Just Released Fourth Quarter 2016 Leading Rental Income Markets
Palos Verdes, CA. The Center for Real Estate Studies (CRES) has just released their fourth quarter 2016 issue of "Market Cycles". It gives a forward look at more than 150 income rental markets with "buy and sell" recommendations. This publication gives the real estate investor a two-year head start on where and when to invest in income rental properties.
- Los Angeles-Long Beach, CA (1888PressRelease) January 15, 2017 - The current number of markets in the "Sell Phase" is forty-four, according to Eugene E. Vollucci, Director of CRES. The number of markets in the "Buy Phase" is twenty=seven. Mr. Vollucci states, "This quarter the three top buy recommendations are Albany, NY, Chattanooga, TN and Reading, PA. The three top sell recommendations are Memphis, TN, Hartford, CT and Prescott, AZ. according to Mr. Vollucci. In this quarter's edition of our "Market Cycles," we are mostly concerned with the labor market new minimum wage laws and their impact on the real estate market.
The Bureau of Labor Statistic reported that the total nonfarm employment in the U.S. increased by a net 2.45 million jobs during the last four quarters. Workforce headcounts grew 1.7% in 2016, a downshift from a 2% expansion recorded during the preceding year. While nearly every employment sector posted gains, losses in the energy industry tempered growth. Despite the contraction in the natural resources and mining sector, the broad-based gains across all the other major employment sectors along with a rise in personal consumption, government spending, and private investment contributed to a 3.2% increase in real gross domestic product annually through the third quarter of 2016. Following the great recession, five years of stagnant wage growth has been one of the biggest culprits to the weak recovery. U.S. hourly wages recently begun to build momentum, registering a 2.7% uptick year over year through September of 2016, following a 2.1% rise the preceding year. The employment landscape is forecast to build on the gains made in 2016 as nearly 2.77 million jobs are added for a 1.9% expansion this year.
According to Marcus and Millichap, the unanticipated results of the presidential election sparked a shift in several macro-level dynamics that have begun to ripple through the commercial real estate market. A rapid 60-basis-point increase in the yield on the U.S. 10-year Treasury followed the election, combining with expectations of changes to the tax code in 2017 to inspire many commercial real estate investors to step back and reassess their strategies. Some transactions that were targeting a 2016 close will likely be delayed or canceled as investors and lenders recalibrate their underwriting assumptions. Typically, the fourth quarter constitutes 28.2 percent of the annual commercial real estate transactional activity, and last year a record 15,350 transactions pricing for more than $1 million in the four main property types were closed in this period. The unexpected result of the election and its implications will likely downshift transaction activity this year.
Commercial real estate sales had already shown signs of moderating from the peak levels set in 2015, but the rapidly evolving 2017 outlook under a new president has added an additional element of uncertainty for some investors. Prospective modifications to fiscal, monetary, regulatory and trade policies brought on by the new administration could hold significant implications for investors in commercial real estate. While the expected changes are not likely to dramatically impact the underlying drivers that are supporting commercial real estate performance, an anticipated increase in the cost of capital and potentially substantive tax consequences were sufficient for many to reconsider the deals currently in process.
The proposed policy changes of the new administration have inspired numerous economists to boost their growth forecasts for 2017, which bodes well for commercial real estate performance and fundamentals. However, the strengthened economic outlook, together with prospects of a more aggressive Federal Reserve acting to normalize monetary policy, combined to quickly boost the value of the U.S. dollar versus foreign currencies in the aftermath of the election. This 4.1 percent rise in the dollar added a near-term hurdle for foreign investors, who must now reassess any transactions they had in process. Although foreign capital comprises a relatively small portion of the U.S. commercial property buyer pool, a temporary pullback in activity by these investors because of their loss of purchasing power could influence total transactional counts for the fourth quarter and affect asset pricing.
ABOUT THE AUTHOR: Eugene E. Vollucci, is the Director of The Center for Real Estate Studies, a real estate research center He is author of four best selling books and many articles on rental income investing, apartment investing, real estate and taxation. To purchase a subscription to Market Cycles and to learn more about the Center for Real Estate Studies, please visit us at http://www.calstatecompanies.com
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