NEW YORK CITY-The fact that the economic baseline for 2013 looks better than last year’s is important, Dr. Sam Chandan, president and chief economist of Chandan Economics, said Wednesday at a forecast breakfast cosponsored by his firm and Avison Young. Domestic GDP growth, for example, is projected at 2.2%, ahead of the 1.9% achieved in 2012. However, he said, “The fundamentals are not keeping pace with what we see happening with investment.”
Apartments, for example, have been the “poster child” among the major property sectors, but multifamily’s success is tied in part to a “complex relationship” with the single-family housing market, Chandan said at Wednesday’s event, held at the Cornell Club in Midtown. Once housing starts and prices begin picking up, as they eventually will, apartments’ luster may start to dim.
That being said, Chandan aligned himself with audience members who took a bearish view of housing price increases nationally over the next 12 months. He noted that the “significant strong momentum” in job growth that would support a rise in single-family pricing hasn’t occurred.
The low interest rate environment that has fueled much of the investment sales activity during the recovery won’t last, Chandan warned. “We can’t afford to think of the interest rate environment today as the new normal,” he said. The current rates are not the result of a “well-functioning private market,” but rather reflect “a market that is broken and has been manipulated” by the Federal Reserve’s intervention.
Accordingly, Chandan concurred with the audience members who, in a survey he conducted with Arthur Mirante, principal and tri-state president at Avison Young, predicted significant interest rate increases over the next year. The 32% of audience members who made this prediction were outnumbered by the 41% who expect a more gradual two-year rise, but Chandan said rates will go up “at the dictate of the market” rather than based on Fed policy. Similarly, panelist Justin Piasecki, principal in Avison Young New York LLC and the capital markets group, said the sense he’s gotten from lenders is that interest rates will begin ticking upward this year.
A majority of audience members—63%—polled said they didn’t see the possibility of a permanent solution to the budget debate, and Chandan said he’d have to agree, “given how dysfunctional and puerile the debates have been.” Half the audience who responded to the poll said they’re expecting the Dow Jones Industrial Average to go no higher than 14,000 by year’s end; Chandan said this reflected a belief that ’13 won’t see much improvement in the rate of economic growth.
This year, capital will continue to flow to markets that have the greatest diversity in terms of investor types, Chandan predicted. Panelist Jon Epstein, an Avison Young New York principal in the investment sales arena, noted a strong cross-border interest, notably from Canada. To that end, Avison Young New York principal David Eyzenberg said the secret to attracting Canadian investment is to work with the REITs in the US’ northern neighbor. He said his capital markets group has been working with its counterparts in Toronto-based Avison Young’s Canadian offices to tap into the REIT market there.