Outlook for 2006 Real Estate Market
Even with housing at the mercy of rising interest rates, higher energy costs and weak wage increases, the economic sector should remain vital to the economy in 2006 as baby boomers boost the second home industry and multi-family housing enjoys spillover demand from high home prices.
The joint Urban Land Institute (ULI) and PricewaterhouseCoopers "Emerging Trends in Real Estate 2006" balances hope with caution in its report on what's to come for real estate in the New Year.
Easy mortgage money and investment capital has helped fuel the real estate boom for the past few years, but moderation is the next chapter's title as housing feels the pressure of a variety of sources from consumer spending to inflation, the report said.
The increasing inflation threat, got top billing after Gulf Coast hurricanes initially pushed up costs for both construction materials and energy at an inopportune time.
Housing construction in the far suburbs and rural areas could get hit hardest. An extended period of higher energy prices could curtail fringe suburban growth and dampen demand for big houses with outsized heating/cooling bills. Building materials can only become more expensive as the massive clean-up and reconstruction (of Gulf Coast regions) gear up. In most of the country, home builders may be forced to slow down too," the report added.
The report looked at all segments of the real estate sector -- both commercial and residential.
Here's the residential outlook:
If interest rates and home prices don't rise too quickly and if lenders continue to make mortgages with relaxed underwriting standards home buyers should continue to snatch up homes in record or near-record numbers.
Baby boomers, less impacted by rising costs and interest rates, are at their peak earning and cash cache years and shouldn't be thwarted by higher interest rates or prices.
The combined demand from first and second home buyers will boost home building especially in Florida, Texas, North Carolina, Georgia, Arizona, California and nearby regions.
Infill and urban townhouse, condominium, and coop projects should be in with the move-back-in (to the city) crowd and gain increasing favor as the year progresses.
The "ifs" are at the mercy of "too frothy" and "unsustainable" home prices if wage increases can't keep up.
"If home prices increase by 20 percent a year and incomes rise by less than 5 percent, then a disconnect eventually occurs in affordability," the report said.
"In some product-constrained areas like southern California and certain Northeast metropolitan areas, 20 percent or less of the local population can afford median home prices. Something has to give. Markets have been almost totally finance driven."
The report specifically warns speculators, flippers and first-time investors that "schemes to make fortunes will fall out of favor like Internet stock picks circa 2000." On the flip side, lost fortunes could leave some bargain-priced rejects for the vultures to pick over.
A leveling off in appreciation is inevitable. Prices will flatten in most areas during 20062007, with outright declines in certain overheated markets where speculators have been active. Property values could stagnate for several years. Over time, home ownership will endure as a solid investment for users, but late-in-game investor-only buyers will fare poorly," the report warns.
The joint Urban Land Institute (ULI) and PricewaterhouseCoopers "Emerging Trends in Real Estate 2006" balances hope with caution in its report on what's to come for real estate in the New Year.
Easy mortgage money and investment capital has helped fuel the real estate boom for the past few years, but moderation is the next chapter's title as housing feels the pressure of a variety of sources from consumer spending to inflation, the report said.
The increasing inflation threat, got top billing after Gulf Coast hurricanes initially pushed up costs for both construction materials and energy at an inopportune time.
Housing construction in the far suburbs and rural areas could get hit hardest. An extended period of higher energy prices could curtail fringe suburban growth and dampen demand for big houses with outsized heating/cooling bills. Building materials can only become more expensive as the massive clean-up and reconstruction (of Gulf Coast regions) gear up. In most of the country, home builders may be forced to slow down too," the report added.
The report looked at all segments of the real estate sector -- both commercial and residential.
Here's the residential outlook:
If interest rates and home prices don't rise too quickly and if lenders continue to make mortgages with relaxed underwriting standards home buyers should continue to snatch up homes in record or near-record numbers.
Baby boomers, less impacted by rising costs and interest rates, are at their peak earning and cash cache years and shouldn't be thwarted by higher interest rates or prices.
The combined demand from first and second home buyers will boost home building especially in Florida, Texas, North Carolina, Georgia, Arizona, California and nearby regions.
Infill and urban townhouse, condominium, and coop projects should be in with the move-back-in (to the city) crowd and gain increasing favor as the year progresses.
The "ifs" are at the mercy of "too frothy" and "unsustainable" home prices if wage increases can't keep up.
"If home prices increase by 20 percent a year and incomes rise by less than 5 percent, then a disconnect eventually occurs in affordability," the report said.
"In some product-constrained areas like southern California and certain Northeast metropolitan areas, 20 percent or less of the local population can afford median home prices. Something has to give. Markets have been almost totally finance driven."
The report specifically warns speculators, flippers and first-time investors that "schemes to make fortunes will fall out of favor like Internet stock picks circa 2000." On the flip side, lost fortunes could leave some bargain-priced rejects for the vultures to pick over.
A leveling off in appreciation is inevitable. Prices will flatten in most areas during 20062007, with outright declines in certain overheated markets where speculators have been active. Property values could stagnate for several years. Over time, home ownership will endure as a solid investment for users, but late-in-game investor-only buyers will fare poorly," the report warns.
posted by Ken Calhoon at 8:00 AM
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