Calvin Schnure

We often get questions about where we are in the cycle. REITs and real estate are tied closely to the macro economy’s turns through expansion and recession. While the crystal ball is never very clear about the medium-term outlook, we can make several statements about recession risks. 

New construction of multifamily housing units slowed a bit in May from April’s torrid pace, yet remained on a rising trend. Multifamily housing starts were at an annualized rate of 349,000 units, down 18.5% from April but still well above the 300,000 unit trend that had been in place for the decade or so prior to the Great Recession. 

Nearly every property sector for REITs & commercial real estate depends on sustained growth of jobs, incomes and consumer spending to drive occupancy and rent growth. The latest data indicate that the recovery in the fundamentals for REITs & real estate remains on track, despite several setbacks during the winter and early spring.

The T-Tracker Series contains a wealth of information that should prove useful to virtually anyone who invests, analyzes or researches REITs and real estate. Detailed tables on FFO, NOI and Dividends Paid by property type, as well as spreadsheets with historical data, are available.

Builders took advantage of spring weather and broke ground on 389,000 (annualized) multifamily units in April, a 32% increase from March. After a long and snowy winter season kept many new projects on hold, the strong uptrend in construction from the past several years appears to be underway again.

After a spate of soft numbers had hinted the housing market might stall, more recent reports show the recovery is back on. If the renewed upturn shows staying power, there are important implications not only for the housing sector, but also for the broader economy… and for REITs.
Sales of existing homes rose 6.1% in March, according to the National Association of Realtors®, to a 5.19 million unit annual rate. 

Multifamily housing starts declined in March, on the heels of a double-digit decline in February (first chart). Winter weather had an obvious impact delaying new construction across the nation in February, but the further decline in March suggests that the recent weakening of some macroeconomic trends, in part due to a stronger dollar and its impact on exports, may have damped builders’ enthusiasm for new projects. 

Commercial property prices continued their steady march upwards in February, according to Moody’s/ Real Capital Analytics. Rising occupancy, firming rent growth, increasing transaction activity and still-muted national supply trends are boosting valuations across all property sectors.

Two steps forward, they say, but one step back. In the case of the job market, March was one very big step back. Total nonfarm payrolls increased just 126,000, less than half the average pace over the past six months. There was one bit of positive news in an otherwise disappointing report, however, as average hourly earnings increased 0.3 percent. 

 Maybe the end of winter weather will bring with it a thaw in the housing market. The latest news gives some hope, at least with respect to home sales and house prices. New home sales increased 7.8 percent in February, to an annual rate of 539,000, the strongest sales pace since February 2008. The housing market appears to have worked off most of the excesses from the boom. Inventories of new homes for sale remain low, and the months’ supply of new homes dipped below 5 months.