Looking Up: Forbes Gives 5 Reasons For Real Estate Optimism

by MPA21 May 2015

This past Friday, Forbes contributor Katina Stefanova brought the good news that the U.S. real estate market continues to grow in the wake of the the financial implosion which rocked the mortgage industry.

“The real estate market is in the fourth year of recovery since the 2009 mortgage crisis,” Stefanova wrote, “rising over 30 percent since 2012.”

The growth is expected to continue, she said, pointing to Morgan Stanley’s 2015 Real Estate market outlook report that projected the U.S. market would continue up at 4%-6%.

The strengthening of the market, Stefanova said, is due to a pair of important factors: the Federal Reserve’s lax monetary policy and the influx of investment from “big institutional and foreign investors (who) swooped in to acquire US real estate at bargain prices.”

Retail investors also jumped in the investment bonanza.

The result is positive for investors and homeowners, the article said.

“Inflation-adjusted US housing prices have appreciated more than 50% on average since 2012, returns commensurate to US equities,” Stefanova said.

Another positive sign for the market is that “existing homes for sale and the average month supply of available properties for sale has also stabilized.”

However, not all investors are jumping for joy – a correction may happen, they fear.

“Investors know that real estate is cyclical and are beginning to wonder when the next correction will occur,” Stefanova wrote. “Investors’ jitters are further enhanced by expectations that the U.S. Fed will raise interest rates.”

Despite this measured response by some investors, Stefanova said there isn’t much to worry about. In her opinion, the market will stay steady for at least three years.

“A combination of historic macro-economic and structural factors are impacting prices that support current pricing on average and provide specific opportunities, to generate alpha,” she said. “Thus the probability of U.S. real estate prices remaining buoyant for the next one to three years is larger than that of a decline.”

Stefanova then went on to list five probable drivers behind the market’s predicted buoyancy: stable interest rates, a strong dollar, demand for multi-family rentals/city living, an influx of wealthy expats from unstable regions and several “wild card” factors which could influence the market.

“For real estate, the wild cards for better or for worse are firmly placed in the hands of politicians, central bankers and the U.S. courts,” she wrote.

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