Real Estate Executives See Softening But Perhaps a New Normal?

SAN FRANCISCO—Top real estate executives' confidence in the US economy and housing market for 2017 has softened compared to two years ago, and 42% have grown less confident in the world economy since last January, according to the latest Imprev Thought Leader Real Estate Confidence study. However, 35% say confidence in their own local economy has grown and 26% have more confidence in their own state's economy. This is especially true of the California economy, which continues to outpace the US economy.

“Real estate leaders are clearly less bullish about the coming year than they were two years ago,” says Renwick Congdon, chief executive officer of Imprev, a provider of real estate automated marketing services. “In fact, confidence for 2017 is lower across nearly all questions related to housing and the economy. When we compare past studies, an interesting trend emerges: executives and broker-owners are less confident in the global economy and far more confident in their local economies at the end of each year than they were at the beginning. In fact, their confidence grows stronger the closer the economy is to home. This year, while only 4% of leaders say their confidence in the world economy has grown this year, 35% say their confidence in their own local economy has grown. While 13% have gained confidence in the US economy, 26% have more confidence in their own state's economy.”

In fact, California's economy continues to outpace the US economy according to several economic forecasts published during the past couple of years. Additionally, the state's per-capita personal income rose 5.2% in 2014 and 5.4% in 2015, jumping from $48,470 to $53,740 during a two-year period, according to a November 2016 analysis by the US Bureau of Economic Analysis (a total change of $5,270 or 11%).

Meanwhile, consumers of all incomes traditionally take advantage of low interest rates for first mortgages (purchase and refinance), second mortgages, home equity lines of credit, new and used auto loans, credit cards, student loans, business loans and other loans. But rising interest rates may add a new dimension to this picture, which is outlined in a Bay Area Consumer Financial Trends Report by the California Credit Union League, GlobeSt.com learns.

“Higher interest rates on credit cards usually make little difference to consumers unless there's a dramatic increase,” says Dwight Johnston, chief economist of the League. “Auto sales are somewhat impacted by higher rates, but not too severely.”

Mortgage activity reacts differently.

“While refinancing is already in a steep drop after mortgage rates spiked in November, new home purchases might fare better than you'd expect in a rising-rate environment,” Johnston said. “The California housing market can handle a modest increase. The 30-year mortgage rate would need to rise to at least 5% or above to cause a home-buying slump. There's also a housing shortage in California just as demand is rising from potential buyers who are finally ready to enter the market.”

Fueling the borrowing spree at credit unions, banks and other lenders is what many experts say is a mixed-bag economy. Growth in consumer spending and business investment has been too slow for some policymakers. Still, others anticipate a new normal for years to come and are getting used to recent post-recession trends that are slower and defy history.

As previously reported, Avison Young's Mark Rose says “we might be in the seventh or eighth inning from a pricing perspective, but given the market forces and attributes that currently exist, we could be in the seventh inning of a very long extra-innings game for our industry.”

SAN FRANCISCO—Top real estate executives' confidence in the US economy and housing market for 2017 has softened compared to two years ago, and 42% have grown less confident in the world economy since last January, according to the latest Imprev Thought Leader Real Estate Confidence study. However, 35% say confidence in their own local economy has grown and 26% have more confidence in their own state's economy. This is especially true of the California economy, which continues to outpace the US economy.

“Real estate leaders are clearly less bullish about the coming year than they were two years ago,” says Renwick Congdon, chief executive officer of Imprev, a provider of real estate automated marketing services. “In fact, confidence for 2017 is lower across nearly all questions related to housing and the economy. When we compare past studies, an interesting trend emerges: executives and broker-owners are less confident in the global economy and far more confident in their local economies at the end of each year than they were at the beginning. In fact, their confidence grows stronger the closer the economy is to home. This year, while only 4% of leaders say their confidence in the world economy has grown this year, 35% say their confidence in their own local economy has grown. While 13% have gained confidence in the US economy, 26% have more confidence in their own state's economy.”

In fact, California's economy continues to outpace the US economy according to several economic forecasts published during the past couple of years. Additionally, the state's per-capita personal income rose 5.2% in 2014 and 5.4% in 2015, jumping from $48,470 to $53,740 during a two-year period, according to a November 2016 analysis by the US Bureau of Economic Analysis (a total change of $5,270 or 11%).

Meanwhile, consumers of all incomes traditionally take advantage of low interest rates for first mortgages (purchase and refinance), second mortgages, home equity lines of credit, new and used auto loans, credit cards, student loans, business loans and other loans. But rising interest rates may add a new dimension to this picture, which is outlined in a Bay Area Consumer Financial Trends Report by the California Credit Union League, GlobeSt.com learns.

“Higher interest rates on credit cards usually make little difference to consumers unless there's a dramatic increase,” says Dwight Johnston, chief economist of the League. “Auto sales are somewhat impacted by higher rates, but not too severely.”

Mortgage activity reacts differently.

“While refinancing is already in a steep drop after mortgage rates spiked in November, new home purchases might fare better than you'd expect in a rising-rate environment,” Johnston said. “The California housing market can handle a modest increase. The 30-year mortgage rate would need to rise to at least 5% or above to cause a home-buying slump. There's also a housing shortage in California just as demand is rising from potential buyers who are finally ready to enter the market.”

Fueling the borrowing spree at credit unions, banks and other lenders is what many experts say is a mixed-bag economy. Growth in consumer spending and business investment has been too slow for some policymakers. Still, others anticipate a new normal for years to come and are getting used to recent post-recession trends that are slower and defy history.

As previously reported, Avison Young's Mark Rose says “we might be in the seventh or eighth inning from a pricing perspective, but given the market forces and attributes that currently exist, we could be in the seventh inning of a very long extra-innings game for our industry.”