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Economy Still Has Legs

CALABASAS, CA—The housing recovery stayed on track, and the continued momentum may ease concerns of a recession, according to Hessam Nadji on a recent Bloomberg TV segment.

By Kelsi Maree Borland | kelsimareeborland | | Updated on March 04, 2016
Hessam Nadji
CALABASAS, CA—The housing recovery stayed on track as home sales rose slightly in January. That’s a ccording to Hessam Nadji, the incoming president & CEO at Marcus & Millichap on a recent Bloomberg TV segment. The continued housing momentum is evidence of the durable economic recovery and a resilient consumer, and the data may ease concerns about a looming recession or downturn. “The message is beyond housing, it speaks to the broader economy having strength and momentum. There are legs left still in this expansion,” said Nadji during the segment. Nadji doesn’t expect the Fed to raise interest rates any time soon, but does note that there has been a pull back in long-term interest rates in light of global economic uncertainty, and that is helping with housing affordability. There remains an ebb and flow in the marketplace in buyer motivation, and that is driven by the uncertainty around interest rates, but he maintains that the fundamentals are still strong. “I think where we are now is really fundamentals driven. We are not seeing the investor speculation in the housing market, or people who are in the market for very short periods of time influencing the market as much,” he explains. “It is job driven; it is household growth driven; and it is driven by the fact that supply and demand really favor the continuation of this growth cycle. Whether interest rates move up or down in a given quarter or two, I don’t think governs the direction of this period as much as the headlines suggest.” However, the housing market has seen a significant shift toward demand for rental product, and that remained a theme of 2015 through the fourth quarter. As a result, a third of new housing starts are now multifamily or rentals. Nadji says that this speaks to the strength of the economy because there isn’t an over-supply issue, noting that construction for single-family homes is only at 64% of where it was at the prior peak. However, this also means that consumers will have a more difficult time purchasing a new home or moving from being a renter into a homeowner. “We aren’t over building,” he adds. “It does affect affordability, but decreases the probability of a bubble.” This has a dramatic effect on pricing. Pre 2009, apartment rents on average were $569 cheaper than a house payment, but post 2009, rental rates escalated to $149 more than the average house payment. Today, we are starting to see an equilibrium between those numbers. Nadji says that rent growth will actually help to prolong the cycle and make housing less of a volatile sector than we saw in the last cycle.  Nadji maintains that the overall economy is going to continue to grow, and that we can expect further gains in wages and jobs; however, rent growth may see some easing in major markets like Portland, San Francisco and Denver, where it has increased at a double-digit pace. “We are expecting the economic recovery to continue, but the pace of growth is due to slowdown,” he said. “We have had a lot of negative news around us and that is bound to create some conservatism.” However, Nadji points out that where jobs are being created and there’s a shortage of supply, choices are limited. “This is part of the reason why the rental market is doing so well. Consumers want to stay flexible, chase jobs and have several options open to them,” he concluded. To watch the full video, click here .

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