existing homes for sale also continued to increase from the recent low of reached in December 2021; since then, the inventory of homes for sale increased 14 percent to 1.00 million in December 2023. In 2023, new home sales were up 4 percent, and existing home sales declined 19 percent compared with 2022 (Census Bureau/HUD; NAR). During the same period, the median sales price for a new home decreased 7 percent, and the median sales price for an existing home increased 1 percent ( Seriously delinquent mortgages are those that are 90 or more days delinquent or in foreclosure. Source: CoreLogic, Inc. Aid, Relief, and Economic Security Act passed in March 2020, homeowners with federally backed mortgages were able to receive forbearance if the pandemic caused them to experience financial hardship. This concession prevented many mortgages held by this group of homeowners from moving into foreclosure or REO status. Current Regional Highlights The sales housing markets in the 10 HUD regions had mixed conditions during the fourth quarter of 2023, ranging from slightly tight to slightly soft. The New England region was slightly tight, the Great Lakes region was slightly soft, and the remaining HUD regions had balanced or mixed conditions. The state-level changes in the CoreLogic, Inc. home price index (HPI) for repeat sales show that the rapid price growth of the past few years has moderated in most states. From December 2022 to December 2023, the mode change for states was 7 percent for the HPI for repeat sales, with eight states recording this rate of price growth. Home price growth was led by states in the northeast, with Rhode Island, Connecticut, New Jersey, and New Hampshire all registering double-digit increases from There were no states with a decline in home prices, but prices were unchanged in Montana and Texas. Five states had price increases of only 1 percent (Louisiana, Hawaii, New York, Idaho, and Utah). For additional home sales market data by HUD region, visit the regional housing market information page on the PD&R U.S. Housing Market Conditions website: https://www.huduser.gov/portal/ushmc/ home.html#regional_map. Home Sales Trends: 2010 to Current In the early 2010s, home sales were still low from the effects of the national housing crisis during the previous decade before trending upward through 2021. During the next 2 years, home sales recovered rapidly, with existing home sales increasing an average of 9 percent annually and new home sales increasing an average of 18 percent annually. Mortgage rates increased in 2014, and existing home sales declined 3 percent before increasing an average of 4 percent a year from 2015 through 2017. National Home Sales Sources: National Association of REALTORS®; U.S. Census Bureau/HUD in 2019. In contrast, new home sales increased every year from 2014 through 2019 at an average rate of 8 percent. In 2020, new and existing home sales increased 20 and 6 percent, respectively. Existing home sales continued to increase in 2021 at a rate of 9 percent, whereas new home sales declined 6 percent that year. The increase in mortgage rates that began in 2022 had a marked effect on home sales. From 2022 through 2023, new and existing home sales dropped precipitously, declining by averages of 7 and 18 percent a year, respectively. In 2011, while the housing market was still soft from the Great Recession, the median sales price for new homes increased Price growth was relatively steady in the years that followed. From 2012 through 2020, the median sales price for new homes increased an average of 4 percent a year, and the median sales price for existing homes increased an average of 7 percent a year. As the housing market tightened in the wake of the COVID-19 pandemic, home price growth accelerated. From 2021 through 2022, the median price for new and existing home sales increased 17 and 14 percent a year, respectively. In 2023, the housing market eased, and year- over-year price growth decelerated to 1 percent for existing home sales, whereas the median price for new home sales declined 7 percent. From 2012 through 2019, the number of sales units permitted increased an average of 9 percent a year to approximately units. National Home Sales Prices Sources: National Association of REALTORS®; U.S. Share of Overall Sales in the Nation by Price Range During the 12 Months Ending 2023 Note: New and existing sales include single-family homes, townhomes, and condominium units. Source: Zonda As higher mortgage rates led to a decrease in home sales in 2022, the number of sales units permitted also declined. Sales construction declined 11 percent in 2022 and a further 8 percent in 2023 to units permitted. Housing Affordability: Sales The affordability of owning a home in the United States varies significantly depending on geography, but homeownership in general has become less affordable during the past 10 years. The HOI declined by 0.4 percentage point in the past year, reflecting a slowdown in the decline from the previous year when the HOI declined by 16.1 percentage points. First-time homebuyers face many affordability challenges when it comes to purchasing a home, regardless of where they live. For the nation, homeownership has become less affordable for households in the 25-to-44-year-old age cohort, a prime group for first-time homebuyers. The homeownership rate for this age cohort declined from 53 percent in 2010 to 48 percent in 2020. Annual Sales Permitting Activity in the Nation Sources: U.S. NAHB/Wells Fargo Housing Opportunity Index for the Nation NAHB = National Association of Home Builders. 4Q = fourth quarter. Source: NAHB/Wells Fargo"}, {"role": "assistant", "content": "Forecast During the forecast period, home sales demand is expected to be relatively strong. Demand is expected for 3.23 million sales units during the 3-year forecast period ( Data for 2020 are not available. Sources: American Community Survey 1-year data; Freddie Mac; Zonda be relatively constant through the next 3 years. The home sales market is highly sensitive to changes in mortgage rates, and further increases would lessen the demand for sales housing, whereas a decline would increase the demand for sales housing. Unforeseen changes in various other factors may also change future demand for sales housing. Rental housing and households doubling up are the most common substitutes for sales housing and the relative advantages of those options also has an influence on sales demand. The forecast period is January 1, 2024, to January 1, 2027. Source: Estimates by the analyst"}]}
{"messages": [{"role": "user", "content": "Current Conditions and Recent Trends The national rental market is soft, with an estimated vacancy rate of 8.9 percent—up from 7.5 percent in 2020 ( Includes apartments and units intended for rental occupancy. Sources: U.S. Gross Rent Affordability Index for the Nation Notes: The Gross Rent Affordability Index differs from the HUD Rental Affordability Index published on the U.S. Housing Market Conditions website in that it is based on combined rent and utilities expenditure. Data for 2020 are not available. Source: American Community Survey 1-year data During the 2016-through-2020 period, an estimated 21.6 percent of all renter households in the nation had moderate to high cost burdens, spending between 31 and 50 percent of their income on rent, whereas 22.0 percent were severely cost-burdened, spending more than 50 percent of income toward rent ( Consolidated Planning/CHAS Data, American Community Survey 5-year estimates Dollar changes are inflation-adjusted using the Consumer Price Index for All Urban Consumers (CPI-U). Source: HUD Picture of Subsidized Households Table 7. National Picture of Subsidized Households, 2023 Forecast During the 3-year forecast period, the net demand for new rental units is estimated at nationwide as the market works to absorb excess vacancies (Table 8). This level of demand is much lower than the pace of rental construction during the past several years. The rental units already under construction will satisfy all of the estimated demand during the forecast period. Demand is expected to remain relatively constant during the 3-year period, given the economic and demographic outlook presented in this report. A continued rise in mortgage interest rates would likely result in increased rental demand, whereas a drop in mortgage rates would incentivize a portion of renters to become homeowners. Future rental demand also relies on rent costs. If soft market conditions persist and rents decline, this would likely create new renter households as they decouple from a doubled up household."}, {"role": "assistant", "content": "StatusRental Units Demand Units Under Construction Units Note: The forecast period is January 1, 2024, to January 1, 2027. Source: Estimates by the analyst Table 8. Demand for New Rental Units in the Nation During the Forecast Period"}]}
{"messages": [{"role": "user", "content": "Apartment Vacancy Rate/ Average Monthly Rent Data are for market-rate and mixed market-rate and affordable general occupancy apartment properties with five or more units, including those that are stabilized and in lease up. Cost Burdened Spending more than 30 percent of household income on housing costs. Moderate to high-cost burden refers to households spending 31 to 50 percent of income on housing costs. Severe cost burden refers to households spending 51 percent or more of income on housing costs."}, {"role": "assistant", "content": "Demand The demand estimates in the analysis are not a forecast of building activity. They are the estimates of the total housing production needed to achieve a balanced market at the end of the 3-year forecast period given conditions on the as-of date of the analysis, growth, losses, and excess vacancies. The estimates do not account for units currently under construction or units in the development pipeline."}]}
{"messages": [{"role": "user", "content": "The HMA is at the intersection of Interstates 90 and 94, approximately 80 miles west of Milwaukee, 140 miles southwest of Green Bay, and 150 miles northwest of Chicago. The central city of Madison, in Dane County, is the Wisconsin state capital and one of two cities in the United States to contain an isthmus. Known as the “City of Four Lakes,” downtown Madison is between Lakes Mendota and Monona, with Lakes Waubesa and Kegonsa nearby to the southeast. The HMA is the second most populous metropolitan area in Wisconsin and accounted for 37 percent of the population growth in the state from 2010 to 2024."}, {"role": "assistant", "content": "During the 12 months ending April 2025, nonfarm payrolls averaged reflecting an increase of 2,600 jobs, or 0.6 percent, from a year earlier, with growth in the service-providing sectors offsetting losses in the goods-producing sectors. By comparison, during the 12 months ending April 2024, nonfarm payrolls increased by 9,000, or 2.2 percent, from the previous year. During the 12 months ending April 2025, the unemployment rate averaged 2.5 percent, up slightly from 2.3 percent a year earlier because the labor force grew faster than employment. Nonfarm payroll growth is expected to average 0.8 percent annually during the 3-year forecast period."}]}
{"messages": [{"role": "user", "content": "During the 12 months ending April 2025, home sales decreased by 210, or 2 percent, from a year earlier to 9,550 sales following a decline of 8 percent, or 860 sales, during the previous 12 months (Cotality). Elevated mortgage interest rates and rising home sales prices have reduced affordability for buyers since 2020. The for-sale inventory has increased slightly from the low levels during the previous 3 years but is still relatively low. During the 12 months ending April 2025, the average home sales price increased by $35,450, or 9 percent, from a year earlier to accelerating from the increase of 7 percent, or $24,150, during the 12 months ending April 2024. During the next 3 years, demand is estimated for 5,450 new homes. The 720 homes under construction are expected to meet a portion of the demand during the first year. The apartment market is also balanced; as of the first quarter of 2025, the apartment vacancy rate was 5.3 percent, up from 4.3 percent a year earlier and a recent low of 3.3 percent during the first quarter of 2022, when conditions were very tight ( Group). The average monthly apartment rent was $1,612 as of the first quarter of 2025, reflecting an increase of $40, or 3 percent, from a year earlier, after an increase of $53, or 3 percent, as of the first quarter of 2024. Rent growth slowed and vacancy rates increased compared with the period from 2020 to 2023 due to a relatively high volume of apartment units entering the market. During the next 3 years, demand is expected for 9,675 new rental units. The 7,250 units under construction will meet most of the demand during the first 2 years of the forecast period. Economy Stable: During the 12 months ending April 2025, nonfarm payroll growth in the Madison HMA slowed from the previous 12 months. Rental Market Balanced: The rental vacancy rate rose from 4.1 percent during 2020, when conditions were tight, to a current estimated vacancy rate of 6.0 percent due to increased rental unit construction since 2020. Sales Market Tight: The home sales market in the HMA has a current estimated vacancy rate of 0.6 percent, down from 0.8 percent as of April 2020, when market conditions were slightly tight."}, {"role": "assistant", "content": "Units under construction as of May 1, 2025. The forecast period is May 1, 2025, to May 1, 2028. Source: Estimates by the analyst"}]}
{"messages": [{"role": "user", "content": "Job growth in the HMA moderated from the year-over-year growth of 9,000 jobs, or 2.2 percent, during the 12 months ending April 2024, which was approximately double the rate for the state and higher than the increase of 1.8 percent for the nation. Note: Payrolls are based on 12-month moving averages, in thousands. Sources: U.S. 12-Month Average Nonfarm Payrolls in the Madison HMA During the 12 months ending April 2025, the government sector added 2,000 jobs, reflecting a 2.1-percent increase from a year earlier. That gain was down from the year-over-year increase of 3,700 jobs, or 4.0 percent, during the 12 months ending April 2024. The recent growth was primarily in the state government subsector, which added 1,800 jobs from a year earlier and included increased employment at UW–Madison, due partially to growing enrollment. A portion of the jobs added were for students employed in work-study programs. Employment growth in the local government subsector was partially due to the city of Madison opening a new bus rapid transit (BRT) line in September 2024 to become the second city in Wisconsin with a BRT line. Five nonfarm payroll sectors in the HMA lost jobs during the 12 months ending April 2025, led by the manufacturing sector, which declined by 1,000 jobs, or 4.0 percent, with losses accelerating from a year earlier when the sector fell by 100 jobs, or 0.2 percent. Recent manufacturing job losses included layoffs by book printer Sheridan and food producer Midwest Perishables Inc. Payroll losses also occurred in the financial activities sector, which dropped by 600 jobs, or 2.5 percent, faster than the 0.9-percent decline of 200 jobs a year earlier. The recent decline was partly due to the layoffs of 310 employees by the Wisconsin Physicians Service Insurance Corporation. The unemployment rate increased slightly during the past 2 years because increased net in-migration contributed to growth in the labor force, which outpaced resident employment growth. The unemployment rate in the Madison HMA has been consistently lower than the rate for Wisconsin and the nation since at least 2010, including during 2020, when all three rates briefly spiked due to the impacts of the COVID-19 pandemic. Economic Periods of Significance 2011 Through 2012 Nonfarm payroll growth averaged 3,600 jobs, or 4.0 percent, annually during the period from 2011 through 2012, when the economy of the HMA recovered from job losses during the Great Recession and nonfarm payrolls exceeded the 2007 average by 0.9 percent. However, only 6 of the 11 payroll sectors reached their respective 2007 average by 2012, with the goods-producing and the wholesale and retail trade sectors in particular lagging behind the growth of the other sectors. The professional and business services sector recovered relatively rapidly during the period, increasing by an average of 2,000 jobs, or 4.8 percent, annually. The information sector in the HMA was relatively unaffected by the Great Recession and continued to expand in 2011 and 2012, with growth averaging 900 jobs, or 7.3 percent, annually. Growth in the sector was partially due to continual expansion at Epic Systems Corporation after the company moved its headquarters from the city of Madison to the city of Verona in 2007. Job gains, however, were partly offset by average declines of 900 jobs, or 1.8 percent, annually in the state government subsector, partially due to layoffs at the State of Wisconsin and UW–Madison because of declining enrollment in 2011. 12-Month Average Unemployment Rate in the Madison HMA, Wisconsin, and the Nation Note: Based on the 12-month moving average. All payroll sectors expanded, and the unemployment rate fell from 4.9 percent during 2013 to 2.9 percent during 2016. The fastest growing payroll sectors during the period were the information, the professional and business services, the education and health services, and the leisure and hospitality sectors, each adding an average of more than 1,000 jobs annually. Contributing to the growth in the information sector, employment by software publishers continued to grow, and industry payrolls quadrupled from 2005 to 2015 in the HMA compared with a 38-percent increase nationally, partially due to expansion by Epic Systems Corporation; Zendesk, Inc.; and several video game development studios (Madison Region Economic Partnership). Exact Sciences Corporation and Promega Corporation also expanded their research and production facilities in the HMA, adding an estimated 500 employees. Expansions in the education and health services sector were partially due to UW Health completing construction of East Madison Hospital in late 2015, and the opening of four hotels contributed to expansion in the leisure and hospitality sector. The mining, logging, and construction sector increased by an average of 900 jobs, or 6.1 percent, annually due to commercial construction projects during the period and a surge in residential building activity beginning in 2015. 2017 Through 2019 Nonfarm payroll growth in the Madison HMA slowed to an average of 1.1 percent, or 4,400 jobs, annually, which outpaced the rate of growth for the state but lagged that of the nation. The unemployment rate averaged 2.4 percent annually from 2017 through 2019, below the rate for the state and the nation. Nonfarm payroll growth in the service-providing sectors slowed except in the education and health services sector, which accelerated to an average increase of 3.0 percent, or 1,400 jobs, annually. Growth in the professional and business services sector continued, partially due to expansions at University Research Park–UW Madison, with companies, including Exact Sciences Corporation, Ultratec, Inc. and FUJIFILM Cellular Dynamics, Inc., opening new headquarters buildings at the site in 2017 and 2018. Google LLC (Alphabet Inc.) also opened a regional office in downtown Madison in 2019. Job growth in the manufacturing sector averaged 800 jobs, or 2.2 percent, annually because of new manufacturing facilities for biomedical technologies and pharmaceuticals. Partly offsetting the growth, the wholesale and retail trade sector fell an average of 0.6 percent, or by 300 jobs, annually, partially due to expansions in online retail, leading to less employment in stores. 2020 Through 2023 In 2020, the COVID-19 pandemic-related economic downturn led to a loss of 21,700 jobs, or 5.3 percent, in the HMA compared with 2019. The rate of job loss was less severe than the rate for the nation, which declined 5.8 percent. Similar to the nation, the leisure and hospitality sector had the most job losses in the HMA, declining by 10,300 jobs, or 26.8 percent. The government sector declined by 4,300 jobs, or 4.8 percent, with losses in both the state and local government subsectors, partially due to both local public school districts and UW–Madison suspending in-person operations. During the following 2 years, the economy of the HMA recovered, with payrolls increasing by an average of 11,500 jobs, or 2.9 percent, annually, reaching the 2019 prepandemic nonfarm payroll average during 2022, roughly equivalent to the timing of the recovery for the nation but sooner than the state, which did not recover until 2023. The unemployment rate in the HMA fell to an annual average of 2.2 percent during 2022 and 2023. Job recovery was uneven across sectors, however, because the government, the leisure and hospitality, and the other services sectors did not fully recover the number of jobs lost until 2023 or 2024. The professional and business services sector and the retail trade subsector are still below the 2019 average. Although the professional and business services sector was less affected by job losses than other sectors during 2020, only declining 2.3 percent, the sector was affected more than other payroll sectors Increases in the availability of remote work allowed employees to relocate out of the HMA. In addition, companies vacated unused office space, reducing office support service jobs and limiting job recovery in the sector. During the first quarter of 2019, the office vacancy rate in the HMA was 4.0 percent; it rose to 5.4 percent as of the first quarter of 2023 ( Group)."}, {"role": "assistant", "content": "Forecast During the 3-year forecast period, nonfarm payrolls in the HMA are expected to increase at an average annual rate of 0.8 percent, accelerating slightly from the most recent 12 months but relatively slow compared with previous periods. Projects underway or expected to begin soon will support jobs in industries such as construction, health care, information, research, and warehousing and transportation. UW Health has $900 million in construction underway across five facilities in the HMA, which will total approximately 1 million square feet once complete. Two facilities are underway, including an expansion at UW Health University Hospital and a new inpatient physical rehabilitation center in the city of Fitchburg in collaboration with Lifepoint Health, Inc. In late 2025, SSM Health will begin construction of healthcare facilities in the cities of Sun Prairie and Verona. In the information sector, Epic Systems Corporation is expanding its headquarters, with four buildings under construction, and is planning to hire 2,500 employees in the next 2 years. Thermo Fisher Scientific Inc. completed the construction of a 72,500-square-foot research and testing lab in 2024 and is expected to fully staff the facility with 350 employees by 2026. During 2024, Stoughton Trailers, LLC began constructing a national headquarters facility, expected to employ 250 people. Amazon.com, Inc. is building a 3.2 million-square-foot distribution center and warehouse. With a 2026 planned completion, the facility is expected to employ 1,500 people. Kwik Trip, Inc. also began constructing a distribution center, which is expected to add 400 jobs when complete in 2026."}]}
{"messages": [{"role": "user", "content": "The economy in the HMA was relatively strong compared with the economy of the nation and the rest of the Great Lakes region, which included many economically distressed areas during the period following Population and Households Current Population: Population growth in the HMA has been strong since 2021 due to significant net in-migration."}, {"role": "assistant", "content": "Population Trends The Madison HMA has an estimated population of as of May 1, 2025, reflecting an average increase of 1.3 percent, or 9,025, annually since 2021 (U.S. Census Bureau population estimates as of July 1; current estimate by the analyst; Table 3). Whereas total population growth has rebounded since 2021, net natural increase since 2021 was nearly unchanged from the previous period, averaging 1,650 people annually but down from the 2010-to-2020 decade because of the long-term trend of declining birth rates and rising death rates due to an aging population (U.S. Census Bureau decennial census). Components of Population Change in the Madison HMA, 2010 Through the Forecast Notes: Data displayed are average annual totals. The forecast period is the current date (May 1, 2025) to May 1, 2028. Sources: U.S. Census Bureau; current to forecast—estimates by the analyst Population Quick Facts 2020 Current Forecast Population Average Annual Change Percentage Change 1.2 1.0 1.0 Household Quick Facts 2020 Current Forecast Households Average Annual Change Percentage Change 1.4 1.6 1.3 Notes: Average annual changes and percentage changes are based on averages from 2010 to to current, and current to forecast. The forecast period is the current date (May 1, 2025) to May 1, 2028. Sources: 2010 and 2020—2010 Census and 2020 Census; current and forecast—estimates by the analyst Table 3. Madison HMA Population and Household Quick Facts"}]}
{"messages": [{"role": "user", "content": "As of 2012, the Madison HMA exceeded its 2007 nonfarm payroll average by 0.9 percent, whereas the nation and the region were still recovering. From 2012 to 2017, population growth accelerated, averaging 1.3 percent, or 8,275 people, annually. Net in-migration increased to an average of 5,175 people annually because economic growth accelerated significantly, with the HMA adding more than double the number of jobs added each year during 2011 and 2012. Net natural increase moderated slightly from the previous period to an average of 3,100 people annually. Population growth from 2017 to 2020 averaged 6,175, or 0.9 percent, annually, 25 percent lower than the annual average from 2012 to 2017, because of lower levels of net in-migration and net natural increase. Slower economic growth in the HMA helped reduce net in-migration to an annual average of 3,700 people. From April 2020 to July 2021, net natural increase fell to an average of 2,475 people annually. The COVID-19 pandemic contributed to net out-migration from April 2020 to July 2021, primarily due to the March 2020 suspension of in-person classes at UW–Madison, which led students from outside the HMA to return home to continue the Spring 2020 semester and a portion of the following academic year remotely. During the spring of 2021, about one-third of the 8,850 beds in dormitories at the university were occupied (UW–Madison). The net out-migration was offset by net natural increase of 1,675 people annually, which is relatively low compared with the previous decade, partially because of an increase in deaths due to COVID-19 and lower birth rates. The population increased less than 0.1 percent, or by an annual average of 250, from 2020 to 2021. The largest population gain in the city has primarily occurred in the 53703 ZIP Code, which includes downtown Madison and the East Washington Avenue corridor northeast of downtown but excludes neighborhoods closest to UW–Madison southwest of downtown (Map 1). Comparing the 2023 ACS 5-year estimate with the 2018 estimate, the population in this ZIP Code increased by an average of 800, or 2.4 percent, annually (ACS 2014–2018 and 2019–2023 5-year data). The 53718 ZIP Code had the largest population gain in the city of Madison, growing by an average of 1,025, or 7.6 percent, annually, during the same period. Relatively rapid population growth in the 53718 ZIP Code was partially due to the East Madison Hospital and Eastpark Medical Center, which both opened within the past 10 years in the ZIP Code. Interstates 90 and 94, as well as several state highways, all intersect within the ZIP Code, allowing for ease of commuting. Household Trends and Composition As of May 1, 2025, an estimated households reside in the HMA, reflecting an average annual increase of 4,750, or 1.6 percent, since April 2020. By comparison, from 2010 to 2020, the HMA added an average of 3,675 households, or 1.4 percent, annually. Household growth has accelerated since 2020, partly due to increased household formation after the onset of the pandemic. In addition, the trend to smaller household sizes boosted household growth, which has contributed to the strong absorption of rental units and increased home sales activity since 2020. During percent of households, or approximately were single-person households, up 24 percent from 87,900 households, or 31.5 percent, during 2019 (ACS 1-year data). Moreover, approximately 56 percent of apartment units in the HMA were studio or one-bedroom units as of the first quarter of 2025, up from 51 percent as of the first quarter of 2020 ( Group). Growth in renter households has outpaced that of owner households since 2010. A contributing factor to the decreasing homeownership rate has been the expansion in student households, most of whom are renters, and the construction of apartments to accommodate increased enrollment; no new dormitories have been built in the HMA since 2012, despite an increase of approximately 9,275 students. The students who occupy the approximately 8,850 dormitory beds at UW–Madison are included in the group quarters population and are not counted in the household population."}, {"role": "assistant", "content": "Net in-migration in the HMA is expected to slow to a rate comparable to the period from 2017 to 2020 because moderate economic growth is expected to continue. Net natural increase is expected to rise moderately, partly due to the expanded population of the HMA, but the rate is not expected to reach the levels during the 2010-to-2020 decade because birth rates have declined. Households are expected to reach during the forecast period, reflecting an average annual increase of 4,225, or 1.3 percent, outpacing population growth, partly because of the continued trend toward smaller households."}]}
{"messages": [{"role": "user", "content": "Current Conditions The home sales market in the Madison HMA— including single-family homes, condominiums, and mobile homes—is tight, with an estimated vacancy rate of 0.6 percent, down from 0.8 percent as of April 2020, when market conditions were slightly tight. The tightening of the market is partially due to a 36-percent decline in the for-sale inventory from April 2020 to April 2025, resulting in a 2.5-month supply of homes for sale, down from 3.0 months as of April 2020 and lower than the current supply nationally of 3.2 months (Redfin, a national real estate brokerage; Inventory of homes for sale data only available since October 2015. 12-Month Home Sales Totals by Type of Sale in the Madison HMA Sources: Cotality, with adjustments by the analyst; Freddie Mac Primary Mortgage Market Survey The faster price growth was partly due to higher demand because of slightly moderating interest rates and the relatively constrained inventory. By comparison, during the period from 2022 through 2023, the average price for an existing home increased by an average of $27,100, or 8 percent, annually, and from 2020 through 2021, the average sales price rose by an average of $23,650, or 8 percent, annually. Previously, from 2015 through 2019, when the for-sale inventory was declining but generally much higher, existing sales price growth averaged $12,550, or 5 percent, annually. The accelerated sales price growth has resulted in a cumulative 44-percent increase since 2020, outpacing the increase of 39 percent for the nation. New Home Sales and Prices New home sales in the Madison HMA are a significant portion of new home sales statewide and are a larger component of the sales market in the HMA compared with the state. Of all new homes sold in Wisconsin during the 12 months ending April 2025, approximately 28 percent were in the HMA; however, new home sales during the 12 months ending April 2025 declined by 180, or 22 percent, from a year earlier to reach 630 sales, the lowest total since 2011. The decline was similar to the year-over-year decline of 230 sales, or 22 percent, during the 12 months ending April 2024 and from 2021 through 2023, when interest rates increased and new home sales declined by an average of 270, or 22 percent, annually. During 2020 and 2021, new home sales peaked, averaging 1,350 sales annually following a year-over-year increase of 36 percent, or 360 sales, during 2020, partly due to low interest rates. New home sales from 2010 through 2019 generally trended upward due to job and population growth in the HMA, from an average of 725 annually from 2010 through 2014 to an average of 1,000 sales annually from 2015 through 2019. During the 12 months ending April 2025, the average price for a new home was reflecting an increase of $21,000, or 4 percent, from a year earlier, moderating from the increase of $28,950, or 6 percent, during the 12 months ending April 2024. Low new home sales activity and stabilization in the cost of residential construction have contributed to slowing price growth. Year-over-year price growth recently peaked during 2022, when the average price for a new home increased by $52,900, or 13 percent, outpacing the price growth for existing homes. An 11-percent increase of $41,350 in 2021 preceded that peak. A contributing factor to the high level of new home price growth was the rising cost of residential construction materials, which increased an average of 15 percent annually in the nation during 2021 and 2022 (National Association of Home Builders [NAHB]). During 2020, new home prices were relatively unaffected by the surge in new home sales, increasing just 2 percent, or $6,525, from a year earlier. By comparison, from 2015 through 2019, when sales were relatively steady, new home sales prices increased an average of $13,950, or 4 percent, annually. Housing Affordability: Sales The high home sales prices and mortgage interest rates have decreased affordability. The Madison HMA is ranked 111th in home affordability among 176 major metropolitan areas nationally as of the first quarter of 2025, down from 106th as of the first quarter of 2023 (NAHB/Wells Fargo). A family at the median income in the HMA would need to allocate 33 percent of their pre-tax income to cover the monthly payment for a median-priced home as of the first quarter of 2025, unchanged from the previous year but increasing from 30 percent as of the first quarter of 2023 because growth in sales prices outpaced income growth. Across the nation, by comparison, a family at the median income would need to allocate 36 percent of its income for a median-priced home, down from 40 percent as of the first quarter of 2023 because the growth in incomes outpaced price growth. Despite the HMA being generally more affordable than the nation as a whole, the cost burden for first-time homebuyers is higher in the HMA than the nation. Sales housing in the Great Lakes region is generally more affordable than that of the nation; however, the Madison HMA This is likely due to the large share of students among renter households. Sales permitting in the Madison HMA increased from the average of 1,625 units annually during 2022 and 2023 but is still below the most recent peak during 2020 and 2021, when new home sales were relatively high and sales permitting averaged 1,800 units annually. Sales permitting from 2015 through 2019 averaged 1,750 units annually and increased from an average of 1,050 units annually from 2010 through 2014, partially due to stronger net-in migration. Permitting of sales units is significantly higher than the number of new home sales recorded, partly because many custom-built homes, including those built on land already owned by a household contracting with a builder, require a building permit but may not be included in reported sales. Speculative construction by home builders—home construction without a confirmed buyer—is relatively uncommon in the HMA."}, {"role": "assistant", "content": "Forecast Demand for 5,450 new single-family homes, townhomes, or condominiums is expected during the next 3 years ( The forecast period is May 1, 2025, to May 1, 2028. Source: Estimates by the analyst"}]}
{"messages": [{"role": "user", "content": "Current Conditions and Recent Trends The overall rental market in the Madison HMA— including single-family homes, mobile homes, and apartments—is balanced, with an estimated vacancy rate of 6.0 percent, up from 4.1 percent as of April 2020, when conditions were tight ( Group Student Housing Market As of the fall of 2024, UW–Madison had an enrollment of 52,100. Students at the university make up a large portion of the renter households in the HMA, and with strong enrollment growth since 2020, students have become a more significant portion of the rental market. Primarily occupied by first- and second-year students, dormitory beds at UW–Madison currently number 8,850, down by about 100 beds since 2012 despite an increase of 2,700 first- and second-year students. This decrease in dorm capacity has led to more students entering the general apartment market since 2020. Although not restricted to students, a portion of the apartment inventory is primarily marketed to students; these properties may feature amenities such as individual room leases, fully furnished rooms, and proximity to campus or public transportation. As of the first quarter of 2025, the inventory included in the Group-defined student market totaled approximately 34,400 beds, up by 2,825, or 9 percent, from a year earlier. The vacancy rate at these properties as of the first quarter of 2025 was 4.2 percent, up from 2.8 percent a year earlier, During 2022 and 2023, when student apartment market conditions were very tight, the vacancy rate averaged 2.1 percent annually, and rents increased an average of $62, or 6 percent, annually. Rental permitting during the 12 months ending April 2025 increased by 310 units, or 7 percent, from the previous year to 4,700 units, slightly lower than the period of elevated construction activity from 2021 through 2023. Rental construction activity was very low following the Great Recession, averaging 540 units annually during 2010 and 2011, but increased to an average of 1,950 units annually from 2012 through 2013 as the economy of the HMA recovered. Net in-migration and apartment absorption led to a decline in vacancy rates from 2010 through 2013; as a result, developers increased building activity from 2014 through 2016 to an average of 3,700 units annually, keeping pace with the absorption of units. A slowing of net in-migration during the period from 2017 to 2020 contributed to lower demand for apartment units in the HMA, leading to relatively low rent growth; rental permitting declined to 2,900 units annually. Demand for apartment units has increased since 2020, partially due to a relatively high rate of population growth but also an increased rate of household formation and smaller households. Developers responded to the low vacancy rates and high rent growth by increasing construction significantly to an average of 5,100 units annually from 2021 through 2023. As those units entered the market, rent growth slowed and vacancy rates increased, causing the market to transition to balanced conditions. The net absorption of apartment units remained strong in the HMA, however, preventing the market from becoming soft despite increased supply. Building activity remains strong; approximately 7,250 units are under construction. Construction has remained high even in this mostly built-out area, partly because of changes in zoning and height restrictions in downtown Madison and along the East Washington corridor, where older housing was demolished. Suburbs where the portion of HMA rental construction has increased since 2020 include the villages of Cottage Grove and DeForest, which increased from less than 1 percent each from 2010 through 2019 to 3 percent and 4 percent, respectively, since 2020. From 2017 through percent of renter households faced a moderate to high cost burden, with 31 to 50 percent of their income going to housing costs, significantly higher than 6.9 percent nationally ( American Community Survey 1-year data Line Item Moderate to High Cost Burden: 31–50 Percent of Income Toward Housing Costs Severe Cost Burden: 51 Percent or More of Income Toward Housing Costs Madison HMA Nation Madison HMA Nation Renter Households with Income <50% HAMFI Total Renter Households HAMFI = HUD Area Median Family Income. Sources: Consolidated Planning/Comprehensive Housing Affordability Strategy Data; American Community Survey 2017–21 5-year estimates Table 8. Percentage of Cost-Burdened Renter Households by Income in the Madison HMA and the Nation, 2017–21"}, {"role": "assistant", "content": "The 7,250 units under construction are expected to meet the demand during the first 2 years of the forecast period. In addition, approximately 590 units in final planning are expected to begin construction within the next 6 months and will meet some of the demand in the third year. Moderate population growth and increasing student enrollment at universities in the HMA will support demand for rental units. Rental Units Demand 9,675 Units Under Construction 7,250 Units Note: The forecast period is May 1, 2025, to May 1, 2028. Source: Estimates by the analyst Table 9. Demand for New Rental Units in the Madison HMA During the Forecast Period"}]}
{"messages": [{"role": "user", "content": "Executive Summary 1 Housing markets began the twenty- first century on a high note. Buoyed by the longest economic expansion in history, home sales, homeowner- ship rates, and the value of residen- tial construction all set new records in 1999. And thanks to strong income growth, housing affordabili- ty remained in check for most Americans despite rising interest rates, home prices, and rents. Widespread home price inflation continues to lift household net worth. The stock market boom notwithstanding, home equity remains the cornerstone of house- hold wealth—even among most American homeowners who also have stock holdings. Home Building’s Resilience Housing markets shrugged off a full percentage-point increase in interest rates in 1999, with no year- over-year decline posted in aggre- gate production or home sales. Concerns over Sprawl The fast pace of residential con- struction has fueled concerns about sprawl. As employment continues to decentralize, households are able to live and work at greater and greater distances from the urban core. As a Housing Starts GDP Change 1 The Current Housing Expansion Is the Longest on Record Sources: Census Bureau, Series C-25 and Bureau of Economic Analysis, Survey of Current Business. Homeownership on the rise Powered by strong income and employment growth, the national homeownership rate reached a new annual high of 66.8 percent in 1999 and continues to climb across all geographic regions, age groups, and racial/ethnic groups. Although per- sistent disparities between whites and minorities narrowed only slight- ly, minorities still accounted for near- ly 40 percent of the net growth in owners in the final half of the 1990s. While reaching traditionally under- served markets, the subprime lend- ing boom in low-income minority areas is noteworthy because of the higher rates and fees these lenders charge. According to a 1996 Freddie Mac study, between 10 percent and 35 percent of subprime borrowers could have qualified for lower-cost prime loans. The lack of access to prime lenders for such borrowers is thus a source of growing concern. Losses of Affordable Housing Despite the strong economy, record numbers of very low-income house- holds are devoting more than half their incomes for housing—and working is no panacea for these high housing cost burdens. About half a million very low-income renters and nearly as many very low-income owners earning at least the equiva- lent of the full-time minimum wage spend this much for housing. 4 financed through tax credits has slowed steadily, primarily because funding is not adjusted for inflation."}, {"role": "assistant", "content": "Demand in the next decade Although household growth may slow slightly over the coming decade, home building will likely rival the 1990s in terms of number of units built and value of construc- tion. As the aging baby boomers boost the number of 45-54 and especially 55-64 year-olds, the demand for amenity-rich homes and second homes will continue to rise. At the same time, the echo boomers—the children of the baby boomers—will start to replace the smaller baby-bust generation in the young adult age groups, giving the markets for manufactured housing, starter homes, and rental apart- ments a modest lift."}]}
{"messages": [{"role": "user", "content": "Efforts to combat sprawl by passing no- and slow-growth initiatives in outlying areas could actually make matters worse. By taking land out of the path of development, these ini- tiatives run the risk of pushing development even further out. Among large Northeastern and Midwestern cities, only New York, Columbus, and Kansas City experienced steady population growth through 1998. While large cities in the South and West are still attracting new resi- dents, Charlotte is the only location where population growth in the city has outpaced that in the suburbs. Homeowners have capitalized on soaring prices when they sell. The Federal Reserve Board has estimat- ed that the average capital gain on a home sale, net of transaction costs, has exceeded $25,000 for the past five years. With existing home sales running at roughly 4.5 million annually, realized capital gains amounted to as much as $560 bil- lion in the second half of the 1990s. For half of black homeowners, home equity accounted for 57 per- cent or more of their net wealth. For half of Hispanic homeowners, the share was even higher at 71 percent or more. Among half of white home- owners, though, the contribution of home equity to wealth was 40 per- cent or less."}, {"role": "assistant", "content": "Demographic Drivers 10 Although household growth is expected to slow slightly over the coming decade, its changing com- position should push the value of residential construction to new heights. Now in their peak earning years, the baby boomers will contin- ue to demand expensive, amenity- rich homes. This is likely to be true even for the growing number of baby-boomer couples whose chil- dren no longer live at home."}]}
{"messages": [{"role": "user", "content": "The importance of minority house- holds to housing demand—particu- larly in rental and existing home markets—continues to mount. As a result of ongoing immigration and higher rates of natural increase, minorities will account for about two-thirds of net household growth over the next decade."}, {"role": "assistant", "content": "Younger on average than whites, minorities will add 9.2 million households under age 50 and lose only 1.7 million households over that age to death, institutionaliza- tion, and other causes. And thanks to ongoing immigration, the Asian and Hispanic populations will not experience the same baby bust-relat- ed decline in 35-44 year-old house- holds as the white and black popula- tions. With net increases across all age groups, the number of minority households will increase by 7.5 mil- lion over the next decade (Table A-7)."}]}
{"messages": [{"role": "user", "content": "Even in the Midwest where immi- grants are least likely to settle, the foreign-born accounted for one in eight net new households. How changes in the senior popula- tion will reshape housing demand in the future remains unclear. On the one hand, the elderly strongly prefer to remain in the homes they now occupy. If this trend con- tinues, many baby boomers will be making choices about both primary and secondary residences over the next decade that will last through their retirement. Among those with jobs, moves— especially long-distance ones—are less likely. For those delaying retire- ment who have considerable wealth, keeping a primary residence near work and another one else- where for recreational purposes may become a popular choice. 15 Most Seniors Lock in Their Housing Choices Before They Reach Age 60 Age When Households Now in Their 70s Moved Into Their Currrent Homes Age 65 and Over Age 60-64 Age 55-59 Age 50-54 Under Age 50 Percent Source: Joint Center tabulations of the 1997 American Housing Survey. Even with this extraordinary progress, though, the homeowner- ship gap between minority and white households has barely improved. In addition, rising home prices and interest rates are threat- ening affordability. Sustaining the homeownership boom will there- fore be difficult unless income growth continues to outrun house price inflation. Measured on an average annual basis, after-tax pay- ments on a typical home with a 10 percent downpayment and a 30- year fixed loan climbed 4.5 percent in 1999, or $372 after adjusting for inflation. Downpayment costs rose 3.5 percent, or $442. Totaling 11.1 percent between 1994 and 1999, the current rise in real home prices rivals the 11.9 percent runup between 1985 and 1989. The increases are also unusually wide- spread, reducing regional dispari- ties in home price inflation to their lowest levels in decades."}, {"role": "assistant", "content": "As longer-term immigrants begin to make up a larger and larger share of the foreign-born population, overall immigrant homeownership rates will likely improve."}]}
{"messages": [{"role": "user", "content": "In the past year, the shift to adjustable-rate loans and other products with a broad spectrum of maturities and terms has been dra- matic. Some 21 percent of loans had adjustable rates in 1999, compared with just 12 percent in 1998. These loans may adjust every one, three, or five years after initial fixed periods that range from one to ten years. The strong demand for products aimed at buyers with impaired cred- it is apparent in the recent surge in subprime lending activity. Between 1993 and 1998, the share of all home purchase loans in metro areas made by subprime specialists increased from under 1 percent to 5 percent, while their share of refinances soared to 12 percent. Diverging vacancy Trends Although apartments dominate new rental construction, single-family homes account for fully one-third of rental housing. Over the 1990s, rental markets for single- and multifamily housing have followed different courses."}, {"role": "assistant", "content": "The baby boomers are also con- tributing, lifting the share of renter households in the 35-54 age group to 37 percent in 1997. By comparison, the share of renter households in this age range was just 30 percent in 1987 and 26 percent in 1975. As the boomers age during this decade, the share of renters aged 45-64 will likely rise from 22 percent to 26 percent."}]}
{"messages": [{"role": "user", "content": "the rent/own decision Renting remains the only option for the many Americans who are either unable to qualify for a mortgage loan or to cover the costs associated with buying a home. For millions of others, though, renting is an attrac- tive lifestyle as well as a prudent financial choice. Renting is an especially appealing option for people who expect to move again within a few years because they can avoid the steep transaction costs associated with 24 Multifamily Vacancy Rates Continue to Fall While Single-family Vacancy Rates Rise Percent Single-Family Small Multifamily Larger Multifamily Note: Small multifamily rentals have 2-4 units; larger multifamily rentals have 5 or more units. Source: Census Bureau, Series H-111."}, {"role": "assistant", "content": "22 buying and selling a home. On aver- age, it costs 1.5 percent of the pur- chase price to close on a home, and as much as 6.0 percent of the sales price to sell it if a real estate agent is used. Unless house price apprecia- tion in the first few years of owner- ship is enough to fully offset these transaction costs, renting is general- ly a better option."}]}
{"messages": [{"role": "user", "content": "Given these cost considerations, it is perhaps unsurprising that 49 per- cent of owners have remained in the same homes for 10 years or more, compared with just 12 per- cent of renters. Moreover, some 22 percent of long-term renters live in the New York metropolitan area, where rent control has encouraged a disproportionate share of tenants to stay in their same apartments. In reality, of course, the choice to own or rent involves much more complex considerations than merely financial prudence. Depending on the location, the housing stock avail- able for owning or renting may be quite limited. In addition, the same type of home may not be available as both a rental and as a for-sale unit. As a result, in choosing a com- munity or a unit type, households often implicitly decide between owning or renting regardless of the financial implications. Rental Property Upkeep While rental housing markets have been reviving, their recovery has not yet stimulated higher spending among property owners for upkeep and improvements. Between 1992 and 1999, real spending by home- owners for upkeep and improve- ments rose at a 1.9 percent average annual rate, but real spending by owners of rental units fell at a 2.7 percent average annual rate."}, {"role": "assistant", "content": "By 2015, the number of renters under age 25 is expected to increase by over a million—a 20 percent gain. Immigrants will continue to play a critical role in rental housing mar- kets. Especially in cities such as New York, Los Angeles, and Miami where the foreign-born tend to settle, demand for rental properties will remain strong."}]}
{"messages": [{"role": "user", "content": "CBRE forecasts that annual U.S. GDP growth will slow to 2.0% in 2026 with softening labor market conditions and marginally lower inflation averaging 2.5%."}, {"role": "assistant", "content": "Despite these challenges, commercial real estate investment activity is expected to increase by 16% in 2026 to $562 billion, nearly matching the pre-pandemic (2015- 2019) annual average. Total returns will be income driven. Asset selection and management will be key drivers for returns. Cap rates for most property types are expected to compress by 5 to 15 basis points (bps). Commercial real estate leasing activity will continue to recover in 2026 from its 2024 low. The underlying performance and timing of recovery varies across sectors, asset types and markets. Performance of the office market will vary greatly between newer prime and older secondary space. We expect even more scarcity of available prime space by year-end 2026. Spillover demand to the next tier of space will likely increase in early-recovery office markets. Leasing activity will continue to improve in 2026, surpassing 2019 levels. CBRE expects large users to continue returning to the market. The industrial sector will continue to see a flight to quality by occupiers at the expense of older assets. Annual leasing volume is expected to improve slightly in 2026, driven by reshoring of manufacturing operations and outsourcing of distribution to third-party logistics (3PL) providers. In the retail sector, demand is expected to be driven by expanding grocery, discount and services retailers that rely on physical locations to reach consumers. Retailer success will require precise strategies that align selective growth with evolving consumer behaviors. Overview The multifamily sector is expected to see positive net demand throughout 2026. However, there are still substantial newly delivered apartment units that remain unleased in many markets, particularly in the Sun Belt and Midwest regions. As a result, keeping existing tenants in place will be a top priority for multifamily landlords. Demand for data centers remains strong, with 2026 leasing activity expected to reach an all-time high. Supply growth is increasingly constrained by longer power delivery timelines. We expect continued greenfield development in emerging U.S. markets, particularly along Interstate 20 across the Sun Belt and in markets with less regulation of electricity production. In the healthcare sector, construction completions are expected to drop sharply in 2026, less new supply will support vacancy rate stabilization and continued rent growth for medical outpatient buildings. Occupiers will continue to focus on real estate for cost savings and efficiencies, as higher costs persist and new federal healthcare policies take effect. In the life sciences sector, the remaining construction pipeline of speculative lab/R&D space is expected to be delivered by year-end. Demand for lab/R&D space will be driven by rising industry employment and a capital markets revival. Some properties will benefit from growing alternative sources of demand, such as robotics and other advanced manufacturers that require specialized lab space."}]}
{"messages": [{"role": "user", "content": "01 Economy Upside Despite Uncertainty While concerns about the economic impact of tariffs have subsided, new concerns about overinvestment in artificial intelligence (AI), government debt levels and a softening labor market are building."}, {"role": "assistant", "content": "GDP growth is expected to slow to 2.0% in 2026 from 2.3% in 2025 due to less business investment and consumer spending. Companies will face tough decisions to balance persistent inflation with investments needed for continued growth. Although there were a number of large corporate layoffs in 2025, most companies remain slow to hire and fire. More use of AI will likely play a minor role in labor market dynamics in 2026. We expect labor market conditions to soften as companies carefully reduce headcount. Job growth for the year is expected to slow to 0.3% from the annual average of 1.1% since 1990. This should result in a higher unemployment rate, particularly for younger entrants to the labor market. economy—the consumer. Retail sales growth has slowed, with affluent households carrying a greater share of overall consumption. This dynamic will be even more prevalent in 2026. Marginally lower inflation at 2.5% should alleviate some of the pricing pressure on more value-conscious households. The combination of persistent inflation and higher unemployment will complicate the Federal Reserve’s decision-making. Because price pressures are expected to fade later in the year, CBRE believes the Fed will focus on downside risks facing the labor market and cut the federal funds rate only twice in 2026 to a target range of 3.0% to 3.25%. Aside from elevated inflation, concerns about U.S. debt levels are putting upward pressure on long-term Treasury yields. But the prospect of slower economic growth suggests that Treasury yields could end the year below 4%. Regardless, the yield curve will likely steepen, allowing financing via shorter- term credit to help drive commercial real estate investment volume. 01 Implications for Real Estate The Bottom Line Occupiers Investors — Act Early to Secure Superior Space Constraints on new supply across many asset types mean quality space will be more difficult to find, especially in prime locations. Early renewals and preleasing of new construction are essential to procuring the right space when it is needed. — Consider External Pressures Beyond Real Estate Labor availability, power constraints and regulatory hurdles will increasingly shape location decisions. Proactive planning and local market knowledge will be critical to secure the right space and resources in a timely manner, especially for infrastructure-heavy facilities. — Prepare for Competitive Markets Be ready to act with conviction in 2026. We expect increased investment activity, with investors aggressively pursuing high-quality opportunities. — Pricing Presents Unique Opportunities It’s an opportune time to realize gains from existing investments and redeploy capital into a market offering pricing opportunities. The highest returns of this cycle will likely be realized over the next several quarters. — Wider Opportunities Across Risk-Return Spectrum While we expect returns will be largely driven by rental income, there are opportunities in both debt and public equity. Look across the capital markets spectrum for the best risk-adjusted returns. — Uncertainty Remains Constant We expect that financial markets will remain volatile due to government and economic policy, particularly with regard to trade. Our baseline forecast anticipates an environment that will support real estate investment, making it important to look beyond the headlines. 02 Capital Markets — U.S. commercial real estate is affordable: Pricing for commercial real estate is relatively cheap compared with other asset classes. Investors continue to broaden their targets for capital allocation in commercial real estate, with retail and office expected to see notable volume growth in 2026. — Total returns will be driven by income in 2026: With benchmark rates expected to remain relatively elevated, returns will be income driven. Market/asset selection, due diligence and asset management will be key ingredients for success. — Debt market will continue to function with tight spreads: We expect debt markets to remain healthy in 2026, with all sources remaining active. There will be ample liquidity due to sizable amounts of dry powder from both public and private investors. The weight of capital presents an upside risk to our forecasts."}]}
{"messages": [{"role": "user", "content": "— Gateway markets and AI/financial hubs will lead the recovery: Companies are once again making long-term leasing commitments and requiring workers to return to the office."}, {"role": "assistant", "content": "Gateway markets with a strong presence of financial and AI-related companies will continue to offer compelling investment opportunities. 02 Outlook Commercial real estate investment activity is expected to continue recovering in 2026. With market sentiment potentially buoyed by the prospect of additional rate cuts and long-term yields around 4%, we expect a 16% increase in investment volume this year. Cap rates for most property types are expected to decrease by 5 to 15 bps. Good-quality assets are expected to see greater cap rate compression. However, total returns will largely be driven by income. Consequently, asset selection and management will be key drivers for returns this cycle. The office market continues to recover, with strong investment volume growth from a relatively low base. Less new supply and outperformance of high-quality space will persist. We expect investor interest will broaden to include well-located Class A properties, as spillover demand from prime trophy assets occurs. Lagging office markets, including Chicago and Los Angeles, are bottoming out, with Boston, Seattle and Denver expected to follow by year-end 2026."}]}
{"messages": [{"role": "user", "content": "Industrial properties continue to work through excess supply that materialized following the pandemic- era construction boom. Nevertheless, industrial remains a preferred property type for investors. Modern assets in key metros with population growth and transportation hubs will outperform. Renegotiation of the U.S. Mexico Canada Agreement in 2026 should also result in intriguing investment opportunities."}, {"role": "assistant", "content": "Commercial Real Estate Investment Volume Source: MSCI Real Assets, CBRE Research, Q4 2025. Office Industrial Retail Multifamily Hotel 02 Retail continues to show strength across the board with healthy fundamentals amid little new supply. Multifamily is also working through a supply overhang, particularly in some markets across the Sun Belt and Mountain regions. Midwestern markets and some gateways continue to maintain healthy fundamentals. Cap rate spreads remain tight, indicating normalizing rent growth and weight of capital. Investors will find opportunities to dispose of assets and realize gains, which can then be redeployed into high-growth markets as supply and demand come into better balance in late 2026. Hotels will also present attractive investment opportunities in 2026. We expect fundamentals to improve as new supply diminishes and RevPAR improves. Nevertheless, the recovery in fundamentals will be uneven and more focused around high-end demand. Furthermore, operational prowess will be especially important in a business where controlling costs is complex and total returns are more dependent on income. While alternative lenders are expected to remain active, the reemergence of banks in the debt market is expected in 2026, particularly as the yield curve steepens. Overall, we expect all sources of debt capital to remain active. CBRE expects lending spreads over benchmark rates will remain tight, barring any unforeseen shocks to financial markets. While lending standards remain prudent, we may see loan structures and covenants ease as lenders exhibit an increased willingness to provide commercial real estate financing. We expect that many maturing loans will be extended to 2027 and beyond. Overall, the commercial real estate lending environment will remain healthy, with abundant liquidity in 2026 even as default rates increase for obsolete assets."}]}
{"messages": [{"role": "user", "content": "03 Office — Supply constraints will contribute to declining vacancy: 2025 was the first year that inventory removals (demolitions and conversions) outpaced new completions since CBRE began tracking the market in 1988. The reduction in supply is beginning to rebalance markets."}, {"role": "assistant", "content": "Although 2025 net absorption was 14% below the 30-year average, the steep drop-off in new supply more than compensated to drive the first year-over-year decline in vacancy in over five years. — Demand for prime assets will spill over to the next tier of product as availability dwindles: As the prime vs. nonprime performance gap is near a record high, occupiers will continue to focus on the highest-quality assets. The urgency to lock in quality space, along with significant tenant leverage for most lesser-quality assets, will further drive this divide. The next tier of assets—those located adjacent to prime buildings with well- positioned amenities (e.g., proximity to public transportation, on-site food & beverage options)—is beginning to see increased demand. Prime buildings in downtown areas registered a 1.5-percentage-point drop in vacancy since year-end 2024 vs. a 0.5-percentage-point decline in prime suburban buildings. Although downtown prime vacancy (14.5%) remained higher than suburban prime vacancy (13.6%) as of Q3 2025, we expect to see stronger downtown leasing activity in 2026."}]}
{"messages": [{"role": "user", "content": "— Urban gateway markets are poised to rebound: Activity among large urban users is beginning to increase after four years of under-represented market share. Downtown leasing comprised just 30% of activity from 2020 to 2024 despite making up 35% of inventory. In 2025, that share ticked up to 40% of all activity. We may find the market has underestimated the value of agglomeration and talent access offered by urban gateway hubs."}, {"role": "assistant", "content": "We remain optimistic about gateway markets like Manhattan, San Francisco and Dallas, which are positioned to see continued leasing growth in 2026. — Occupiers will remain cautious about AI’s impact on space planning: Occupiers have signaled a cautious approach to their space planning. Although AI has not yet impacted their real estate decisions, it could happen soon. Occupiers will remain challenged to redefine the traditional workspace paradigm and its ability to attract employees. Growing adoption of AI will only underscore the need for occupiers to deliver purpose-driven offices. Buildings capable of leveraging the latest technologies while also offering tenants best-in-class design and amenities will benefit the most."}]}
{"messages": [{"role": "user", "content": "Vacancy Rate (%) MSF Completions (L) Net Absorption (L) Vacancy Rate (Current Forecast) (R) Vacancy Rate (November 2024 Forecast) (R) Forecast 03 Office Outlook The office sector should continue to build on the current momentum, though the crawl back to equilibrium will be long. We expect at least the same amount of occupier demand as last year, albeit for less available top-quality space. Coupled with little new construction, this is expected to lower the overall vacancy rate. As square-foot-per-employee ratios have been stable for over two years, the relationship between employment and absorption is becoming more balanced. The location and magnitude of job growth will in part determine which markets recover first, with the finance and technology industries expected to see better-than-average job growth in 2026."}, {"role": "assistant", "content": "Annual leasing activity is expected to surpass 2019 levels. In particular, large users will likely continue returning to the market. More certainty about space needs will continue to drive activity, with an outsized share of space commitments in central business districts. Manhattan, San Francisco, Dallas, San Jose and Charlotte will lead for rent growth, while markets like Los Angeles and Seattle return to positive growth in 2026."}]}
{"messages": [{"role": "user", "content": "As users continue to favor better-quality assets and prime construction activity remains well below average, we expect prime vacancy to reach pre-pandemic levels by the end of 2027. Accordingly, the next tier of assets will begin to see spillover demand amid increased occupier urgency to lock in the highest quality space available."}, {"role": "assistant", "content": "Annual leasing activity is expected to surpass 2019 levels. In particular, large users will likely continue returning to the market. 04 Industrial — Industrial leasing activity will rise slightly in 2026: Tenants will continue to renew space at record levels, expand domestic manufacturing capabilities to mitigate tariff-related costs, upgrade to a plethora of available first-generation distribution facilities or outsource distribution to 3PL providers."}]}
{"messages": [{"role": "user", "content": "— Vacancy will stabilize due to a lack of speculative completions: Despite minimal net absorption due to many lease expirations in older facilities, vacancy will stabilize in the mid-6% range."}, {"role": "assistant", "content": "— Incentives for early lease renewals will increase: Older industrial space is being returned at a robust pace, evidenced by the more than 100 million sq. ft. of negative absorption in pre-2020 buildings last year. To encourage earlier renewals by occupiers, many landlords are offering more generous tenant-improvement allowances and longer free-rent periods. On average, occupiers signed renewals 219 days prior to expiration in 2025, nearly 30 days sooner than in 2024. We expect this trend to continue in 2026. — Mega big-box occupiers will want to quickly upgrade their space: Availability of first-generation facilities in certain markets is expected to quickly dwindle. Louisville, Columbus, Greenville, Chicago, Phoenix, the Inland Empire and Kansas City all have a limited amount of available first-generation blocks of sq. ft. or more. Lease expirations in this size range will accelerate over the next three years, increasing the potential tenant base."}]}
{"messages": [{"role": "user", "content": "(f) Renewal Share Sq. Ft. (Millions) New Leases (msf) Renewals (msf) Renewal % of Total Outlook CBRE forecasts a 5% year-over-year increase in industrial leasing activity to nearly 1 billion sq. ft. Lease renewals will account for more than 35% of total volume, well-above the historical average of 24%."}, {"role": "assistant", "content": "New leasing activity will remain on par with 2025, driven by a flight to quality and more outsourcing of distribution operations, as well as continued reshoring of manufacturing operations. New leasing activity will be driven by a flight to quality to take advantage of taller clear heights and stronger power or outsource their distribution operations to 3PL providers. We estimate that 3PLs will account for more than 35% of leasing activity this year. More reshoring of manufacturing operations is expected to mitigate tariff-related costs. Because many 3PLs require shorter lease terms and more flexible spaces, often with a smaller footprint than retailer distribution operations, outsourcing will continue to help retailers and manufacturers realize a more efficient distribution process. Despite a flight to quality, speculative development will be minimal in 2026 due to an oversupply of vacant first-generation space and difficulty obtaining construction financing. However, build-to-suit development will increase to meet more specialized occupier requirements. Rent growth will remain subdued as the industrial sector adjusts to shifting trade policies and slower economic growth. Despite the volatility, rents in gateway markets like Atlanta have begun to turn the corner. Secondary markets such as Nashville and Louisville are expected to maintain relatively strong rent growth due to reliance on domestic regional distribution that generally is not affected by international trade volatility. 05 Retail — Available supply scarcity will continue: Space availability will remain near historic lows in 2026, with only a slight uptick where big-box closures occur. New construction will remain limited due to financing constraints, high costs and little land availability. These factors will help to limit any rise in space availability even as demand moderates. — Modest positive absorption is expected: After uneven demand in 2025, net absorption is expected to stabilize in 2026. Expansions by grocery, value and service-oriented retailers should largely offset continued restraint among discretionary retailers, keeping occupancy broadly stable. — Performance will diverge more sharply by format and location: Grocery-anchored centers, neighborhood & strip centers and high-income suburban corridors are positioned to outperform for both occupancy and rent growth. Weaker malls and older power centers will continue to lag due to higher capital improvement needs and slower backfill activity widening the gap in availability and net asking rents. — Rent growth will continue in well-located open-air centers due to limited new supply and tight occupancy conditions: Older assets may rely more on concessions and tenant-improvement allowances as retailers become more selective and expansion plans moderate. Availability Rate (%) MSF Completions (L) Net Absorption (L) Availability Rate (R) Outlook The U.S. retail sector enters 2026 with relatively strong fundamentals but appears to be transitioning to a more selective phase of the real estate cycle. Retail fundamentals stabilized in late 2025 as net absorption turned positive and the overall availability rate held near a multi-year low due to more targeted productivity and data-driven tenancy considerations."}]}
{"messages": [{"role": "user", "content": "05 Retail Retail fundamentals stabilized in late 2025 as net absorption turned positive and the overall availability rate held near a multi-year low."}, {"role": "assistant", "content": "05 Retail We expect net absorption to remain positive this year, driven by grocery, discount, off-price and service retailers that rely on physical locations to reach consumers. Full- and quick- service restaurants are also expected to remain active users of space, especially in high-traffic suburban corridors and mixed-use environments. Elevated buildout costs, shifting labor dynamics and thinner margins will cause retailers to pursue fewer high-performing sites, reinforcing their selective growth strategies. Availability may rise in weaker formats but remain tight nationally due to limited new construction."}]}
{"messages": [{"role": "user", "content": "Overall rent growth will be modest in 2026, easing from the brisk pace during the post-pandemic recovery, with most open-air centers posting increases. Strong suburban submarkets and grocery-anchored centers will outperform, supported by high occupancy and minimal new competitive supply. However, tenants are becoming more cautious and decision-making is taking longer as sales growth moderates. This will place greater emphasis on deal structure, with concessions and tenant-improvement allowances playing a larger role in many cases."}, {"role": "assistant", "content": "06 Multifamily — Barriers to homeownership will continue to support multifamily demand: Challenges for would-be homeowners in 2026 include a 105% monthly premium to buy vs. rent, an estimated shortage of 3.4 million single-family homes, high mortgage interest rates and elevated home prices. With more than half ($7 trillion) of the outstanding $13 trillion of mortgages financed at interest rates of less than 4%, fewer existing homeowners will be willing to sell, which in turn will drive multifamily lease renewals. — Demand will remain soft: Softening renter demand due to tepid job growth is expected to continue in the first half of 2026. A slow-to-hire, slow-to-fire job market with low turnover is expected to reduce domestic migration and household formation and limit momentum in high-growth markets in the near term. — Operators will prioritize occupancy over rent growth, supported by strong renewals: Effective asking rent growth is expected to remain low for much of 2026. Multifamily operators are strategically choosing to maintain occupancy rates rather than aggressively pursuing rent increases on newly signed leases. The near-term focus on offering significant concessions to new tenants is supported by historically strong renewal rates (57% of all leasing activity, up from 51% in 2015 and 48% in 2005) among existing residents, which is expected to increase further this year. — Investors could be put off by rent controls in certain markets: Rent control initiatives have been key components of recent elections in markets such as Boston, Denver, New York and Seattle. If implemented, these initiatives will likely lead to lower investment activity and potentially constrain market-level liquidity in 2026 and beyond. Less new development as a result will limit opportunities for new renters."}]}
{"messages": [{"role": "user", "content": "06 Multifamily Outlook Labor market challenges, coupled with persistent inflation and relatively high interest rates, have weakened consumer sentiment and will weigh negatively on household formation and new multifamily leasing activity in the first half of 2026."}, {"role": "assistant", "content": "Despite multifamily vacancy rates largely stabilizing nationwide, year-over- year rent growth is expected to continue lagging pre-pandemic levels in 2026 due to economic headwinds and the large amount of new supply that remains available for lease, particularly in the Southeast, South Central and Mountain regions. Longer term, we expect these regions to outperform for job creation, inbound migration and multifamily performance, all of which will support future investment activity. The overall multifamily vacancy rate should continue to fall as more units are absorbed. With near-term operational challenges in high-supply markets, cap rates are expected to remain stable in 2026 and show incremental compression in following years. Interest rate and inflation stability, competitive debt markets, lower economic uncertainty and recovering investment volumes will underpin this outlook for cap rates."}]}
{"messages": [{"role": "user", "content": "While the current overall vacancy rate of 4.4% is well below the 2010-to-2019 average of 5.2%, it is expected to rise over the next several quarters as renter demand does not fully offset the remaining supply pipeline. Operators are strategically focused on preserving occupancies by offering new tenants certain discounts. This will persist at least until the stronger seasonal leasing in Q2 and Q3 alleviates pressure on occupancy. Renters are renewing their existing leases at historically high levels."}, {"role": "assistant", "content": "Not only do renewals reduce turnover costs and the risk of months of vacancy, but they dramatically outpace new leases for rent growth. 06 Multifamily Renters are renewing their existing leases at historically high levels (57% of all leasing activity). Not only do renewals reduce turnover costs and the risk of months of vacancy, but they dramatically outpace new leases for rent growth. Blended rent growth,1 which combines asking and renewal rents, is expected to remain higher than asking rent growth for new leases alone. The difference is especially pronounced in markets like Austin and Denver, where asking rent growth is projected to remain negative in 2026 yet blended growth will turn positive. More generally, the difference is largest in markets that depend the most on domestic migration and employment growth. Blended rent growth will remain a key metric for underwriters, with renewals accounting for a larger share of all leasing activity."}]}
{"messages": [{"role": "user", "content": "07 Data Centers U.S. data center demand continues to reach unprecedented levels and 2026 is on track to set a new record for leasing activity. Vacancy remains at historic lows and pricing is at all-time highs. However, new supply is becoming increasingly difficult to deliver."}, {"role": "assistant", "content": "F 07 Data Centers We expect continued greenfield development in emerging U.S. markets, particularly along Interstate 20 across the Sun Belt and in deregulated electricity markets. Regions with substantial natural gas resources remain especially attractive, with current commodity prices materially lower than peaks seen in 2003–2008 and in 2022. Alabama, Mississippi, Louisiana, Georgia, Florida, South Carolina, North Carolina, Virginia and Pennsylvania are all positioned to remain priority development locations. Preleasing activity is expected to remain in the mid-70% range, compared with the historical norm of 40% to 50%. Even with a 43% year-over-year expansion in primary-market inventory, preleasing demand shows no signs of cooling. Preleasing activity is expected to remain in the mid-70% range, compared with the historical norm of 40% to 50%. — Federal healthcare policy presents risk and opportunity: The One Big Beautiful Bill Act includes more than $1 trillion in healthcare spending reductions. As a result, outpatient space demand will increase as providers seek more affordable healthcare delivery options and restrictions are eased on outpatient services. — AI will drive new efficiencies in healthcare real estate: U.S. Census Bureau surveys show AI adoption by healthcare providers is accelerating. This technology offers significant potential to improve patient volume management and optimize existing space utilization."}]}
{"messages": [{"role": "user", "content": "Rent (L) Vacancy (R) NNN Rent Vacancy Rate MOB construction completions are projected to drop by 26% in 2026 to the lowest level in over a decade, reducing occupier options. Deliveries of on- campus hospital facilities will contract even further. A more uncertain and less favorable U.S. healthcare policy, coupled with higher land and construction costs, has many hospitals, healthcare systems and providers less willing to make significant commitments or assume development risk. 08 Healthcare The scarcity of available supply will support tight vacancy and continued rent growth for MOBs this year. MOB vacancy will stabilize within its typical range of 9.5% to 10.5% over the past 10 years. The average MOB rent is projected to climb to a record high in 2026 as rent growth accelerates to 1.4% from 0.9% in 2025. An ongoing industry pivot toward outpatient care and low vacancies will drive rent growth in select markets, mostly in the South and West."}, {"role": "assistant", "content": "Healthcare occupiers are increasingly focusing on real estate for savings and efficiencies, as industry cost pressures persist and new federal healthcare policies take effect. Occupiers will continue to pursue lower-cost options for healthcare delivery (i.e., MOBs), including conversions of obsolete office and retail buildings. The range of options reflects the flexible approach that healthcare providers, particularly large systems, will need to take to ensure that their portfolios are efficient and cost effective. Financially sound healthcare systems will continue to lease build-to-suit MOBs with long lease terms."}]}
{"messages": [{"role": "user", "content": "09 Life Sciences — Less construction of lab/R&D properties will help stabilize a supply and demand imbalance: At 6 million sq. ft., the current construction pipeline of lab/R&D properties is the lowest since early 2019 and down significantly from the peak of more than 37 million sq. ft. in 2023."}, {"role": "assistant", "content": "— Biotech companies will boost life sciences real estate demand: The State Street SPDR S&P Biotech ETF (XBI), one of the biotech industry’s bellwethers for equity valuations, surged dramatically in H2 2025. This index’s previous performance has foreshadowed greater leasing demand for lab/R&D space."}]}
{"messages": [{"role": "user", "content": "Life Sciences The remaining construction pipeline of speculative lab/R&D space will be delivered this year, stabilizing supply and demand."}, {"role": "assistant", "content": "Any remaining life sciences space under construction will be limited to fully leased build-to-suit projects."}]}
{"messages": [{"role": "user", "content": "3 Many Low-Income Married Couples Now Rely on Both Spouses' Incomes to Afford Housing Notes: Low income is defined as less than 80% of area median. Severe cost burden is defined as paying more than 50% of income for housing. Source: Joint Center tabulations of the 1989 and 1999 American Housing Surveys. 2001 The State of the Nation’s Housing A fter a remarkably long and steady expansion, housing production slowed in 2000. Even so, strong income growth kept house prices and rents appreciating faster than inflation, and falling interest rates late in the year helped push home sales to near- record levels early in 2001. Over the course of the 1990s, both job and housing growth were particularly strong in lower- density counties within and adjacent to metropolitan areas. As a result, growth in suburban areas continued to outstrip that in cities even in most metropolitan areas where city populations increased. Housing Markets I Production and sales slowed slightly in 2000, but only manufactured housing showed a sharp downturn. The slow- down in construction has, however, spread to 42 states. I House prices continued their ascent, bringing the inflation- adjusted increase between 1993 and 2000 to 16 percent. 4 Housing Has Been Resilient Despite the Weakening Economy Notes: Real GDP growth is the difference in real GDP (SAAR) in 1996 dollars between the first and fourth quarters. Employment growth is for total non-agricultural employment. Sources: Consumer confidence is the Conference Board's index. Real GDP growth is from Bureau of Economic Analysis, Table 1.10. Employment growth is from Bureau of Labor Statistics, Form 790. New home sales are from the Census Bureau, Series C-25. Existing home sales are from the National Association of Realtors. 5 With the production of more expensive homes and the persistent strength of remod- eling activity, residential fixed investment managed to hold steady. The value of con- struction put in place, adjusted for inflation, fell just 1 percent to $332 billion. New home sales rebounded from a setback earlier in 2000, exceeding an annualized rate of 1.0 million units by December. Existing home sales also revived in the first quarter of 2001, rising to a 5.28 million unit annual rate. A Reversal of Roles Housing typically leads the economy into recession as inter- est rates rise, job growth slows, and inventories accumulate. The softening that began in the last half of 2000, however, has been unusual in several ways. At 7 percent in the first quarter of 2001, interest rates were lower than those prevail- ing prior to and during the most recent recessions or the 1995 cooldown. Indeed, the Federal Reserve’s successive interest rate cuts sparked a flurry of refinancing, enabling the housing sector to help offset the drag on economic growth from rising energy prices and falling stock prices."}, {"role": "assistant", "content": "Assuming lenders confront the challenges of establishing a steady stream of credit, the manufactured home segment will continue to play a central role in meeting low-income homeownership demand. Nonetheless, it remains to be seen whether manufactured housing will again serve as large a proportion of homebuyers as it did in the credit environ- ment of the 1990s. Source: Census Bureau, Manufactured Housing Statistics."}]}
{"messages": [{"role": "user", "content": "Construction Slowdown Spreads While housing markets appear relatively strong overall, only eight states issued more housing permits in 2000 than in 1999. Home building activity was up pri- marily in states that only recently recov- ered from the last recession, such as Cali- fornia and New York. California in fact accounted for over nine percent of all per- mits issued nationwide last year. The tech- nology slowdown and the state’s current energy crisis, however, place California’s housing expansion at risk. In the South, new construc- tion in every state except Georgia was one or two years past recent peaks. In the Midwest, South Dakota was the only state where housing production did not stumble as a result of the broader economic slow- down. Permits in more than half the Western states continued to drop. The Northeast was split, with production in New York, New Jersey and New Hamp- shire still climbing. Home Prices Keep Rising Despite the chill in construction activity, home prices continued to appreciate in most areas of the country in 2000. Nationally, the increase in prices outpaced general inflation for the seventh consecu- tive year, surpassing the 1980s runup in both duration and magnitude. Indeed, inflation-adjusted house prices have soared 16 percent since 1993, compared with 14 percent between 1984 and 1989. With the economy showing signs of weak- ness, concerns over the sustainability of home price increases have been growing. Such concerns are understandable given the 1980s experience. During that cycle, 18 of the nation’s 50 largest metropolitan areas posted price appreciation of 20 per- cent or more above inflation. Following a prolonged period of job losses and mount- ing unemployment, 15 metropolitan areas then saw home prices depreciate by at least 10 percent. In the 1990s, 24 met- ropolitan areas experienced home price appreciation of 20 percent or more. The contraction in local economies would have to be much more severe than it has been so far, howev- er, to trigger similar price declines this time around. Suburbs Continue to Outperform Cities As it has for decades, population growth in the suburbs exceeded that in central cities in most of the nation’s metro- politan areas. With few exceptions, the gap between subur- ban and city growth rates was generally smaller in the South and West where many cities encompass annexed, low-densi- ty areas quite distant from the original urban core. Among the exceptions were Oklahoma City, San Antonio, Greens- boro and Charlotte. This trend also holds for minorities. Even though minority population growth—spurred by natural increases and immi- gration—prevented many central cities from losing population in the 1990s, more minority movers settled in the suburbs than in the cities. Nevertheless, cities as a group did experience their strongest population growth in decades. Fully 16 of the 31 cities in the largest metropolitan areas that lost population in the 1970s or 1980s (or both) gained population in the 1990s. Among the 16 were some of the nation’s largest and oldest cities, such as New York, Chicago, and Boston. Most of the 15 that continued to lose population were concentrated in the Northeast and Midwest—including Hartford, Philadelphia, Pittsburgh, Cleveland, Detroit, and St. Louis. The building activity that has occurred in many cities has largely served to offset losses in the lower-quality housing stock. There are, however, a few exceptions. Chicago’s addi- tion of nearly 20,000 units, for example, signaled both the resumption of population growth after decades of loss and the return of some higher-income households. While such gentri- fication is often welcomed as a way to improve the mix of urban incomes, it can also displace lower-income residents. Indeed, gentrification has resurfaced as a major concern in many metropolitan areas ranging from Atlanta, New York and Boston to Chicago and Denver. Mounting Development Pressures Development has been especially intense in less populated areas of the country, where strong job growth has enabled people to work at ever-greater distances from tradi- tional employment centers. Between 1990 and 1998, average job growth exceeded 15 percent in the nation’s low- and moderate- density counties. Soaring employment in outlying areas has fueled equally strong housing demand. In response, inflation-adjusted median home prices in rural suburbs climbed 18 percent between 1985 and 1999—well ahead of the 8 percent increase in urban portions of metropolitan areas. Rural areas outside metropolitan areas posted the largest increase, with real prices up 21 per- cent over the same period."}, {"role": "assistant", "content": "The vigorous pace of home building has stirred political activism at both the state and local levels to curb growth in outlying areas and closer-in, low-density suburbs. These efforts are primarily intended to preserve open space and to slow or halt further development. As additional growth limi- tation measures are approved, land costs will rise even more sharply and housing affordability in less developed areas will continue to erode. These pressures underscore the importance of finding ways to strike a balance between the desire to pre- serve open space and the need to expand the supply of affordable housing."}]}
{"messages": [{"role": "user", "content": "9 Job Growth Remains Centered in Low- and Moderate-Density Areas Notes: Each bar represents one-fifth of the US population as of 1990. The number of counties represented by each bar varies. Source: Joint Center tabulations of the Regional Economic Information System (REIS) database. 2001 The State of the Nation’s Housing H ousing demand is shaped primarily by shifts in the age and family composition of the adult population, immigration, and income and wealth trends. Aging of the population and ongoing immigration should keep household growth over the decade at or above the 11.5 million pace of the 1990s. In addition, immigration will serve to lift the minority share of net household growth to roughly two-thirds. While age and family composition shape housing preferences, the distribution of income and wealth are what determine the ability of households to act on their preferences. With even greater inequalities in wealth than in income, and housing costs rising faster than gen- eral inflation, access to wealth will increasingly differentiate homebuying power. Given their lower average incomes and limited access to wealth, minorities will thus remain at a disadvantage in the marketplace. Households comprising three generations of family members have also continued to increase in number in recent years. In 1980, only 1.3 million children under the Demographic Drivers 9 I Household growth should meet or exceed the 1.15 million annual level of the 1990s as more echo boomers reach adulthood and immigration continues. I While accounting for most of population growth in many central cities, minori- ties are also joining the exodus to the suburbs and beyond. Whether this doubling-up phenomenon primarily reflects an affordability squeeze or signals an emerging social trend is unclear. If it continues, however, household growth could again fall short of expectations. Future immigration flows and their impact on household formation also add to the uncertainty. In the absence of age- and family-specific data from the 2000 Census, the Joint Center currently estimates that net household growth will pick up slightly to 1.17 mil- lion annually over the next 10 years."}, {"role": "assistant", "content": "Shifting Age and Family Composition While the pace of household growth may be uncertain, its composition is not. Not surprisingly, the baby boomers will continue to drive the most significant changes in the age and income distribution. Although the total number of baby-boomer households will start to fall off as the oldest among them reach 65 in 2010, the number of households aged 45 to 64 will climb by more than 10 million over the decade (Table A-5). The aging baby- boomers will boost spending on home remodeling, demand for luxury apart- ments, and purchases of new, tradeup, and second homes. Members of the baby-bust generation, now in the prime childbearing and childrearing years, will also add modestly to the demand for starter and tradeup homes, as well as for remodeling services. For their part, the parents of the baby boomers are reaching old age in better health, and with better prospects for longer lives, than any generation before them. As a result, the ranks of household heads over the age of 75 are expected to increase by roughly 1.3 million over the decade. This growth implies rising demand for housing that allows seniors to age safely in place and for specialized facilities such as assisted living and continuing care communities. The changing age profile of the population will also drive changes in the composition of households over the next 10 years. With many of the baby boomers becoming empty- nesters and their children starting to marry, the fastest growing household type will be married couples without minor children living at home. Strong growth among both the senior and young adult populations, together with low rates of remarriage, will make single-person households the second fastest-growing household type. Of the nearly 5 mil- lion one-person households added over the decade, almost one-third will be over the age of 65. The numbers of single- parent households and married couples with children are expected to hold steady."}]}
{"messages": [{"role": "user", "content": "The influx of immigrants, together with losses of older white households, has pushed minority household growth far ahead of white household growth in both absolute and relative terms. Immigrants contributed more than 50 percent of His- panic and over 80 percent of Asian house- hold growth between 1996 and 2000. By comparison, immigrant households accounted for less than 20 percent of the growth in non-Hispanic white households and just over 10 percent of the growth in non-Hispanic black households. The impact of immigrants and minorities has been particularly profound in central cities (Table A-3). Indeed, most major cities that gained net population in the 1990s— including New York, Providence, Houston, Minneapolis, and Salt Lake City—would not have done so without the impressive growth of minorities. Moreover, minorities are now the new majority in several cities such as Boston, Philadelphia, Norfolk, Milwaukee, Sacramento, and San Diego. born reach young adulthood. The age structure of the minor- ity population is decidedly younger than that of the white population."}, {"role": "assistant", "content": "Hispanics, Asians, and blacks are thus expected to account for nearly 80 percent of population growth and about 65 percent of household growth in each of the first two decades of the 21st century (Table A-8)."}]}
{"messages": [{"role": "user", "content": "The homeownership rate for female-headed households stood at 53 percent in 2000, up from 48 percent in the early 1980s. Between 1985 and 1999, the number of female first-time homebuyers under the age of 45 living alone jumped more than 65 percent. This increase boosted the homeownership rate for this group to 29.6 percent—up from 22.6 percent in 1985 and rivaling that of their male counterparts. Mean- while, the number of female renters under 45 living alone increased from about 3.1 million to nearly 3.8 million. The share of married women contributing to household income also increased considerably to 63 percent in 1999, compared with 52 percent in 1981. Women’s earnings have become especially critical for relieving the heavy housing cost burdens of low-income families and for enabling moder- ate-income families to qualify for homeownership. Income and Wealth Disparities Widen Despite the longest expansion in the nation’s history, the dis- parity between the richest and poorest households widened in the 1990s. From the start of the recovery in 1992 through 1999, household incomes (adjusted for inflation) at the top 5 percent of the distribution increased by more than 20 percent, while incomes at the bottom 5 percent rose just over 10 percent. At the same time, incomes at the top 1 percent grew almost 50 percent, while those at the bottom 1 percent declined by about the same amount. Although blacks and Asians made particu- larly strong gains, their incomes—along with those of Hispan- ics—continued to lag those of whites by wide margins. Household wealth is more unevenly distributed than income. In 1998, the top one percent of households held more than one-third of the nation’s household net wealth. The bottom half held just three percent. Moreover, the median wealth of black and Hispanic households was less than one-fifth the median wealth of white households. The distribution of wealth has important implications for housing demand. Because white households have more accumulated wealth than minority households, they can make substantial financial gifts to their children. Nearly 17 percent of white households have received assets from their parents, compared with only 5 percent of minority households. Moreover, the amounts minorities typically receive are considerably lower than those whites receive. These patterns reinforce dif- ferences in homebuying power, adding to the advantages of white households in the housing market. 2001 The State of the Nation’s Housing T he number of net new homeowners has climbed by more than eight million since 1994. Employment and income growth, modest mortgage interest rates, innovative mortgage products for low-income buyers, and expected home price appreciation all contributed to the ownership rally. Although consumer confidence weakened and job growth slowed at the end of last year, nearly 1.2 million net households were added to the ranks of homeowners. This growth pushed the national homeownership rate to a record 67.4 percent in 2000. Minority and Low-Income Gains Minority households continued to lead the growth in homeownership in 2000. Although representing less than one-fifth of all owners, minorities contributed two-fifths of the net gain between 1994 and 2000. The impressive 24 percent net increase in black owners and 39 percent net gain among Hispanic owners far exceeded the 9 percent growth among white owners. Nevertheless, the combined gain in black and Hispanic owners (1.2 million each) amounted to less than half that in new white owners. 15 Strong Household Growth Has Driven the Increase in Minority Homeowners Since 1994 Notes: Whites, blacks, and Asians/others are non-Hispanic. Hispanics can be of any race. Source: Joint Center tabulations of Census Bureau Housing Vacancy Survey, Prices and payments are in 2000 dollars. Source: Table A-4. Rising unemployment could also jeopardize the ability of millions of two-earner households to meet their housing costs. More than 30 percent of the 1.2 million low-income families with both spouses employed who bought homes between 1997 and 1999 spent more than half their incomes on housing (including mortgage payments, property taxes, insurance and utilities). If all the wives in these couples lost their jobs, the share with such heavy cost burdens would increase to 45 percent; if all the husbands lost their jobs, the share would jump to 69 percent. The increased presence of subprime lenders in the refinance market, particu- larly in historically underserved areas, is troubling. Moreover, 18 percent of high-income minority homeowners refinanced their mortgages with a subprime lending spe- cialist—the same share as low-income white owners. Such segmentation in the subprime refinance market has raised concerns about minor- ity access to conventional refinance lenders that offer lower rates and fees."}, {"role": "assistant", "content": "Demographic Forces Favor Homeownership Although no longer adding net new households, the baby boomers will continue to swell the ranks of homeowners dur- ing the next decade. As they reach the ages of 45 to 64, over 3 million baby-boom households will likely make the shift from renter to owner. This growth will be fueled by delayed homebuying among married and remarried couples, financial windfalls from inheritances, and rising homeownership rates among the never-married and divorced."}]}
{"messages": [{"role": "user", "content": "EXECUTIVE SUMMARY Despite the 2001 recession and weak ensuing recovery, by most measures 2002 was the strongest year for housing on record. Residential investment, home sales, homeownership rates, aggregate home equity, and total mortgage debt all hit new highs last year. Anemic growth has nevertheless taken its toll, sending mortgage delinquency rates up while pushing rents in some areas down."}, {"role": "assistant", "content": "When the economy regains momentum and the lingering effects of the recession subside, housing is well-positioned for another solid decade. Median incomes and wealth for all age groups are higher today than ten years ago. These gains, together with continued strong immigration, should lift household growth and housing investment above 1990s levels. Nevertheless, both low- and moderate-income households will continue to have difficulty finding affordable housing."}]}
{"messages": [{"role": "user", "content": "Average annual percent change, Home Values Have Risen in Line with Income Growth evidence, though, the housing sector is unlikely to lead the economy into a more robust recovery. History demonstrates that few localities experience the kind of concentrated job losses that precipitate severe home price deflation. Over the past 15 years, fully 53 of the 100 largest metropolitan areas have not experienced a single year of declining nom- inal home prices. Most areas, in contrast, have experienced slow deflation in real home prices following prolonged run-ups. In fact, real prices in 58 of the 100 largest met- ros have fallen ten percent or more at least once since 1987. In about a third of these locations, however, the real home values of owners who bought at least two years before the peak exceeded their purchase prices even at the bottom of the real declines. NEAR-TERM VULNERABILITIES Despite this remarkable buoyancy, housing market risks have intensified in recent years. Job losses have forced more mortgage borrowers into foreclosure, increased the number of homeowners spending half or more of their incomes on housing, and softened some rental markets. In addition, expansion of mortgage credit to borrowers with past payment problems has elevated foreclosure risks. Finally, increased mortgage debt levels and growing shares of homebuyers with high loan-to-value ratios have raised concerns about the amount of debt carried. As for rental markets, the problems arise largely from the weakness of the economy and should subside once a sus- tained expansion begins. Although three-month absorp- tion rates on newly constructed units are at 30-year lows, and overall rental vacancy rates have been rising in some areas, many markets remain in balance. Two risks, however, could lead to more serious problems if the recovery stalls. One is the growing number of loans to borrowers with weak credit histories. Though serving 2 The second serious risk factor is the dramatic jump in the number of homeowners spending more than half their incomes on housing. About 7.3 million homeowners reported cost burdens of this severity in 2001, up from 5.8 million in 1997. If more job losses occur, some home- owners in the bottom two income quintiles—who make up 84 percent of these vulnerable homeowners—could ultimately face the loss of their homes. LONGER-TERM OPPORTUNITIES While economic and geopolitical uncertainties cloud the near-term outlook, the underpinnings are in place to sup- port another strong decade for housing. Household growth, the primary driver of housing demand, may well exceed 12 million between 2000 and 2010."}, {"role": "assistant", "content": "Immigrants are expected to contribute more than one-quarter of this net increase and minorities fully two-thirds. The growing influence of minorities on housing markets was already evident in 2001, when they accounted for 32 percent of recent first-time buyers and 42 percent of all renters. Over the next decade, immigrants are also expected to fan out from the handful of metro areas that are traditional gate- ways for foreign-born households."}]}
{"messages": [{"role": "user", "content": "HOUSING AND THE ECONOMY 5 Joint Center for Housing Studies of Harvard University Housing continued to prop up the economy in 2002. Like the year before, significant interest-rate declines and robust home price appreciation lifted residential investment. Meanwhile, record cash-out refinances pumped $96.5 billion back into the economy. The steady escalation of home prices has given rise to concerns about a housing market bubble. The good news is that home prices have grown only about as fast as incomes in most areas. In addition, large nominal home price declines are relatively rare and it takes significant and concen- trated job losses—well beyond those in evidence in most places today—to precipitate a retreat. Nevertheless, a few markets have seen home price inflation outstrip income growth and a few have registered steeper job losses, making them more vulnerable to home price declines if their economies turn down. Rising rental property valuations, together with climbing vacancy rates and rent concessions in several markets, have also led to worries that recent rental transactions are overvalued. But because lower interest rates support solid leveraged returns on these acquisitions, they are financially viable. Absent further weakening in rental markets, they should remain so. REACHING NEW PEAKS An unexpected decline in mortgage interest rates—prompted by the slumping economy and the movement of capital out of stocks and into bonds—kept the housing boom going in 2002. New and existing home sales both set records. Estimated remodeling expenditures—including maintenance, 6 The State of the Nation’s Housing 2003 repairs and replacements—also hit another high in 2002, on top of a strong (inflation-adjusted) 8.6 percent gain between 1998 and 2001. THE CONTRIBUTION OF REFINANCES In 2001-2, homeowners refinanced a record $2.5 trillion in mortgage debt, more than doubling the 1998-9 high. According to a Federal Reserve Board survey, those who refinanced and took cash out in 2001 and the first half of 2002 withdrew an average of $26,700. While the top one percent of stockholders own 33.5 percent of total stock wealth, the top one percent of home equity holders own just 13 percent of total home equity. Home equity is an especially important source of wealth for those in the bottom fifth of the income distribution. In 2001, the median net wealth of these lowest-income owners was $68,000, while that of lowest-income renters was only $500. Furthermore, for half of these owners, home equi- ty accounted for 80 percent or more of their total net wealth. Because housing wealth is so broadly distributed, home equity gains influence the spending behavior of far more households than stock gains do. According to Federal Reserve estimates, households spend $0.15 for every $1.00 rise in their housing wealth, but only $0.03-0.05 for every $1.00 rise in stock wealth. This explains why home equity gains have been able to offset the dampening effect of large stock losses on consumer spending. HOUSE PRICE CONCERNS House price increases have been strong for so long that some analysts have predicted a slowdown, if not a drop, for two years running. Fanning the flames of concern, house price gains have outstripped income gains since 1997 in 48 of the 50 largest metropolitan areas. Nevertheless, inflation-adjusted home prices rose faster in 2001 than at any time since 1978, and nearly as fast again in 2002. The State of the Nation’s Housing 2003 tech-related job losses). More importantly, it takes concentrated job losses—the likes of which have not been seen during this business cycle—to drive down home prices. Prices fall when many people must sell their homes at the same time that demand is soft. With surplus inventory on the market, sell- ers are forced to accept lower prices. Even during national or regional recessions, most metro- politan areas do not experience severe job losses or hous- ing price declines. During the wave of house price defla- tion in the late 1980s and early 1990s, for example, nom- inal declines occurred in 47 of the 100 largest metropoli- tan areas. Just 24 of those areas saw a drop of five percent or more. Consequently, house prices in only one in four large metro areas fell enough to wipe out the value of a modest five percent downpayment. Moreover, when house prices deflate, they do so slowly. Because people live in, as well as invest in, their homes, many owners choose to stay put when prices soften. This reduces the number of homes on the market and helps bring supply and demand back in balance, thereby fore- stalling faster and sharper price declines. Slow declines in inflation-adjusted home prices following sharp run-ups, however, are common. In fact, real home prices have fallen at least 10 percent in 58 of the 100 largest metro areas at some point since 1987. These declines occurred over an average of 6 years. Furthermore, because housing is typically a leveraged investment, even when nominal home prices rise more slowly than general inflation, owners can earn a real return on their capital. In fact, as long as the gap between nom- inal home price inflation and general inflation is less than the leverage multiple, the owner comes out ahead. For example, an owner who puts $10,000 down on a home has a leverage multiple of ten. If nominal home prices rise by one percent, that owner receives a return of ten percent. Unless general price inflation is ten percent or more, the owner still profits. THE OUTLOOK While housing has held up remarkably well, the near-term outlook is clouded by significant economic and geopoliti- cal uncertainties. So far, the positive effects of rising real disposable incomes and low mortgage interest rates have offset many of the depressing impacts of higher unem- ployment."}, {"role": "assistant", "content": "Moreover, housing fundamentals remain solid. Production appears to be running in line with long-term Note: Estimates include prime conventional loans only and are net of retirement of outstanding second mortgages. Source: Freddie Mac."}]}
{"messages": [{"role": "user", "content": "If interest rates remain low for the remainder of 2003, home sales, prices, and refinances could defy expectations yet again. On the other hand, even if interest rates increase by a point or more, housing investment should hold up well because borrowers can opt for more affordable, adjustable- rate mortgages. While support- ing continued strong home sales, this would also lift home prices and create higher hurdles for first-time buyers. Of course, if the economy slides back into recession, the downward pres- sure on housing markets would compound the lingering effects of the 2001 downturn. Mort- gage delinquencies and foreclo- sures would likely rise, while some rental markets would soften further. Over the longer term, housing’s direct contribution to the economy should remain strong. Spending within the housing sector (including rents, utili- ties, furnishings, maintenance, repair, and remodeling) has accounted for about one-fifth of national economic activi- ty for decades, and is likely to account for at least that large a share during the current decade."}, {"role": "assistant", "content": "Over the next ten years, the aging baby-boomers will continue to support the trade-up market, fuel spending on professional remodeling projects, and shore up demand for more expensive rentals. As the echo boomers move into their 20s, they will lift demand for smaller apartments and starter homes. At the same time, housing providers and the financial sys- tem will face the growing challenge of supplying units to low-income and minority households. Both household growth and new construction will remain concentrated in the South and West and at the far reaches of metropolitan areas. If recent trends are any indication, whites will account for the lion’s share of the households moving to the metro fringe and into non-metropolitan areas, while minorities will likely dominate growth in the center cities and in older, urbanized suburbs. Minorities are on track to add 7.5 million households between 2000 and 2010, and another 7.8 million between 2010 and 2020 (Table A-6). The minority share of US households is thus expected to grow steadily from about one-quarter to nearly one-third within 20 years. Shifts in family composition, while less dramatic, also have important implications for housing demand. The number of people living alone is expected to rise by nearly 5 mil- lion over the current decade. With divorce rates high and remarriage rates trending down, many of these single- person households will be relatively affluent, middle-aged baby boomers. This is already apparent in the sharp rise in people living alone in suburban and non-metropolitan areas. From 1992 to 2002, the number of single-person households in these locations increased by four million, compared with less than one million in the urban core."}]}
{"messages": [{"role": "user", "content": "Meanwhile, growth in the number of married couples over age 55 without minor children living at home will be equally strong, up 4.3 million during this decade and 6.1 million during the next. Many of these households will, however, have their adult children living with them. As of percent of married-couple households in this age group included an adult child, while 11 percent of 25 to 34 year-olds still lived with their parents."}, {"role": "assistant", "content": "Indeed, the baby boomers do not seem in a rush to down- size their homes as their children reach adulthood. While fully half of the oldest boomers (aged 45 to 54 in 2000) moved during the 1990s, they typically traded up to newer homes with more amenities. Over this decade, the share of older boomers that move is expected to shrink to about 35 percent, but their sheer numbers mean they will still play a powerful role in home-buyer markets."}]}
{"messages": [{"role": "user", "content": "Along with income, household wealth has also built over the past ten years. Despite the stock market dive, aggre- gate wealth at the end of 2002 was up significantly from 1992. Indeed, household wealth in the US has grown almost uninterrupted since the end of World War II. As measured by the Federal Reserve’s national balance sheets, inflation-adjusted household wealth more than doubled from $7.8 trillion in 1950 to $17.4 trillion in 1975, then more than doubled again to $40 trillion in 2002. PERSISTENT INEQUALITIES Even though income has been on the rise, its distri- bution has become increasingly unequal. According to the Current Population Survey, the mean infla- tion-adjusted income of households in the bottom fifth rose by a healthy 11.7 percent during the 1990s. During that same period, the mean income of those in the top fifth was up 25.7 percent. Moreover, the mean income of the lowest-income group fell a full 3 percent during the 2001 recession while the highest- income group eked out yet another small increase. Households with access to wealth are better able to achieve homeownership. Moreover, they may drive home prices up ahead of income growth, making it more diffi- cult for households with less wealth to buy homes. To compete in the housing market, less wealthy households may therefore have to take out larger home mortgages and devote larger shares of their incomes to pay for com- parable housing. IMMIGRATION AND MIGRATION PATTERNS Following longstanding trends, population growth con- tinues to cluster in the South and parts of the West (Table A-7). Foreign immigration nonetheless kept population growth in California and the rest of the Pacific division going strong. The southern and interior western states remain attractive locations, thanks to their relatively low costs of doing business, favorable climates, and healthy labor markets. But the fevered pace of employment and population growth in these areas has strained local resources and fueled anti-development sentiments."}, {"role": "assistant", "content": "While these and other regulatory pressures may eventually erode some of their attractiveness, the South and West will likely contin- ue to experience relatively rapid growth."}]}
{"messages": [{"role": "user", "content": "Meanwhile, many urban core areas experienced their strongest population growth in decades. Among the 31 center cities of the largest metros that lost population in the 1970s and/or 1980s, 16 regained population during the 1990s. Many urban areas have now stabilized and some are beginning to gentrify, sparking concerns over the growing shortage of affordable housing. For households at the lower end of the income distribution, though, affordability has clearly eroded. When the economy slowed in 2001, households in the bottom two quintiles saw their incomes fall 2-3 percent, with little or no recovery in 2002. In addition, rising home prices have forced first-time buyers to come up with more cash, take out larger loans, or settle for lower-quality homes than they would have otherwise chosen. Some have been priced out of the market altogether. In 2001, minorities accounted for about 32 percent of recent, first-time buyers, up from about 19 percent just eight years before. Foreign-born minorities alone now constitute about one in ten first-time buyers, and account for even greater shares in the handful of metropolitan areas that are home to large foreign- born populations. Past and present gaps in homeownership rates have pro- found impacts on minority household wealth. Today, homeowners age 55 and older hold an estimated $3.3 tril- lion in home equity. If just three-quarters of these owners pass their properties on to their heirs over the next 20 years, the transfer of wealth would involve 12.3 million homes—fully 10.7 million of which are owned by non- Hispanic whites. Under the simple assumption that equi- ty in these homes does not grow at all in inflation-adjust- ed terms, the housing wealth passing to white heirs would Under and Over White Black Hispanic Asian/Other Notes: White, black and Asian/other are non-Hispanic. Hispanic householders may be of any race. Asian/other includes Pacific Islanders, Aleuts and Native Americans. Source: Table A-5. RECORD-LEVEL MORTGAGE DEBT As a result of strong homeownership gains and house price appreciation, mortgage debt outstanding has grown at a 7.5 percent compound annual rate since 1994, even after adjusting for inflation. Mortgage debt now accounts for 43 percent of residential value, up from 31.6 percent in 1980. To date, the run-up in mortgage debt has increased the exposure of only a small fraction of homeowners. Thanks to the interest-rate cuts of the 1990s, homeowners have been able to hold down their monthly mortgage payments even if they add to their housing debt. For many, substi- tuting mortgage debt for higher-cost consumer loans has also lowered their total debt burden. Moreover, strong home price inflation has quickly added to the home equi- ty of all owners—including those who opted for low- downpayment loans when they bought. PROBLEM LOAN RISKS The risks are, however, increasing. Mounting job losses hurt many homeowners in 2002, with both the number and share of problem loans on the rise. It is important to recognize, though, that the share of mortgage borrowers who are seriously behind on their payments or in foreclo- sure is still relatively low. Although at record levels, foreclosure rates on conventional loans are still under 0.2 percent while those on government-backed FHA loans are about 2.5 percent. Loan risks are rising among lowest-income homeowners. According to the 2001 American Housing Survey, 2.2 million borrowers in the bottom income quintile spent more than half their incomes on housing (including prop- erty taxes and utilities), up from 1.7 million in 1997. RENTAL HOUSING TRENDS With the strength of homeownership demand and the weakness of the economy, some rental housing markets have softened since 1999. Even though national measures indicate that rents have risen, high vacancy rates in some locations have pushed rents down or prompted landlords to offer concessions to attract tenants—especially for newer and higher-end rental units. The new multifamily apartments being built are substantially more expen- sive on average than the ones being lost. This trend—fueled in part by local resistance to multifamily construction and escalating development costs— threatens to leave the nation with a dwindling supply of modest rentals. Not surprisingly, then, vacancy rates on units affordable to households in the bottom income quintile are lower than those on more expensive units. The return of inflation-adjusted rent increases has made it more difficult for many renters to afford their housing. The recent recession made mat- ters worse, dragging median renter incomes down by 1.8 percent in 2000- 2. The share of income a typical renter spends on housing thus stood at 26.9 percent in 2002. 21 Joint Center for Housing Studies of Harvard University SOFTENING RENTAL MARKETS Vacancy rates for both single- and multifamily rentals have been on the rise since 1993. Although the number and share of renters living in single-family homes increased over this period, the grow- ing supply of single-family rentals overshot demand in most regions. The exception was the Midwest, where a fall-off in demand, rather than an increase in supply, was responsible for the rising vacancies. Meanwhile, multi- family vacancy rates began to climb more sharply as the economy slowed, hitting 9.7 percent by 2002. Properties with five or more units were particularly affected as their rates rose to 10.5 percent. Although information collected by M/PF and REIS show that higher vacancy rates drove down rents on some apartments that came on the market last year, the rent drop may be smaller and the recovery quicker than during the last cycle. In the 1980s, sig- nificant overbuilding led to soaring vacancy rates in structures with five or more units. Today, however, the soft- ening economy is more to blame for any excesses in the supply. The correc- tion in rents and in multifamily construction should therefore be more modest this time around. Note: Definition of single-family units changed in 1999 to include attached structures. Data collection procedures also changed in 1993. Source: Census Bureau, Housing Vacancy Survey. 22 The State of the Nation’s Housing 2003 In stark contrast, the prices of multifamily rental proper- ties have surged."}, {"role": "assistant", "content": "As interest rates dropped and capital flowed into real estate from the stock market, investors became more willing to accept lower returns on proper- ties. In 2002 alone, lower capitalization rates for multi- family rentals pushed valuations on transacted properties up by about 10 percent. With lower debt costs, investors can pay more for properties while still earning attractive returns. Investors are counting on a cyclical recovery and strong future demand to justify these valuations when they go to sell the properties in several years."}]}
{"messages": [{"role": "user", "content": "With the number of white renters down by 2.1 million, the minor- ity share of renter households thus increased from 34 per- cent to 42 percent. Immigration has also added substantially to the demand for rental units. Foreign-born households now account for nearly one in five renters. Half of these renter households arrived in this country only within the past ten years. Moreover, foreign-born households now account for 73 percent of the growth in Hispanic renters since 1997 and are expected to have an even larger presence in rental mar- kets in the coming years. MAKING THE RENTAL CHOICE For some households, renting is the only housing option because they lack the income or savings to buy a home. For many others, though, it is the preferred housing choice because it offers greater flexibility than ownership. For example, people who are in the midst of major life transitions, such as a career or family change, often choose to rent their homes rather than buy. Another group that can particularly benefit from renting includes senior homeowners either facing significant changes to their fam- ilies or incomes, or simply looking for the convenience and community of renting. Reason for Moving Age Marital Status 24 The State of the Nation’s Housing 2003 these former homeowners accounted for one in six house- holds that moved into rental housing (Table A-8). While renting might be only a temporary choice for many of these former owners, the need for housing markets to satisfy this type of short-term demand is ongoing. Although many of these households may decide to buy homes again, other homeowners making the switch to renting will be there to take their places. THE OUTLOOK In the near term, rental housing markets appear headed for a modest correction. Rising vacancy rates should lower rents in many locations, particularly at the high end of the market. Dips in rents could well be fleeting, however, given the relatively small run-up in multifamily vacancy rates as well as the barriers to, and the high cost of, devel- oping new units."}, {"role": "assistant", "content": "Over the longer term, rental housing demand should grow even if the national homeownership rate continues its steady ascent. The number of renter households is cur- rently expected to increase by about a million in each of the next two decades. But if conditions turn unfavorable for homeowning, the number of renters could easily grow by five to six million. In any case, the renter share should hover near three in ten households for the next 20 years. Regardless of the overall growth in renters, the composi- tion of renter households will continue to reflect changes in the overall population. Given their strong household growth, minorities will make up an even larger share of renters in the years ahead. Current projections point to an increase in minority share from 42 percent today to over 50 percent in 2020. The increase in renter diversity, along with the aging of the population, will bolster rental demand at the margins. Growth in young adult households will increase demand for moderate rentals, especially when the echo boomers reach their mid-20s after 2010. Meanwhile growth among those between the ages of 45 and 64 will lift demand for higher-end rentals."}]}
{"messages": [{"role": "user", "content": "1 Joint Center for Housing Studies of Harvard University Executive Summary Despite job losses in the rest of the economy, housing had another record-breaking year in 2003. Home sales, single-family housing starts, residential fixed investment, homeownership rates, mortgage originations, refinances, and home prices all reached new peaks. The only weak spots were the uneven rental market and the depressed manufactured housing sector. With the economic recovery under way, the question now is whether housing will achieve a soft landing in which house prices, sales, and new construction ease rather than drop off sharply. Several factors favor this possible outcome. Housing construction appears to be in line with long-run demand, and a strengthening economy should support house prices. In addition, changes in the housing finance system have made markets more resilient and better able to adjust quickly to interest-rate movements. Although refinancing activity would drop off significantly if interest rates rise even gradually, construction would probably hold near its current pace and house price inflation moderate rather than turn negative. If job growth falters or interest rates spike, however, housing could be in for a rougher ride. Uninterrupted Growth The housing boom has outlasted an international finance crisis in 1998, an economic recession in 2001, and job losses in 2002–3. Throughout most of this period, low interest rates kept housing markets thriving as home prices and sales con- tinued to climb. Rising home values in turn generated wealth effects that helped to sustain consumer spending. In fact, the wealth effects related to home price appreciation, realized cap- ital gains, and heavy home equity borrowing appear to have contributed more than one-quarter of the growth in personal consumption in both 2002 and 2003. Recessions are defined by the NBER Business Cycle Dating Committee. The last time period reflects the recovery. Sources: Census Bureau, Construction Statistics and National Association of Realtors.® 2002 Q1–2003 Q4 1990 Q1–1990 Q3 1979 Q3–1980 Q1 2000 Q3–2001 Q1"}, {"role": "assistant", "content": "Demand Transformed The changing demographic structure of the population is reshaping housing demand. Immigration has been, and will continue to be, an important driver."}]}
{"messages": [{"role": "user", "content": "Owing to immigration and higher rates of natural increase, the minority share of households increased from 17 percent in 1980 to 26 percent in 2000, and will likely reach about 34 percent by 2020. In addition to keeping rental demand from sagging, minori- ties also accounted for fully two out of every five net new homeowners from 1994 to 2003. Despite these strong gains, though, minority homeownership rates still lag those of whites by nearly 25 percentage points. Narrowing this per- sistent gap remains a challenge for both the government and the mortgage finance industry. Although innovation in housing finance has expanded access to credit, it has also brought new risks and challenges. The proliferation of mortgage choices and prices can confuse homebuyers and provide fertile soil for predatory lending. In addition, statistical credit scores now govern both access to and the pricing of mortgage credit. These scores are lower on average for minorities than for whites of comparable incomes, implying that some minority borrowers pay more for their loans. Furthermore, the growth in subprime lending has resulted in rising foreclosures in some of the low-income and minority communities where these loans are concentrated. Many of the low-wage jobs created by the economy do not pay enough for a household to afford (at 30 percent of income) even a modest one-bedroom rental anywhere in the country. Similarly, retirement incomes are so meager that many seniors face heavy housing cost burdens on top of esca- lating healthcare costs. 5 Joint Center for Housing Studies of Harvard University Housing and the Economy Housing helped to shore up the economy again in 2003. Residential fixed investment alone accounted for about one-tenth of GDP growth, while commissions from home sales pumped an estimated $80 billion into the economy. Sales and Production Still Strong Low interest rates pushed home sales to new heights, fueling owner-occupied housing markets from coast to coast even as some rental markets softened. After dipping in mid-year to levels not seen since the early 1950s, rates on 30-year fixed mortgages averaged 5.83 percent for the year. This is more than two percentage points (or 38 percent) below their aver- age when the housing boom started to build steam in 2000. Buyers took advantage of the low rates to push sales of exist- ing single-family homes to 6.1 million units and of new single- family homes to 1.1 million units. Low rates also helped to hold down monthly mortgage payments and keep home prices on the rise. Indeed, the median sales prices of both new and existing single-family homes hit all-time highs in 2003. Homeownership rate is from the Housing Vacancy Survey. Percent change was calculated using unrounded numbers. Sources: Tables A-2, A-6; Federal Reserve Flow of Funds Accounts; Bureau of Economic Analysis, National Income and Product Accounts; Census Bureau, C-50. Just five states—Florida, California, Texas, Georgia, and North Carolina—accounted for 40 percent of housing permits issued in 2003. Of these, Georgia and North Carolina posted small dips from a year earlier, while permits in Florida and California continued a climb that began in 1997. After more than a nine percent surge in 2002, growth in homeowner spending on improvements and repairs fell in 2003. Rising home values have given homeowners a ready source of equity to finance remodeling projects, while simul- taneously providing an incentive to protect their increased equity. Strong home sales should support higher levels of improvement spending in the future, since buyers are most likely to remodel soon after purchasing their homes. After adjusting for inflation, home prices were up 5.9 percent nationally in 2002–3 (fourth-quarter to fourth-quarter). The largest real gains were in the Pacific states (10.6 percent), fol- lowed by the Middle Atlantic (9.4 percent) and New England (8.7 percent) states. Even though appreciation slowed in 81 of the 163 metropolitan areas tracked by Freddie Mac, inflation- adjusted house prices continued to rise in all but 4 (Austin, Boulder, Provo and Salt Lake City). Two of these areas were hard-hit by the end of the technology boom, while Utah suffered from a post-Olympics slump. 7 Joint Center for Housing Studies of Harvard University investment, owners may therefore still earn real capital gains even when nominal home prices rise more slowly than general inflation. What has made this possible is the unique confluence of strong house price appreciation, low interest rates, record cash-out refinances, high home-equity lending, and brisk home sales. Home price appreciation alone drove about half of housing’s contribution to consumer spending gains. The Joint Center and Macroeconomic Advisers estimate that households spend on average about 5.5 cents a year out of every dollar increase in house values. This additional spending hits its long-run average within a year of when the increase in value occurs—much more quickly than households spend gains in stock wealth, which they may view as less secure. Spending from home equity extracted through cash-out refi- nances and realized capital gains (made possible by home price increases) accounted for the other half of housing’s wealth effects. Freddie Mac estimates that homeowners with prime mortgages not insured by the government cashed out about $86 billion in billion in 2002, and $139 billion in 2003. The total of $333 billion dwarfs the next highest three-year level of $114 billion posted in 1998–2000. Sustaining the Boom Housing remains in uncharted territory. The strength and endurance of the boom have raised concerns that a significant correction may be in store. During a typical national reces- sion, housing investment, residential construction, employ- ment, and home sales all plunge while average home prices dip slightly. These cyclical downswings often set the stage for upswings as deferred demand and a strengthening job market push housing activity sharply higher. This time around, though, housing construction climbed straight through the recession and into the recovery—even as total employment declined. Rather than dropping precipi- tously before and during the recession, residential fixed invest- ment in fact rose 2.2 percent in 2001. Indeed, even without the typical slowdown in household growth, fixed investment grew faster two years into this recovery than it did after the 1990–1 downturn. And rather than edging lower (or even plummeting in some locations as they did in the early 1990s), average house prices continued to soar as lower interest rates kept monthly payments stable. At this stage of the cycle, the biggest threats are that job growth will stall or interest rates climb. If jobs are shed, the housing market will have a hard time sustaining its heady pace unless rates fall as well, setting up another scenario like 2003. A significant increase in mortgage rates would surely put an end to the refinance boom and, if large enough, also dampen both existing home sales and home price inflation. But even interest rate increases of one percentage point or more may not have much of an impact on home sales and prices as long as job growth and productivity gains continue. As for housing starts and new home sales, both depend less on interest rates and more on whether construction is grow- ing in line with demand. So far, household growth appears to be running near trend while the months’ supply of new hous- ing (a measure of the leanness of the inventory) has stayed low. During past cycles, new construction activity did not retreat until the months’ supply had reached at least eight months. For current inventory to exceed even a six-month level, though, new home sales would have to drop by more than a third—a magnitude of decline not seen since interest rates skyrocketed in the early 1980s. This makes a sharp inven- tory correction unlikely. Still, the blistering pace of home price appreciation in many metropolitan areas has heightened fears that price bubbles have developed in at least some markets. But steep declines even at the metropolitan level are rare in the absence of con- centrated job losses. In the event of such an employment drop, homes for sale often flood the market at a time when few are in a position to buy. In today’s market, though, house prices have continued to escalate even in areas where sizable job losses have occurred. In addition, labor markets are stabilizing or improving in most areas. With a resumption of job growth, overheated housing markets may well see only modest house price corrections. 9 Joint Center for Housing Studies of Harvard University of to 1 million) accounted for 22 percent of con- struction growth, small metro areas (with populations under for 8 percent, and non-metro areas for 16 percent, for a combined 46 percent of production gains. In fact, new construction has been so feverish in many locations that local ballot initiatives to limit growth have surged."}, {"role": "assistant", "content": "The Foreign-Born in Housing Markets Overall, more than one in ten households is now headed by a person born outside the United States. The shares among younger households are even higher. Furthermore, of the 12 million foreign-born householders in the US in 2000, 3.4 mil- lion (28 percent) arrived in this country during the 1990s alone. As a result, the foreign-born contributed more than a third of household growth over the decade and will likely account for an even larger share of growth in the years ahead. The Growing Contribution of Minorities Largely as a result of immigration, minorities make up an increasingly large share of households. From about 17 percent in 1980, the minority share climbed to 20 percent in 1990 and to 26 percent in 2000, and is expected to reach 30 percent by 2010 and 34 percent by 2020. As a result of this rapid increase, minorities will likely contribute at least two-thirds of household growth over the coming decades."}]}
{"messages": [{"role": "user", "content": "At the same time, unmarried women accounted for 30 percent of the growth in homeowners from 1994 to 2002. Over this period, the number of unmarried females owning homes climbed from 13.9 million to 17.5 million, including increases in divorced owners from 4.2 million to 5.7 million and in wid- owed owners from 6.7 million to 7.1 million."}, {"role": "assistant", "content": "Looking Ahead The pace of household growth over the next 10 years is expected to surpass that over the last 10. Together with the wealth gains achieved by each age group in the 1990s, strong household growth should propel residential fixed investment, mortgage debt, and home sales to unprecedented heights. Immigration will continue to shape housing demand and lift both the minority and young adult shares of households. Meanwhile, as women continue to make economic progress, they will expand their participation in housing markets. In response to the rapid growth of these groups, the housing industry and housing finance system will continue to develop additional products and marketing strategies to better serve lower-income households in general, and minority, foreign- born, and female-headed households in particular. Unmarried Women Unmarried Men 15–24 25–34 35–44 45–54 55–64 65–74 All Ages As the number of immigrant, minority, and female-headed house- holds continues to grow over the next 10 years, demand for starter homes and for affordable rentals will increase."}]}
{"messages": [{"role": "user", "content": "15 Joint Center for Housing Studies of Harvard University Homeownership With interest rates near 45-year lows, home sales and mortgage refinances reached new heights in 2003. Existing single-family home sales climbed 9.6 percent and new single-family home sales rose 11.5 percent, while mortgage refinances shot up by an astounding 71 percent. Home prices were up in nominal terms in all 163 metropoli- tan areas tracked by Freddie Mac’s Conventional Mortgage Home Price Index. Even after adjusting for inflation, only four metro areas posted home price declines last year. Some 34 metros—15 of which are in California—saw double-digit increases. In markets with these outsized gains, housing affordability is a growing concern. Higher house prices force prospective buyers to come up with larger downpayments, choose less expensive homes, or increase the amount that they borrow. Over the short run, strong home price inflation has not seriously eroded afford- ability because lower interest rates enabled homebuyers to borrow more with little impact on their monthly payments. Fortunately, the introduction of automated underwriting and credit-scoring tools in the 1990s also coincided with growth in the share of applicants able to qualify for lower-cost prime loans. For example, Freddie Mac’s minority share of loan pur- chases increased from 8.5 percent in 1995 (when it first started using automated underwriting) to 14.9 percent in 2000. Over the same period, the share of loans to borrowers with incomes below the area median increased from 32 percent to 41 percent."}, {"role": "assistant", "content": "Favorable interest rates persuaded more borrowers to take out fixed-rate mortgages and reduced the monthly payments on adjustable-rate loans. If interest rates rise, the share of bor- rowers choosing one-year adjustable mortgages will likely rise as well. New and existing adjustable-rate mortgage borrowers will then be subject to higher monthly payments if interest rates continue to increase."}]}
{"messages": [{"role": "user", "content": "At present, the states with the highest exposure to payment shocks from rising rates are California, Colorado, the District of Columbia, Illinois, Massachusetts, Michigan, and Minnesota. According to the Federal Housing Finance Board, the adjustable-rate share of mortgages originated in 2003 in each of these locations is 25 percent or more, com- pared with just 9 percent for the rest of the nation. At the met- ropolitan level, the adjustable-rate shares of originations in Denver, Detroit, San Diego, and San Francisco were one-third or more in 2003. Homeowners with severe cost burdens are also at risk. Source: Bureau of Labor Statistics and Mortgage Bankers Association. 19 Joint Center for Housing Studies of Harvard University property taxes and utilities). That number is likely even higher today following three years of sustained job losses and the expansion of subprime lending at high debt-to-income ratios. Looking Ahead The combination of rapid home price appreciation and low interest rates has produced unusually favorable conditions for homeownership. The scope of future gains and losses will depend on whether these conditions persist and what direc- tion job and income growth takes. In the meantime, risks in the system remain relatively contained. Most worrisome are the many homeowners with scant savings who are spending half or more of their incomes on housing, along with the growing share of subprime borrowers who are by definition more likely to default. If the recovery stalls, these owners will be at substantially higher risk of losing their homes. In response to the drop-off in demand, producers of multi- family (2+ unit) rental properties cut back on construction last year. Starts of multifamily rentals edged down from units in 2002 to units in 2003. This reduction was not enough, however, to stop the multifamily rental vacancy rate from climbing to a record-setting 10.7 percent. 21 Joint Center for Housing Studies of Harvard University Although rents for units in larger properties declined on aver- age last year, they did so at a slower pace than in 2002. Rents for newer and especially higher-end units were under the most pressure. In 2002, only 59 percent of newly completed units were leased up within 3 months. While the absorption rate began to improve in 2003, it fell off again in the second half of the year. Vacancy rates on rental units built since 1990 con- tinued their ascent, edging up from 15.3 percent in 2002 to 16.5 percent in 2003. With the economy improving, however, some soft rental mar- kets have begun to revive. All rent changes are shown net of inflation using the CPI-U. Effective rents are net of concessions. Large properties have 40 or more units except in California metros, which have 15 or more units. Rent increases/decreases are measured fourth quarter to fourth quarter. Source: M|PF Research, Inc. 22 the State of the Nation’s Housing | 2004 inflation-adjusted effective rents slowed to near-zero in 2003."}, {"role": "assistant", "content": "While welcome news to property owners, stronger rental mar- kets will likely erode affordability in a growing number of locations in the coming years."}]}
{"messages": [{"role": "user", "content": "Although new construction over the past 10 years has been disproportionately concentrated in the top fifth of the rent distribution in individual metropolitan areas, building for the “middle market” (units with rents between the 40th and 80th percentile) has also been robust. Indeed, when summed across metropolitan and non-metropolitan areas, the middle-market share of new construction nationally is in line with its 40 per- cent share of the overall rental market. Looking Ahead Buffeted by the recession, sagging labor markets, and strong demand for homeownership, growth in rental demand has been weak for the past 10 years. Rents in many markets have been under pressure, with newer properties especially hard- hit. Nevertheless, more markets saw rents climb than fall in 2003, with a few reporting hefty increases. Any imbalances between supply and demand may, however, prove temporary if the economy continues to expand and generate new jobs. In fact, rental demand could even surge if interest rates and/or house prices rise, making homeownership less affordable. 25 Joint Center for Housing Studies of Harvard University Housing Challenges Despite unusually strong income growth in the 1990s, an astonishing 95 million Americans had housing cost burdens or lived in crowded or inadequate conditions in 2001. In fact, more than twice as many people in this country face housing problems as lack health insurance. The 2000 Census reported that about 128 million workers earned at least the equivalent of the federal minimum wage of $5.15 an hour. Of these, about 32 percent earned merely $5.15 to $10.30 an hour (one to two times the minimum wage), while another 26 percent earned $10.30 to $15.45 an hour (two to three times the minimum wage). Moderately cost burdened households are those spending 30–49% of monthly income on housing. Structural inadequacy is defined by HUD. Crowded households are those with more than one person per room. The cut-off for the bottom income quintile in 2001 was $17,500. Source: JCHS tabulations of the 2001 American Housing Survey. Elderly renters are of particular concern because they typical- ly do not have any home equity to tap into to meet basic needs. According to the 2001 Survey of Consumer Finances, 46 percent of elderly renters in the bottom income quintile (defined in that survey as $16,000 or less) had net wealth of less than $1,000 and 35 percent had less than $250. Moreover, the problem of crowding is not restricted only to the higher-cost metropolitan areas where many immigrants settle. Even in non-metro areas, 22 percent of foreign-born households live in crowded conditions. Looking Ahead Even at current levels, housing assistance programs reach only a small fraction of the lowest-income households who are in desperate need. According to the National Low Income Housing Coalition, three-fourths of eligible households receive no assistance. Nonetheless, the pressures to cut rental assistance for extreme- ly low-income families and eliminate the HOPE VI public housing revitalization program are mounting. A proposal is now on the table to cap tenant rental assistance funds at a level that does not keep pace with changes in housing costs and dis- tributes the funds solely through block grants to public hous- ing authorities. With rents rising ahead of inflation in many major metropolitan areas, this move would put many tenants at risk of losing assistance. In addition, this plan would reduce property income and thus owners’ ability to support debt, which in turn would threaten both new development and investment in existing rental housing. In the end, even fewer low-income households would be served. In the meantime, the economy continues to generate strong and growing demand for low-wage workers. According to the Bureau of Labor Statistics (BLS), the median wages in the industries adding the most jobs since the recession are fully 21 percent lower than those in the industries losing the most jobs. Over the next 10 years, the BLS expects 11 of the 20 fastest-growing occupations to be service jobs paying a medi- an wage of less than $20,000 per year."}, {"role": "assistant", "content": "Even at the peak of the full-employment economy in the late 1990s, housing problems in the nation failed to improve and some even worsened. Without fundamental changes, these challenges will continue to escalate, further dividing the two- thirds of Americans who are well-housed and the remaining third who are not—including a substantial minority who must struggle simply to keep a roof over their heads and meet other basic needs."}]}
{"messages": [{"role": "user", "content": "The number of new homes demanded will also increase, thanks to immigration trends and the aging of the baby-boom and echo-boom generations. Over the next 10 years, the baby boomers will pass through the age range when second-home ownership peaks, while the echo boomers will move into the prime household-forming years."}, {"role": "assistant", "content": "After contributing more than a third of net household growth between 1995 and 2005, new immigrants will likely account for at least that large a share between 2005 and 2015. The children of immigrants born in the United States will also add significantly to household growth."}]}
{"messages": [{"role": "user", "content": "The State of the Nation’s Housing Demographic Drivers Immigrant Population Patterns With both legal and illegal immigration on the rise, the foreign born are giving an increasingly large boost to population growth. The number of legal immigrants has reached nearly one million per year, while the net growth in illegal immigrants is conservatively estimated between and . Factoring in emigration of US citizens, net immi- gration has averaged about 1.2 million annually since 2000. Particularly in the 27 emerging gateways, most net growth of the immigrant population has occurred in the suburbs rather than The demographic underpinnings of long-run housing demand remain solid. Net household growth should climb from an average 1.26 million annual pace in 1995–2005 to 1.46 million in 2005–2015. Continued immigration, together with the large number of second-generation Americans and children of the baby boomers coming of age in the next decade, will reinforce demand for rental units and starter homes. Nevertheless, some of the most rapid recent growth rates in immigrant populations have occurred outside of metro areas altogether. Between 2000 and 2004, immigrants accounted for 31 percent of net population growth in rural areas, and for even larger shares in the resort communities of the West, major agricultural and manufacturing areas in the South and Midwest, and on the periphery of the traditional gateway metros. Three decades ago, both immigrants and second-generation Americans were concentrated among older age groups. Indeed, one out of every five people in the 25–34 age group (peak years for household formation) is now foreign born, and another nine percent are second-generation Americans. Moreover, a quarter of children under the age of 10 have foreign-born parents."}, {"role": "assistant", "content": "The Department of Homeland Security estimates that 10.5 million illegal immigrants resided in the United States in January 2005. This has given rise to political pressure to do more to curb illegal inflows. But even if the net growth in illegal immigrants were reduced to half of recent levels, US household growth would be at most five percent lower, shaving as many as households from net additions in 2005–2015. For their part, newly arrived legal immigrants are expected to contribute about 3.6 million households to total projected growth over the decade."}]}
{"messages": [{"role": "user", "content": "15 Joint Center for Housing Studies of Harvard University Softening Markets After weakening in 2005, the conditions that had promoted outsized gains in homeownership eroded further in 2006. Interest rates, while still low, were a full percentage point higher in mid-2006 than a year earlier, raising the mortgage payments on newly purchased homes. In addition, house price appreciation slowed in most areas, taking the sense of urgency out of the market. By the first half of last year, nearly all markets felt the crunch. Although mortgage rates receded from 6.76 percent in July 2006 to 6.14 percent in December and price appreciation slowed dramatically, uncertainty about the direction of rates and prices kept potential homebuyers at bay. The subsequent retreat in homebuying left new home sales down 18 percent from the record 2005 level, and existing home sales down 8 percent. Caught unaware, suppliers were unable to respond quickly enough to the large drop-off in demand. Home builders had to complete houses under contract even as buyers started to cancel orders. Meanwhile, sellers of existing homes kept their properties on the market, holding out for the prices they still believed they could get. As a result, the supply of both new and existing homes for sale rose sharply in the last quarter of 2006 and continued to climb in early 2007. Motivated sellers in many markets finally started to reduce their prices. Home builders led the charge with concessions, discounted mortgages, and other offers. But most sellers not forced to move continued to hold out, creating a lag before areawide prices started to respond to eroding market conditions. Prices are therefore likely to remain soft for a time in most places even if the economy continues to expand. In many smaller locations, the absolute decline was far more modest but the percentage drop was staggering (Table W-4). In Merced, CA, for example, investor loans plummeted by 70 percent. Second-home demand, which had accounted for over 30 percent of prime purchase loans in 2005 in resort areas like Atlantic City, Myrtle Beach, Naples, and Fort Myers, fell by as much as half. With higher interest rates offsetting even the largest price declines, affordability remained an obstacle for first-time homebuyers. In Detroit, where prices fell the most, the mortgage payment for a median-priced house bought in 2006 was still $30 more a month in real terms than for one purchased in 2005. In Los Angeles, where prices continued to rise at double-digit rates, the monthly mortgage payment for a newly purchased home shot up $590 in just one year and $1,500 over three years. While traditional ARMs lost market share last year as interest rates rose, nontraditional products saw meteoric growth. According to First American LoanPerformance, prime and non-prime loans with interest- only and payment-option features went from serving a fringe market to over 32 percent of all originations in 2006. While concentrated primarily in high-cost states, these products also took off nationally as a tool to help offset rising interest rates and home prices. From less than five percent in 2002, interest-only prime and non- prime loans accounted for almost 30 percent of all originations in 2005, before falling back to 20 percent at the end of 2006. Most of these are adjustables that entail not only interest-rate resets, but also higher payments to amortize the principal over a shortened term. At least seven percent of homeowners, or more than five million house- holds, have subprime loans. These mortgages carry higher rates to cover the risks associated with lending to people who have had prob- lems making payments in the past and many who choose not to state or confirm their incomes and assets when they apply for a loan. Meanwhile, Alt-A loans, which fall between prime and subprime loans on the risk spectrum, increased from 2.7 percent of originations in 2001 to 13.4 percent in 2006 (Table A-8). These loans allow some combination of low documentation, slightly subpar credit scores, and features such as interest-only or payment options. FHA loans, once the only haven for non-prime borrowers, went from a 10–15 percent market share in the 1990s to just 2.7 percent in 2006. Loans with interest-only and payment-option features have been pop- ular in states with high housing prices. Interest-only loans accounted for over 30 percent of originations last year in California, Nevada, Colorado, and Arizona, compared with 22 percent nationally. California also led with a 24 percent share of payment-option loans, followed by Nevada, Florida, and Hawaii at 13–17 percent, compared with 11 percent nationally. Uncertainty about credit availability hangs over the housing market. While it is clear that lenders underestimated subprime risks, it is unknown how much worse conditions may get. It is especially trou- bling that subprime losses have been heavier than expected at only the first sign of softer prices and loan rate resets. Much of the hope for a recovery in the for-sale markets now rests on the economy stag- ing a soft landing, markets drawing down the excess supply, and loan performance improving. Looking past the current correction, homeownership is still clearly the tenure of choice. In addition, strong gains in income and wealth will favor ownership of both first and second homes."}, {"role": "assistant", "content": "As a result, fully 88 percent of the net growth in households over the next ten years is expected to come from gains in the number of homeowners. Indeed, even if homeownership rates by age and family type remained at 2005 levels through 2015, the owner share of household growth would still be 72 percent."}]}
{"messages": [{"role": "user", "content": "Demand strengthened in every region but the Northeast in both 2005 and 2006. The South showed the largest absolute increase in renters last year, accounting for three out of five net renter house- holds added nationally. Even with a faltering economy and stagnant job growth, the Midwest posted the second-largest increase in rent- ers and the biggest percentage gain. Despite anemic demand, rents in the West rose more than twice as fast as in any other region, with eight metros registering increases of at least five percent (Table W-5). These gains reflect the third straight year of vacancy rate reductions, driven by the declining supply of rental units in the West. In contrast, strong demand helped to reduce vacancy rates in the South and the Midwest, but left them still well above the national average. Meanwhile in the Northeast, the short- lived rental recovery ended in 2006 with slackening demand and rising vacancy rates. Rental Supply Changes Despite the completion of nearly one million units, American Community Survey estimates indicate that the multifamily rental sup- ply increased by less than units between 2002 and 2005. Many of the new units thus replaced apartments converted to condos With the economy generating jobs and homeownership faltering, rental markets continued their gradual recovery last year. In fact, the 1.2 million growth in renter households in 2004–2006 more than made up for losses in 2002–2004. This renewed demand helped to reduce vacancy rates and firm up rents across much of the country. The rush of condo conversions driven by the home-selling boom persisted into 2006, helping to reduce rental vacancies. According to Real Capital Analytics, the number of rentals in larger multifamily properties converted to for-sale units jumped from just a few thou- sand in 2003 to in 2005, before dropping to about 60,000 in 2006. At the same time, new construction of multifamily buildings intended for rental use dipped from units in 2003 to in 2006. But now that condo sales are softening in some locations, sellers unable to get their prices may return their units to the rental market, while some newly built multifamily properties intended for sale may also be converted to rentals. On the single-family side, the rental market has absorbed some of the net increase resulting from the heavy production of recent years. As a result, the single-family share of vacant for-rent units rose from 26 percent in 2003 to 31 percent in 2006, lifting the single-family rental vacancy rate by 1.4 percentage points over this period. Despite easing in 2006, the single-family rental vacancy rate may resume its climb if owners of for-sale homes decide to wait for the inventory cor- rection to play out, and rent their units rather than drop their prices. Rental Demand Changes While rental demand has barely increased in the past decade, the com- position of demand has changed markedly."}, {"role": "assistant", "content": "In particular, the minority share of renter households climbed from 37 percent in 1995 to 43 percent in 2005, and is expected to exceed 50 percent by 2015."}]}
{"messages": [{"role": "user", "content": "Meanwhile, the share of renters living in family households declined from 54 percent in 1995 to 51 percent in 2005. This decrease reflects lower rates of remarriage as well as the longer lifespans of the wid- owed. Despite the sharp increase in Hispanic households with their much higher propensity to live in families, the family share of minority renter households also fell, from 66 percent to 62 percent. Minority renters, in particular, remain highly concentrated in center cities. For black renters, the median distance from the CBD increased from 4.3 miles in 1970 to 7.4 miles in 2000. But for white renters, the median distance started at 7.7 miles and then increased to 10.6 miles over the same three decades."}, {"role": "assistant", "content": "With minorities expected to account for all of the net growth in renter households but with most new rental opportunities located in the suburbs, the decentralization of minority renters should continue and may even accelerate. But for many low-income center-city renters, moving to the suburbs poses an economic hardship because they have to rely on public transportation to get to work."}]}
{"messages": [{"role": "user", "content": "The Rent vs. Own Choice Over a million households joined the ranks of renters in the last two years. While part of this increase undoubtedly reflects the large num- ber of newly formed households that made the choice to rent, some share is likely due to an increase in households making the move from owning to renting. Normally, millions of owner households revert to renting every year. When last measured in 2005, fully 2.7 million former owners reported moving to rental units in the prior 12 months. Half of these owners became renters because of a change in their family or employment situation, but only a handful switched to reduce their housing costs. Indeed, the number of households that rent out of necessity may well grow. The combination of higher ownership costs, tighter underwrit- ing standards, and the erosion in credit quality among the current pool of renters will prevent many from buying homes. Even improved market conditions are unlikely to help, given that both house prices and interest rates would have to fall dramatically to make ownership as affordable as it was in 2000–2003. The State of the Nation’s Housing The Outlook Just how the recent run-up in condo construction and conversions, as well as the oversupply of single-family homes, will affect the rental market is hard to guess. It is possible that strengthening rental demand will stimulate more production and/or that weakening homeownership demand will encourage owners to rent their unsold properties. But whatever lift rental demand gets from today’s weaker homebuying conditions, it should be temporary. Indeed, a quicker- than-expected rebound in home sales could prevent discouraged sellers from renting out their homes, thereby keeping rental markets tight. Even if home prices continue to drop, the correction is unlikely to close the growing gap between the costs of homeownership and what many renters can afford."}, {"role": "assistant", "content": "At the same time, the share of renters in their 20s will increase as the older members of the echo-boom generation and young immigrants form new households. The share of renters in their 30s and 40s, in contrast, will shrink significantly as the baby-bust generation moves through these age ranges. The share of renters in their 60s and 70s will increase only slightly, given that many seniors prefer to remain in their own homes or to move to supportive housing rather than to rental units. All of these shifts in demand will keep the need for decent, affordable rental housing strong. Rental production will likely continue to be con- centrated in the suburbs, providing units for primarily higher-income renters who can afford to live some distance from public transporta- tion and other services. Meanwhile, cities will have to find new ways to stimulate in-fill production and preserve existing units to meet the housing needs of the growing low-income renter population."}]}
{"messages": [{"role": "user", "content": "By early 2008, housing market problems had spread to the rest of the economy. The sharp drop in home building, the turmoil in the credit and stock markets, and the impact of falling home prices on borrowing and consumer spending all contributed to the slow- down. Mounting job losses in the first quarter of 2008 added to the misery, raising the risks of even sharper price declines and higher delinquencies ahead. In 2006 alone, existing home sales were off by 8 percent and new home sales by 18 percent. These declines accelerated in 2007 as falling home prices and the credit crunch deepened the crisis. With remarkable speed, the homeowner vacancy rate jumped from 2.0 percent in the last quarter of 2005 to 2.8 percent in the last quarter of 2007 as the number of vacant units for sale shot up by more than . Assuming the vacancy rate prevailing in 1999–2001 was close to equilibrium, the oversupply of vacant for-sale units at the end of last year was around units, or 1.0 percent of the owner stock. In addition, the number of vacant homes held off the market other than for seasonal or occasional use surged from 5.7 million units in 2005 to 6.2 million in 2007. Although the rental vacancy rate did not increase in 2006 and 2007, its climb earlier in the decade indicates that surpluses may exist in that market as well. Despite production cuts rivaling those in the 1978–1982 downturn, the number of vacant for-sale homes on the market did not shrink in the first quarter of 2008. The weak economy, tight credit, and concerns over whether house prices had bottomed out continued to suppress demand and delay the absorption of excess units. Until this oversupply is reduced, housing markets will not mend. The layering of mortgage lending risks at the peak of the market had serious and far-reaching consequences. As the economy weakened and mortgage interest rates rose, the number of home- owners unable to keep current on their payments began to climb. With prices falling, many owners could not sell their homes to avoid foreclosure. Meanwhile, many housing speculators defaulted even before their interest rates reset. Indeed, the Mortgage Bankers Association reports that absentee owners accounted for almost one in five loans entering foreclosure in the third quarter of 2007. Joint Center for Housing Studies of Harvard University 3 The full scope of credit market problems and the path to recovery remain clouded. Until credit markets return to normal, the economy will be in peril not only from the impact of falling home prices on loan performance and consumer spending, but also from the disrup- tions to corporate and consumer borrowing. Notes: Methodology is adapted from Freddie Mac. Oversupply is the difference between the average state-specific homeowner vacancy rate in 1999–2001 and the rate in 2007. The oversupply in Alaska was 1.1% and in Hawaii 0.5%. Heightened Housing Challenges At last measure in million households were at least mod- erately cost burdened (paying more than 30 percent of income on housing) and nearly 18 million were severely cost burdened (paying more than 50 percent). From 2001 to 2006, the number of severely burdened households alone surged by almost four million. Because of the unprecedented run-up in house prices and lack of real income growth, over half of this increase was among homeowners. The weight of high housing costs falls especially heavily on house- holds in the bottom income quartile. Fully 47 percent of low-income households were severely cost burdened in 2006, compared with 11 percent of lower middle-income households and just 4 percent of upper middle-income households. On average, households with children in the bottom quartile of spenders with severe housing cost burdens have just $257 a month left over for food, $29 for clothing, and $9 for healthcare. With food and energy costs climb- ing, these households will have less to spend on bare necessities. Four in ten low-income households with at least one full-time worker, and nearly six in ten households with one part-time worker, are saddled with severe housing cost burdens. The widening mismatch between housing costs and incomes reflects several forces—the growing number of low-wage and part-time jobs generated by the economy, the rising costs of operating and maintaining housing, and the upward pres- sure on construction and renovation costs created by local devel- opment restrictions. Indeed, in markets with the most stringent ■ Number of Loans ■ Share of Loans Source: Mortgage Bankers Association, National Delinquency Survey. Sources: US Census Bureau, Housing Vacancy Survey; Inside Mortgage Finance, 2008 Mortgage Market Statistical Annual. Joint Center for Housing Studies of Harvard University 5 regulations, house prices tend to rise faster and cost burdens tend to be greater than elsewhere."}, {"role": "assistant", "content": "With many former homeowners now turning to the rental market, the pressure on the limited supply of affordable rentals is mounting. Worse, losses of low-cost rental housing are alarmingly high. From 1995 to 2005, the supply of rentals affordable to households earn- ing less than $16,000 in constant 2005 dollars shrank by 17 percent. Unfortunately, these losses have continued in recent years even with the annual construction and preservation of about rentals under the Low Income Housing Tax Credit program. These credits are sold to investors at a discount to compensate them for the risk of real estate investing. But like investors in other assets, tax credit investors are demanding higher returns in this riskier envi- ronment. As a result, tax credits will likely support fewer additional rentals this year and perhaps longer."}]}
{"messages": [{"role": "user", "content": "Meanwhile, only a quarter of eligible renter households receive housing subsidies, and the federal government does even less to relieve the cost burdens of low-income homeowners. While current interventions may mitigate the risk of massive mortgage defaults and foreclosures, any relief for cost-burdened homeowners is likely to be temporary at best."}, {"role": "assistant", "content": "Housing Demand Fundamentals With many housing markets in a tailspin, the underpinnings of long- term demand have come into question. But unless the economy enters a sharp, prolonged recession that dampens immigration or slows household formations, the current housing cycle in and of itself is unlikely to diminish the long-run growth of households. Meanwhile, the impacts of recent social trends are likely to be mini- mal. Although deferred first marriages, high divorce rates, and low remarriage rates will continue to make single-person households the fastest-growing household type, these trends have started to level off. Assuming that age-specific household formations remain about constant, changes in the number and age distribution of the adult population should lift household growth from 12.6 million in 1995 –2005 to 14.4 million in 2010–2020. With their high levels of immigration and high rates of natural increase, Hispanics and Asians will contribute significantly to house- hold growth. Minorities are expected to account for more than two- thirds of the net increase in households over the next decade, with the foreign born alone contributing at least one-third of the gains."}]}
{"messages": [{"role": "user", "content": "Because minorities have lower average incomes and wealth, some have argued that their growing presence in housing markets will be a drag on home prices and rents. But when the minority share of households increased from 20.2 percent in 1990 to 29.2 per- cent in 2007, rents and house prices still rose ahead of household incomes. While their low incomes may force them to spend less on non-housing items as housing costs rise, minority households will nevertheless provide broad demand support to housing markets in the years ahead."}, {"role": "assistant", "content": "The Rocky Road Ahead With credit markets in such disarray, the for-sale housing inventory at record levels, and only small declines in interest rates, emerg- ing from today’s housing slump could take some time. Although demand fundamentals should support average annual completions of more than 1.9 million units over the next decade (including single- family and multifamily units plus manufactured homes), the housing market must first work off the one million or more excess units that were vacant and for sale or temporarily taken off the market at the beginning of 2008. This could trim underlying demand to an average of 1.8 million new units annually in the decade ahead. If the economy slips into a severe recession, the prolonged contrac- tion could drive down the sustainable level of housing demand by slowing the loss of older units, forcing more households to double up, and reducing sales of second homes. But in the case of a mild downturn, which most economists expect, the fundamentals of demand are likely to drive a strong rebound in housing once prices bottom out and the economy begins to recover."}]}
{"messages": [{"role": "user", "content": "■ Low-Income Households ■ All Households Notes: Full-time is defined as working at least 35 hours per week for at least 38 weeks in the past 12 months. Low-income households are in the bottom fourth of all households sorted by pre-tax income. Severe cost burdens exceed 50% of total household income. The State of the Nation’s Housing 2008 6 Housing markets entered 2008 showing no signs of recovery. Credit markets seized up in the wake of higher than expected losses on subprime mortgages, and lending standards tightened. In addition, mortgage interest rates edged down only slightly despite aggressive cuts by the Federal Reserve in 2007. Although the slowdown in home building last year was not enough to drive the economy immediately into recession, tight credit markets and the impact of falling home prices on consumer spending now threaten to bring growth to a halt."}, {"role": "assistant", "content": "During the expansion that started in the early 1990s, demand fundamentals kept household growth going strong, real incomes were up, and interest rates were favorable. But just prior to the 2001 recession, the Federal Reserve began to cut interest rates to avert deflation and a deeper contraction of the economy. Soon after, home sales began to take off ahead of production. By 2003, these conditions helped to create the tightest housing mar- kets and the lowest interest rates in at least a generation."}]}
{"messages": [{"role": "user", "content": "With excess supplies beginning to mount and the temporary lift from mortgage product innovations coming to an end, nominal house prices finally turned down on a year-over-year basis in the third quarter of 2006. Meanwhile, interest rates on some adjustable loans began to reset and mortgage performance deteriorated as poor risk management practices took their toll. Lenders responded by tightening credit in the second half of 2007, dragging the market down even more sharply and exacerbating the threat of a prolonged housing downturn. The homeowner vacancy rate continued to edge higher in the first quarter of 2008. Until the number of vacant for-sale units on the market, or held off the market for reasons other than seasonal or occasional use, falls enough to bring vacancy rates back down, house prices will remain under pressure. Working off the oversup- ply will require some combination of the following: housing starts fall even further, prices decline enough to bring out new bargain- seeking buyers, interest rates drop enough to improve affordability, job growth improves, consumer confidence returns, and mortgage credit again becomes more widely available. The intensity of the retreat in demand took builders by surprise. Cancellations soared, coming closer to the time of delivery than ever before. Phoenix provides an extreme example. According to Hanley-Wood, cancellations as a share of gross home sales climbed from 2.8 percent in the fourth quarter of 2005 to 48 percent in the fourth quarter of 2007, just as gross sales dropped from about 10,600 to 7,400. Even in a relatively strong market like Seattle, however, the cancellation rate jumped from 1.2 percent to 12.6 percent over this period. Note: New home sales and housing completions include single-family units only. Sources: US Census Bureau, New Residential Construction and Housing Vacancy Survey. These national statistics obscure larger price drops in many met- ropolitan areas and mask how fast declines spread across the country. At the start of 2007, quarterly nominal NAR median sales prices were still rising in metros. Meanwhile, prices in 33 metros had declined by 10 percent or more from their peak to the fourth quarter of 2007 (Table W-3). In previous cycles, employment losses and overbuilding played larg- er roles in how far metropolitan area prices fell. This time around, the extent of overheating is a much bigger factor in the magnitude of the declines. Still, job losses are likely to exacerbate housing market weakness, and overbuilt markets will suffer especially severe price corrections. In fact, prices are not expected to recover until excess inventory is absorbed, consumers are convinced that the bottom has been reached, and credit is less expensive and more available. Moreover, if the economy slides into a recession with significant employment losses, house prices are likely to take a further beating. The dramatic drop in prices has also sidelined more buyers than in the past, and foreclosure rates are the highest they have been since recordkeeping began in 1974. All of these factors may make this downturn more protracted than usual, and credit market woes may slow the eventual rebound. Improvement spending will also come under increasing pressure because it is sensitive to both credit availability and house price appreciation."}, {"role": "assistant", "content": "Nevertheless, demographic fundamentals still point to increased housing demand over the next decade. But the excess inventory must be worked off before the demand for new homes rebounds. This in turn requires a return to stable-to-rising home prices, sus- tained job growth, and accessible credit. When that happens, and assuming immigration remains strong, the inventory overhang will start to thin, prices will firm even more, and average annual produc- tion, including manufactured housing, will likely head back toward 1.9 million units."}]}
{"messages": [{"role": "user", "content": "Demographic Drivers 3 Household Growth Trends After averaging 1.15 million per year in 1995–2000, household growth notched up to 1.37 million annually in 2000–2006. While some of this increase may be due to the unusually favorable home- buying conditions in the first half of the decade, much of it was expected as the echo boomers began to form independent house- holds and immigration continued to climb. When housing markets turned down in 2006 and then plummeted in 2007, the most consistent measure of households registered a slowdown in net growth (Table W-4). Estimates of last year’s fall- off, however, were especially sharp and contain some anomalies that make their reliability questionable. In particular, net household growth fell nearly in half last year as the number of owner house- holds swung from a gain of in 2005–2006 to a loss of in 2006–2007. If the dramatic plunge in 2007 were driven by the subprime mortgage crisis and rising foreclosures, the biggest decline in homeowners would likely be among minority households, who have a disproportionately large share of such loans. Instead, white households accounted for all of the reported decrease in homeowners while the number of minority owners increased by more than . And despite the large drop in homeowners, growth in the number of renters only rose from around in 2005–2006 to in 2006–2007. Moreover, though domestic in-migration increased in the South, the reported pace of household growth in the region—among both owners and renters—was down significantly last year. While this may indicate a sudden drop in immigration, it may also be the byproduct of a change in estimation methods in 2007 rather than a real decline. Another noteworthy change is that a larger share of each succeed- ing generation is choosing to live with a partner without marrying. This is true for households with and without children. According to new Joint Center household projections, unmarried partners will head 5.6 million households in 2020, up from 5.2 million in 2005. Of these households, 36 percent will include children under the age of 18."}, {"role": "assistant", "content": "In total, persons living alone are expected to account for 36 percent of household growth between 2010 and 2020. Although increasing numbers of people living alone will boost the demand for smaller units, the lift is likely to be modest given the nation’s strong appe- tite for large homes. In addition, three-quarters of the more than 5.3 million projected increase in single-person households will be among individuals aged 65 and older—a group that has shown a marked preference for remaining in their homes as they age. Seniors are more likely to remodel their current homes to improve accessibility, safety, and convenience than to move to new, smaller units. The aging baby boomers, however, are already showing a propensity to buy second homes and will therefore continue to add to demand in this way. White household growth in the next decade will be almost entirely among older couples without minor children and among older singles (usually widowed or divorced). With their higher birth rates and lower average ages, minorities will continue to post a net increase in married-couple households with minor children. Even so, nontraditional households are gaining ground among minorities as well, with the shares headed by single parents or including multiple unmarried adults expected to increase. This reflects both changing social patterns and the tendency for immigrants to share housing to shoulder high cost burdens. Single- person households will be the fastest-growing segment among minorities. Indeed, the number of minorities living alone is pro- jected to increase across all age groups, even outpacing the strong growth among white single-person households. As the numbers and shares of minorities and immigrants grow, the demand for affordable housing will increase. This is not to say, however, that these groups are not contributing to the demand for higher-cost housing."}]}
{"messages": [{"role": "user", "content": "The State of the Nation’s Housing Sources and Patterns of Population Growth The movement of households to and within the United States profoundly shapes local housing demand. While rates of natural increase matter over the long term, foreign immigration and net domestic migration are more important in the short run because they directly add or subtract adults from the market. Domestic migration is even larger than international migration. But with the movement of international migrants already living in the United States counted as domestic migration, looking only at new arrivals understates the impact of immigration on a given area. International migration affects all regions of the country, but primar- ily the South and West. At the state level, the foreign born contrib- ute to growth by either replacing population lost to net domestic out-migration or by adding to domestic in-migration (Table W-6). Indeed, the arrival of 1.8 million immigrants to California more than made up for the net loss of domestic out-migrants in 2000–2007. In Florida and Arizona, where net domestic migration was strong, international migrants lifted population growth even more. And in Texas, the state with the highest total population growth over the period, international migrants added to the net gain of domestic migrants. In many cases, these are the outer suburbs of metropoli- tan areas that have traditionally served as immigrant gateways. But smaller cities and towns as well as rural counties are also becoming locations of choice. In many of these areas, domestic out-migration of young adults and the consequent decline in natural increase have left communities to depend upon foreign immigrants to fill jobs, buy houses, and keep up school enrollments."}, {"role": "assistant", "content": "With their economically competitive environments and desirable climates, the same locations in the South and West that have attracted both international and domestic migrants in recent years are expected to continue to do so. Foreign-born migrants are, however, increasingly likely to spread into more housing markets around the country where young domestic out-migrants have left a vacuum."}]}
{"messages": [{"role": "user", "content": "Nevertheless, the growth in homeownership and the escalation in house values did nothing to narrow the wealth gap between whites and minorities. Median wealth among minorities more than doubled from $14,000 in 1999 to $37,000 in 2005 in inflation-adjusted dollars. At the same time, though, median wealth among whites increased more in dollar terms, up 50 percent from to Notes: High (low) immigration is defined as 100 or more (99 or less) net international migrants added to the county in 2000–2007. High foreign-born share is above 11.1%, the national share in 2000. While rising incomes and wealth have so far placed each genera- tion on a path to higher housing consumption, the weak income performance earlier in this decade and the recent jump in energy costs have raised concerns that this upward trend may not con- tinue. Adding to this risk is the very real prospect that some of the recent gains in household wealth—which came largely from rising homeownership rates and home price inflation—will erode. Housing demand will, however, pick up once the economy begins to recover, home prices reach bottom, and homeownership again becomes an attractive way to build wealth. The markets most exposed to the cutback in loans with interest- only and payment-option features are the country’s most expen- sive. Indeed, a simple measure of affordability—the ratio of median home price to median income—alone accounts for almost 70 percent of the variation in the metro share of these products at the 2006 peak. Furthermore, the areas with the highest shares of these affordability products in 2006 saw the largest declines in 2007. For example, loans with affordability features accounted for more than half of all loans originated in San Diego, San Jose, and Santa Cruz in 2006 but less than a third in 2007. States with high 2006 shares and large 2007 declines include Nevada (from 41 percent to 25 per- cent), Arizona (29 percent to 18 percent), Florida (25 percent to 13 percent), and Washington, DC (26 percent to 15 percent). As they continued their exit from markets in 2007, housing inves- tors also contributed to the drop in mortgage lending. First American CoreLogic’s LoanPerformance data indicate that the investor share of all non-prime loan originations (including subprime, Alt-A, and non-conforming loans) peaked at 12.2 percent in the first quarter of 2006, before falling back to 8.7 percent in the third quarter of 2007 (Table W-8). The dollar volume of all non-prime investor loans plunged by two-thirds over this period, and of just subprime inves- tor loans by a whopping seven-eighths. According to the Mortgage Bankers Association, loans to absentee owners also accounted for almost one in five loans entering foreclosure in that quarter. Shares in states with distressed economies (such as Ohio and Michigan) or with widespread speculation (such as Nevada and Colorado) were even higher. The State of the Nation’s Housing At the same time, lenders enabled buyers to chase prices higher by offering products that lowered initial mortgage payments but exposed borrowers to the risk of payment shocks when their inter- est rates reset. Lenders also took on additional risk by requiring small downpayments, even though modest home price declines could wipe out an owner’s equity. On top of this, lenders were all too willing to relax income-reporting requirements to draw self- employed and other hard-to-qualify borrowers into the market. These borrowers were willing to pay slightly higher interest rates or fees in return for not having to verify their incomes. With payment- option, low-downpayment, and no-income-verification loans readily available, housing investors had access to low-cost, highly lever- aged capital as never before. Lenders layered risks on top of risks without considering the potential consequences for performance, while mortgage investors continued to buy up staggering volumes of these loans. The Foreclosure Crisis With borrowers defaulting in record numbers and lenders unable to restructure the loans, the number and share of homes entering foreclosure skyrocketed to their highest levels since recordkeep- ing began in 1974. According to Mortgage Bankers Association counts covering about 80 percent of loans, the number of loans in foreclosure more than doubled from an average of annu- ally in 2002–2006 to nearly in the fourth quarter of 2007. Meanwhile, the share of loans in foreclosure jumped from less than 1.0 percent in the fourth quarter of 2005 to more than 2.0 percent by the end of last year, and the share entering foreclosure rose from 0.4 percent to 0.9 percent. Joint Center for Housing Studies of Harvard University 21 For households, the consequences of foreclosures go beyond wip- ing out equity and even losing the roof over their heads. The impli- cations for their credit scores and long-term financial well-being can be disastrous. For lenders, foreclosures also mean significant losses. In 2002, TowerGroup estimated that the foreclosure pro- cess for a single property cost $59,000 and took an average of 18 months. These costs are no doubt higher today in markets where lenders cannot sell the properties for enough to recoup their losses. Moreover, foreclosures impose economic and social costs on the neighborhood and larger community, depriving municipalities of tax revenue and driving down prices of nearby homes. The wave of foreclosures will take months to process and the number of homes entering foreclosure could continue to rise even if the volume of loans with resets drops from last year’s level. Job losses and falling home prices are now adding to foreclosure risks. Meanwhile, mortgage credit will remain tight and larger risk premi- ums will offset much of the decline in short-term rates. Sources: National Association of Realtors®, Median Sales Price of Existing Single-Family Homes; Federal Housing Finance Board, Fixed Rate Contract Interest Rate for All Homes. With so much turmoil on the for- sale side, many households have reconsidered their financial choices and opted to rent rather than buy. Despite three years of increasing demand, however, apartment builders have trimmed multifamily rental construction in the face of stubbornly high vacancy rates. Whether the deepening homeownership downturn will result in tighter rental markets depends on how much of the excess supply of for-sale housing is converted to rentals and how quickly homebuying conditions improve. Demand Comeback Even at the peak of the homeownership boom, about a third of American households rented their housing. Many renters prefer the convenience and relative ease of moving that renting provides, or view renting as a safer financial choice. Others rent because they cannot qualify for a mortgage or afford homeownership. Not sur- prisingly, the majority of renter households are likely to have lower incomes and wealth or to be in life transitions—including the young, the foreign born, and divorced or separated individuals. Over the long run, the share of households that rent is shaped by changes in the age distribution of adults, household composition, and racial/ethnic mix. In the short term, however, economic condi- tions and mortgage lending standards can be even more important drivers of tenure choice. From 1995 to 2005, long-term demograph- ic trends slightly favored the rental market but price appreciation and low interest rates fueled a homebuying boom. Indeed, if the 1995 homeownership rates by age and race/ethnicity had held, the overall rate would have declined by 0.3 percentage point rather than surged by 4.2 percentage points. In late 2004, however, economic conditions started to tip back in favor of renting. As a result, the reported increase in the number of renter households was more than 2 million from 2004 to 2007. At first, the uptick was driven by how unaffordable homeownership had become, as well as by the release of pent-up rental demand in some regions where job and income growth had slowed after the 2001 recession. Black households led the revival of demand, fol- lowed later by gains among white and Hispanic renters. For reasons that are still unclear, growth in the number of Hispanic homeown- ers continued to outpace that of Hispanic renters."}, {"role": "assistant", "content": "More recently, the upheaval in housing and credit markets has made renting more attractive for a growing number and share of house- holds. Although a rising tide of former owners who have lost their homes to foreclosure are now turning to rentals, it is primarily the impact of tighter credit standards and the uncertainty generated by falling home prices that is driving growth in demand. Over the longer term, though, homeowners who defaulted on their loans will provide an enduring lift to the number of renter households because they will likely need years to undo the damage to their credit scores."}]}
{"messages": [{"role": "user", "content": "Joint Center for Housing Studies of Harvard University 23 In addition, some former homeowners may even have problems qualifying for rentals. First Advantage SafeRent reports that the credit scores of applicants to large rental properties across the country—including public and subsidized housing—who had been delinquent on subprime loan payments were about 24 percent lower than those of typical applicants. Currently, about one-third of applicants with mortgage delinquencies are rejected at large rental properties. Unless managers of these large properties ease credit standards for new tenants, a considerable share of applicants that recently defaulted on mortgage loans will find their housing choices confined to mostly smaller rental properties. Renter Mobility With so much focus on failed owners who must now rent, it is easy to lose sight of the fact that many households rent by choice. Moreover, a sizable share stay in the same units for a consider- able length of time. More than a quarter of renter households surveyed in 2005 reported they had lived in their units for five or more years. After accounting for age, however, long-term renters are no different from short-term renters in terms of housing cost burdens, income, and race/ethnicity. In fact, the likelihood that non-elderly households will remain in the same rental units for at least five years is nearly equal across these characteristics. One group of renters that does tend to move frequently, however, is single-parent households—an unfortunate pattern that is proven to disrupt children’s educational progress and undermine their general well-being. Mixed Metro Performance Despite firming demand, the national rental vacancy rate held at near-record levels in 2007. This indicates that additions to the stock from new construction and conversion of for-sale units to rentals matched growth in the number of renter households plus losses from the inventory. At the metropolitan level, however, rental market conditions varied considerably. Changes in vacancy rates in the 75 metros covered by the Census Bureau ranged from a 4.5 percentage-point decline to a 5.0 percentage-point increase, with more metros reporting higher vacancies relative to 2006. Meanwhile, inflation-adjusted rents rose by as much as 5.3 percent in 9 of the 14 metros cov- ered by the Consumer Price Index (CPI), and fell by less than 1.0 percentage point in the other 5. By this measure, the largest rent increases were in Miami, Seattle, and Los Angeles, while the mod- est declines were primarily in distressed metros such as Detroit and Cleveland (Table W-10). The national median rent rose just 0.6 percent in real terms last year according to M|PF Yieldstar (which covers rental properties pre- ferred by institutional investors), but by 1.4 percent as measured by Notes: Long-term renters lived in their units from 2000 to 2005. Moderate (severe) burdens are housing costs of 30–50% (over 50%) of household income. Source: JCHS tabulations of the 2005 American Housing Survey, using JCHS-adjusted weights. The State of the Nation’s Housing the broader CPI estimate. But like the CPI, M|PF Yieldstar reported a wide variation in real rent changes across the country, with 27 out of 57 metros posting a decline between the fourth quarters of 2006 and 2007. According to this measure, some of the largest declines were in Florida (excluding Miami), where conversions of excess multifamily for-sale housing to rentals have glutted the market. In contrast, real rents in the West, and especially in a handful of coastal California metros, were up by as much as 9 percent. With housing markets in California under increasing pressure, however, these rent increases could soon end. The Rental Supply With the national vacancy rate climbing from 2000 to 2004, falling back slightly in 2005, and then flattening over the last two years, con- struction of new rental units declined for the seventh consecutive year in 2007. Completions of for-rent units in multifamily structures fell to just down 15 percent from 2006 and 38 percent from 2000. Even though completions of for-sale units also dropped, the rental share of all multifamily completions dipped below 60 per- cent for the first time in the 43-year history of recordkeeping. Sources: US Census Bureau, Housing Vacancy Survey; Bureau of Labor Statistics, Rent of Primary Residence, adjusted for inflation by the CPI-U for All Items. Joint Center for Housing Studies of Harvard University 25 On a national level, just nine percent of the rental housing stock was built between 2000 and 2006. For example, more than 20 percent of renter- occupied units in Las Vegas, Austin, and Fort Myers were added during this period. In some smaller metropolitan areas, new con- struction accounted for an even greater share of the rental stock than of the owner stock. While prompted by stronger rental demand in some areas, new construction in many others has replaced units permanently lost to abandonment, demolition, and disasters. This is especially true in slow-growing regions of the country where the housing stock is older. According to a Joint Center analysis of the 1995 and 2005 American Housing Surveys, center cities in the Northeast saw one rental unit permanently removed for every three built. In Midwestern center cities, the ratio was one unit lost for every two built. Even in a healthy construction market like the suburban West, where almost a half-million new rentals were built, two units were lost for every three added."}, {"role": "assistant", "content": "Some other net removals were due to the conversion of rental properties into condos by owners seeking to cash in on the home- buying frenzy. Real Capital Analytics reports that acquisitions of large multifamily rental properties (valued at $5 million or more) intended for condo conversion removed more than rental units in 2005 and 2006. These removals offset almost two-thirds of the multifamily rental units completed over this period. But when the pool of investors demanding these condos dried up, the bottom dropped out of the for-sale market in 2007 and condo conversions plummeted. Meanwhile, some for-sale units reverted to rentals. As a result, existing units are now flowing on net into the rental market and will likely add to the stock in the near term."}]}
{"messages": [{"role": "user", "content": "Older, lower-cost rentals are also being lost to rent inflation. The low-cost units that do remain in the stock are often in gentrifying areas. Among remaining older, lowest-cost units—the only ones affordable to households with incomes below 30 percent of area medians—the rents in more than half shifted up to a higher range between 2003 and 2005. To keep these units in the afford- able stock, government would have to ask owners to restrict rent increases and to compensate them for the loss of income they incur from holding rents to below-market levels. Non-Metropolitan Trends According to American Community Survey (ACS) estimates, 5 million renter households—or one out of every seven—lived in non-metropolitan areas in 2006. Based on this source, only 14 percent of new rental construction since 2000 occurred in these areas. But when compared with the 1990 definitions of metropoli- tan boundaries from the American Housing Survey, it is clear that many were only recently reclassified from non-metro to metro. As a result, rental construction is much more highly concentrated in these outlying counties than the ACS would suggest. Indeed, using the 1990 metro definitions, the share of rentals built in non-metro areas in 2000–2005 was a much larger 33 percent. In addition, non-metro renters generally have less education, with 87 percent lacking college degrees compared with 77 percent of metro renters. While non-metro renters also tend to have lower incomes, the lower rents they pay mean that a smaller share of non-metro than metro renters are severely cost burdened. Non- metro renters—and especially low-income and minority renters— do, however, have a higher incidence of housing quality problems. In the longer run, demand for rental housing will depend on both demographic trends and financial market conditions, including the cost and availability of mortgage credit. The growing share of minority households and the strong pace of immigration will sup- port solid growth in renter households. While overall demographics slightly favor homeownership, homeowner demand will remain suppressed until credit standards are relaxed, mortgage interest rates fall further, and home price appreciation returns. To bring affordability back to its level in 2000 would take some com- bination of large price declines, interest-rate reductions, rent defla- tion, and unprecedented real income growth. But even at the start of the decade, housing costs were well out of reach for many of the nation’s most vulnerable households, including low-wage workers and families with children. Distressingly, veterans are among the types of households with high housing cost burdens and, worse, a high incidence of homelessness. Owners who recently moved are especially likely to be severely cost burdened. While this in part reflects their younger average age, the share of recent movers with severe burdens has climbed sharply since 2001, due in part to the run-up in house prices, the increase in interest rates after 2004, and the interest-rate resets on many adjustable loans originated in 2004 and 2005. Tapping home equity through second mortgages has apparently led to higher housing cost burdens as well. In 2006, approximately 20 percent of all middle-income homeowners with second mortgages paid more than half their incomes for housing. This is nearly twice The State of the Nation’s Housing the share among those with only a first mortgage. Among low- income homeowners, 90 percent of those with second mortgages are severely cost burdened compared with 70 percent of those with just a first mortgage. For homeowners earning more than the median income, the likeli- hood of being housing cost burdened nearly doubled between 2001 and 2006. Some of this increase reflects the substitution of mortgage debt for unsecured consumer debt through either cash- out refinances or second mortgages. In the short run, this allows borrowers to reduce their monthly carrying costs on the same amount of debt. But consumer debt can be discharged in bank- ruptcy without the lender’s consent, while mortgage debt cannot. As a result, debt substitution exposes homeowners to even greater foreclosure risk. Local land use regulations are also contributing to the increase in housing cost burdens by skewing development toward more expensive homes and restricting the types and density of hous- ing that can be built. One study concluded that land use restric- tions slow building activity and inflate housing prices both during boom times and over the long term. In addition, despite having higher average incomes as well as higher housing costs, the most restrictive metros have a greater incidence of severe housing cost burdens. In 2006, the aggregate share of severely cost-burdened renters was about three percentage points higher in these areas than in the least restrictive metros. The reason the gap is not larger is that severe burdens are concentrated among low-income households that have to stretch to afford housing even in the least restrictive metro areas. Severe cost burdens are housing costs exceeding 50% of total household income. Sources: JCHS tabulations of the 2001 and 2006 American Community Surveys. Joint Center for Housing Studies of Harvard University 29 As if this were not enough, households with children are more likely to face crowded or inadequate living conditions. Nearly one in five low-income families—and nearly one in four low-income minority families—reported living in structurally inadequate housing in 2005. What is more, this poor-quality housing is not necessarily affordable. Indeed, these families have a slightly higher incidence of severe cost burdens than otherwise similar families living in adequate units. Challenges of Disabled Veterans Veterans with disabilities make up 29 percent of the 16.4 million veteran households, but 42 percent of the more than 1.5 million veterans with severe housing cost burdens. Low incomes are a key factor, with fully one in three working-age veteran householders with disabilities in the bottom income quartile, compared with just one in ten without disabilities. Even after controlling for income, however, the incidence of severe housing cost burdens is still slightly higher among younger veterans with disabilities than those without. This is in stark contrast to the experience of older disabled veterans and the disabled low-income population in general, who normally have lower cost burdens because they receive priority in the allocation of rental assistance. While homeless veterans are more likely than non-veterans to suf- fer from post-traumatic stress disorder, the National Alliance to End Homelessness (NAEH) and the National Survey of Homeless Assistance Providers and Clients attribute their homelessness to many of the same causes: lack of a support system and high rates of mental or physical illness and/or drug addiction. Nearly half of home- less veterans reported having a mental illness and about 10 percent ■ Most Restrictive Metros ■ Least Restrictive Metros Notes: Most (least) restrictive metros are the top (bottom) third of metros ranked by the Wharton Residential Land Use Regulatory Index. Severe cost burdens are the aggregate shares of renters across metros spending 50% or more of income on housing. Sources: Freddie Mac, Conventional Mortgage Home Price Index; 2006 American Community Survey. Minorities are all non-white householders, including Hispanics. Households with severe cost burdens spend more than 50% of income on housing. The State of the Nation’s Housing reported having a mental health problem in the past year. The shares reporting problems with drugs (40 percent) and alcohol (58 percent) are similar to those among other homeless adult males. Tragically, veterans are a large share of the chronically homeless. According to NAEH estimates, veterans make up about 63,000 of the Americans in this category. The chronically homeless often have complex medical conditions such as mental disability and/or an addiction, and cycle in and out of hospitals, shelters, jails and institutions. Several cities, including New York City and Portland, Oregon, have developed permanent supportive housing and prevention programs that have successfully reduced chronic homelessness while also saving public resources. Heavily targeted toward renter households, federal housing assis- tance currently does next to nothing for owners that have severe housing cost burdens and are at risk of losing their homes. While federal and state governments have intervened to blunt the impending wave of foreclosures, the relief is temporary and in many cases relies on the voluntary efforts of lenders, servicers, and investors. The largest-scale program uses federal housing insurance to allow some homeowners to refinance their way out of trouble. As it is, however, many owners do not qualify for any of the forms of assistance being offered. Once the current storm passes, foreclosure rates may settle back down but the affordability problems of owners—and especially of former owners forced back into renting—will persist."}, {"role": "assistant", "content": "The Outlook The weakness of the economy does not bode well for income growth in the short run. But even in the longer run, the housing cost pressures on working Americans are unlikely to lighten. Much of employment growth will continue to be in part-time and low- wage positions. This trend, together with the high operating costs of housing and the restrictions on building modest homes at higher densities, makes efforts to meet the nation’s affordability chal- lenges an uphill battle."}]}
{"messages": [{"role": "user", "content": "Meanwhile, the baby boomers will boost demand for senior housing. The units built over the next 10–20 years that inten- tionally cater to older Americans will be the housing available for generations to come, given that growth of the over-65 popu- lation will slow dramatically as the now similarly sized baby- bust generation moves into retirement. So far, however, federal support for senior housing is limited to minimal new construc- tion of subsidized units. Moreover, the current funding system encourages expensive trips to skilled nursing facilities to the detriment of lower-cost, less institutional assisted living options and programs that allow elders to remain in their homes. Senior housing issues will therefore gain much greater urgency over the coming decade. While house price declines and a federal tax credit drew first- time homebuyers into the market, those same price declines also left millions of current owners unable to sell their homes without incurring losses. Meanwhile, loan performance continued to erode and foreclosures mounted as unemployment soared. The State of the Nation’s Housing Near the height of the housing boom, mortgage payments on a median-priced home peaked at 32.7 percent of median house- hold income. By the first quarter of 2009, the share had retreated to just 19.6 percent of median income. After edging higher in mid-2009, payment-to-income ratios hit a new low of 18.9 per- cent in the first quarter of 2010 as interest rates eased and the median home price fell back from modest summertime gains. First-Time Homebuyer Surge The first-time buyer share of home sales typically decreases during expansions and increases during recessions. In hot housing markets, the share declines as first-time buyers are priced out and current homeowners take advantage of rising prices to trade up. When markets are weak, overall sales activ- ity is depressed and current owners tend to stay in place. According to the National Association of Realtors®, the first- time homebuyer share climbed in both 2007 and 2008, and then surged in 2009. First-time purchasers rose from 36 per- cent of all homebuyers in 2006 to about 45 percent in 2009. The increase in share added roughly sales in 2008–9. Without this gain, existing home sales for the year would have fallen by 63,000. Dismal Loan Performance When combined with heavy job losses, the same lower home prices that drew first-time homebuyers into the market con- tributed to stunningly poor mortgage loan performance. The number of loans more than 90 days delinquent or in foreclo- sure was high and climbing in early 2010. With such high delinquency rates, foreclosures have contin- ued to rise. Rates for subprime mortgages remain especially high not only because of a increase in the current inventory of loans in foreclosure, but also because of the 1.5 Source: US Census Bureau, Housing Vacancy Survey. Despite a much higher incidence of serious delinquencies and foreclosures among subprime loans, most problem mortgages are now prime loans. During this cycle, record home price declines and heavy job losses have left prime loan perfor- mance orders of magnitude worse than in previous cycles. Indeed, serious delinquency rates for prime conventional loans typically remain well below 2 percent even during downturns, but were 7.1 percent in the first quarter of 2010. Among prime loans that Freddie Mac owns, a recent survey found that 58 percent of delinquent borrowers cited unemployment or cur- tailment of income as the reason for their payment problems. Running a distant second is excessive financial obligations (16 percent), and third is illness or death (11 percent)."}, {"role": "assistant", "content": "Delinquencies and foreclosures have been highly concentrated by state. California and Florida alone account for more than a quarter of loans at least 90 days delinquent, plus more than a third of loans in foreclosure (Table A-6). Serious delinquency rates are highest in Florida (20.6 percent), Nevada (19.6 per- cent), Arizona (12.8 percent), and California (12.1 percent), and lowest in North Dakota (2.3 percent), Alaska (3.0 percent), and South Dakota (3.5 percent). In the states with the highest incidence of delinquencies, foreclosures will likely weigh on home price gains."}]}
{"messages": [{"role": "user", "content": "With Fannie and Freddie looking for higher-quality loans and subprime lending virtually eliminated in 2008–9, borrowers with lower credit scores flocked to alternative nonprime prod- ucts such as USDA-guaranteed rural loans and FHA-insured loans. Indeed, according to First American CoreLogic, the FHA share of the home purchase market ballooned from just 6.6 percent in 2007 to 30.1 percent in 2008 and then climbed to 56.4 percent in 2009. But as loan losses mounted, FHA also reduced the flow of credit to lower-scoring borrowers, doubling the share of originations to applicants with scores above 680 between 2007 and 2009. Meanwhile, the federal stimulus package increased funds for a USDA-guaranteed mortgage program from $6 billion to $12 billion, but the strength of demand is likely to exhaust these resources well before the end of the fiscal year. Until dam- aged credit histories have time to heal or businesses find more sustainable ways to lend to people with lower credit scores, the shortage of loans available to these buyers will hinder the housing market recovery. The State of the Nation’s Housing Although renter household growth increased last year, rental vacancy rates climbed to a new high. Early in 2010, however, occupancies in some areas appeared to be stabilizing. With multifamily construction near record lows, property prices still falling, and sales still depressed, the national rental market has yet to make a convincing recovery. Nevertheless, such low levels of construction could set the stage for a strong rebound to keep up with demand once household growth returns to its long-run pace. With vacancies rising and landlords trying to retain tenants in the midst of the severe recession, nominal rents stalled and inflation-adjusted rents edged downward. After decades of steady increases, the Consumer Price Index registered a flat- tening in nominal rents and a 2.9 percent decline in real rents between the December 2008 peak and April 2010. At the same time, MPF Research—which picks up changes in effective rents caused by landlord concessions, such as a month of free rent—reported a 3.1 percent nominal decline in rents for better-quality apartments owned by large institu- tional investors. By this measure, nominal rents were down in metropolitan markets last year, and real rents in 53 of the 64. The weakest markets were in the West, with San Jose posting the largest rent drop of 9.5 percent, and Seattle, Salt Lake City, Oakland, and Las Vegas all registering declines of 7 percent or more. Rising vacancy rates in more expensive units were likely behind the softer rents for institutionally owned properties. Indeed, the number of vacant rental units offered 5 Rental housing Prices of apartment properties fell again last year, although the pace of decline slowed. According to the NCREIF price index, rental property prices dropped 29.4 percent from their first-quarter 2008 peak through the fourth quarter of 2009. Over the course of the year, however, quarterly price declines eased from 9.6 percent to 2.9 percent. After slid- ing for most of the decade, the capitalization rate was up by roughly 1 percentage point in 2009, to 6 percent. These trends largely reflect investor demand for higher expected returns. Falling net operating incomes also contributed to the price declines, although they did recover slightly in the fourth quarter—suggesting that rental markets may have started to stabilize. About 12.1 percent of multifamily loans are held in trusts for commercial mortgage-backed securities (CMBS). According to Moody’s Economy.com, the share of multifamily loans in CMBS that were at least 60 days delinquent, in foreclosure, or post-foreclosure and owned by the issuing trusts (REO) jumped from 1 percent of balances outstanding in December 2007 to 12.9 percent in April 2010. Falling property values, high vacancy rates, and deteriorat- ing loan performance have dampened the demand for credit and made it more difficult to get, especially for development. While debt is more available for existing properties, under- writing terms have tightened. Multifamily loan originations by private CMBS conduits have dropped to essentially zero. Meanwhile, HUD announced increases in the minimum required net worth for FHA-approved lenders. Other under- writing changes proposed for FHA-insured multifamily loans would raise debt service coverage ratios, reduce loan-to-cost ratios, and double construction contingencies and working capital escrows. Immigration is driving the changing composition of rental demand. Continuing the strong growth posted in the 1990s, the foreign-born share of renter households increased from 17.4 percent in 2000 to 19.6 percent in 2009. Indeed, the num- ber of Hispanic renters has more than tripled from just 1.9 million in 1980 to 7.0 million. The Outlook As in the homeowner market, several opposing forces are at work in the rental market. On the downside, high unem- ployment—especially among minorities and the young—is a drag on demand. In addition, the narrowing cost differential between owning and renting could keep first-time home- buying strong even after the federal tax credit expires. On the upside, however, the echo boomers are starting to form independent households, many owners that have lost their homes to foreclosure will turn to renting, and some would- be homebuyers will be unable to qualify for loans. Moreover, improving labor markets typically benefit rental markets more immediately than home sales. The combined effects of these forces will determine how fast rental property values rebound, loan performance improves, and credit flows more readily to multifamily developers. Like housing and household growth more generally, the strength of the rental recovery will depend heavily on how quickly and strongly job growth comes back."}, {"role": "assistant", "content": "Assuming that headship rates by age and race/ethnicity remain at 2008 levels and homeownership rates hold at 2009 levels, renter household growth in 2010–20 should easily top the 3.1 million mark reached in 1999–2009. Indeed, the total number of renters is expected to rise by about 3.8 million even under a low-immigration scenario and by about 5.0 million under a high-immigration scenario. In either case, minority households will make up the majority of renters by 2020."}]}
{"messages": [{"role": "user", "content": "A record 18.6 million house- holds faced these high cost burdens that year, an increase of since 2007 and 4.7 million since 2001. Living within these households were 44.2 million Americans, including 13.7 million children. Although the shares with cost burdens grew faster for home- owners during the 2000s, the incidence of cost burdens remained far higher for renters. Nearly one in four renter households had severe cost burdens in 2008, compared with roughly one in eight owner households. And nearly half of renters, but a third of owners, had at least moderate cost burdens (spending 30–50 percent of income for housing). The primary reason for this disparity is that renters typically have much lower incomes than owners. The nation’s 4.5 million single parents in the lowest income quartile, along with their 9.1 million children, face the worst affordability challenges. They have greater space needs and must worry more about safety and school quality when choos- ing homes than households without children. Half of low- income single-parent households spent 63 percent or more of their incomes on housing in 2008. Low-income minority single-parent households had even harsher cost burdens. Income-Housing Cost Mismatch Roughly three-fourths of households with severe housing cost burdens fall within the bottom income quartile, and a sober- ing half of all households in this quartile have severe burdens. This stems from a mismatch between their low incomes and the cost to supply the most basic of homes. The median income of households in the bottom quartile was $14,868 in 2008. At that level, their monthly housing costs (includ- ing utilities) would have to be no more than $372 to meet The nation has not faced housing problems of this magnitude since the Great Depression. Heavy job losses and lingering high unemployment rates have increased housing insecurity for millions of families. The share of US households with severe housing cost burdens reached a record high in 2008 and may have climbed again in 2009. Although households have switched from net spenders to savers, their balance sheets have still not recovered from the debt binge of the boom years. Unemployment and Housing Insecurity The nation lost approximately 8.4 million jobs from the begin- ning of the recession in December 2007 through December 2009. Under normal circumstances, the economy has to produce well over a million jobs per year to keep up with growth in the labor force. As of April 2010, the employment deficit was about 11 mil- lion. Although job growth has revived, most economists predict that it will take years to catch up and that unemployment will remain relatively high for an extended period. Job losses and reductions in work hours have left many households with much less income to cover their housing Note: Severe (moderate) housing cost burdens are more than 50% (30–50%) of pre-tax household income. 29 Joint Center for Housing Studies of Harvard University costs. Although overleveraging and overstretching income— combined with house price declines—were responsible for much of the increase in mortgage loan defaults in 2006 and 2007, joblessness is now an important driver of the foreclo- sure crisis. Moreover, high unemployment rates have dis- couraged some individuals from forming households of their own, thus slowing the absorption of vacant homes. Job losses have also kept the number of severely housing cost-burdened households high despite the improvement in affordability. Despite an increase of well over a million households overall, the number of multiple-earner households dropped by 2.7 mil- lion between 2007 and 2009. At the same time, the number of households with no earners jumped by 2.2 million, or 20 percent. Some households facing short-term job losses are able to tide themselves over by collecting unemployment benefits, drawing on savings, borrowing against retirement accounts, or receiving support from family. But for others—especially households with only one worker—the impacts are immediate and disastrous. Even worse off in the current downturn are the record numbers of long-term unemployed. In April 2010, some 6.7 million work- ers had been out of work for more than half a year. Education is a key factor, with the jobless rate for workers without a high school diploma at 14.5 percent in April 2010—more than three times that of workers with college degrees. But even controlling for age and education, minorities have relatively higher unemployment rates. Moreover, there is some evidence that if a generation of young adults suffers high unemployment rates, these workers may have difficulty catching up with the incomes of preceding generations. A strong recovery could, however, Notes: Severely burdened (unburdened) households dedicate more than 50% (less than 30%) of monthly outlays to housing. Low-income households are in the bottom quartile of all households ranked by total monthly expenditures. Data exclude renters reporting no rental payments. Household Deleveraging The housing boom of the 2000s triggered massive mortgage borrowing as the number of homeowners increased, the share of loans with small downpayments soared, and owners tapped into their skyrocketing home equity. Indeed, inflation-adjust- ed mortgage debt climbed 88 percent between the beginning of 2000 and the fourth-quarter 2007 peak."}, {"role": "assistant", "content": "The debt binge not only fueled consumption but also helped to inflate home prices. All told, the aggregate value of household real estate jumped 76 percent in real terms from 2000 to 2006. After the boom went bust, the value of household real estate plunged 32.6 percent from the end of 2006 through the end of 2009, while mortgage debt declined only 5.0 percent from its fourth-quarter 2007 peak. Nonetheless, the overwhelming majority of borrowers who took on more mortgage and consumer debt during the boom will continue to make payments and attempt to refinance to lower interest rates. With asset values down so far, however, it may be some time before the balance sheets of these over- leveraged households return to normal levels."}]}
{"messages": [{"role": "user", "content": "Federal Responses One of the most significant government programs to help forestall foreclosures and lessen housing cost burdens is unem- ployment insurance. States paid out $79.6 billion in unemploy- ment benefits over the course of 2009, up from $32.4 billion in 2007. The average weekly unemployment benefit last year was $310, which for many was the only source of income. These payments enabled many families to keep their homes."}, {"role": "assistant", "content": "The Outlook It will likely take years for the fallout from the Great Recession to abate. The 2000s ended on a sour note, with real household incomes lower than where they had started the decade and the shares of housing cost-burdened households at record highs."}]}
{"messages": [{"role": "user", "content": "1 Executive Summary 1 JOINT CENTER FOR HOUSING STUDIES OF HARVARD UNIVERSITY SIGNS OF RECOVERY IN THE FOR-SALE MARKET The for-sale housing market remained depressed for much of 2011. House prices in most areas continued to slide, sales were lackluster, and single-family construction hit a record low. With demand reviving and inventories of homes for sale depleted, home prices may well find a bottom this year. Moreover, stronger sales should pave the way for a pickup in single-family construction over the course of 2012. Nevertheless, a number of conditions may keep the recovery in the owner-occupied market relatively subdued. The backlog of roughly two million loans in foreclosure means that distressed sales will remain elevated, keeping prices under pressure. Another 11.1 million homeowners owe more on their mortgages than their homes are worth, which dampens both sales of new homes and investment in existing units. And despite recent declines, the number of vacant homes is still well above normal, limiting demand for new construction in many markets. What the for-sale market needs most is a sustained increase in employment to bring household growth back to its long- term pace. But the persistent weakness in homebuilding has in itself hindered a strong rebound in hiring. From 2006 through 2010, residential fixed investment pulled down growth in gross domestic product (GDP) in all but three quarters, two of which benefited from targeted tax credits. Since 2011 began, however, home construction and improvement spending have made a positive contribution to GDP in four out of five quarters. With multifamily construction already on the rise, even modest increases in the number of single-family starts—together with stronger sales of existing homes and associated investment in improvements—will bolster economic growth and, in turn, the housing sector. THE RENTAL MARKET REBOUND The bright spot continues to be the rental market, where demand has spiked. Indeed, the number of renters surged by 5.1 million in the 2000s, the largest decade-long increase in the postwar era. In part, this growth reflects disproportionate After several false starts, there is reason to believe that 2012 will mark the beginning of a true housing market recovery. Moreover, rental markets have yet to benefit fully from the presence of the large echo-boom generation. The recession helped to dampen the rate at which young people begin to live independently, contributing to a decline in the number of households under age 25—the years when renting is most com- mon. But once the economy recovers and the echo boomers increasingly strike out on their own, rental markets will receive another significant lift. Rapidly rising demand has pushed rental vacancy rates down across the country, sparking widespread rent increases. According to MPF Research, rents on investment-grade multi- family properties outpaced inflation in 38 of the 64 markets it tracks. Of the remaining metros, all but one (Las Vegas) posted at least nominal rent increases in 2011. Adjusting for inflation, San Francisco led the nation with a double-digit rise, but real rents in metros in the Northeast (Boston and New York), South (Austin), and West (Denver) were also up 3.0–5.0 percent. Even in several markets associated with the foreclosure crisis (includ- ing Detroit, Cleveland, and Ft. Myers), real rents are climbing. Rental market tightening has stabilized multifamily property values after a sharp drop rivaling that in the single-family mar- ket. As measured by NCREIF’s Transaction Based Apartment Price Index, prices were up 10.0 percent in the fourth quarter of 2011 from a year earlier and 34.4 percent from the 2009 low. With vacancy rates falling and owners’ financial positions strengthening, multifamily starts more than doubled from the Note: Sales figures include only single-family homes and are at seasonally adjusted annual rates. Sources: US Census Bureau, New Residential Construction; National Association of Realtors®, Existing Home Sales via Moody’s Economy.com. Hispanics can be of any race. Household incomes are for 2006 and 2010, and adjusted to 2010 dollars by the CPI-U for All Items. Source: JCHS tabulations of US Census Bureau, Housing Vacancy and Current Population Surveys. Despite this drag, recovery in the owner-occupied market could strengthen if positive job numbers and tightening markets encour- age more households to buy. Although young households have increasingly opted to rent in recent years, most still aspire to homeownership. So far, though, the weakness in the economy and continued uncertainty may be deterring many would-be buyers from taking advantage of today’s home prices and low mortgage interest rates. THE PROSPECTS FOR HOUSEHOLD GROWTH Given that the number of new homes added in 2002–11 was lower than in any other ten-year period since the early 1970s, it Age of Household Head ● Under 35 ● 35–44 ● 45–54 ● 55–64 ● 65 and Over Source: JCHS tabulations of US Census Bureau, Housing Vacancy Surveys. Two factors are responsible for this drop: a decline in the rate at which individuals (particularly those under age 35) form inde- pendent households, and a sharp drop in immigration. While a variety of forces contributed to these trends, the severity of the economic recession clearly played a significant role. As 2012 began, the ingredients needed to spark more normal household growth were still not in place. In particular, the unemployment rate remained elevated, and in fact would have been even higher if so many discouraged workers had not exited the labor market. But over the longer run, the most important drivers of household growth are the size and age structure of the adult population. Assuming the economic recovery is sustained in the next few years, the growth and aging of the current population alone— including the entrance of the echo boomers into adulthood— should support the addition of about 1.0 million new households per year over the next decade. The biggest unknown is the con- tribution of immigration to overall population growth. But even assuming net inflows are roughly half the level in the Census Bureau’s 2008 projection, the Joint Center for Housing Studies projects household growth should still average 1.18 million a year in 2010–20. Because the echo boomers are much more racially and ethni- cally diverse than previous generations, a larger share of tomor- row’s young households will be minorities. Indeed, the Joint Center projects that minorities will account for more than 70 percent of net household growth in 2010–20. Both the housing industry and the mortgage market will need to find ways to adapt to this impending shift in housing demand. 5 JOINT CENTER FOR HOUSING STUDIES OF HARVARD UNIVERSITY THE INCREASING PREVALENCE OF COST BURDENS The recession took a toll on household incomes but did little to reduce housing outlays for many Americans. While renters accounted for the vast majority of the increase, the number of severely cost-burdened owners also rose by more than as many households locked into expensive mortgages were unable to refinance. Moreover, the recent jump in the number of severely cost-burdened households comes on top of a 4.1 mil- lion surge in 2001–7. For households paying large shares of income for housing, mak- ing ends meet is a daily challenge. Among families with children in the bottom expenditure quartile, those with severe housing cost burdens spend about three-fifths as much on food, half as much on clothes, and two-fifths as much on healthcare as those living in affordable housing. Providing assistance to cost- burdened households not only helps to ensure a decent place to live, but also frees up resources to meet life’s other necessi- ties. In addition, affordable housing makes it more feasible for low-income households to set aside some savings as a cushion against emergencies or as an investment in education, business, or other advancement opportunities. But the prospects for meaningful reduction in housing cost bur- dens remain bleak. As more renters than ever before struggle to pay for housing, the federal response has been limited. Funding for the Housing Choice Voucher Program, one of the principal sources of rental housing assistance since the early 1990s, has increased only modestly since the recession. But with renter incomes falling and rents rising, the amount of assistance needed per renter has climbed—making higher funding impera- tive just to serve the same number of recipients. Note: JCHS low projection assumes that immigration in 2010–20 is half that in the US Census Bureau’s 2008 middle-series (preferred) population projection. Sources: US Census Bureau, Housing Vacancy Survey; JCHS 2010 household growth projections. THE STATE OF THE NATION’S HOUSING 2012 6 THE STATE OF THE NATION’S HOUSING 2012 6 In particular, sales of distressed properties are holding down home prices, and millions of owners are unable to sell because they are underwater on their mortgages. These conditions are impeding a more robust recovery in existing home sales as well as in improvements spending, which usually increases right after a home purchase. Enhancements to the Home Affordable Modification Program, the recently completed National Mortgage Servicing Settlement, and servicers’ own efforts to clear foreclo- sure backlogs may, however, provide some relief by increasing loan modifications and expediting disposition of properties where homeownership cannot be maintained. The greatest potential for recovery in the for-sale market lies in its historic affordability for well-positioned homebuyers. The dive in home prices and record-low mortgage rates have made owning more attractive than in years. But the availability of mortgage financing for young buyers with limited cash, other debts, and less than stellar credit is far from certain. Since the market meltdown, underwriting has become much more restrictive. So far, FHA and state housing finance agencies have served a vital role in supporting low-downpayment loans for homebuyers with all but the lowest credit scores. But even FHA is now raising its premiums to shore up its financial position and to encourage the return of private capital to the market. With key mortgage lending regulations still undefined, it remains to be seen to what extent and under what terms lenders will make credit available to lower-income and lower-wealth borrowers. While restoring the housing market to health will benefit many households, it will also increase the cost pressures on many others. Rising rents have already added to the affordability problems of lower-income families. In addition, even as the recovery takes hold in a broad range of markets across the country, the damage to foreclosure-ridden neighborhoods will take years to heal. At a time when all levels of government are under financial duress, mustering the resources to address these challenges is increasingly difficult. But in making the hard decisions about scarce public funding, policy makers must bear in mind the fundamental importance of affordable housing to the well-being of every individual and the communities in which they live. But the beleaguered single-family market now appears to be turning around, with starts picking up significantly in the sec- ond half of 2011 and standing 16.6 percent above weak year- earlier levels in the first quarter of 2012. Permitting, a leading indicator of starts, was also up 16.9 percent early this year. With homebuilders reporting strong growth in orders and new home sales, residential construction activity appears to be emerging from the deepest, most prolonged downturn in recent history. Indeed, despite the spectacular boom early in the decade, 2002–11 was the worst 10-year period for overall housing production since recordkeeping began in 1974. Making matters worse, the fall-off in demand was even more dramatic than the plunge in housing production, leaving national vacancy rates at elevated levels. The downturn in remodeling has also been sharp and pro- longed, although not nearly as severe as in homebuilding. After a peak-to-trough drop of 28.4 percent (compared with more than 75 percent in new construction spending), home improvement spending increased to 49 percent of residen- tial construction expenditures in 2011. This is the largest share in records dating back to 1993 and well above the 25 percent averaged in 1993–2008. Although real expenditures on improvements were down 1.6 percent in the first quarter of 2012 from year-earlier levels, the Joint Center’s Leading Indicator of Remodeling Activity points to a resumption of spending growth in the second half of 2012. Investment in lender-owned properties should also help to prop up remod- Signs of a housing market rebound have begun to accumulate. Rental demand was up and vacancies down in 2011, leading to a jump in multifamily construction. With the economy steadily adding more jobs, home sales picking up, and new home inventories at record lows, the single-family market may also be reviving. Still, the persistent weakness in existing home prices, the large backlog of foreclosures, and the tight lending environment are restraining the recovery. IMPROVING HOME SALES After hitting a record low of just in 2011, sales of new homes in the first quarter of 2012 stood 16.7 percent above year-earlier levels. While the increase occurred from record lows, new home sales appear to be staging a recovery that, for the first time in this cycle, does not depend on the tempo- rary stimulus of federal homebuyer tax credits. In addition, homes are selling more quickly. The typical new home for sale in March 2012 was on the market for just 8.0 months, compared with 8.7 months in March 2011 and 14.4 months in March 2010. Existing home sales show a similar trend. The National Association of Realtors® (NAR) reports that sales of single- family homes and condominiums increased just 1.7 percent, to 4.3 million, in 2011 as a whole but accelerated in the second half of the year. By the first quarter of 2012, existing home sales were 5.2 percent above year-earlier levels. Underscoring the impact of tight credit conditions on homebuyers as well as increased investor interest in distressed properties, cash purchases made up 30 percent of existing home sales last year. Sources: US Census Bureau, New Residential Construction; National Association of Realtors®, Existing Home Sales; Federal Reserve Board, Flow of Funds. HIGH “OFF-MARKET” INVENTORIES Inventories of new single-family homes for sale fell 20 percent in 2011, sinking to just units in March 2012—the low- est level in nearly five decades of recordkeeping. Even with the feeble pace of new home sales, this level of inventory equates to less than a 6.0 months’ supply for the first time in more than five years. The inventory of existing homes for sale also shrank by some 23 percent in 2011, reducing the supply in the first quarter of 2012 to 6.2 months—also the lowest level since 2006. The 6.0- month supply mark is important because it is considered a rough indicator of market balance, where neither buyers nor sellers have the upper hand in price negotiations. This excess supply is of concern because of its potential drag on the housing recovery. According to the latest Housing Vacancy Survey, the number of vacant units held off the market rose in 2010–11, partially offsetting declines in the numbers of “on-market” vacant homes for rent and for sale. Units held off market now account for 5.5 percent of the housing stock—near- ly a full percentage point more than in 2000–2. This increase implies that, relative to that period, there are more than 1.2 million excess off-market vacant units. When these units come on the market, they could exert even more downward pressure on home prices. For now, though, the decline in vacant units for sale is helping to put a bottom under prices, while the decline in vacant units for rent has begun to spark rent increases in many markets. Price declines at the low end of the market were especially severe. Among the 16 metros covered by the S&P/Case-Shiller index, prices for bottom-tier homes plummeted an average of ● Existing Homes (Left axis) ● New Homes (Right axis) Sources: US Census Bureau, New Residential Sales; National Association of Realtors®, Existing Home Sales via Moody’s Economy.com. While too soon to tell with confidence, the worst may be over. According to the CoreLogic March 2012 Home Price Index, national prices were just 0.6 percent below year-earlier levels. In fact, some areas saw the pace of declines slow in 2011, while others posted nominal increases in the first quarter of 2012. For example, median home prices in Phoenix and Cape Coral regis- tered gains early this year both from the previous quarter and from the year-earlier level. Overall, prices in the first quarter were up in 74 of the 146 metros covered by NAR and 43 of the top 100 metros covered by CoreLogic. EMPLOYMENT GROWTH AND THE HOUSING RECOVERY The vigor of housing demand hinges on the strength of employ- ment growth. In the current cycle, 19 consecutive months of job gains have brought total employment growth since February 2010 to 3.7 million. Relative to the size of the decline, though, the rebound in jobs has been weak. The homebuilding sector has both contributed to and suffered from tepid employment growth. From January 2001 to their April 2006 peak, residential construction and specialty trade contracting together accounted for fully 25 percent of overall employment growth. Since then, however, these sectors lost more than 1.4 million jobs and accounted for fully 35.8 per- cent of the net decline in total employment from April 2006 to December 2011. At the end of last year, the number of home- building jobs alone was down 41 percent from its peak and stood at its lowest level since January 1993. Anemic construction activity, in turn, has been a drag on economic growth until recently. Although representing only a modest share of GDP, residential fixed investment (driven largely by new construction spending) usually helps to lead the economy out of recessions. In the 11 quarters immediately following every recession since 1970, RFI contributed 0.4–0.8 percentage point to GDP growth on average, accounting for 11–17 percent of gains. . 11 JOINT CENTER FOR HOUSING STUDIES OF HARVARD UNIVERSITY however, RFI’s contribution has averaged just 0.04 percentage point, adding just 1.6 percent to meager GDP growth during this period. But with the uptick in residential construction in late 2011 and early 2012, RFI posted two consecutive quarters of solid growth and provided its first significant boost to GDP since the end of the Great Recession. IMPEDIMENTS TO A STRONGER RECOVERY While many housing market indicators are headed in a favor- able direction, several forces still stand in the way of a robust recovery. In particular, the persistent weakness of house prices has prevented any significant reduction in the number of own- ers owing more on their mortgages than their homes are worth. In fact, CoreLogic reports that the number of underwater loans rose in the fourth quarter of 2011 to 11.1 million—representing more than one in five mortgages and some $717 billion in nega- tive equity. States that had the most dramatic housing booms and busts are generally faring the worst on this count. Nevada (at 61 per- cent) and Arizona (at 48 percent) still have the largest shares of underwater mortgages, while Florida and California (each with approximately two million) together account for more than a third of all such loans in the country. These loans are at risk of default and could add to the already large number of distressed properties selling for bargain-basement prices. In addition, owners are not in a position to sell their homes without incur- ring a loss and are therefore holding back a stronger recovery in existing home sales that would give a much needed boost to economic activity. Moreover, the protracted process—especially in states with judicial foreclosures—guarantees that the backlog will extend for years to come. As of early 2012, foreclosure inventory rates in the typical state with judicial foreclosures were high and rising, while those in states with non-judicial processes were lower and falling. An additional drag on the recovery comes from the increased dif- ficulty of qualifying for mortgage credit. Not only have high unem- ployment levels eroded credit scores, but lenders have also set higher thresholds for qualifying for loans. In addition, low-down- payment loans are harder to secure. Apart from Federal Housing Administration (FHA) loans, mortgages with downpayments of less than 10 percent are scarce, and even FHA limits such loans to borrowers with higher credit scores. Further evidence of the diffi- cult credit environment is that some 33 percent of NAR’s member brokers reported contract failures in December 2011, compared with just 9 percent a year earlier. These failures occurred largely because mortgage applications were declined or the appraised value of the homes came in below negotiated prices. THE OUTLOOK Despite the many factors restraining the recovery, other trends— including steady employment growth, depleted inventories of for- sale homes, and a surge in sales and construction activity—make the housing market outlook significantly brighter than a year ago. Rental markets have already turned a corner, although the rebound in multifamily construction is modest in absolute terms."}, {"role": "assistant", "content": "Sharply lower home prices and interest rates, along with improv- ing labor markets, are raising hopes that new and existing home sales will continue to gain momentum. With inventories of for-sale homes so low, a sharp increase in demand could help prices firm. At the same time, however, the overhang of excess units held off market, elevated vacancies within the for-sale stock, and the long pipeline of foreclosures will limit the need for new single- family construction. And three years after the official end of the Great Recession, there are still more than 20 million US workers either unemployed or underemployed, millions of households with negative equity in their homes, and millions more seri- ously delinquent on their loans or already in the foreclosure process. On balance, then, the sheer depth of the downturn and scale of the mortgage debt overhang mean that it will be some time before a robust housing market recovery is at hand. THE STATE OF THE NATION’S HOUSING SLOWDOWN IN HOUSEHOLD GROWTH While specific estimates vary, the main government surveys all agree that household growth, the primary driver of housing demand, has slowed dramatically since the recession. These sources indicate that just –net new households were formed each year between 2007 and 2011, the lowest levels since the 1940s. If annual growth had instead remained in the 1.2–1.3 million range averaged over the four previous years, there would have been at least 1.8 million—and possibly up to 2.8 million—additional US households in 2011. The pace of household growth is set by headship trends (the rates at which people form independent households) and adult population growth (increases in the number of people at the ages most likely to form new households). The Great Recession and ensuing uncertainty in the economy not only lowered headship rates, especially among younger adults, but also led to slower population growth by inducing a drop in immigration. According to this source, the native-born population accounted for about 61 percent of the fall-off, reducing household growth by a total of 1.1 million in 2007–11 relative to the previous four years. Lower headship rates were responsible for virtually all of the slowdown in household formations for this group, with shifts of the population into older age groups providing only a modest offset. Meanwhile, the foreign-born population accounted for the remaining 39 percent of the decline in household growth in Since the Great Recession, fewer young adults are forming new households and fewer immigrants are coming to the United States. As a result, the pace of household growth is unusually slow. Once the recovery gains further momentum, demographic forces should lift the rate of household growth—and, in turn, the demand for housing. Over the longer term, the large echo-boom generation will drive much of this demand, increasing the diversity of the nation’s households. 13 JOINT CENTER FOR HOUSING STUDIES OF HARVARD UNIVERSITY 2007–11, or the equivalent of about potential house- holds. Lower headship rates were responsible for slightly more than half of this decline, with the remainder reflecting slower population growth. In addition, all of the drop in household growth among the foreign born was among non-citizens. While the recession undoubtedly played a key role, the recent wave of emigrations and deportations also served to thin the ranks of foreign-born non-citizens living in the United States. Indeed, removals of undocumented immigrants rose by more than 50 percent in 2005–10, while the number apprehended trying to enter the country illegally fell by almost as much. Assuming that much of the drop in household growth is a response to economic conditions, there may be significant pent-up demand in the housing market. While the drop in net immigration may never be made up for in the future, household formations among younger age groups are likely to recover as the economy picks up. Moreover, headship rates tend to rise sharply among adults in their 20s and early 30s, then increase more grad- ually through middle age when they converge across generations. The steady march of the large echo-boom population into older adulthood therefore means that millions of new households will form in the coming years even if age-specific headship rates do not rebound and immigration remains subdued. COMPOSITION OF HOUSEHOLD GROWTH Minorities continue to be the driving force behind household growth, accounting for about three-quarters of the increase in 2003–7 and two-thirds in 2007–11. Nevertheless, minority household growth slowed 42 percent in 2007–11 from the previ- ous four-year period, while white household growth declined just 16 percent. The rate of household growth among Hispanics, the largest source of new minority households, was down 52 percent. This decline reduced the Hispanic share of total household growth from well over a third in 2003–7 to just over a quarter in 2007– 11. Weaker immigration is clearly the reason. After contributing more than half of total Hispanic household growth in 2003–7, foreign-born householders were responsible for only a quarter in 2007–11. As a group, Hispanic immigrants accounted for 21 percent of total household growth before the recession, but just 7 percent afterward. Minorities are increasingly part of the shift toward suburban and exurban living. In percent of minority house- holds lived outside of core cities, up from 41 percent just 10 years earlier. As a result, outlying communities became more diverse over the decade, with the minority share of suburban households rising from 23 percent to 30 percent, and of exurban households from 14 percent to 19 percent. The minority share of households living in the urban core also climbed from 45 percent to 50 percent, indicating that racial and ethnic diversity increased throughout America’s metros in the 2000s. The plunge in housing values was particularly hard on low- income and minority households, both because prices in the low-end market fell the most and because home equity accounted for a particularly large share of minority household wealth when the housing bust began. In percent of low- income households owned homes but just 17 percent owned stocks. Home equity made up 73 percent of net wealth for these owners on average, compared with just 41 percent for house- holds in the top income quartile. As a result, the wealth gap between whites and minorities continued to widen. In 2005, the median wealth of white house- holds was 11 times that of black households. At last measure in 2009, the differential had increased to 20 times. Over the same period, the median wealth of whites jumped from seven times the median wealth of Hispanics to 18 times. CHANGES IN HOUSEHOLD MOBILITY Cyclical factors and overall economic uncertainty have limited the ability of many to buy and sell homes, or otherwise move or form independent households. While a stronger recovery and a reduction in negative equity mortgages would help to stem further declines, demographic forces will keep the pressure on household mobility rates over the next two decades. The aging of the baby-boom generation is a key factor, lifting the share of older households to a record high. Mobility rates drop sharply with age, and adults over age 65 are almost eight times less likely to move in a given year than those in their 20s. Moreover, the vast majority of baby boomers live in owner-occu- pied homes, and owners are far less likely to move than renters. What is more, the recession dampened the already low mobility rates of older homeowners: just 1.9 percent of owner-occupants aged 65–74 in 2011 had changed residences within the previ- ous year, down from about 3.3 percent in 2007. Mobility rates for homeowners aged 75 and over also fell somewhat over the decade, from 1.9 percent to 1.6 percent. Even if mobility rates among older homeowners return to previous levels, though, the vast majority of baby boomers will likely age in place. THE STATE OF THE NATION’S HOUSING THE STATE OF THE NATION’S HOUSING will continue to live independently for at least another 20 years. Furthermore, as medical innovation extends lifespans, house- hold loss rates due to death or infirmity may fall and delay the dissolution of most baby-boomer households beyond 2030."}]}
{"messages": [{"role": "user", "content": "Over the longer term, trends in population growth and immi- gration should balance out any short-run fluctuations in household headship rates. The oldest of the echo boomers, who turned 25 in 2010, are only now beginning to form their own households. This large cohort will be the pri- mary driver of new household formations over the next two decades."}, {"role": "assistant", "content": "Meanwhile, the baby boomers will continue to push up the number of senior households for years to come as they replace the much smaller pre-boom generation in the older age groups. While the boomers will eventually release a large number of housing units onto the market, this process will not be a significant issue for another 20 years."}]}
{"messages": [{"role": "user", "content": "With upwards of two million foreclosures still in process and a rising number of households choosing to rent, further declines lie ahead. Tight credit conditions amid uncertainty in the mortgage market are dampening the recovery in homebuying, while depressed prices are preventing many distressed homeowners from refinancing to more affordable loans. This does, however, represent a sig- nificant slowdown from 2000–5, when 6.5 million owners under age 35 and 2.6 million aged 35–44 were added on net. Moreover, recent growth in the number of younger homeowners was not enough to offset the typically large losses of homeowners aged 75 and over, thereby bringing down the total number. SEEDS OF RECOVERY According to the Freddie Mac Primary Mortgage Market Survey, interest rates on a 30-year fixed mortgage averaged just 4.45 percent in 2011 before sliding below 4.0 percent in early 2012— its lowest level since recordkeeping began in 1971. Together with ongoing house price declines, these historically low rates Source: JCHS tabulations of US Census Bureau, Housing Vacancy Surveys. 19 JOINT CENTER FOR HOUSING STUDIES OF HARVARD UNIVERSITY have made homebuying a comparative bargain (Table A-6). Indeed, the NAR affordability index hit unprecedented levels in 2011. With renewed weakness in prices spreading to more than half the states, the ratio of the median existing home sales price to median household income edged down from 3.5 in 2010 to 3.2 last year. Homeownership rates of white and black householders peaked in 2004, and Hispanic rates peaked in 2006. Source: JCHS tabulations of US Census Bureau, Housing Vacancy Surveys. With their cost advantages, more relaxed underwriting stan- dards, and deep government guarantees that appeal widely to investors, loans insured by the FHA, Veteran’s Administration, and US Department of Agriculture’s Rural Development pro- grams have come to comprise a large share of the home purchase market—particularly among borrowers with small downpayments. From fewer than one in ten during the housing boom, these government-backed loans accounted for more than half of home purchase loans in 2009 and 2010. While expansion of FHA lending has received the lion’s share of attention, fund- ing for USDA’s guarantee loan program also increased five-fold between fiscal 2007 and 2010."}, {"role": "assistant", "content": "THE OUTLOOK Over the next few years, homeownership rates among younger households will remain under pressure. Members of the large echo-boom generation are just beginning to enter the housing market, but primarily as renters. In addition, greater numbers of middle-aged households are delaying homeownership or returning to rental housing. And as millions of distressed home- owners lose their homes to foreclosure, they will require years to repair their tarnished credit records before buying again. As a result, increases in the number of renters will continue to outpace any growth in homeowners. If not for older house- holds, who have high homeownership rates and account for an increasing share of the population, the decline in the national homeownership rate would be much greater."}]}
{"messages": [{"role": "user", "content": "Young adults under age 25 generally drive the growth in new renter households. Although down from 5.0 million in 2001−6, the number of net new renters in this age group was still a sub- stantial 4.7 million in 2006−11. The recent turnaround in renter household growth was fueled to an even greater extent by 25−34 year-olds, who accounted for fully net new renter households over this period. In contrast, the previous cohort of 25−34 year-olds was responsible for a net loss of renter households in 2001−6. More households aged 35–44 are also renting, reducing the net outflow in their age group from 1.5 million in 2001–6 to just in 2006–11. GROWING DIVERSITY OF RENTER HOUSEHOLDS to own homes, minority households make up a large and grow- ing share of renters. In 2011, minorities accounted for only 30 percent of all households but 46 percent of renters. They also contributed 59 percent of the increase in the number of renter households between the homeownership peak in 2004 and 2011. Blacks accounted for 24 percent, Hispanics 17 percent, and Asians and other groups 18 percent of this recent growth. Although whites were responsible for less than half of renter household growth, their numbers still increased by 2.1 million over this period—a sharp departure from the large declines in the 1990s and early 2000s. An especially noteworthy shift is the rising number and share of married couples that now rent rather than own homes. While still only 36 percent of all renters in 2011, married couples accounted for 50 percent of the growth in renter households over the previous five years. More middle- and upper-income households are also renting. During the first half of the 2000s, Renter household growth surged in 2011, spurred by the decline in homeownership rates across most age groups. With vacancy rates falling and rents on the rise, returns on rental property investments are improving and multifamily construction is making a comeback in many markets. 23 JOINT CENTER FOR HOUSING STUDIES OF HARVARD UNIVERSITY most of the increase in renters occurred among households earning less than $30,000 while the number of higher earners fell significantly. After 2006, though, households earning more than $30,000 accounted for just under half of renter growth. In fact, after dragging down renter household growth during the homebuying boom, households earning more than $75,000 con- tributed nearly a fifth of the increase in 2006–11."}, {"role": "assistant", "content": "Some of the unusual features of recent renter house- hold growth—particularly the sharp increases in older and married-couple renters—may persist as long as foreclosure rates remain elevated. But as household formations among the echo boomers rise and homeownership rates among middle-aged households stabilize, the shares of new renter households that are younger and minority should continue to increase."}]}
{"messages": [{"role": "user", "content": "While single-family homes have always been popular rentals, the share of renter households living in single-family units increased from 31.0 percent in 2006 to 33.5 percent in 2010. In turn, the share of the single-family stock for rent or being rented expanded from 14.4 percent to 16.1 percent, adding 2.0 million units to the inventory. Even so, the overall rental vacancy rate fell from 10.6 percent in 2009 to 9.5 percent in 2011, the lowest annual posting since 2002. With vacancy rates shrinking and renter household growth strengthening, multifamily development has staged a recovery. In 2011, construction began on units in build- ings with two or more units, up from two years earlier. While still well below the roughly starts averaged each year in the decade prior to the downturn, a continuation of current trends would give multifamily construction a substantial lift this year. RENTAL MARKET TIGHTENING According to the Housing Vacancy Survey, rental vacancy rates in more than two-thirds of the nation’s largest 75 metros fell in 2011. In more than a third of these areas, the decline from the national peak in 2009 exceeded two percentage points. The absorption of excess units in Austin, Dayton, and Phoenix was particularly rapid, pushing vacancy rates down by more than 5.0 percentage points over the past year. At the other extreme, vacancy rates in a few metro areas, such as Orlando and Tucson, remained above pre-bust levels. THE STATE OF THE NATION’S HOUSING Francisco (up 11.0 percent) and San Jose (up 8.8 percent) posted the largest increases. In other high-occupancy metros such as Austin, Boston, New York, and Oakland, real increases aver- aged 3.7 percent or more. In contrast, rents in fully two-fifths of the markets tracked did not keep up with inflation, although the declines were generally modest. Only five markets saw real rents fall more than 1.0 percent in 2011, with Las Vegas report- ing by far the largest decline (3.6 percent)."}, {"role": "assistant", "content": "IMPROVING RENTAL PROPERTY PERFORMANCE Tighter rental markets have bolstered cash flow and returns on multifamily properties. As measured by the National Council of Real Estate Investment Fiduciaries, commercial apartment prices climbed 10.0 percent in the fourth quarter of 2011 from a year earlier, marking a 34.4 percent increase from their fourth-quarter 2009 low. While below the outsized earnings posted in the second half of 2010, these returns exceed the average performance in the first half of the 2000s—not to mention the substantial losses in 2009."}]}
{"messages": [{"role": "user", "content": "Despite these signs of strength, not all segments of the mul- tifamily market are out of the woods. Of particular concern are properties with loans held in commercial mortgage backed securities (CMBS). According to Moody’s Delinquency Tracker, 14.1 percent of such loans were at least 60 days past due in the first quarter of 2012, down just slightly from the 15.7 percent peak at the start of 2011. These poorly performing loans were generally issued during the boom years when lending standards were much more relaxed. EMERGING RECOVERY IN MULTIFAMILY LENDING Once the recession hit, government lending was responsible for virtually all of the net growth in multifamily loans outstanding. In 2010, agency and GSE portfolios as well as MBS accounted for a $14.8 billion net increase in outstanding multifamily loans, while banks and thrifts contributed a modest $2.0 billion. In 2011, however, the strength of the multifamily recovery bol- stered investment interest, and banks grew their portfolios by $5.8 billion and life insurance companies by $2.3 billion. 25 JOINT CENTER FOR HOUSING STUDIES OF HARVARD UNIVERSITY important but often overlooked aspect of the debate over the government’s future role in the mortgage market is whether these guarantees, if continued, should apply to multifamily lending. The government backstop in this market segment was clearly critical during the downturn. With rental demand surging and adding strength to the recovery, policy makers will need to ensure that a restructured mortgage market can provide an adequate supply of capital to fuel expansion of the multifamily stock. SHRINKING SUPPLY OF LOW-COST RENTALS The housing bust and Great Recession helped to swell the ranks of low-income renters in the 2000s, increasing the already intense competition for a diminishing supply of low-cost units. According to the American Community Survey, the number of renters earning $15,000 or less (in real terms) grew by 2.2 million between 2001 and 2010. The number of rental units that were both adequate and affordable to these households, however, declined by over this period. In 2001, 8.1 million low-income renters competed for 5.7 million affordable units, leaving a gap of 2.4 million units. By 2010, the shortfall had more than doubled to 5.1 million units. Moreover, of these affordable units, more than 40 percent were occupied by higher-income renters. THE OUTLOOK Barring a dramatic bounceback in homeownership, renter household growth should remain strong for some time. In the near term, larger shares of younger households are opting to rent while foreclosures are forcing many older households out of homeownership and into the rental market. But even as the economic recovery gains traction and homeownership rates level off, rental demand should get a boost from higher house- hold formations among the echo boomers. With demand growing strongly, multifamily construction should increase in many metropolitan markets. The exceptions may be metros with stubbornly high vacancy rates, many of which are located in states hit hard by the foreclosure crisis. But capital must be available to support this new construction. Lending by banks and life insurance companies has begun to pick up, but federal sources still guarantee a large majority of new loans. If the federal government pulls back from the multifamily market, private lending will have to increase substantially to support this important segment of the housing market."}, {"role": "assistant", "content": "Note: Return on investment incorporates net operating income and changes in the market value of the property. Source: National Council of Real Estate Investment Fiduciaries, Apartment Property Index."}]}
{"messages": [{"role": "user", "content": "COST BURDENS ON THE RISE According to the latest American Community Survey, 42 million households (37 percent) pay more than 30 percent of income for housing (moderate burden), while 20.2 million (18 percent) pay more than half (severe burden). Between 2001 and 2010, the number of severely cost-burdened households climbed by a staggering 6.4 million. CHARACTERISTICS OF COST-BURDENED HOUSEHOLDS households, outnumbering owners 10.7 million to 9.5 million. Fully 27 percent of renters are severely burdened, more than twice the share of homeowners. Nevertheless, aside from those in the lowest income group, larger shares of homeowners with mortgages face severe housing cost burdens than renters with comparable incomes (Table A-4). THE STATE OF THE NATION’S HOUSING of severe cost burdens is still highest among blacks (27 percent), both Hispanic and black householders saw a sharp rise in share over the decade, up 6.3 and 5.8 percentage points compared with just 3.8 points among whites. Education level increasingly determines the likelihood of having housing cost burdens. Household heads without a high school diploma had the highest rates and the largest increases in cost- burdened share, up from 21 percent in 2001 to 28 percent in 2010. The share among those with just a high school diploma was slightly lower. In contrast, the share of householders with at least a bachelor’s degree increased from 8 percent to 11 percent. Older age groups are also vulnerable. Shares of severely bur- dened householders aged 55–64 rose from 12 percent to 16 percent over the decade, while the shares of those aged 65 and over edged up from 15 percent to 16 percent. But because the senior population is growing rapidly, the number of older households with severe housing cost burdens jumped from 3.1 million in 2001 to 4.1 million in 2010."}, {"role": "assistant", "content": "As the baby boomers age, the number of cost-burdened seniors will likely rise sharply over the next 20 years, escalating the need for assisted housing and supportive services for the elderly."}]}
{"messages": [{"role": "user", "content": "1 Executive Summary 1 Executive Summary 1 JOINT CENTER FOR HOUSING STUDIES OF HARVARD UNIVERSITY THE HOUSING MARKET REVIVAL A broad range of housing market indicators showed marked improvement last year. After modest gains in 2011, existing home sales accelerated to their fastest pace since 2007. New home sales posted their first year-over-year increase since the downturn began, up 62,000 or some 20 percent from 2011’s historic low. With a record-low inventory of new homes on the market to meet strengthening demand, single-family starts shot up 24 percent. Multifamily starts also climbed sharply for the second year in a row, bringing total 2012 starts to . With these increases, residential construction made its first positive contribution to GDP in seven years, adding more than a quarter- point to economic growth. As of December of the 100 metropolitan areas tracked by CoreLogic still reported year-over-year price declines. Just one year later, prices were on the upswing in 87 of these markets. The momentum continued into 2013, lifting the number of mar­ kets with rising prices to 94. On the strength of these gains, the national median house price was up 11.6 percent in March 2013 from a year earlier. Multiple factors have bolstered house prices, including record- low mortgage interest rates and steady, if not spectacular, employment growth. Low inventories of properties for sale are also a key driver, with supplies of both new and existing homes well below the six-month level that traditionally indicates a balanced market. Institutional as well as mom-and-pop invest­ ments in distressed single-family homes have also served to firm prices in certain markets, particularly Phoenix, Las Vegas, and Atlanta. The influence of investors is also evident in the different rates of price appreciation across submarkets. In met­ ros where investors have been most active, prices for homes in the bottom tier were up 22 percent in March 2013, while those for homes in the top tier rose 13 percent, according to the S&P/ Case-Shiller index. A sustained rebound in house prices will soothe many of the housing market’s ills. Rising home equity provides owners a greater sense of security about spending, especially on big-ticket items such as home improvements. Even modest price apprecia­ The long-awaited housing recovery finally took hold in 2012, heralded by rising home prices and further rental market tightening. While still at historically low levels, housing construction also turned the corner, giving the economy a much-needed boost. But even as the most glaring problems recede, millions of homeowners are delinquent on their mortgages or owe more than their homes are worth. Worse still, the number of households with severe housing cost burdens has set a new record. So far, many young adults prevented by the Great Recession from living on their own have still not formed independent households. As unemployment rates rose during the downturn, the share of young adults living independently dropped signifi­ cantly even as the population under age 35 climbed. As a result, the number of households headed by young adults remained stable. As the economy continues to recover, however, expand­ ed job opportunities should help to release some of the pent-up housing demand within this age group. But monthly housing costs have rarely been more favorable for homebuyers. When combined with the sharp drop in home prices, today’s low mortgage interest rates have made owning a home more affordable than at any time since the 1970s. So far, though, these conditions have failed to boost first-time home­ buying. But with steady job growth helping to bolster household finances and rising home prices signaling a market turnaround, 2013 may well be the year that homeownership rates stabilize."}, {"role": "assistant", "content": "A key issue is whether tight credit conditions will continue to limit the ability of would-be homebuyers to take advantage of today’s affordable conditions."}]}
{"messages": [{"role": "user", "content": "Note: JCHS low (high) projection assumes that immigration in 2010–20 is 50% (100%) of the US Census Bureau’s 2008 middle-series population projection. Sources: US Census Bureau, Housing Vacancy Survey; JCHS 2010 household growth projections. According to the Office of the Comptroller of the Currency, servicers implemented loan modifications in 2012—about a quarter of them through the Home Affordable Modification Program (HAMP). But the vol­ ume of modifications was down nearly 50 percent from the 2010 peak while serious delinquencies fell only 22 percent and home forfeitures (including foreclosures and short sales) just 16 per­ cent. In recognition of the compelling need for remedies short of foreclosure for the millions of homeowners still struggling to retain their homes, the Treasury Department has extended HAMP through the end of 2015. CONTINUED STRENGTH IN RENTAL MARKETS The rental housing recovery that began in 2010 continued to gain steam. Fueled by the growing share of households opt­ ing to rent, the national rental vacancy rate fell for the third straight year to 8.7 percent in 2012, the lowest level since 2001. As measured by the consumer price index, rents rose 2.7 percent for the year, slightly outpacing overall inflation. Market conditions for professionally managed apartments were even stronger, with MPF Research reporting average vacancy rates of 4.9 percent and rent increases of 3.7 percent in this market segment. The tightening in the apartment market does, however, appear to be losing momentum. According to national mea­ sures from MPF Research, rent increases decreased each quarter after the 2011 peak, in tandem with slower absorption of new units. Given the long lags from planning to completion of apartment buildings, supply could outstrip demand when this new housing is ready for occupancy. But with the gener­ ally healthy level of demand, it is also possible that these new units will be absorbed without a substantial rise in vacancies. THE SPREAD OF HOUSING COST BURDENS In a decade of enormous ups and downs in the housing mar­ ket, one fact remains constant: the number of households with housing cost burdens continues its inexorable climb. At last count in 2011, over 40 million households were at least moderately cost burdened (paying more than 30 percent of their incomes for housing), including 20.6 million households that were severely burdened (paying more than half of their incomes for housing). The latest increases in the number of severely burdened households represent a jump of Source: JCHS tabulations of US Census Bureau, New Residential Construction. What is remarkable on the owner side is that the incidence of cost burdens has not fallen much more dramatically, given the substantial decline in home prices and low interest rates. Indeed, the share of severely burdened owners rose from 12.1 percent in 2007 to 12.6 percent in 2011. The lack of progress reflects the difficulties that many owners locked into excessive mortgage debt face in attempting to refinance and the still- weak state of the economy. In fact, the overwhelming majority of underwater homeowners continue to make payments on mortgages that exceed the present value of their homes. While increasingly prevalent at all income levels, severe hous­ ing cost burdens are much more common among households with the lowest incomes. Nearly seven out of ten households with annual incomes of less than $15,000 (roughly equivalent to year-round employment at the minimum wage) are severely burdened. With income inequality worsening over the past decade, the share of households with these low incomes has continued to grow. While the number of low-income households eligible for federal rental assistance has been growing, the number of assisted units has not. According to recent HUD estimates, only one in four of those eligible for rental assistance obtain this help. Funding for the Housing Choice Voucher Program has increased, but with rents rising and incomes falling, the subsidy needed per renter has also increased—leaving the number of assisted households almost unchanged. Other pro­ grams—including public housing, the HOME program, and the Community Development Block Grant program—have faced outright cuts. And at a time when the need has never been greater, federal budget sequestration will further limit the number of households receiving rental assistance. Gaining access to assisted housing has important implications for quality of life. Low-income households with severe housing cost burdens have little left over each month to pay for other necessities. According to the latest Consumer Expenditure Survey, severely burdened families in the bottom expenditure Notes: Severely cost-burdened households spend more than 50 percent of pre-tax income on housing costs. Incomes are in constant 2011 dollars, adjusted for inflation by the CPI-U for All Items. Source: JCHS tabulations of US Census Bureau, American Community Surveys. LOOKING BEYOND THE INITIAL RECOVERY While evidence of a housing market recovery continues to accu­ mulate, significant fallout from the downturn remains. Chief among these concerns is that millions of borrowers are still seri­ ously delinquent on their mortgages. Given this continued need, HAMP—the federal program supporting nearly one in three loan modifications that have kept many troubled loans out of foreclosure—has been extended through 2015. In addition, more than 10 million owners owe more on their mortgages than their homes are worth. More gener­ ally, both market and regulatory uncertainties surrounding the mortgage lending business have kept credit standards tight and prevented a more robust housing market recovery. These decisions have direct bearing on the types, costs, and availability of future mortgage products. In making these choices, policymakers must reconcile the goal of reducing the systemic risk at the root of the Great Recession against the goal of allowing a broad range of lower-income and lower-wealth households to access mortgage financing. The outcomes have implications for rental markets as well, given that the govern­ ment guarantees an enormous share of multifamily loans. Of particular concern is the availability of long-term, fixed-rate financing for affordable housing developments—funding that is rarely available without federal backing. On top of these immediate pressures is the persistent spread of housing cost burdens. As it is, housing assistance reaches only a small share of those eligible while targeting the most vulner­ able Americans—the disabled, the elderly, and single-parent families with very low incomes. Meanwhile, the foreclosure crisis has exacerbated the distress in many low-income neigh­ borhoods, spreading blight and straining the ability of local governments to invest in these areas. Indeed, governments at all levels face difficult choices between bringing budgets into balance in response to short-term economic woes and address­ ing longer-term structural challenges. In making these choic­ es, however, policymakers cannot lose sight of the important role that housing plays in ensuring the health and well-being of the nation’s households and communities. The rebound in residential construction was widespread, with 91 of the top 100 metropolitan areas reporting increases in sin­ gle-family permits in 2012. Moreover, permitting activity esca­ lated over the course of the year. Nevertheless, single-family permits in each of the 100 largest metros lagged below annual levels averaged in the 2000s. On the multifamily side, permitting increased in three-quar­ ters of the top 100 metros. Marking its third year of growth, multifamily construction is well ahead of single-family con­ struction on the path to recovery. While still below average annual levels in the 2000s in the majority (66) of metros, multi­ family permitting in several areas exceeded this pace—in some cases, substantially. Indeed, Austin, Raleigh, and Bridgeport each issued permits for more new multifamily units in 2012 than in any year dating back to 1988. But given the low levels of permitting in the late 2000s, even in these cases multifam­ ily production over the last five years is only back in line with historical averages. HOMES SALES ON THE REBOUND According to the National Association of Realtors® (NAR), exist­ ing home sales increased 9.4 percent in 2011–12, to 4.66 million units. This was the largest percentage increase since 2003–04 and the fastest pace since 2007. And for the first time in seven years, new home sales also increased in 2011–12, rising nearly 20 With sales picking up, low inventories of both new and existing homes helped to firm prices and spur new single-family construction in 2012. Multifamily markets posted another strong year, with construction activity up sharply in response to tightening conditions. Rising home prices, along with steady job gains, helped to reduce the number of seriously delinquent borrowers and underwater homeowners, while also providing more owners the means to invest in discretionary improvement projects. THE STATE OF THE NATION’S HOUSING 2013 8 percent to units. This rebound, however, is from 2011’s low base so that the pace of new home sales in 2012 was still the third lowest (after 2010 and 2011) in records dating back to 1963. Still, sales continued to gain momentum in early 2013, with April marking the 19th consecutive month of year-over-year increases. Additional good news is that distressed sales are on the decline. CoreLogic estimates that the share of distressed property sales dropped from 26.4 percent in 2011 to 23.3 percent in 2012. And within this category, lender-owned (REO) sales were down 18 percent while short sales (where the mortgage holder agrees to a sales price that is less than the outstanding loan balance) were up 26 percent and rising steadily over the year. Given that short sales typically carry less of a discount than REO sales, this shift helped to lift overall house prices and reduce REO inventories, especially in hard-hit markets. Investors had a significant market presence in 2012, accounting for one in five sales nationwide according to NAR, although the shares in several metros were much higher. CoreLogic reports that home sales to non-owner occupants (a proxy for investor and second-home sales) made up approximately 30 percent of sales in Riverside, 26 percent in Sacramento, and 25 percent in Phoenix. Many of these sales were to institutional investors, who moved aggressively into formerly high-growth but recently high-distress cities such as Atlanta, Las Vegas, and Phoenix last year. In these metros, institutional investor sales rose from about 14–18 percent of investor sales entering 2012 to 20–26 percent by the end of the year. The importance of investors in driving home sales is evident in the high share of all-cash transactions, which hovered around 30 percent throughout 2012—well above the 20 percent share averaged as recently as 2009. At the same time, NAR data also indicate that first-time buyers have yet to emerge as a strong source of demand, with their estimated share of annual sales only edging up from 37 percent in 2011 to 39 percent in 2012. Sources: US Census Bureau, New Residential Construction; Bureau of Economic Analysis, National Income and Product Accounts; National Association of Realtors®, Existing Home Sales. FALLING VACANCY RATES The number of vacant units declined sharply in 2012. Unlike in recent years, most of the decline came on the for-sale side, where vacancies tumbled 18 percent units). As a result, the average number of vacant for- sale homes in 2012 was lower than in any year since 2005 and some units below the 2008 peak. While the number of vacant rental units fell just 6 percent, this still amounted to a substantial drop for the year. This brought the total decline in the number of vacant for-rent units since the peak to . HOUSING PRICES ON THE RISE After across-the-board declines in 2011, all major house price indexes—CoreLogic, S&P/Case-Shiller, Zillow, and FHFA—regis­ ● Existing Homes (Left scale) ● New Homes (Right scale) Sources: National Association of Realtors®, Existing Home Sales; US Census Bureau, New Residental Sales. Median sales prices, which track the price of the typical home sold, rose even more sharply. By December 2012, the price of a typical existing home sold had climbed 10.8 percent and that of a typical new home fully 18.2 percent from a year earlier. For new homes, adjusting for constant quality, sales prices were up 6.4 percent year-over-year in the fourth quar­ ter of 2012. At the same time, however, CoreLogic estimates that as of the fourth quarter of 2012, slightly more than two out of every five owners with negative equity had mortgages that were more than 25 percent larger than what their homes were worth. Owners with negative equity obviously have little incentive to sell because they would be unable to pay off their loans, but those with low equity are also generally reluctant to sell because they would lack sufficient resources to buy other homes. These con­ ditions have slowed the housing market recovery by constrict­ ing both the supply of homes for sale and the pool of potential homebuyers (given that sellers often buy again). Growth in RFI helped to lift real GDP in all four quarters, adding 0.3 percentage point to gains for the year. Given that real GDP expanded just 2.2 percent in 2012, RFI’s contribution amounted to a healthy 12 percent of the total increase in the economy. All three major categories of residential investment made head­ way last year. Multifamily construction spending, while making up only 8 percent of the total, grew the most in 2012—up 42 percent from 2011 levels. Single-family construction spending increased much more modestly, but accounted for 47 percent of overall RFI growth in 2012. Much of the strength also came from homeowner improvement spending, which contributed more than 45 percent of total residential investment expenditures in 2012—well above the 25 percent share averaged in the decades before the housing crash. THE OUTLOOK After several years as a drag on the economy, the housing sec­ tor contributed positively to GDP in 2012. The rebound in sales drove down inventories of homes on the market to near-record lows, spurring new construction and strengthening home prices in metropolitan areas across the nation. But even with these gains, real spending on single-family construction, the largest component of residential investment, remained deeply depressed in 2012. Since starts have such a long way to go to reach normal levels, the housing sector has plenty of room to improve on last year’s contribution to economic growth. However, a sudden rebound in demand to more normal levels, combined with continued growth in multifamily construction, could challenge the capacity of homebuilders and materials suppliers to ramp up quickly. Given the depth of the housing market downturn, several chal­ lenges to a strong and sustainable recovery remain. Demand is closely linked with jobs and incomes, which are taking longer to rebound than in any previous cycle. While trending downward, the numbers of underwater homeowners, seriously delinquent loans, and excess vacancies are still in the millions. It will take several years for market conditions to return to normal. Until then, the housing recovery is likely to unfold at a moderate pace. THE STATE OF THE NATION’S HOUSING HOUSEHOLD GROWTH ON THE UPSWING Household growth emerged as a bright spot for housing in 2012. Indeed, annual household growth approached the 1.0 million mark for the first time since before the Great Recession. According to the Housing Vacancy Survey, the number of households increased by —up significantly from the increase a year earlier. The Current Population Survey reports even stronger growth of more than 1.0 million. At a basic level, changes in the number of adults and the rates at which adults head independent households determine household growth. On the plus side, the number of adults aged 18 and older rose by 18.1 million from 2005 to 2012 and fully 2.4 million in the past year alone. The echo-boom generation (born after 1985) fueled much of this growth, helping to boost the number of adults in their mid-20s—the group most likely to form new households."}, {"role": "assistant", "content": "But while the young adult population has been growing, the rate at which members of this age group head their own households has declined. Going forward, though, even if today’s low household formation rates persist, the aging of the large echo-boom cohort into their 30s will raise household head­ ship rates because of lifecycle effects. Indeed, one out of every two 30–34 year-olds heads an independent household, com­ pared with just one in four 20–24 year-olds. Since household headship rates continue to rise (albeit more slowly) through older adulthood, the rates for the echo boomers will likely increase for years to come."}]}
{"messages": [{"role": "user", "content": "IMMIGRATION’S CONTRIBUTION The foreign-born population has been a key component of household growth over the last decade, fueling large gains early in the decade but dragging down growth since the recession. According to Current Population Survey estimates, The pace of household growth—a key driver of housing demand—accelerated in 2012, boosted in part by an increase in immigration. At the same time, though, the lingering impacts of the Great Recession continue to limit household mobility and therefore housing turnover. Income growth also remains weak, especially among minorities and the youngest generation of adults. Given the important role that these groups play in housing markets, improvement in their economic progress would provide a strong lift to the recovery. the number of foreign-born households rose nearly annually in 2001–07 and accounted for 30 percent of overall household growth. But beginning in 2008, the influx of immi­ grants slowed sharply as the Great Recession took hold. High unemployment and tepid wage growth also reduced house­ hold formation rates among the foreign-born population already residing in the United States. By 2009 and 2010, the number of foreign-born households showed a net decline and the foreign-born contribution to household growth in 2007–10 fell to just 6.0 percent. HOUSEHOLD MOBILITY ON THE DECLINE The share of households that move in a given year is a funda­ mental driver of housing market activity, setting the pace of home sales and the turnover of rental housing. In line with long- term trends as well as the short-run impacts of the recession and housing bust, domestic mobility rates hit new lows in 2011. The American Community Survey reports that just 13.0 percent of households moved within the United States during the pre­ ceding 12 months, down from 13.2 percent the year before and 13.8 percent in 2007 (prior to the recession). HOME EQUITY AND WEALTH DISPARITIES The rebound in home prices in 2012 was welcome news to homeowners, helping to restore some of their lost housing wealth. The increase in equity was also good news for the economy, because consumer spending tends to rise with gains Source: JCHS tabulations of US Census Bureau, Housing Vacancy Survey and Intercensal Population Estimates. The recession-induced drop in home values has been especially damaging to minority and low-income households. On aver­ age, real home values for Hispanic owners plummeted nearly percent) between 2007 and 2010, while the decline for black owners was nearly percent). By compari­ son, average values for white homeowners fell just 15 percent over this period. Moreover, white homeowners still had in home equity on average in 2010—about twice the amount that blacks and Hispanics held. Indeed, most renters have little wealth of any kind. The real median net worth among renters in 2010 was $5,100, essentially unchanged from $5,300 in 2007. Minority renters have particu­ larly low levels of wealth: the median in 2010 was just $2,100 for black renters and $4,500 for Hispanic renters, substantially less than the $6,000 for white renters. Moreover, cash savings account for little of this net worth (less than $1,000), leaving all of these renters without much cushion against emergencies, let alone funds for a downpayment on a home. For today’s younger households, student loan debt may make the transition to homeownership more difficult. According to the Federal Reserve Bank of New York, the number of young adults under age 30 with student loan debt outstanding increased by 39 percent between the start of 2005 and the end of 2012, with the average amount rising from $13,300 to $21,400. However, Notes: Data exclude renters and households with zero or negative income. Income quartiles are equal fourths of all households ranked by income. White, black, and other households are non-Hispanic; Hispanic households can be of any race. Source: JCHS tabulations of Federal Reserve Board, 2010 Survey of Consumer Finances. 15 JOINT CENTER FOR HOUSING STUDIES OF HARVARD UNIVERSITY concerns over rising student loan debt often overlook the fact that the trend also affects older households. The increase was even larger among adults in their 30s, with the number of bor­ rowers up 76 percent and average debt climbing from $20,000 to $29,400. Moreover, of the $600 billion increase in student loans outstanding in 2005–12, fully 38 percent was among households over age 40. Since many of these older households already own homes, the sharp rise in student loan debt could affect their ability to meet their mortgage obligations. STAGNANT INCOMES A key factor in the relatively modest housing recovery is the persistent weakness in incomes, which has slowed household growth and limited how much people can pay to rent or buy homes. At last measure in 2011, median household income fell another 1.5 percent in real terms to stand 8.1 percent below the 2007 peak and 6.7 percent below the 2001 level. With the excep­ tion of seniors aged 65 and over, median household incomes fell across all age groups in 2010–11, with the sharpest drop among younger households. While rents have moved up in recent years, there are limits to how much they can rise without an increase in households’ ability to pay. In addition, weak income growth has no doubt had an impact on the recovery in homeownership, limiting the ability of would-be buyers to take advantage of historically low costs of owning. While the economy continues to add jobs ● 2001 ● 2007 ● 2011 Note: Dollar values are adjusted for inflation by the CPI-U for All Items. Source: JCHS tabulations of US Census Bureau, Current Population Surveys. THE STATE OF THE NATION’S HOUSING steadily, albeit slowly, the unemployment rate remains well above what is needed to put upward pressure on wages. The rollback in homeownership rates has hit some groups harder than others. On the one hand, homeownership rates for households aged 65 and over continued to increase in 2012, rising to the highest level on record. With older households making up a larger share of the adult population (thanks to the aging of the baby boom), the high homeownership rates among older households helped to slow the decline in the national rate. But on the other hand, homeownership rates for households in the 25–54 year-old age group were at their lowest point since recordkeeping began in 1976. Even as home prices increased last year in most metros, the gains were not enough to offset the improvement in afford­ ability created by lower interest rates. Indeed, home prices had to rise by at least 10 percent to drive monthly payments higher year-over-year. Thus, monthly payments for a newly purchased median-priced home declined in 80 percent of the metros where home prices had increased in 2012. But in places like Phoenix, rapid appreciation pushed monthly payments on the median- priced home up by 13.3 percent. In San Francisco and Miami, a more moderate 11.9 percent rise in prices meant a 1.7 percent increase in mortgage payments. REFINANCING SURGE The drop in interest rates spurred refinancing activity last year. According to estimates from FHFA, refinancing volumes soared 42 percent in nominal terms to $1.4 trillion in 2012, the highest level since 2006. With little change in the volume of purchase Source: US Census Bureau, Housing Vacancy Surveys. 19 JOINT CENTER FOR HOUSING STUDIES OF HARVARD UNIVERSITY mortgages, refinances accounted for 72 percent of annual mort­ gage originations. CONTINUING CREDIT CONSTRAINTS Access to credit remained limited in 2012. The sharp rise in average credit scores for loans guaranteed by the GSEs and FHA is a telling sign. For most of the 2000s, credit scores on GSE-backed loans averaged around 720 while those on FHA loans averaged around 650. With the onset of the housing cri­ sis in 2008, credit scores in these market channels turned up sharply, to roughly 760 and 710, respectively. In large mea­ sure, this trend reflects the evaporation of loans to borrowers with weaker credit histories. In 2007, borrowers with credit scores below 620 accounted for 45 percent of FHA loans. By the end of 2012, that share was under 5 percent. Part of the intent of higher premiums for FHA loans is to encourage the return of private capital to the housing mar­ ket, but borrowers who cannot meet conventional under­ writing standards have little choice but to pay these higher costs. Other options available to credit-constrained borrow­ ers are programs offered by state housing finance agencies and a variety of nonprofit lenders that allow higher LTVs and flexible underwriting, but these programs remain fairly small in scale. In 2001, loans securitized into private-label securities or held in bank portfolios accounted for nearly half of loan originations. Their market share rose to about two- thirds at the height of the housing boom before retreating to the low single-digits. Beginning in 2009, government-backed loans have accounted for roughly 90 percent of all originations. While the private securities market was still moribund in 2012, portfolio lending by banks showed its first substantial increase Notes: Black and white households are non-Hispanic. Hispanics can be of any race. Source: JCHS tabulations of 2011 Home Mortgage Disclosure Act data. PERSISTENT MORTGAGE DISTRESS The foreclosure crisis is finally receding. In the first quarter of 2013, the share of loans at some stage of delinquency but not yet in foreclosure declined to 7.3 percent, well below the 10.1 percent peak in the first quarter of 2010. The majority of the decline is due to the drop in the share of seriously delinquent loans (with payments 90 or more days overdue). Meanwhile, the share of loans 30-days delinquent was not far above the pre- crisis average. Although still elevated, 60-day delinquency rates were down 36 percent from the peak. The serious delinquency rate for prime loans, which make up the largest share of past-due mortgages, declined from 1.8 percent in the first quarter of 2012 to 1.6 percent in the first quarter of 2013. At the same time, the serious delinquency rate for FHA loans declined from 5.3 percent to 4.2 percent—a 16 percent drop. Although down in 2012, the rate of serious delinquencies in the subprime market increased in the first quarter of 2013. Despite concerns that there would be a surge in proceedings following announcement of the National Mortgage Settlement in March, foreclosure starts in fact trended down throughout the year. By the end of 2012, the number of foreclosures stood at 1.49 million—the lowest annual total since 2007. The pace of foreclosure starts continued to slow in early 2013, dipping to a 1.15 million annual rate in the first quarter. Although affordability is at a 40-year high, tight credit markets remain a challenge for would-be buyers. The emerging rebound in housing prices, coupled with steady job growth, may restore lender confidence that borrowers will be able to repay their loans and that the value of the collateral will exceed the debt if prob­ lems arise. But private lending activity is unlikely to accelerate for some time. The release in early 2013 of the qualified mortgage rule, defining standards for a borrower’s ability to pay, helped to remove one source of uncertainty. Still unknown, however, are risk retention standards for private loan securitizers and new capital standards for institutions holding mortgage-related investments under the Basel III Accord. The future of the GSEs is also on the table, along with what form—if any—a broad federal guarantee in the mortgage market might take. All of these deci­ sions affect the risks and returns of private investors, and the lin­ gering uncertainty continues to slow their return to the market. THE STATE OF THE NATION’S HOUSING STRENGTHENING RENTER DEMAND The Housing Vacancy Survey reports that the number of renter households increased by more than 1.1 million in 2011–12, the eighth consecutive year of expansion and yet another year when renters accounted for all net household growth. While this rapid growth may not be sustainable, it attests to the unprecedented strength of rental demand. In addition, married couples with children—a family type with traditionally high homeownership rates—have contributed an increasing share of renter household growth over the last five years. Meanwhile, households in a broader range of income groups have also become renters. In fact, after having declined sharply during the boom, nearly a third of the growth in renter households in 2007–12 was among households in the top two Rental housing markets experienced another strong year in 2012, with the number of renter households rising by over 1.1 million and marking a decade of unprecedented growth. New construction and conversions of formerly owner- occupied single-family units into rentals also picked up. Robust demand has reduced vacancy rates and supported higher rents in most markets—in turn, improving the balance sheets of property owners and helping to limit multifamily mortgage delinquencies. TIGHTENING RENTAL CONDITIONS Rental markets across the country are tightening, pushing up rents at the national level and across a majority of markets. The HVS median asking rent for vacant units in 2012 stood at $720, the highest level in US history, and the uptrend continued in early 2013. The consumer price index for rent of primary residence rose by 2.7 percent in nominal terms from April 2012 to April 2013, outpacing overall inflation of 1.1 percent. As of that month, the index had been on the rise for 34 consecu­ tive months, with year-over-year increases at or exceeding 2.5 percent for 15. More limited data from MPF Research—covering rents for professionally managed buildings with five or more units, adjusted for concessions—indicate that nationwide rents were up 3.0 percent on average in the fourth quarter of 2012 from a year earlier. The US rental vacancy rate stood at 8.7 percent in 2012, down Source: JCHS tabulations of US Census Bureau, Decennial Censuses and Housing Vacancy Surveys. Across structure types, the steepest declines were among larger multifamily buildings, which had also posted the highest vacan­ cy rates during the worst years of the housing bust. According to MPF Research, vacancies in professionally managed buildings with five or more apartments fell from a high of 7.9 percent in 2009 to just 4.9 percent in 2012—the lowest annual vacancy rate since 2007. MULTIFAMILY PROPERTY AND LOAN PERFORMANCE With vacancy rates falling and rents rising, rental property own­ ers had another good year. The National Council of Real Estate Investment Fiduciaries estimates that net operating income (NOI) for institutionally owned apartments rose 6.1 percent over the course of 2012. While a slowdown from the 10.4 per­ cent increase in 2011, NOI growth was still above the historical average and marked a significant improvement from the losses in 2009–10. The delinquency rate for apartment loans held in CMBS improved as well, edging down from 14.4 percent at the end of 2011 to 13.1 percent at the end of 2012 but still well above the historical average. The relatively high rate of delinquencies and slow recovery of multifamily CMBS loans reflect the fact that the CMBS delinquency rate includes loans on properties that are in foreclosure or are real estate owned, but other delinquency rates generally do not. EXPANDED MULTIFAMILY LENDING ACTIVITY With production and sales activity ramping up, multifamily loan originations rose sharply in 2011–12 even as overall mul­ tifamily mortgage debt outstanding increased only modestly. According to the Mortgage Bankers Association, the annual dol­ lar volume of multifamily loans originated was up 36 percent in 2012, with fourth-quarter originations fully 49 percent above the year-earlier volume. Meanwhile, total net amount of mul­ tifamily mortgage debt outstanding grew by just 2.0 percent in real terms, from $826.8 billion in 2011 to $845.7 billion in 2012. After adjusting for inflation, total debt outstanding in 2012 was only 0.2 percent below the 2009 peak of $847 billion and more than $265 billion (46 percent) above the 2002 level."}, {"role": "assistant", "content": "● Return on Investment ● Growth of Net Operating Income Notes: Data are for apartments. Net operating income is defined as gross rental income plus any other income less operating expenses. Annual rates are calculated across four quarters. Source: JCHS tabulations of National Council of Real Estate Investment Fiduciaries (NCREIF) data."}]}
{"messages": [{"role": "user", "content": "Small investors and local property owners continue to own the vast majority of the nearly 14 million single-family rent­ als nationwide. But since 2011, large investment pools have acquired single-family homes on an unprecedented scale with the intention of managing the properties as rentals. According to CoreLogic, institutional investors accounted for fully 30 percent of 2012 home sales in Miami and 23 per­ cent in Phoenix. The largest of these investor groups have amassed portfolios of 10,000–20,000 single-family homes, many of them distressed properties concentrated in a few select markets."}, {"role": "assistant", "content": "A key issue for markets where investors have been most active relates to the longer-run impact on housing prices. For now, investors are earning returns from rents, but eventually they are likely to liquidate their real estate holdings when prices have recovered sufficiently. Over the past 12 months, prices of bottom-tier homes have already climbed sharply in several key metros including Atlanta (up 37 percent), Las Vegas (up 34 Note: Dollars are adjusted for inflation using the CPI-U for All Items. Sources: JCHS tabulations of Mortgage Bankers Association, Quarterly Reports; US Federal Reserve Board, Flow of Funds Accounts of the United States; US Federal Deposit Insurance Corporation, Quarterly Banking Profile."}]}
{"messages": [{"role": "user", "content": "THE OUTLOOK Rental markets have rebounded so sharply that some observ­ ers have expressed concern about overheating. But so far, the indicators point to a healthy recovery. Construction activity has revived from its low during the recession but is still in line with the moderate levels of the 1990s. Meanwhile, vacancy rates con­ tinue to edge down and rental rates are moving up, providing no suggestion that supply has begun to outstrip demand."}, {"role": "assistant", "content": "As with owner-occupied housing, a critical issue for the rental market going forward is whether other sources of multifam­ ily financing will step up as the GSEs and FHA curtail lending. While the participation of private capital has increased in recent years, it is unclear how well these sources will meet the growing demand for multifamily financing, particularly for the afford­ able and underserved market segments."}]}
{"messages": [{"role": "user", "content": "6 Housing Challenges 27 JOINT CENTER FOR HOUSING STUDIES OF HARVARD UNIVERSITY SPREADING COST BURDENS The housing recovery has pushed up rents and house prices even as high unemployment has pushed down real incomes for a broad spectrum of households. According to the most recent American Community Survey, 42.3 million households (37 per­ cent) paid more than 30 percent of pre-tax income for housing in 2011, while 20.6 million households paid more than half. The number of severely burdened renter households increased by in 2011, to 27.6 percent. The share of owners with similar housing cost burdens was unchanged at 12.6 percent. In fact, the number of severely burdened owners actually fell by in 2011 because some formerly burdened households were able to lower their mortgage payments by refinancing. But other owners lost their homes to foreclosure, which may have alleviated their severe cost burdens but likely resulted in a sub­ stantial loss of wealth. Widening income inequality has been an important factor in the spread of housing cost burdens, with growing numbers of very low-income households unable to afford housing. Over the decade from 2001 to 2011, households earning less than $15,000 accounted for fully 40 percent of overall household growth and households earning $15,000–29,999 contributed another 34 per­ cent. The swelling ranks of low-income households helped push up the number of cost-burdened households, and a rise in the incidence of housing burdens compounded that trend. The share of households earning less than $15,000 with severe cost burdens rose from 62.6 percent in 2001 to 68.7 percent in 2011, while the So far, the economic recovery has done nothing to curb the persistent rise in both the number and share of cost-burdened households. Employment growth has been slow to revive, leaving many households with lower incomes amid rising housing costs. Whole communities are still reeling from high foreclosure rates, widespread vacancies, depressed home values, and disinvestment. And at the same time that low-income households far outnumber the rentals they can afford, housing assistance programs are at risk of cutbacks. THE STATE OF THE NATION’S HOUSING share earning $15,000–29,999 with severe cost burdens rose from 23.1 percent to 30.9 percent. Although rising unemployment and underemployment exacer­ bated the problem, even working full time does not guarantee that households can afford to pay for housing. From 2007 to 2011, the share of low-income households with full-time jobs that were severely cost burdened increased from 38.6 percent to 42.4 percent. During this period, the total number of working poor households rose by 1.1 million, while the number of such households with severe housing cost burdens was up by . Severe housing cost burdens are geographically widespread, with 17.9 percent of all US households devoting more than half their incomes to housing. The shares in 40 states are at least 14 percent. Many states with the largest shares of cost-burdened households also have relatively high home values and rents. California, New York, and New Jersey top the list, with more than 22 percent of households having severe housing cost bur­ dens. But several low-cost states also have large shares of such households. These include Florida and Nevada, where median home values and rents are low but median incomes are low as well. At the other extreme are four states—North Dakota, South Dakota, Iowa, and Wyoming—where less than 12 percent of households are severely burdened. These states are largely rural and have low housing costs relative to incomes. According to the 2011 Consumer Expenditure Survey, families with children in the bottom expenditure quartile (a proxy for low income) spend a total of about $1,400 per month. After paying more than half of this amount for housing, the average severely burdened low- income family with children has about $565 left for savings and all other monthly expenses—half the amount unburdened households have. Compared with low-income households living in homes they can afford, those with severe cost burdens spend two-thirds as much on food, half as much on clothes, and half as much on pensions and retirement. Severe housing cost burdens also lead to noteworthy differences in healthcare outlays. Severely burdened families with children spend only about one-fifth as much on healthcare as those without burdens. Seniors with severe cost burdens also spend $150 less per month, or $1,800 less per year, on healthcare than their unburdened counterparts. On average, low-income families without housing cost bur­ dens spend two-and-a-half times more on transportation each month than those with severe burdens. In rural areas, house­ holds in the bottom expenditure quartile but without housing cost burdens spend more than three times as much on trans­ portation as their housing cost-burdened counterparts. INVESTING IN ENERGY-EFFICIENT IMPROVEMENTS Improving the energy efficiency of homes would clearly slow the spread of housing cost burdens. For low-income households in particular, utilities account for a substantial share of overall housing costs. In 2011, utility costs were nearly a fifth (18 per­ cent) of housing costs for the median renter earning less than $15,000 annually. Even for those earning $15,000–29,999, utility costs typically made up 16 percent of housing costs. Energy- efficient improvements would also go a long way toward reduc­ ing the residential sector’s large carbon footprint. According to the Energy Information Administration’s 2012 estimates, resi­ dential demand accounted for 21 percent of energy consump­ tion in the United States and 20 percent of carbon emissions. HOUSING ASSISTANCE AT RISK Federal rental assistance plays a critical role in relieving the housing cost burdens of some of the nation’s most vulnerable families and individuals. Among residents of assisted housing, 35 percent have a disability, 31 percent are age 62 or older, and 38 percent are single-parent families. The incomes of these assisted households are extremely low, with 44 percent having annual incomes of less than $10,000 and another 37 percent having incomes between $10,000 and $20,000. The benefits of housing assistance for those who receive it are substan­ tial. Federal subsidies reach only about a quarter of eligible house­ holds, and higher subsidy costs have strained the government’s ability to maintain even that limited level of assistance. Between 2008 and 2012, the Housing Choice Voucher Program, which provides subsidies to tenants to obtain housing in the private market, received a 15 percent nominal increase. At the same time, however, rising market rents and utility costs—along with losses in household income resulting from recession-induced unemployment—raised the per-household cost of vouchers. As a result, the increase in program funding did nothing to expand the number of families assisted. For similar reasons, the num­ ber of units with project-based rental assistance also remained largely unchanged despite an increase in funding."}, {"role": "assistant", "content": "The supply of subsidized rental housing will continue to erode. The supply of public housing is also shrinking at a rate of 10,000 units per year, largely for lack of funds to make necessary repairs. Within the voucher program, the Center on Budget and Policy Priorities estimates that if rental assistance costs continue to rise at the current pace over the next decade, funding would have to increase by $4.5 billion to prevent more than low-income families from losing their assistance."}]}
{"messages": [{"role": "user", "content": "1 Executive Summary 1 Executive Summary 1 JOINT CENTER FOR HOUSING STUDIES OF HARVARD UNIVERSITY SINGLE-FAMILY SLOWDOWN After kicking off 2013 on a strong note, the single-family market slowed noticeably in the second half of the year—even before the unusually harsh winter took its toll. By the first quarter of 2014, housing starts and new home sales were down by 3 per­ cent from a year earlier while existing home sales were off by 7 percent. Higher mortgage interest rates were much to blame. From early 2011 to early 2013, the rate on 30-year fixed mortgages had been on a steady downtrend, sliding from about 5.0 per­ cent to a low of 3.4 percent. This decline provided substantial stimulus to the housing market and helped to bolster the recovery that took hold in 2012. Another factor in the single-family slowdown is the pullback in investor purchases of distressed properties, particularly in mar­ kets where their acquisitions are concentrated. Spurred by low home values, high rents, and limited competition from owner occupants, large institutional investors bought more than homes as rentals in 2012 and 2013. Together with the purchases of smaller investors that had long been active in the market, these large-scale investors helped to add several million single-family rental units between 2007 and 2011. But now that the inventory of distressed homes has shrunk and single-family With promising increases in home construction, sales, and prices, the housing market gained steam in early 2013. But when interest rates notched up at mid-year, momentum slowed. This moderation is likely to persist until job growth manages to lift household incomes. Even amid a broader recovery, though, many hard-hit communities still struggle and millions of households continue to pay excessive shares of income for housing. More fundamentally, though, the slow pace of the single-family housing recovery reflects steady but unspectacular job growth. Total employment has just returned to its previous peak, but remains well short of the gains necessary to accommodate the several million additional working-age adults that have joined the labor force since the start of the recession. As long as employment gains remain steady but modest, the pace of the housing recovery is likely to follow suit. The fact that these delayed moves have held back household growth in recent years has fed hopes that the housing market recovery would accelerate once employment growth revived and younger adults were able to get jobs. This rebound has yet to occur, even though many living at home are now employed. Regardless of the economic setbacks they may have experienced, today’s 20–29 year olds are still likely to follow the same pattern. Assuming current headship rates hold, the number of households in their 30s should therefore increase by 2.7 million over the next decade and provide a strong lift to the rental and starter home markets. STABILIZING HOMEOWNERSHIP RATES The US homeownership rate declined for the ninth consecutive year in 2013. According to the Housing Vacancy Survey (HVS), the national rate stood at 65.1 percent—its lowest reading since 1995. But even though the number of owners was still falling last year, the decline was the smallest posted since 2008. Falling incomes are also taking their toll. For the past two decades, homeownership rates for both of these age groups have closely tracked changes in incomes, rising through the 1990s before turning down in the middle of the 2000s. However, the economic recovery may have advanced enough to allow growth to resume, with 2012 incomes edging up 1.2 percent among workers aged 35–44 and dipping just 0.3 percent among those aged 25–34."}, {"role": "assistant", "content": "In addition, many would-be homebuyers may be burdened by student loan debt. Between 2001 and 2010, the share of house­ holds aged 25–34 with student loan debt soared from 26 percent to 39 percent, with the median amount rising from $10,000 to $15,000 in real terms. Within this group, the share with at least $50,000 in student debt more than tripled from 5 percent to 16 percent. For these borrowers, the need to pay off these outsized loans will likely delay any move to homeownership."}]}
{"messages": [{"role": "user", "content": "On the strength of this demand, vacancy rates continued to fall and rents continued to rise nationally as well as in many metropolitan areas across the country. According to MPF Research, rents for professionally managed apartments climbed 3 percent in 2013. Meanwhile, increases in the 20 most rapidly appreciating rental markets averaged 6 percent, up from 5 per­ cent in 2012. While many of these hot markets are in northern California, the list also includes Corpus Christi, Denver, and Fort Myers. MPF Research data indicate that the number of occupied apartments in investment-grade properties increased by more than annually from 2010 through early 2012. Over the same period, additions to the supply were well below that level, helping to bring down vacancy rates and lift rents. As of the last quarter of 2013, however, slower growth in occupied apartments and fast­ er growth in new apartments coming onto the market brought these measures into alignment. Meanwhile, the multifamily property market is flourishing. According to Moody’s/RCA Commercial Property Price Index, property values increased by double digits for the fourth con­ secutive year in 2013, pushing values above their previous peak. Delinquency rates have also declined substantially in all market segments, although the rate among loans held in commercial mortgage backed securities remains relatively high. Amid these improving conditions, banks and thrifts raised their multifamily Notes: Incomes are adjusted for inflation using the CPI-U for All Items. Incomes for 2013 are not yet available. Source: JCHS tabulations of US Census Bureau, Housing Vacancy Surveys and Current Population Surveys. On the homeowner side, the share with cost burdens crested in 2008 at 30.4 percent, up 6 percentage points from 2001. The share then held steady for several years before edging down in 2011. Much of this improvement reflects the fact that many owners were able to refinance their mortgages at much lower interest rates. More important, though, the number of owners with mortgages fell by 2.7 million in 2007–12 as the foreclosure crisis progressed, matching the drop in the number of mort­ gaged owners with cost burdens. Moreover, even after two years of declines, the share of cost-burdened homeowners stands well above levels at the start of the last decade. Lower-income households are especially likely to be cost bur­ dened. Among those earning less than $15,000 a year (roughly equivalent to working year-round at the federal minimum wage), 82 percent paid more than 30 percent of income for housing in 2012 while 69 percent paid more than half. Although conditions among households making $15,000–29,999 are slight­ ly better, the share with at least moderate cost burdens was 64 percent and that with severe cost burdens was 30 percent. Living in inadequate housing presents additional hazards to health and safety. In 2011, the American Housing Survey found that extremely low-income households (earning less than 30 percent of area medians) were more than three times more likely to live in structurally deficient units as households earning at least 80 percent of area medians. Moreover, lowest- income households opting for housing they could afford were 43 percent more likely to live in inadequate units, underscoring the tradeoff between affordability and quality. LOOKING AHEAD Despite their rebound in the last two years, home sales and starts are still nowhere near normal levels. Indeed, single- family construction is running below rates hit during the depths of the 1980–82 recession. But if income and employment trends continue, household growth—especially among younger adults—should also pick up and thus help to support demand for both rental and owner-occupied housing. The future course of homeownership will depend largely on the cost and availability of mortgage financing. On the private side, looser mortgage underwriting standards may help to bolster the housing market recovery. After sharply raising their guarantee fees and insurance premiums in recent years, all three entities are taking steps to buoy the homebuying market. For example, FHA recently introduced a counseling-based program that provides borrowers an option to lower their premiums. Federal agencies are also working to expand access to mortgage credit by con­ vincing lenders that they can extend well-documented loans to lower-credit-score borrowers without fear of reprisal in the case of default."}, {"role": "assistant", "content": "Meanwhile, prospects for improving rental housing affordabil­ ity are bleak. While a pickup in income growth and an easing in rents would help to reduce the alarmingly high number of cost-burdened renters, the cost of market-rate housing will still be out of reach for many. For these households to have the stability they need to seek opportunity, rental assistance is the only option. Without expanded federal funding to aid the neediest households, millions of US families and individuals will continue to live in housing that they cannot afford or that is inadequate, or both."}]}
{"messages": [{"role": "user", "content": "THE STATE OF THE NATION’S HOUSING 2014 6 Notes: Moderately (severely) cost burdened is defined as paying 30–50% (more than 50%) of income for housing. Households with zero or negative income are assumed to be severely burdened, while renters paying no cash rent are assumed to be without burdens. Construction starts jumped 18.5 percent from 2012, to units. Even so, this was the sixth consecutive year that starts failed to hit the 1.0 million mark—unprecedented before 2008 in records dating back to 1959. Indeed, annual starts are running far below their historical average of 1.46 million. Owner spending on improvements to existing homes also rose over the past year. Benefiting from strengthening house sales, After another year of healthy growth in 2013, the housing market paused in the first quarter of 2014. The renewed weakness in residential construction, sales, and prices raised fears that the recovery is still fragile. Nevertheless, there has been convincing progress toward normalcy, with the number of delinquencies, foreclosures, and underwater mortgages trending down and non-distressed home sales trending up. As of March 2014, expenditures for homeowner improvements thus contributed 39 percent of total residential construction spending—well above its historical average of 30 percent. Homeowner spending is likely to continue to drive a dispropor­ tionate share of residential investment again in 2014. According to the Leading Indicator of Remodeling Activity, homeowner outlays should increase during the first three quarters before slowing in the fourth quarter partly in response to weakening home sales early in the year. With steady growth in improvement spending and solid increases in new residential construction, the housing sector helped to bolster the overall economy in 2013. The Bureau of Economic Analysis reports that increases in residential fixed investment (RFI, which includes homebuilding, improvements, and related activities) contributed 14 percent of total growth in gross domes­ tic product (GDP) last year, raising hopes that housing investment will finally propel a stronger expansion. The sizable contribution of RFI is noteworthy given the modest scale of housing construc­ tion. Indeed, RFI made up just 3.1 percent of GDP in 2013, well below its historical average share of 4.7 percent. GEOGRAPHIC CONSTRUCTION TRENDS Last year’s rebound in homebuilding was widespread. Single- family starts were up sharply across the country, with growth ranging from 11 percent in the Midwest and 15 percent in the South, to 18 percent in the West and 19 percent in the Northeast. More than half (53 percent) of single-family starts were located in the South, with another fifth concentrated in the West. COOLING HOME SALES Home sales continued to climb in 2013. NAR reports that sales of existing homes increased 9.2 percent, to 5.1 million—mark­ ing the second year that growth exceeded 9.0 percent and the first time since 2007 that annual sales topped 5.0 million. While slowing somewhat from 20 percent in 2012, annual growth in new home sales was still strong at 17 percent, bringing the total to units. Starting in the fourth quarter, however, existing home sales were just 1 percent above year-earlier levels. The slowdown continued in the first quarter of 2014, when year-over-year sales were off 7 percent. New home sales also had a slow start to 2014, down 3 percent from the first quarter of 2013. This cooldown is significant because the pace of sales already lagged well below normal. This is particularly true for new homes, with 2013 sales just 17,000 units above the lowest annual level recorded between 1963 and the housing bust. Indeed, new home sales are fully 67 percent below the recent peak, while existing home sales are down 28 percent. Sources: Bureau of Economic Analysis, National Income and Product Accounts; US Census Bureau, New Residential Construction and New Residential Sales; and NAR, Existing Home Sales via Moody’s Analytics. 9 JOINT CENTER FOR HOUSING STUDIES OF HARVARD UNIVERSITY The composition of home sales does, however, point to improving conditions. Moreover, distressed sales numbered less than 1.0 million, reducing their share of all existing home sales from 22 per­ cent to 18 percent. Still, cash sales were unusually high for the fifth consecutive year. Metrostudy data indicate that cash sales accounted for 37 percent of home sales last year, nearly matching the 39 percent peak in 2011. By comparison, the all-cash share was just over one in five before the housing market downturn. CONSTRAINED INVENTORIES Homes for sale continued to be in scant supply in 2013. With the pickup in sales, the supply of homes on the market shrank from 5.9 months in 2012 to 4.9 months in 2013. Pre-foreclosure sales are short sales. Foreclosure sales are bank-owned/REO sales. All-cash and financed sales exclude transactions where the presence of a mortgage is unknown. Source: JCHS tabulations of Metrostudy and CoreLogic data. Moreover, since the housing crisis, millions of formerly owner- occupied units have been converted to rentals. At last measure, approximately 1.9 million homes switched on net from the owner to the rental stock between 2009 and 2011. This was on top of a 1.1 million unit net shift between 2007 and 2009, which took an estimated 3.0 million units out of the owner-occupied housing stock. Yet another reason for the shortage of inventory is that millions of homes have been taken off the market and are sitting empty. According to the Housing Vacancy Survey, the number of vacant homes held off market spiked to over 7 million units during the housing downturn and is only now beginning to level off. If the vacant/held-off-market share of the housing stock (currently 5.6 percent) were the same as in 2001 (4.5 percent), an additional 1.4 million homes would now be available for sale or rent. METRO HOME PRICES ON THE UPSWING With the supply of homes for sale so tight, home prices rose sharply last year. The CoreLogic index climbed 11.0 percent from December 2012 to December 2013, while the NAR median exist­ ing home sales price rose 11.5 percent, to . Meanwhile, the Zillow Home Value Index (ZHVI) registered a 6.7 percent gain in 2013—a more modest rise but still the largest year-on-year increase in the index since 2005. Nevertheless, the CoreLogic index indicates that the national home price in March 2014 was still 16 percent below the previous peak, while the ZHVI reports that the March 2014 price was 13 percent below peak. The recovery in home prices continued to spread across the country, with the number of the nation’s 100 largest metros posting increases up from 73 in 2012 to 97 in 2013. Some of the price gains were significant—better than 10 percent increases in 27 metros, and better than 20 percent in 7. Many areas with the largest price gains had also recorded the steepest declines during the housing bust, such as Las Vegas and Phoenix as well as several California metros. For example, home prices in Las Vegas at the end of 2013 were a little over half their previous peaks. The uptick in prices dramatically reduced the number of homes with negative equity (worth less than the outstanding mortgages). For example, Atlanta and Phoenix had two of the highest negative equity shares of any housing markets at the end of 2012. After strong home price gains in 2013, however, the share dropped from 38.1 percent to 19.9 percent in Atlanta and from 36.6 percent to 22.1 percent in Phoenix. Such improve­ ments added up to significant progress for the US as a whole. According to CoreLogic data, the total number of negative equity homes fell from 10.5 million in the fourth quarter of 2012 to 6.5 million a year later. With this sharp 38 percent decline, the underwater share of all mortgaged homes shrank from 21.6 percent to 13.3 percent."}, {"role": "assistant", "content": "Largest metros are ranked by for-sale inventory in 2010. Source: JCHS tabulations of Zillow Real Estate Research data. Like home construction and sales, home price appreciation appears to be slowing. Zillow’s ZHVI hit 6.9 percent year-over- year in August 2013, then decelerated slightly to 5.9 percent in March 2014. Zillow also notes that the number of metros where sales prices were higher than asking prices peaked in mid-2013, indicating that competition had cooled. If inventories continue to expand and mortgage rates trend upward, price increases should continue to moderate over the coming year."}]}
{"messages": [{"role": "user", "content": "The government still had an outsized footprint in the mort­ gage market in 2013, purchasing or guaranteeing 80.3 percent of all mortgages originated. The FHA/VA share of first liens, at 19.7 percent, was well above the average 6.1 percent share in 2002–03, let alone the 3.2 percent share at the market peak in 2005–06. According to the Urban Institute’s Housing Finance Policy Center, the GSEs purchased or guar­ anteed 61 percent of originations in 2012 and 2013, up from 49 percent in 2002 and 2003. THE OUTLOOK The US housing market continues its gradual return to nor­ mal, with far fewer delinquencies, foreclosures, and under­ water mortgages than a year ago. The shares of all-cash and investor sales are also declining while traditional mortgaged, market-rate home sales to owner-occupants have picked up steam. But the weakness in home construction, sales, and prices in early 2014 suggests that the housing market recov­ ery has more ground to gain. Over the short term, housing markets will benefit most from a continued economic recov­ ery that increases employment and raises incomes, particu­ larly among younger adults hardest hit by the recession. Over the longer run, future decisions about the government’s role in backstopping mortgage markets will have significant impli­ cations for the cost and availability of credit. THE STATE OF THE NATION’S HOUSING SLUGGISH HOUSEHOLD GROWTH Weak labor markets, declining incomes, and high rents con­ tinue to dampen household growth. Much of this slowdown reflects the drop in household formation rates among younger adults in the wake of the hous­ ing bust and Great Recession. Even as the economy continued to recover in 2013, the share of adults in their 20s heading their own households remained 2.6 percentage points below rates 10 years earlier. This implies that there are 1.1 million fewer heads of households in this key age group."}, {"role": "assistant", "content": "And while headship rates across income groups have been relatively constant over the past 10 years, growth in each group has not. This shift toward low incomes (and therefore low headship rates) accounts for more than half of the drop in household forma­ tions among 20–29 year olds over that period. If the economy strengthens enough to boost the incomes of this age group, their overall household formation rate will likely increase."}]}
{"messages": [{"role": "user", "content": "Household growth has yet to rebound fully as the weak economic recovery continues to prevent many young adults from living independently. As the economy strengthens, though, millions of millennials will enter the housing market and drive up demand for rental and owner-occupied homes. Most of these new households will be minorities. Meanwhile, with the aging of the baby boomers, the number of older households is set to soar. Given that headship rates rise sharply with age for adults in their 20s and early 30s, the number of millennials that form independent households should increase significantly, how­ ever belatedly, in the coming years. But stronger income and employment growth is necessary to drive much of this change. Moreover, millennials are on a lower trajectory of housing inde­ pendence than earlier generations, and given the current pace of economic growth, it is difficult to predict how quickly these younger adults will finally be able to live on their own. IMMIGRATION TRENDS Although their inflows have slowed and their household forma­ tion rates have declined, immigrants still account for a sub­ stantial share of household growth in the United States. Indeed, immigration has been a major source of population growth in recent decades, contributing about 26 percent of total increases in the 1990s and 35 percent in the 2000s. This influx of foreign- born adults served to expand the ranks of the gen-X/baby-bust generation (born 1965–84), thereby limiting the otherwise sharp fall-off in housing demand that would have occurred in the wake of the baby-boom generation. During the Great Recession, however, growth in the foreign-born population weakened as net immigration declined. Household formation rates among the foreign born also fell, brought down by the same difficult economic and housing market conditions that reduced headship rates among the native born. According to the major Census Bureau surveys, the decline was consider­ able. For example, the Current Population Survey indicates that the number of foreign-born households actually fell in 2009 and 2010. Since then, however, the foreign-born share of US house­ hold growth has rebounded to nearly 40 percent, helping to buoy housing demand in a period of low overall growth."}, {"role": "assistant", "content": "LOWER RESIDENTIAL MOBILITY Along with household formation rates and immigration, domes­ tic mobility rates play an important role in housing markets because residential moves spur investments in improvements and furnishings, generate income for real estate agents and Note: American Community Survey data are only available through 2012. Source: JCHS tabulations of US Census Bureau data."}]}
{"messages": [{"role": "user", "content": "In addition to these longer-term trends, the housing market crisis also sparked a noticeable drop in mobility rates among homeowners. Plunging house prices, rising numbers of under­ water mortgages, weak labor markets, and limited access to credit prevented many owners from selling or trading up. As a result, more people live in their homes for longer periods of time. According to the American Community Survey, the share of owners who had lived in their current homes less than five years dropped from nearly a third (30 percent) in 2007 to just one in five (21 percent) in 2012, while the share living in their homes for 10 years or more increased from 49 percent to 57 per­ cent. Remarkably, this shift occurred even as millions of owners were forced to move when they lost their homes to foreclosure. The slowdown in residential mobility has meant that popula­ tion gains and losses across metropolitan areas have dimin­ ished. In the midst of the housing boom in 2005, domestic migration accounted for 30 percent of population growth in the 20 fastest-growing metro areas. In 2013, that share was just 11 percent, with natural increase and immigration accounting for fully 89 percent of growth. 15 JOINT CENTER FOR HOUSING STUDIES OF HARVARD UNIVERSITY Meanwhile, the unemployment rate for this age group jumped from 4.7 percent in 2006 and 2007 to 10.1 percent in 2010, holding at a still-high 7.4 percent in 2013. Factoring in a slight decline in labor force participation, the share of the 25–34 year- old population with jobs last year was at early-1980s levels. RISING CONSUMER DEBT Households continued to reduce their housing debt in 2013, cutting real mortgage debt 2 percent over the year. But consumer debt was also on the rise, up 14 percent from the end of 2010 to the end of 2013 to account for more than a quarter (26 percent) of aggregate household debt. This is the highest share since early 2004, raising concerns that the combination of falling incomes and rising consumer debt may be contributing to the weakness of housing demand. Education loans have fueled the surge in consumer debt, jump­ ing 50 percent from the end of 2009 through the end of 2013 and more than quadrupling over the past decade to $1.1 trillion. According to the Federal Reserve Bank of New York (FRBNY), student loan balances reported on credit reports increased by $114 billion in 2013 alone. They also accounted for 63 percent of the growth in total debt over the past year and for nearly the entire increase in non-housing consumer debt since 2003. Soaring student loan debt among younger adults may play a role in their lagging household formation and homeownership rates. At last measure in percent of households aged 25–34 had student loans, up from 26 percent in 2001 and more than double the share in 1989. Young renters, who typically have lower incomes, allocate a larger share of their monthly income to student loan payments, according to the Survey of Consumer Finances. The median renter under age 30 in 2010 devoted 6 percent of monthly income to student loan payments, while those aged 30–39 paid a little less than 4 percent. This Note: Dollar values are adjusted for inflation using the CPI-U for All Items. DEMOGRAPHIC CHANGES AND HOUSING DEMAND According to the Joint Center’s 2013 projections, demographic forces alone will drive household growth of 11.6–13.2 million in 2015–25. Underlying these projections are two trends that, in combination, will shift the age composition of US households and therefore the determinants of housing demand. Most imme­ diately, the aging of the baby boomers will boost the number of older households."}, {"role": "assistant", "content": "From 2015 to 2025, the number of households aged 70 and older will increase by approximately 8.3 million and account for more than two-thirds of household growth. The number of householders aged 60–69 is also projected to rise by 3.5 million, adding to the overall aging of the population. Another distinction of the millennials is that members are much more diverse than previous generations. For example, 45 percent are minorities, compared with 41 percent of gen- Xers and 28 percent of baby boomers. On the strength of their numbers alone, millennials will increase the racial and ethnic diversity of US households, while large losses of older, mostly white households will magnify their impact. By 2025, dissolu­ tions of baby-boomer households aged 50–69 in 2015 will reach 3.0 million while those of the previous generation will reach 10.0 million."}]}
{"messages": [{"role": "user", "content": "THE CHANGING FACE OF FIRST-TIME HOMEOWNERS Despite recent setbacks, minority households account for an ever-larger share of homeowners, particularly among younger age groups. Between 1993 and 2013, the white share of home­ owners fell from 86 percent to just 77 percent. At the same time, the Hispanic share climbed from 4 percent to 9 percent, while the Asian/other share increased from 2 percent to 6 percent. DETERIORATING AFFORDABILITY While still relatively affordable by historical standards, the cost of homeownership is on the rise. The median price for existing homes jumped 10 percent from the end of 2012 to the end of 2013, while interest rates notched up from about 3.5 percent Source: JCHS tabulations of US Census Bureau, Housing Vacancy Surveys. By this standard, 36 percent of renters in the top 85 metros had sufficient income in 2013 to qualify for a home purchase loan for the median-priced unit in their areas, assuming a 5 percent downpayment, average tax and insurance rates in their markets, Notes: White and black households are non-Hispanic. Hispanic households may be of any race. Source: JCHS tabulations of US Census Bureau, Housing Vacancy Surveys. Many factors have played a role in the sluggish recovery of the home purchase loan market in recent years, including falling household incomes and uncertainty about the direc­ tion of the economy and home prices. But the limited avail­ ability of mortgage credit for borrowers with less than stellar credit has also contributed. According to information from CoreLogic, home purchase lending to borrowers with credit scores below 620 all but ended after 2009. Since then, access to credit among borrowers with scores in the 620–659 range has become increasingly constrained, with their share of loans falling by 6 percentage points. At the same time, the share of home purchase loans to borrowers with scores above 740 rose by 8 percentage points. Meanwhile, the government sponsored enterprises (GSEs) have also concentrated both their purchase and refinancing activity on applicants with higher credit scores. Moreover, just 2 Notes: Data include only first-lien loans to owner-occupants for one- to four-unit properties. White borrowers are non-Hispanic. Hispanic borrowers include only white borrowers of Hispanic origin. Asian/other includes American Indians, Alaska natives, and native Hawaiians or other Pacific Islanders. Low- (moderate-/middle-/high-) income borrowers have household incomes below 50% (50–79%/80–119%/120% or more) of area medians. Source: Neil Bhutta and Glenn B. Canner, Mortgage Market Conditions and Borrower Outcomes: Evidence from the 2012 HMDA Data and Matched HMDA-Credit Record Data, Federal Reserve Bulletin, November 2013. Yet another drag on the mortgage market recovery is the high cost of credit. For borrowers who are able to access credit, loan costs have increased steadily. To start, interest rates climbed from 3.35 percent at the end of 2012 to 4.46 percent at the end of 2013. This increase was tempered somewhat by a slight retreat in early 2014. In addition, the GSEs and FHA raised the fees required to insure their loans after the mortgage market meltdown, and many of these charges remain in place or have risen. In 2008, the GSEs also introduced loan level price adjustments (LLPAs) or additional upfront fees paid by lenders based on loan-to-value (LTV) ratios, credit scores, and other risk factors. LLPAs total up to 3.25 percent of the loan value for riskier borrowers and are paid for through higher interest rates on their loans. Meanwhile, average credit scores for FHA loans declined from nearly 700 in 2012 to about 690. FHA also reports a downward shift in the distribution of loans to the 620–719 range. Even so, a recent assessment by the Urban Institute found that much of this change simply reflects the migration of borrowers with moderate credit scores from FHA into the GSE market, which has pushed down average scores in both market segments. Thus, while the credit box may have widened, the easing of constraints is much more modest than the drop in average scores suggests. THE STATE OF THE NATION’S HOUSING CONTINUED STRONG DEMAND According to the Housing Vacancy Survey, the number of renter households was up by more than half a million in 2013. At the same time, the Current Population Survey reports that renter household growth was twice that pace. Regardless of this wide discrepancy, both surveys put renter growth well above the annual average of the last few decades. Moreover, both sources also indicate that increases in renter households slowed as the homeownership rate declines eased at the end of 2013. A variety of household types has shifted to rentals in recent years. Along with the groups that are most apt to rent—young­ er adults, low-income households, and single persons—many older households, higher-income earners, and families with children also contributed to the growth in renters. This reflects both the movement of the baby-boom generation into this age group and the drop in homeownership among these households. Meanwhile, house­ holds aged 35–44 and 45–54 each accounted for nearly a fifth of the growth in renters, driven largely by their sharply lower homeownership rates. With the recession expanding the ranks of lower-income households, it is no surprise that this group accounted for much of the increase in renters. Indeed, more than a quarter of renter growth was among households earning under $15,000 annually, and nearly 30 percent among those with incomes of $15,000–29,999. At the same time, though, highest-income households accounted for nearly as large a share (23 percent) as lowest-income households. And while many new renters were single persons, families with children—including both single parents and married couples—were responsible for a slightly larger share of the increase because they experienced the big­ gest falloff in owning. TIGHTER RENTAL MARKETS With the continued strength of demand, the national rental market tightened further in 2013. According to Census Bureau estimates, the rental vacancy rate edged down to 8.3 percent Although slowing, renter household growth continued to soar in 2013. The strength of demand has kept rental markets tight across the country, pushing up rents and spurring new construction. But supply and demand now appear to be coming into balance. With slower renter growth likely ahead and many new apartments in the pipeline, rent increases should begin to ease. and stood at its lowest point since 2000. Even so, last year’s decline was the smallest since vacancies began their retreat in 2010. Meanwhile, MPF Research reports that by the fourth quar­ ter of 2013, the vacancy rate for professionally managed apart­ ments was 5.0 percent, virtually unchanged since late 2011. Rent increases have also remained fairly consistent. The consumer price index (CPI) for contract rents indicates that nominal rents were up 2.8 percent in 2013, little changed from 2012. Among professionally managed properties with five or more units, rent increases slowed from 3.7 percent in 2012 to 3.0 percent last year. But by either measure, rents still rose at a healthy clip, outpacing the overall inflation rate of 1.5 percent. The tightening in rental markets was widespread, with 85 of the 93 metropolitan areas tracked by MPF Research reporting higher rents. In many metros, however, the pace of increases slowed. And in a quarter of metro markets, rent increases did not beat the national rate of inflation."}, {"role": "assistant", "content": "Gains in new construction may, however, be set to slow. The number of multifamily permits issued was up 59,000 in 2013— about half the increase in 2012. Even so, completions of new units should continue to ramp up because of the lengthy devel­ opment process for multifamily properties. Indeed, multifamily completions totaled just units in 2013, implying that many new units are still in the pipeline."}]}
{"messages": [{"role": "user", "content": "Survey data from MPF Research suggest that demand and sup­ ply for investment-grade apartments are close to balance. From 2010 through 2012, increases in occupied apartments greatly outpaced the number of rental units coming on line, helping to drive down vacancy rates and push up rents. In 2013, however, Source: JCHS tabulations of US Census Bureau, Current Population Surveys. Although individuals have traditionally owned the vast major­ ity of single-family rentals, institutional investors were enticed into the market by a unique set of conditions following the recession: a high volume of distressed homes for sale, weak demand from owner-occupants, and high rent-to-price ratios. While precise numbers are hard to come by, estimates suggest these investors have amassed more than single-family units from 2012 through early 2014, concentrating most of their purchases in selected markets. Now that distressed home sales have slowed and home prices have risen sharply, how­ ever, most of the largest investors have indicated that they will limit future acquisitions. At the same time, owners of existing low-rent properties have little revenue to cover operating and maintenance costs, leaving these units at risk of removal. Of the 34.8 million rentals that existed in 2001, some 1.9 million (5.6 percent) were demolished by 2011. The loss rate for units renting for less than $400 was more than twice as high at 12.8 percent. Although making up only a small share of the overall supply, these units thus accounted for more than a third of total removals. Losses of units with rents between $400 and $600 were also relatively high at 6.7 percent. Removal rates decline as rents increase, falling to just 3.0 percent for units renting for $800 or more. PERFORMANCE OF APARTMENT PROPERTIES With vacancy rates at their lowest point in more than a decade and rent increases consistently outpacing inflation, apartment properties continue to perform well. The National Council of Real Estate Investment Fiduciaries reports that the net operating income of commercial-grade apartments was up 3.1 percent in 2013. While well below the 6–11 percent growth in 2011–12, last year’s increase was still healthy and nearly matched the 3.3 percent annual average of the last three decades. Meanwhile, apartment property values continued to climb at a remarkable pace. According to Moody’s/RCA Commercial Property Price Index, apartment prices shot up 14 percent on average in 2012–13. With rapidly appreciating property values and stable cash flows, commercial-grade properties posted a 10.4 percent annual rate of return last year. This nearly matches the 11.5 percent aver­ age level in the ten years preceding the housing bubble and bust (1995–2004), suggesting that growth is settling down to more sustainable rates. Of particular note is the changing source of these loans. Based on estimates of total loans outstanding (including both new originations and repayment or writeoffs of existing loans), federal sources accounted for much of the increase in lending early in the multifamily recovery. In 2010, the volume of loans backed by the GSEs and FHA increased by $13 billion, loans held by banks and thrifts were essentially flat, and those held in CMBS fell $9 billion. As the rental recovery gained traction, however, private lenders began to step up their presence in the market."}, {"role": "assistant", "content": "THE OUTLOOK Predicting the course of homeownership rates, and therefore rentership rates, is difficult because it depends on a host of eco­ nomic factors as well as consumer attitudes. But given recent signs that the homeownership rate may be stabilizing and that new rental units will continue to come on line, market condi­ tions should come more into balance."}]}
{"messages": [{"role": "user", "content": "6 Housing Challenges 27 JOINT CENTER FOR HOUSING STUDIES OF HARVARD UNIVERSITY UNABATED COST BURDENS Ending a long string of increases, the number of cost-burdened households (paying more than 30 percent of income for hous­ ing) receded slightly in 2012, falling by 1.7 million from the preceding year. But the improvement rolled back only a frac­ tion of the growth over the previous decade. What is particularly alarming is that 5.8 million of this gain was among severely burdened households (paying more than 50 percent of income for housing). Virtually all of the improvement in conditions came on the home­ owner side, with their cost-burdened numbers falling from 22.0 million in 2011 to 20.3 million in 2012. But even with this decline, more than a quarter of homeowners (27 percent) still had cost burdens, including more than one in ten with severe burdens. The picture for renters is even less encouraging. In fact, the number of cost-burdened renters rose slightly to 20.6 million in 2012, marking the sixth straight year of increases. And although the cost-burdened share edged down, it still remained close to 50 percent. Moreover, more than one in four renters (27 percent) were severely housing cost burdened. Cost burdens are the norm among lowest-income households. More than four out of five households with incomes below $15,000—about equivalent to full-time work at the federal mini­ mum wage—paid more than 30 percent of those incomes for housing in 2012, with more than two-thirds paying over 50 per­ cent. Within this lowest-income group, the cost-burdened shares differ little between owners and renters. In the next-lowest income group (earning $15,000–29,999), three-quarters of renters were cost burdened compared with 52 percent of owners. Even so, the severely cost-burdened shares for both owners and renters in this income group were similar (27 percent vs. 34 percent). The incidence of severe cost burdens remains particularly high among minority households. In percent of black households were severely burdened, along with 24 percent of Hispanic households and 21 percent of Asian households. DRIVERS OF AFFORDABILITY TRENDS While cost burdens have spread among both owners and renters, the causes of these increases differ. For homeowners, most of the changes in cost-burdened shares reflect the ups and downs in housing costs. Homeowner costs peaked in 2007 and then began a steep decline as interest rates hit his­ toric lows and home prices plunged. By 2012, median housing costs for owners were nearly back to decade-earlier levels. But incomes also fell after 2007, offsetting some of the cost decline. On the renter side, income declines have played a leading role in the rising incidence of cost burdens. From 2001 to 2007, median monthly rental costs rose 4 percent while renter incomes fell by 8 percent. The slide in renter incomes continued through 2011 with another 8 percent decline. Although conditions improved somewhat in 2011–12, the changes were not nearly enough to make up for lost ground. As a result, median renter incomes were 13 percent lower in 2012 than in 2001, falling from $36,000 to only $31,500. Meanwhile, the median rent paid, at $880, was up about 4 percent over this period. IMPACTS OF HIGH-COST HOUSING Low-income families and individuals unable to secure decent, affordable, and suitable housing face difficult choices. Many have to settle for units that cost more than they can afford and then must severely limit what they spend on food and other critical necessities. For those who find housing that is within their budgets, the units may be of poor quality and/or located Notes: Moderately (severely) cost burdened is defined as paying 30–50% (more than 50%) of income for housing. Households with zero or negative income are assumed to be severely burdened, while renters paying no cash rent are assumed to be without burdens. Source: JCHS tabulations of US Census Bureau, American Community Surveys. In 2012, severely cost-burdened households in the bottom expenditure quartile (a proxy for income) spent on average 39 percent less on food and 65 percent less on healthcare compared with otherwise similar households living in afford­ able housing. The extent of these cutbacks is similar across a broad range of household types, although families with children spent significantly less on healthcare. Households that are severely cost burdened and living in rural areas also make particularly steep cuts in both nutrition and health­ care expenditures. According to the 2011 American Housing Survey, extremely low-income households (earning less than 30 percent of the area median) were more than three times more likely to live in inadequate housing than households earning 80 percent or more of area median income. Moreover, extremely low-income renters are more likely to live in poorer quality neighborhoods. In 2009, some 25 percent lived in areas where a serious crime had occurred within the preced­ ing year, and 13 percent lived within a half-block of at least one abandoned or vandalized building. The comparable shares for renters with higher incomes are 21 percent and 5 percent. THE GROWING SUPPLY GAP The rising tide of households unable to secure affordable housing reflects both substantial growth in the number of extremely low-income households and the fact that the private sector struggles to provide housing at a cost that is Notes: Low (very low/extremely low) income is defined as 50–80% (30–50%/less than 30%) of area median. Moderately (severely) cost burdened is defined as paying 30–50% (more than 50%) of household income for housing. Households with zero or negative income are assumed to be severely burdened, while renters paying no cash rent are assumed to be without burdens. Inadequate units lack complete bathrooms, running water, electricity, or have other indicators of major disrepair. For a complete definition, see HUD Codebook for the American Housing Survey, Public Use File. THE STATE OF THE NATION’S HOUSING within reach of these households. An Urban Institute analy­ sis found that in 2000, 8.2 million extremely low-income households competed for 2.9 million rental units that were affordable and available. By 2012, the number of extremely low-income households had swelled to 11.5 million while the number of affordable and available housing units had increased to only 3.3 million. SHRINKING SUBSIDIES To qualify for federal rental assistance programs, a household typically cannot earn more than 50 percent of area median income. But this aid is not an entitlement and a large majority of eligible renters do not receive assistance. According to HUD estimates, the number of households eligible for rental subsi­ dies shot up 21 percent between 2007 and 2011, growing from 15.9 million to 19.3 million. Indeed, the number of very low-income renters that benefited from any kind of housing aid increased by just over this period. Meanwhile, the share of subsidy-eligible unassisted renters with worst case needs (either having severe housing cost bur­ dens or living in severely inadequate housing, or both) climbed steadily from 50 percent to 58 percent. In part, the growing inadequacy of housing assistance pro­ grams—particularly the voucher program that has accounted for much of the increase in aid in recent decades—reflects the fallout from rising rents and falling renter incomes. HUD administrative data indicate that the average rent for a vouch­ er-assisted unit was $1,041 per month in 2012, up 13 percent from 2007. Over this period, federal spending per voucher- assisted unit rose 17 percent, from $600 to $705 per month. As the cost of administering rental assistance continues to grow, the capacity of federal programs to serve eligible households continues to diminish. According to a 2012 HUD report, most owners of LIHTC prop­ erties choose to keep their units affordable, but this generally requires renewed subsidies. The tax credit units most at risk of loss from the affordable stock are likely those with for-profit owners and located in high-cost housing markets. Another hurdle for preserving the affordability of LIHTC units nearing the end of their compliance period is that they often need new funding for maintenance and rehabilitation. THE OUTLOOK Despite the recent weakness in a variety of indicators, the hous­ ing recovery is likely to continue at a modest pace, in line with growth in the broader economy. But even as the overall market shows signs of renewed health, significant challenges remain. Chief among them is that tens of millions of Americans devote an excessive amount of their incomes to housing but are still unable to live in good-quality units in stable communities. Nearly a quarter of all renter households earn less than $15,000 a year, which means that housing they could afford would rent for under $400 a month. These households must therefore compete for the extremely limited and dwindling supply of housing with such low rents. And given the cost of land, building materials, financing, and operations, the private sector is simply unable to provide additional low-cost housing without subsidies."}, {"role": "assistant", "content": "Notes: Neighborhoods are defined by zip codes and include 11,572 areas with at least 500 residents and with data available from 2000 to 2013. Minority (mixed/white) neighborhoods were more than 50% (10–50%/less than 10%) minority in 2012. High- (moderate-/low-) poverty neighborhoods had poverty rates of more than 20% (10–20%/ less than 10%) in 2012. Home price changes are averaged across neighborhoods. Source: JCHS tabulations of Zillow Real Estate Research data and US Census Bureau, 2012 American Community Survey 5-Year data. Source: JCHS tabulations of Zillow Real Estate Research data and US Census Bureau, 2012 American Community Survey 5-Year data."}]}
{"messages": [{"role": "user", "content": "With the gen-Xers accounting for such a significant share of the first-time and trade-up markets, the drop in their homeowner­ ship rates may well be a more critical factor in the ongoing weak­ ness of the owner-occupied segment than the slow transition of the millennial generation (born 1985–2004) into homebuying. This is not to say, however, that the millennials do not face their own financial hurdles to homeownership. Over the span of just 10 years, the share of renters aged 25–34 with cost burdens (pay­ ing more than 30 percent of their incomes for housing) increased from 40 percent to 46 percent, while the share with severe The US housing recovery lost momentum in 2014 as homeownership rates continued to fall, single-family construction remained near historic lows, and existing home sales cooled. In contrast, the rental market remained a bright spot, fueled by strong growth in renter households. With rents rising and incomes well below pre-recession levels, though, the number of housing cost- burdened renters set another record, far surpassing public efforts to provide affordable housing. And despite the rebound in much of the nation, a number of minority and low- income neighborhoods remain severely distressed. RENTAL MARKET BOOM The flip side of falling demand for owner-occupied housing has been exceptionally strong demand for rental units. According to the Housing Vacancy Survey’s count, renter household growth has averaged annually since 2004. This makes 2004–14 the best 10-year period for renter growth since the late 1980s. While soaring demand is often attributed to the millennials’ preference to rent, households aged 45–64 in fact accounted for about twice the share of renter growth than households under the age of 35. Similarly, households in the top half of the income distribution, although generally more likely to own, contributed 43 percent of the growth in renters. Despite this massive expansion of the stock, rental markets con­ tinued to tighten in 2014. The national vacancy rate dipped to 7.6 percent, its lowest point in nearly 20 years. MPF Research estimates that vacancy rates for professionally managed apartments were even lower, at 4.6 percent, and fueled even larger rent increases of 3.8 percent."}, {"role": "assistant", "content": "Based on these strong fundamentals, apartment building prices rose for the fifth consecutive year in 2014, up 15 percent. As measured by Moody’s/RCA Commercial Property Price Index, last year’s prices were 21 percent above their previous peak. Lending for multifamily properties followed suit, with the total Source: JCHS tabulations of US Census Bureau, Housing Vacancy Surveys."}]}
{"messages": [{"role": "user", "content": "3 JOINT CENTER FOR HOUSING STUDIES OF HARVARD UNIVERSITY value of multifamily loan originations also rising 15 percent in 2014. Banks and thrifts accounted for more than half of the increase in multifamily mortgage debt outstanding. With no signs of a slowdown in renter household growth, rental markets are likely to remain tight in the near term. If strong job growth continues, rental demand could get another lift as increasing numbers of young adults move out of their parents’ homes and into their own."}, {"role": "assistant", "content": "Even so, the supply of new apart­ ments should continue to grow as completions catch up with starts, which would help to moderate future increases in rents."}]}
{"messages": [{"role": "user", "content": "A little over one million housing units were started last year—a significant threshold by today’s stan­ dards. But until the recent downturn, this would have been the lowest total in the past half-century. Virtually all of the weakness is due to low levels of single-family construction, with starts increasing only 5 percent for the year. In contrast, multifamily starts remained on a strong upward trajectory, rising 16 percent on top of substantial gains each year since 2010. In fact, more multifamily units were started in 2014 than in any year since 1989. The softness in the owner-occupied market is also evident in the 3 percent drop in existing home sales in 2013–14. The silver lining, however, is a shift in the composition of sales, marked by a slowdown in distress-related sales and a modest uptick in traditional sales. Indeed, Metrostudy data show a 10 percent drop in cash sales and a 15 percent drop in sales of bank-owned properties, along with a 3 percent rise in mortgaged purchases of non-bank-owned homes. And with so many other would-be trade-up buyers constrained by tight credit conditions, it is no surprise that inventories of existing homes on the market are so limited. April 2015 marked the 32nd straight month that existing homes for sale held below a six-month supply, the traditional measure of a balanced mar­ ket. And with home price appreciation slowing in 2014, growth in the number of owners that decide to sell may also decelerate. At the same time, though, more modest price appreciation will help to keep homeownership affordable, particularly if interest rates rise as the economy nears full employment. Of course, without more inventory, would-be homebuyers have limited opportunities to take advantage of these conditions. In assess­ ing the state of the housing market recovery, the existing home inventory is a key metric to watch. The weak single-family market reflects a number of short-term conditions, including harsh winter weather and higher interest rates in the early months of 2014, along with rising home prices over the course of the year. But the long-term decline in house­ hold income is a more critical factor. Despite steady job growth since 2010 and a drop in unemployment to less than 6 percent, the labor market recovery has yet to generate meaningful income gains. At last measure in 2013, median household income was $51,900—still 8 percent below the 2007 level in real terms and equivalent to 1995 levels. Still, there were encouraging signs in early 2015 that wage growth may be picking up, a trend that would clearly help to bolster all segments of the housing market. HOUSEHOLD GROWTH AND FUTURE HOUSING DEMAND Despite conflicting reports from the major government surveys, household growth may be reviving. The timeliest of the sources, Note: Estimates are four-quarter rolling averages of year-over-year growth. Source: JCHS tabulations of US Census Bureau, Housing Vacancy Surveys. Moreover, two of the major trends contributing to the recent slowdown in household growth—declines in headship rates among young adults and in net immigration—appear to be reversing. Recent surveys suggest that the share of young adults moving into independent households is stabilizing. In combination with the aging of the millennials into their 20s and early 30s, this sets the stage for stronger household growth. Meanwhile, net immigration was close to the one-million mark in 2014 for the first time since 2007. With headship rates firming and immigration resuming, the Joint Center for Housing Studies projects that household growth will return to its longer-run average of just under 1.2 million annually in 2015–25. The sheer size of the millennial generation—already larger than the baby-boom generation at the same stage of life—will drive most of this growth. Moreover, these projections assume no increase in today’s lower headship rates for young adults. If rates of living independently among this age group do rebound, household growth will be even stron­ ger in the decade ahead."}, {"role": "assistant", "content": "A large majority will likely remain in their single-family homes for the time being, implying lower turnover in the housing market and higher spending on remodeling of existing homes. In another decade, though, the oldest members of this generation will be in their late 70s, a time of life when living independently often becomes difficult. By 2025, the large and growing population of seniors is likely to drive up demand for alternative housing arrangements that offer a combination of affordability, accessibility, and supportive services."}]}
{"messages": [{"role": "user", "content": "THE SPREAD OF RENTER COST BURDENS Even before the Great Recession, both the number and share of US households paying more than 30 percent of income for housing were on the rise. But the cost-burdened share of home­ owners began to recede in 2010, not only because many over­ leveraged households lost their homes to foreclosure, but also because low interest rates helped to reduce monthly mortgage costs. As a result, the cost-burdened share of homeowners fell 5 percentage points in 2010–13, to about one quarter. The cost-burdened share of renters, in contrast, held near record highs in the face of stagnating incomes and steadily ris­ ing rents. In 2013, almost half of all renters had housing cost burdens, including more than a quarter with severe burdens (paying more than 50 percent of income for housing). Although these shares remained slightly below their peaks in 2013, the total number of renters with housing cost burdens increased over the year because the total number of renters increased. Much to their detriment, cost-burdened households are forced to cut back on food, healthcare, and other critical expenses. Affordable housing thus means a dramatic improvement in quality of life for households able to obtain it, but federal assis­ Notes: Cost burdens are defined as housing costs of more than 30% of household income. Households with zero or negative income are assumed to have burdens, while renters paying no cash rent are assumed to be without burdens. The ten highest-cost metros are ranked by median monthly gross rents. Source: Table W-4. tance lags far behind need. Although funding for housing choice vouchers did increase in recent years, the cost of subsidies also rose, limiting growth in the number of federally assisted households. Meanwhile, severe cuts in the HOME program have hampered the ability of state and local governments to add new assisted units. To make matters worse, the affordability periods of more than 2 million assisted housing units are set to expire over the coming decade, and preserving this critically important resource will require a renewal of federal commitments. The Low Income Housing Tax Credit program—the key tool for both developing and preserving affordable rentals—is under increas­ ing pressure from these competing needs. Similarly, mortgage delinquency rates nationwide have fallen by half since the foreclosure crisis peaked. But the remaining loans that are seriously delinquent (90 or more days past due or in foreclosure) are concentrated in relatively few neighbor­ hoods. Indeed, the 10 percent of zip codes with the highest number of seriously delinquent loans accounted for about half of all such loans nationally in 2014. While located in states across the country, many of these communities are concen­ trated in Florida, New York, New Jersey, and Illinois. THE OUTLOOK Despite the slowdown in 2014, the housing market recovery could regain steam in 2015 if continued employment growth helps to lift household incomes. But the lingering effects of the housing crash and Great Recession continue to impede the recovery. Millions of owners still have little or no equity in their homes and/or damaged credit histories, dampening demand in both the first-time buyer and trade-up markets. Although members of the millennial generation are starting to find their footing in the job market and helping to propel rental demand, many of these young adults are saddled with rent burdens and student loan payments that will slow their transition to homeownership. Reflecting the low level of residential construction in general, and of single-family homes in particular, the housing sector contributed only modestly to the economy in 2014. Residential fixed investment (RFI)—which includes homebuilding as well as homeowner spending on improvements—accounted for just 3.2 percent of GDP, significantly less than the 4.5 percent averaged in records dating back to 1969. Despite its relatively small share of the economy, residential fixed investment has at times generated 15–20 percent of annual GDP growth. Last year, however, housing’s contribution decreased steadily as overall economic growth accelerated. For 2014 as a whole, RFI accounted for a negligible 0.05 percentage point of the 2.4 percent increase in GDP (about 2 percent), a sig­ nificant drop from its 0.33 percentage point shares (about 14–15 percent) in 2012 and 2013. With the weakness in construction, homeowner improvements continued to prop up residential spending. While government estimates vary, the Census Bureau and Bureau of Economic Analysis both report that homeowner outlays for improvements accounted for about a third of residential construction spend­ ing last year—down from nearly half at the 2011 peak, but still above the quarter averaged in 1993–2006. Although the news was mixed in 2014, housing markets made some advances that set the stage for moderate growth. Single- family construction continued to languish, but multifamily construction remained on a strong upward trajectory. THE STATE OF THE NATION’S HOUSING 2015 8 FALTERING HOME SALES Behind the lackluster performance of single-family construc­ tion is the persistent weakness in new home sales. Sales of new single-family homes increased just 2 percent last year, a sharp slowdown from the 17 percent pace of 2013. At just units, new home sales were still up more than 40 percent from the cyclical low in 2011, but roughly 30 percent below the annual averages in the 1970s, 1980s, and 1990s. While not nearly as depressed as new home sales, existing home sales also lost momentum in 2014, falling to 4.9 mil­ lion units. Indeed, the National Association of Realtors (NAR) reports a 2.9 percent drop for the year. Although significantly slower than in 2012 and 2013, the pace of existing home sales in 2014 was still almost 20 percent above the recessionary low in 2008. The good news is that the softness in existing home sales largely reflects a decline in distress-related sales, suggesting that mar­ kets are stabilizing. At the same time, mortgaged home sales and regular (non-REO) re-sales to owner-occupants—the traditional foundation of the home sales market—were both up for the year. Other sources confirm this trend. CoreLogic, for example, reports that the share of cash sales fell again in February 2015, marking 26 consecutive months of year-over-year declines. At 38 percent of home sales, cash sales were 9 percentage points below the 2011 peak, but still well above the 25 percent annual average before the housing boom and bust. THE DRAG OF LOW INVENTORIES While the average number of homes for sale edged up 3.8 percent in 2014, the increase was apparently driven by the slowdown in sales rather than growth in the number of homes put on the market. Even so, the average supply increased to 5.2 months for the year, up from 4.9 months in 2013 but still under the 6.0 month level indicating market balance. Estimates through April, however, show that the for-sale inventory in early 2015 was back below year-earlier levels. Several trends have combined to shrink the pool of homes available for sale. For one, many owners are unable to put their homes on the market because the price drop during the housing crash left them with little or no equity. According to CoreLogic, 10.8 percent of homeowners with mortgages were still underwa­ ter on their loans in the fourth quarter of 2014, and another 2.8 percent had less than 5 percent equity. Dollar values are adjusted for inflation by the CPI-U for All Items. Sources: US Census Bureau, New Residential Construction and New Residential Sales data; National Association of REALTORS®, Existing Home Sales; Bureau of Economic Analysis, National Income and Product Accounts. 9 JOINT CENTER FOR HOUSING STUDIES OF HARVARD UNIVERSITY In addition, many homes remain stuck in the foreclosure process or held off market. The Mortgage Bankers Association (MBA) estimates that the number of homes in foreclosure nationwide exceeds units. The Housing Vacancy Survey also shows no improvement in the share of vacant homes held off market in total or held off for “other reasons,” including foreclosure. Looking ahead, inventories of homes for sale could build as own­ ers become more confident about the market. In addition, many borrowers who lost their homes to foreclosure have had that blemish wiped from their credit reports, making them again eligible for FHA and other mortgages. This could pro­ vide a tailwind for the market. According to NAR estimates, up to 1.0 million such households have already restored their credit standing, and 1.5 million more could do so shortly. Still, several Note: REO sales are of real estate owned by lenders. Source: JCHS tabulations of Metrostudy data. PRICES ON THE RISE While the volume of new homes built is near record lows, the prices of those homes have hit a record high. Even with the slowdown in appreciation from 8.1 percent in 2013 to 3.5 percent in 2014, the median sales price of new homes stood at last year—some 35 percent above the median sales price of existing single-family homes. According to the National Association of Realtors, median prices for existing homes sold were up for the third consecutive year in 2014, rising 4.0 percent from 2013, to . As in the new home market, existing home prices benefited not only from low inventories but also from strong demand for higher-quality units. MBA survey data indicate that the average loan size for home purchase applications increased even faster than house prices in 2012–14, and hit a record high in March 2015. Meanwhile, the jumbo mortgage segment largely drove the increases in the MBA Mortgage Credit Availability Index last year. The relative easing of home price appreciation was apparent across the 20 metros tracked by the CoreLogic Case-Shiller indexes. At the high end, San Francisco posted a healthy 9 per­ cent rise in prices for the year, albeit significantly below the 23 percent jump in 2013. Price increases in Las Vegas also slowed from 26 percent to 7 percent in 2014. Meanwhile, Chicago and Washington, DC, were at the bottom of the list for home price appreciation, joined by formerly high-flying Phoenix. NEGATIVE EQUITY PRESSURES But despite their recent upturn, prices of low-tier homes remain far below their mid-2000s peaks, leaving many owners with neg­ ative equity. According to CoreLogic data, 16 percent of home­ owners with mortgaged units valued at less than were underwater on their loans at the end of 2014, compared with just 6 percent of owners of higher-valued homes. Zillow noted a similar pattern at year-end, finding that 27 percent of house­ holds with mortgages owning bottom-tier homes had negative equity, compared with 15 percent of those owning middle-tier homes and 9 percent of those owning top-tier homes. THE OUTLOOK Given how far housing markets have to go to regain even pre- boom levels, the slowdown in construction, sales, and price appreciation in 2014 set off some alarms. Indeed, the hous­ ing supply expanded less in the previous 10 years than in any decade since the 1940s, while existing home sales were running at late-1990s rates. Even so, a deceleration from the robust house price appreciation of 2013 could be a sign that markets are returning to balance as a result of stable interest rates and fewer sales of distressed homes. With foreclosures and delinquency rates on the decline and steady job growth holding promise of wage gains, housing markets thus appear poised for a new phase of growth mirror­ ing that of the overall economy. But like that of the economy, the recovery is likely to continue at only a moderate pace until income growth picks up and rising home prices help to reduce the number of underwater and distressed homeowners."}, {"role": "assistant", "content": "At the other end of the age spectrum, the large millennial gen­ eration (born 1985–2004) will have its own impact on housing markets. At more than 86 million, the number of people in this age group—already exceeding that of the baby boomers at simi­ lar ages—will increase over the next 20 years as immigration (typically of young adults) continues to pick up. Since renting is usually the first step in independent living, the millennials have already contributed to the robust growth in renter households over the past few years. Indeed, with their lower homeownership rates and slower transitions to marriage and childrearing, members of this generation will continue to have a profound impact on rental demand. But like generations before them, the millennials are likely to participate more fully in the first-time buyer and trade-up markets as they move into their 30s and 40s. Over the next two decades, the aging of the millennials will increase the population in the key 30–49 year- old age group by 17 percent. Millennials are also driving the increase in racial and ethnic diversity. The minority share of this generation is already As the US population becomes both older and more diverse in the coming decades, the demand for alternative types of housing will increase. Although the baby boomers will continue to drive much of this shift, the millennial generation will play an increasingly large role in the rental and first-time buyer markets. In fact, household growth—the key driver of housing demand—among this younger generation finally appears to be picking up. Many of these new households, however, face stagnant incomes and high student debt that limit their opportunities to make the transition from renting to owning."}]}
{"messages": [{"role": "user", "content": "THE STATE OF THE NATION’S HOUSING at 45 percent, significantly higher than the 40 percent share among gen-Xers and 28 percent share among baby boomers. Hispanics alone make up 22 percent of the millennial genera­ tion, compared with 19 percent of gen-X and 10 percent of the baby boom. Hispanic millennials also outnumber Hispanic baby boomers by more than two to one."}, {"role": "assistant", "content": "And given that most of the households lost to death and other life events in the decades ahead are white, minorities are expected to drive 76 percent of net household growth over the next 10 years and fully 85 per­ cent over the next 20. The growing diversity of US households highlights the need for alternative types of housing that address a broad range of cul­ tural preferences. For example, minority households are more likely to be multigenerational, suggesting increased demand for larger homes that accommodate these family groupings. In addition, if minorities continue to have lower incomes and wealth than white households, their growing presence in the market will increase the need for more affordable housing options as well as for mortgage products suited to their financial circumstances."}]}
{"messages": [{"role": "user", "content": "SIGNS OF STRONGER HOUSEHOLD GROWTH While the three major Census Bureau surveys disagree on the exact number, household growth has held in the – range since 2008—far below the 1.2–1.4 million annual average of previous decades. Measures of household growth continued to show only modest increases for much of 2014. As the year came to a close, however, the Housing Vacancy Survey reported a marked pickup that brought the pace of growth closer to its long-run potential. While the magnitude of the sudden increase is suspect, other data—such as the increase in rental unit absorptions over the past year—also suggest that household growth is beginning to revive. 15 JOINT CENTER FOR HOUSING STUDIES OF HARVARD UNIVERSITY and 2013. Assuming these young adults had formed inde­ pendent households at the same rate as their predecessors in 2003, this increase would imply the addition of 1.8 million households. Instead, the housing crash and Great Recession reduced household growth among this age group to just —fully 1.2 million fewer than population growth alone would suggest. But with the economy recovering and the labor market making steady gains, employment of younger adults is on the rise. In the first quarter of 2015, the unemployment rate for adults in their late 20s and early 30s was a full percentage point lower than a year earlier, and the number of employed adults in this age group was 1 million higher. This is good news for housing demand, given that employed younger adults are 50 percent more likely than unemployed younger adults to head indepen­ dent households. Full recovery in incomes, however, remains a long way off. And given that recent income growth has not been shared equally, the setbacks for some age groups have been larger than for others. For example, real incomes for households aged 25–34 are back to mid-1990s lev­ els, while those for households aged 35–44 are at mid-1980s levels. Worse still, real incomes for households aged 45–54 are at their lowest level since the late 1960s. The depressed incomes of households in general and of racial/eth­ nic minorities in particular reflect a shift in the income distribu­ tion. Even after accounting for inflation, the number of households earning under $25,000 rose 18 percent over the decade while the number earning $75,000 or more was up only 4 percent. Part of the increase in the number of lower-income households reflects the 14 percent rise in the number of people living alone between 2004 and 2014. Last year, single persons accounted for just 6 percent of households in the top income decile, but fully 58 percent of those in the bottom decile. In contrast, nearly three-quarters of households in the top income decile included two or more earners. Of these top-income households, over 80 percent were married couples. HOUSING EQUITY AND HOUSEHOLD WEALTH With house prices on the upswing, home equity is again con­ tributing to household net wealth. According to Federal Reserve Board flow of funds data and taking inflation into account, aggregate home equity was up 8 percent in 2014 and a whop­ ping 60 percent since 2010. By comparison, household net wealth rose 3 percent in 2014 and 22 percent since 2010. DECLINING MORTGAGE DEBT Homeowners continued to pare down their mortgage debt in 2014. The Federal Reserve Board’s flow of funds data show that real aggregate mortgage debt totaled about $9.4 trillion last year, a 2 percent decline from 2013 and a 13 percent drop from 2010. While reflecting in part the ongoing decline in homeownership, the outstanding mortgage balance of the typical owner also fell in 2013, down to or 4 percent below the recent peak. Older homeowners are one group for which high mortgage debt is still a concern because they are entering their retirement years with declining incomes. More than a third (38 percent) of owners aged 65 and over had mortgages in 2013, up from a little over a quarter in 2001. Moreover, the median amount of debt they carried doubled over this period in real terms. At the same time, the real median equity of older owners in 2013 was down to — lower than in any year since 1998. Having less equity and large mortgage payments late in life is a troubling prospect for house­ holds on fixed incomes. STUDENT DEBT ON THE RISE Even as households shed mortgage debt, consumer debt bal­ ances continued to climb last year. According to the Federal Reserve Bank of New York, non-housing debt climbed 6 per­ cent to $3.0 trillion in 2014—a 12 percent increase from 2004 in real terms. Another concern is the substantial growth in the number of young households with student debt but lacking a degree. Over half of households in their 20s and 30s with student loan debt in 2013 did not have four-year college degrees, and fully 15 percent were in the highly burdened category. Moreover, households are more likely to carry student loan debt later in life. Between 2001 and 2013, the share of households in their 40s still saddled with student loans increased from 11 percent to 23 percent, while the share in their 50s increased from 4 to 9 percent."}, {"role": "assistant", "content": "THE OUTLOOK Even if the low household formation rates of 2011–13 persist, changes in the size and age distribution of the adult population imply growth of about 1.2 million households per year in 2015– 25. Over this period, the median millennial will move from the 20–24 year-old age group (where just one in every four persons has formed an independent household) to the 30–34 year-old age group (where half of the population lives independently). By 2035, given headship rates similar to those of previous genera­ tions, the millennials are expected to form more than 30 million new households. In the near term, though, high student loan debt loads and weak income growth will constrain the ability of these younger households to afford housing, whether they choose to rent or buy."}]}
{"messages": [{"role": "user", "content": "NEIGHBORHOOD LOSSES Of the nearly 50,000 census tracts for which consistent data are available, roughly one-tenth saw at least a 10 percentage- point drop in homeownership between 2009 and 2013, with the average neighborhood in this category posting a 14 percentage- point decline. Although starting out slightly above the national average, homeownership rates in these neighborhoods ended the period at just 54 percent. As a result, these 5,000 or so communities accounted for nearly 95 percent of the decline in homeowner households in 2009–13. THE STATE OF THE NATION’S HOUSING Communities with the largest losses of homeowners were for­ merly similar to the typical US neighborhood. For example, the high-distress areas had only slightly higher average vacancy rates (12.2 percent vs. 10.9 percent), slightly lower median household incomes ($54,000 vs. $59,000), slightly lower median home values (vs. and identical shares of sin­ gle-family homes (69 percent). The biggest difference, however, is that these neighborhoods had a significantly higher share of minority residents. Given the concentration of risky lending and foreclosures in these neighborhoods, it is no surprise that minority communities suffered the most severe losses in home­ ownership after the downturn. Meanwhile, the growing minority share of the population is exerting a downward pull on the US homeownership rate because of their lower rates of owning. In addition, homeowner­ ship rates among minority households fell much more sharply after the housing market crash, reversing some of the modest progress made toward closing the white-minority homeowner­ ship gap since the early 1990s. As of 2014, the homeownership rate for minorities as a group remains 25.5 percentage points Source: JCHS tabulations of US Census Bureau, Housing Vacancy Surveys. 21 JOINT CENTER FOR HOUSING STUDIES OF HARVARD UNIVERSITY lower than that of whites. Nonetheless, despite falling home­ ownership rates in recent years, the numbers of Hispanic and Asian/other households owning homes have continued to rise as their shares of all households have climbed. But many young adults are under severe financial pressure. The real median household income of 25–34 year olds in 2013 was down 5 percent from 2004. At the same time, nearly half of rent­ ers in this age group face housing cost burdens and almost as large a share are saddled with student loan debt, making it next to impossible to save for even a modest downpayment."}, {"role": "assistant", "content": "Now that the millennials are adding to the populations of several cities, there is some evidence that more young adults will continue to prefer urban settings and be less likely to buy single-family homes than members of previous generations. The higher rentership rates among young adults and more rapid growth of core counties in metropolitan areas relative to rates from a decade ago are consistent with this view. But no distinct trend toward urban or higher-density living is evident among households buying homes for the first time. In fact, recent buying patterns are roughly consistent with those of a decade ago, with nearly half of first-time buyers purchasing homes in Source: JCHS tabulations of US Census Bureau, Housing Vacancy Surveys."}]}
{"messages": [{"role": "user", "content": "THE STATE OF THE NATION’S HOUSING suburban areas and 31 percent buying homes in center cities. Moreover, the vast majority (91 percent) of first-time buyer households purchased single-family homes. Based on the NAR standard that mortgage payments cannot exceed 25 percent of income, the median household could afford the median home in all but 10 metros in 2014. Moreover, as of the end of the year, Trulia estimates indicate that the cost of owning was cheaper than renting in all of the 100 larg­ est metro areas. With the help of these refinancings, the average mortgage inter­ est rate reported by owners declined from 6.0 percent in 2009 to 4.7 percent in 2013. According to Freddie Mac’s Refinance Report, the average refinancing in the fourth quarter of 2014 meant a 1.3 percentage point reduction in the mortgage interest rate, cutting the borrower’s monthly interest by 23 percent or $104 for every borrowed. But even though the interest rate on a 30-year fixed-rate mort­ gage was below 4 percent throughout 2012 and into the first five months of 2013, about a third of owners with mortgages in 2013 still paid rates above 5 percent. Many of these households would benefit from refinancing. Indeed, 38 percent of owners with mortgages that have moderate housing cost burdens, as well as 43 percent of those that have severe burdens, pay rela­ tively high interest rates. And despite the availability of assis­ tance through the Home Affordable Refinance Program (HARP), 40 percent of owners with negative equity also pay more than 5 percent interest on their mortgages. Since lending to borrowers with top scores declined much less, the share of loans going to this segment increased from 44 percent in 2001 to nearly 62 percent in 2013. Of course, the fallout from the recession—declining incomes, impaired credit, and mount­ ing student loan debt—has also served to dampen demand for home loans over this period. Hispanic households may be of any race. Moderate (severe) cost burdens are defined as housing costs of 30–50% (more than 50%) of household income. Source: JCHS tabulations of HUD, 2013 American Housing Survey. THE STATE OF THE NATION’S HOUSING In the wake of these changes and the ongoing recovery in home prices, credit constraints may be loosening modestly. Alternatively, an Urban Institute index relies on the esti­ mated probability of default for newly originated loans, which indicates the degree of risk that lenders are willing to tolerate. By this measure, loans originated in the first three quarters of 2014 posed about a 5 percent risk of default—well below the level evident in 2001–03 before the riskiest lending practices took hold in the market. In fact, the degree of risk in 2014 was even lower than in 2010–13, suggesting that credit by this measure continued to tighten last year. Yet another yardstick of mortgage credit availability is the denial rate on loan applications reported under the Home Mortgage Disclosure Act (HMDA). Although denial rates reflect borrowers’ willingness to attempt to obtain loans as well as lender underwriting, they do provide some indica­ tion of which borrowers have a more difficult time securing financing. According to 2013 HMDA data, 12 percent of appli­ cants for home purchase loans were denied financing. The rate was especially high (20 percent) for African-American applicants—nearly twice that for white borrowers. Hispanics fared slightly better, with a 17 percent denial rate. Meanwhile, low-income borrowers were denied purchase loans 2.5 times more often than upper-income borrowers."}, {"role": "assistant", "content": "Although most want to own a home someday, younger renter households perceived a variety of financial barriers ahead. Among those aged 18–39, 92 percent expected to buy homes eventually, but 62 percent thought it would be difficult to get a mortgage. The main obstacles they anticipated to obtaining home loans include insufficient savings to make a downpay­ ment and pay for closing costs (42 percent) and an insufficient credit history (47 percent)."}]}
{"messages": [{"role": "user", "content": "Given the consistently strong preference for owning, future trends in the national homeownership rate will depend on whether households have the means to achieve this goal. Demand for homeownership should pick up as the economic recovery continues, but whether mortgage credit will be widely available to satisfy stronger demand remains to be seen. And as long as homeownership remains the primary vehicle for low-income and minority households to build wealth, it will be vital to provide opportunities to keep home­ buying within reach of those with both the desire and ability to succeed at this goal. RENTAL HOUSING 5 25 JOINT CENTER FOR HOUSING STUDIES OF HARVARD UNIVERSITY RECORD GROWTH IN DEMAND Although estimates vary, the major Census Bureau surveys agree that 2014 marked the 10th consecutive year of robust renter household growth. By the Housing Vacancy Survey’s count, the pace of growth accelerated to an average of annually in 2010–14. Part of the extraordinary growth in rental demand has come from households in certain age, income, and family groups that are traditionally more likely to own. While younger adults are most likely to rent their housing, the number and share of older renters have risen significantly over the last decade with the changing age distribution of the population. Within the 55–64 year-old age group, population growth drove more than half of the increase in renters while declines in homeownership were responsible for the remainder. Within the 65-and-over age group, however, population growth alone accounted for all of the growth in renter households. The income distribution among renter households is also shift­ ing. After a net decline in 1994–2004, households in the high­ est income quartile accounted for almost one in five net new renters in 2004–14, and nearly one in three net new renters in 2011–14. While some of these upper-income renters may have faced economic challenges that prevented them from attaining or maintaining homeownership, more were simply opting to rent rather than own their housing. Even so, only 11 percent of renters were in the top income quartile in 2014, and nearly 40 percent were in the bottom income quartile. While single persons still make up the largest share of renter households, the numbers of renters of all family types rose over the decade. The reasons for these increases differ, however. For example, growth in the number of single-person renters primar­ ily reflects growth in the overall number of single-person house­ holds. In contrast, growth in the number of married-couple renters—particularly those with children—is due primarily to higher rentership rates. Regardless of the reasons, though, all The share of US households that rent their housing now stands at a 20-year high. While most of the recent increase in the stock has come from conversion of owner-occupied single-family homes to rentals, multifamily construction has also picked up pace. Meanwhile, falling vacancy rates have lifted rents, improving the financial performance of rental properties but straining the budgets of millions of households unable to find units they can afford. CONTINUED STRENGTH OF MULTIFAMILY CONSTRUCTION With rental housing demand still on the rise, construction of multifamily units continued to ramp up last year. From a his­ toric low of just under in 2009, the number of multifam­ ily starts rose steadily to nearly units in 2014—more than in any year in the 1990s or 2000s. And in a marked shift, more than 90 percent of multifamily units started last year were intended for the rental market, up from less than 60 percent in the mid-2000s."}, {"role": "assistant", "content": "Meanwhile, the number of rental units completed last year was well below the number of starts, at just . With the long lag between starts and completions, the pipeline of new rental housing will continue to fill over the next few years. As a result, the number of new rental units brought to market will continue to rise even if starts level off."}]}
{"messages": [{"role": "user", "content": "EXPANDED ROLE OF SINGLE-FAMILY RENTALS Single-family rentals have absorbed an increasingly large share of renter household growth since the mid-2000s. Indeed, after averaging just 73,000 units annually in the 1990s, growth in the number of occupied single-family rentals accelerated to units per year in the early 2000s. According to the American Community Survey, the number of renters in single- family detached homes increased by 3.2 million on net between the homeownership rate peak in 2004 and 2013, accounting for nearly half of the gain in rentals. In contrast, large multifamily buildings (with five or more units) housed about one-third of net new renters over this period, while attached single-family Source: JCHS tabulations of US Census Bureau, Decennial Censuses and Housing Vacancy Surveys. JOINT CENTER FOR HOUSING STUDIES OF HARVARD UNIVERSITY 27 units and small multifamily structures (with two to four units) accounted for another 13 percent. TIGHTENING MARKETS Rental markets tightened again in 2014 as the national vacancy rate fell by nearly a full percentage point to 7.6 percent—its low­ est point in two decades. Data from MPF Research show that the vacancy rate for professionally managed properties with five or more apartments was even lower, averaging 4.6 percent for the year and running at a rate not seen since before the housing market downturn. Rental markets are particularly tight at the low end. According to JCHS tabulations of Housing Vacancy Survey data, the num­ ber of vacant units with rents under $800 per month dropped some 12 percent between 2013 and 2014—contributing more than 90 percent of the decline in rental vacancies. At the end of 2013, new apartments were coming on line at an annual rate of units, essentially matching the pace of growth in tenants. By the end of 2014, though, new apartment additions increased to units a year while net growth in tenants hit . With demand rising and vacancies declining, rents came under increasing pressure last year. The consumer price index for contract rents climbed 3.2 percent in 2014, the largest increase since 2008 and double the overall inflation rate of 1.6 percent. Rents for professionally managed properties were up even more sharply, with the annual increase rising from 3.0 percent in 2013 to 3.8 percent in 2014. Indeed, rent increases picked up pace in the fourth quarter, hitting a 4.6 percent year-over-year rate even as overall inflation cooled."}, {"role": "assistant", "content": "Net operating income is defined as gross rental income plus any other income less operating expenses. Source: JCHS tabulations of National Council of Real Estate Investment Fiduciaries (NCREIF) data."}]}
{"messages": [{"role": "user", "content": "Apartment prices, as measured by Moody’s/RCA Commercial Property Price Index, also rose 15 percent in 2014—the fifth consecutive year of strong growth."}, {"role": "assistant", "content": "These consistent price gains make 2011–14 comparable in strength to 2004–05, the height of the last real estate cycle. Based on changes in net operating incomes as well as property values, the annual rate of return for commercial-grade properties came in at 10 percent last year, much the same as in 2013. Strong market fundamentals and low interest rates helped to drive growth in multifamily lending, pushing the Mortgage Bankers Originations Index up 15 percent for 2014 as a whole and 39 percent in the fourth quarter alone. Total loans out­ standing (including both originations and repayment/writeoffs of existing loans) rose by $60 billion, led by a $35 billion jump in loans held by banks and thrifts. While this increase brought the bank and thrift share back to its pre-crisis average of 30 percent, federal sources still hold or guarantee fully 44 percent of mortgage debt outstanding."}]}