Real Estate, Construction & Home Building Market Research

The real estate and construction sectors, including the many professions and fields associated with them, are among the larger components of the global economy.  As of early 2016, the U.S. Bureau of Labor estimated that 6.22 million Americans were employed in the construction industry (down from 6.45 million at the beginning of 2015, and down dramatically from a peak of 7.6 million in 2007).  The agency also estimated that 1.5 million Americans were employed in the real estate industry as of early 2016 (this figure is the same as of the beginning of 2015, and equal to the 1.5 million of 2007).

There was $13.8 trillion in all outstanding mortgage debt in America at year-end 2015, up slightly from $13.4 trillion one year earlier including homes and commercial projects.  (Many houses are being purchased with cash, particularly when the purchaser is an investor.  This mortgage total included $10.0 trillion in home mortgages, up slightly from $9.9 trillion in 2014).

Home prices have rebounded dramatically from the depths of the recent recession, but in some markets they remain below their 2006-07 peaks.  However, prices have risen to the point that bargains are hard to come by.  More than a few observers are concerned that another housing bubble is developing in the most popular markets.

Meanwhile, real estate had enjoyed a significant boom over the recent past in China, Canada, the UK, Australia and a few other select spots.  By mid- to late 2015, however, many international real estate markets were off their recent highs, including significant softness in China.

In the U.S., home sales volume has picked up substantially from the dismal years of the 2007-09 housing bust and recession, resulting in rapidly rising prices in many markets and a shortage of available homes in the most desirable neighborhoods.  This big turnaround is being fueled by many factors.  The most significant may be the continued efforts by the U.S. Federal Reserve to hold interest rates down to incredibly low levels, which significantly reduces the monthly payments of home owners who take out mortgages.  Another boost to the market is new household formation by members of Generation Y.  The oldest members of this segment were turning 34 years of age by 2016.  Many had been living with their parents for much longer than normal, due to the recession.  While it is sometimes difficult for first time homebuyers to find an affordable home and qualify for a mortgage, Generation Y is boosting the market, both as buyers and as new renters.  (Relatively new mortgage programs offering down payments as low as 3% will accelerate sales to first-time buyers.)

An additional factor is that the market has seen a steady decline in the number of foreclosed, bank-owned homes.  Massive numbers of them were acquired by investors.  A lower supply of bargain-priced foreclosures means higher prices and a stronger market for houses overall.  Potential homebuyers are also feeling more comfortable financially, as they have paid down credit card debts over the past few years, and the values of their stock market holdings have risen substantially in the recent past.

Construction of all types, including commercial, has enjoyed a rebound.  About $1.14 trillion in new American construction was expected to be put into place for 2016, a seasonally adjusted annual rate as of February, according to the U.S. Bureau of the Census.  This is very near the 2006 peak of $1.16 trillion.

Home builders in the U.S. are once again enjoying robust sales and profits.  Many are challenged in finding enough new lots for future building.  In many markets, they are also challenged in creating new homes at price points that are attractive to first-time buyers, as lot prices are high and cities are often charging high infrastructure fees for each new lot.

Retail centers in the U.S. were seriously overbuilt during the last boom, through 2007, and there were too many stores trying to sell to too few shoppers.  The end result of the glut was that large numbers of retail store chains took bankruptcy during the recession, and many others have either curtailed expansion plans or are opening much smaller stores than in the past.  However, by late 2012 and into 2016, shopping center occupancy rates were improving in general.  Nonetheless, retail stores are facing dramatic competition from sales made over the Internet.  Online commerce is growing at stellar rates while mall traffic and store revenues are generally disappointing.  (Malls and shopping centers that cater to wealthier customers have seen better results.)

Apartment house operators are enjoying brisk business in general.  For the fourth quarter of 2015, the vacancy rate at U.S. apartments rose to 4.4%, compared to 4.3% in the fourth quarter of 2014. These extremely low vacancy rates are encouraging the construction of new apartment buildings at a rapid rate.

Over the long term, on a global basis, there will be continuing demand from the health care sector for new or remodeled properties as the percentage of the population over age 65 continues to grow in many nations from North America to Asia to Europe, boosting the need for medical care and assisted living centers.  This trend has been accelerated in America by the implementation of the Affordable Care Act.

Another growing trend in construction in major economies is to incorporate a higher number of energy conservation technologies in new buildings.  This is true in both residential and commercial construction.  Several “green” building certification plans are now in place, so that architects and builders may seek to attain certain energy conservation and eco-friendly standards.