HOUSTON – (By Dale King, Realty News Report) – Real estate professionals operate in a world that is…well, real – solid, objective, filled with things that can be seen and felt.
But what is happening in the minds of the folks whose daily toil is spent in the property buying and selling arena?
Twice a year for more than a dozen years, real estate consulting firm RCLCO has compiled a “Sentiment Survey” to plumb the thoughts and feelings of real estate specialists and analyze the significant swings in thought patterns – both positive and negative – as they assess the market in which they work.
The report issued at the end of 2023 got a ranking that was pretty low. But officials at RCLCO who compiled the lengthy study say “the future outlook has become more encouraging” as the year passed into history.
The Mindset of Economic Distress
“The current index with a level of 15.5 [on a scale of 1 to 100] puts the market firmly below 30. Rankings under 30 typically coincide with periods of economic distress or recession,” the report says. But it adds: “Looking forward, respondents predict that the index will increase by nearly 30 points over the next 12 months to 45.1, out of the distress/recession zone.”
Actually, an escape from this region of discomfort is welcome news after a period of distressing reports. “The events of the last four years have generated unprecedented volatility in the index – with significant swings in sentiment (both positive and negative) resulting from COVID-19 and the initial recovery, followed by inflation and rising interest rates,” the RCLCO report notes.
But some rough terrain still lies ahead before things start to get upbeat again.
“For most respondents, the for-sale housing market has clearly moved further into downturn in response to waning demand due to high mortgage rates, but sentiment is expected to recover in the next 12 months as rates potentially drop.”
59 Percent Say Inflation Will Decrease
Some of the other market forecasts in the report that offer both good and bad signals for the coming year include:
- More than half of respondents (59 percent) predict that inflation will begin to decrease, while 26 percent believe it will remain the same, and only 15 percent anticipate that the Feds will increase rates further in 2024.
- Respondents expect the homeownership rate in the U.S. will fall in the coming year, which is bad news for home builders. However, this will likely continue to drive demand for both multifamily and single-family rentals.
- And a piece of good news – most market participants expect capital flows to real estate to increase in the coming year.
Possible Havens of Profits: Self-Storage, Industrial and Necessity Retail
Beyond housing, looking ahead to the next 12 months, survey respondents say they expect most of the real estate sectors to be in some stage of downturn, though some niche sectors such as self-storage, lifestyle and grocery/necessity retail and industrial are anticipated to have more resilience.
Perhaps not surprisingly, office is anticipated to top the list with the largest overall value decline (16.6 percent) across asset types, with 44 percent of respondents predicting the decline would be larger than 20 percent. Other land uses were predicted to decline between 3 and 8 percent on average
On the good side, the possibility of a recession seems to be moving to the back burner. “A growing share (29 percent) of respondents believe a national economic recession is unlikely in the next 24 months – though a substantial number believe we are either currently in a recession (23 percent) or will be in one within the next year (37 percent). A smaller share of respondents (11 percent) believes a recession is more than a year away.
Among the respondents who believe a recession is imminent, the majority (72 percent) anticipate it will likely be of shallow to moderate depth (0 percent to -2 percent GDP).
To prepare its report, RCLCO tapped the sentiments of a highly experienced pool of real estate professionals from across the country and the industry. A majority (68 percent) of those who responded have worked in the real estate industry for 20 years or more, with an average respondent tenure of some 25 years, and 81 percent of respondents are upper level or senior executives in their organizations. The report was composed by RCLCO staff members Charles Hewlett, managing director, Kelly Mangold, principal and Scott Cottier, analyst.
Houston No. 1 in the Nation
In Houston, the outlook may be a bit brighter for home builders, land brokers and developers of master planned community.
Houston was tops in the nation in a new report about home building activity. Houston placed 13 communities in RCLCO’s Top 50 Master Planned Communities year-end report. That was the most MPCs in any single market.
Jan. 15, 2024 Realty News Report Copyright 2024
Photo by Ralph Bivins, Realty News Report, copyright 2024
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File: Inside the Minds of Real Estate Pros