A Slow Growth Pace Seen In The US Real Estate Industry

A Slow Growth Pace Seen In The US Real Estate Industry

While the economy is picking up a rising growth pace in most of the sectors, the same is not replicated in the real estate industry. Alan Greenspan, a former Federal Reserve chairman articulates that the real estate industry has not grown as much as it was before the Great Recession. For instance, the construction of apartments all over the country contributed to about 8% of the country’s GDP (Gross Domestic Product) in 2006. But as we talk now, it just contributes a half of that to the economy.

This has caused a great discussion storm among real estate experts and economists as they try to explain this occurrence.

“Leadership is an action, not a position.” ~ Donald McGannon

Why Is The US Real Estate Stagnating?

As experts try to unravel what’s happening within the industry, its crystal that real estate investors are not only shying off from the fact that another even extreme recession may occur in the future but they are also worried of the stability of the market. The market has not yet stabilized as millennials, which form the largest market for homes, have not yet saved enough for down payments and they are still paying off their student loans. Even though, we can see a steady growth of commercial and residential properties, the growth rate has not yet reached where it was before the recession.

What Should Be Done

The real estate industry is stagnating possibly because of the festering delinquency rates for commercial real estate loans. Nevertheless, the delinquency rates for CMBS (commercial mortgages backed securities) are on the rise. The investors are possibly lacking enough capital to build more real estate properties. The first large scale CMBS transactions in the US are under preparations and this should ensure lower delinquencies for mortgage loans in the near future. This will allow borrowers to get cheap mortgages enabling them to purchase homes with ease. We can wait for up to 3 years for the growth rate to pick up its normal standards.

Secular Stagnation

There is little or no construction of commercial real estate industries across the country. Alan Greenspan terms this as secular stagnation in the industry. The economy is recovering and the lenders have loosened their lending regulations creating a demand for more homes. However, there are few houses out there both for sale and for rent. Most investors have lost confidence in the industry and most of them don’t want to risk putting most of their funds in a destabilized market. The singe family housing homeownership is just a third of what it was before the recession.

Leave a Reply