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Executive Summary to Expectations & Market Realities in Real Estate 2012 -
New Foundations in an Uncertain World
When Real Estate Research Corporation (RERC), Deloitte, and the
National Association of REALTORS® (NAR) began making plans to
publish Expectations & Market Realities in Real Estate 2012, the
already sluggish economy was starting to slow. The volatility in
the stock market was becoming more pronounced as the second
round of the government’s quantitative easing started winding
down, and further increased as we witnessed the inability of
politicians to come to an agreement about the nation’s debt ceiling.
Then the market all but collapsed as the nation’s credit rating
was downgraded from its AAA status, and investors—afraid the
economy was about to fall into another recession—retreated to
the safety and stability that investments like commercial real estate
could offer.
As the year 2011 comes to an end, fear and uncertainty have
spread beyond the U.S., and Europe is being forced to focus on its
own economic difficulties. The sovereign debt crisis has expanded
beyond Greece and Portugal to Italy and Spain, and although there
are moves toward strengthening the European Union’s response
to their debt crisis, the risk remains that one or more nations may
eventually default on their obligations and a new financial crisis,
that could affect the West, will emerge. As a result, the investment
world is even more uncertain while the relative safety of commercial
real estate investment is even more attractive as investors look
for “New Foundations in an Uncertain World.”
THE ECONOMY
n The unemployment rate remains stuck in the range of 9 percent.
Compared to what it should be (had the recession never
occurred and had job growth kept pace with population
increases over the past few years) the economy is short some
11 million jobs, according to NAR’s analysis of data provided by
the Bureau of Labor Statistics (BLS).
n The long-term unemployed remain at a troubling 6 million
persons at the end of 2011, nearly three times the normal
number of persons who remain unemployed during typical
recessionary times, according to the BLS.
n American workers are falling behind in their standard of living
and are losing spending power, while hourly earnings are rising
at a rate of less than 2 percent, well below the consumer
price inflation rate of 3.8 percent, per the BLS.
n Accumulating debt problems in both the U.S. and Europe are
adding risk to the global economy. The U.S. economy may be
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just one negative external shock—a spike in oil prices as the
Arab spring extends into the Arab fall, a major terrorist attack,
or a sovereign debt default—away from a new recession.
n Consumers continue to deleverage and to save, with savings
more than doubling to nearly $600 billion annually from only
$250 billion annually prior to the financial crisis, according to
the Bureau of Economic Analysis (BEA). Businesses and banks
are also tightening their belts by reducing debt or holding
onto excess cash. State and local governments have deeply
slashed employment, while the federal government has been
increasing spending. The good news is that further deleveraging
may not be needed in the private sector, and businesses
will be pressured by shareholders to either invest in new
plants and equipment or pay out higher dividends. Tax revenues
at state and local governments have been rising slightly
and should, at minimum, stop job cuts.
© 2012 REAL ESTATE RESEARCH CORPORATION. ALL RIGHTS RESERVED.