The real estate and construction sectors, including the many professions and fields associated with them, make up one of the larger components of the global economy. As of 2012, the U.S. Bureau of Labor estimated that 5.64 million Americans were employed in the construction industry (up from the previous year, but down dramatically from a peak of 7.6 million in 2007). The agency also estimated that 1.42 million Americans were employed in the real estate industry as of 2012 (this figure is also up from the previous year, but it is down slightly from 1.5 million in 2007).
There was $13.1 trillion in outstanding mortgage debt in America at year-end 2012, down from $13.4 trillion one year earlier, despite a significant increase in home sales during 2012. (This mortgage total included $9.9 trillion in home mortgages, down from $10.2 trillion in 2011). The total of all mortgages has been in a long term decline. In 2010 it was $13.8 trillion, and it was $14.3 trillion in 2009. Many home mortgages remained in arrears as 2013 began, and mortgage owners will continue to suffer write-downs to some degree. Workouts and short sales are now much more common than they were a few years ago, and a rebounding market for home sales and home prices means that owners are finding it easier to sell homes that they can no longer afford.
After a dismal crash during 2007-09, real estate had improved to a large extent in major markets by mid-2012 and on into early 2013. Home prices have rebounded dramatically from the depths of the recent recession, but in many markets they remain below their 2006-2007 peaks. By mid 2013, more than a few observers were concerned that another housing bubble was developing. Meanwhile, real estate enjoyed a significant boom in China, Canada, Australia and a few other select spots during much of 2010 through 2012.
A few comments about recent real estate market history can help to explain the current market: During most of the 2001–07 period, easy availability of development loans and mortgages, low interest rates, eager investors and unbridled optimism caused massive new developments of homes, shopping centers and office buildings to sprout on a global basis. The effect was widespread. For example, large portions of the economies of Ireland and Spain were driven by real estate speculation and investment. China, Australia and India saw significant real estate booms, as did Dubai. By 2007, however, the global boom in real estate was unwinding, and in many cases markets were crashing. Many commercial projects failed to attract a sufficient number of new tenants. “Subprime” mortgages issued to home buyers with poor credit and little income plummeted in value, particularly in the U.S. and Europe, and what began as a real estate crash unleashed a global financial nightmare and a daunting recession. Many of the resulting problems have largely been resolved, in some cases through massive bankruptcies of mortgage firms, developers, banks and construction companies, as well as the bankruptcies or foreclosures suffered by home owners and property investors.
In the U.S., home sales volume has picked up, resulting in rapidly rising prices in many markets and a shortage of available homes in some of 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 an important upswing in new household formation by members of Generation Y. The oldest members of this segment were turning 31 years of age by 2013. Many had been living with their parents for much longer than normal, due to the recession. An additional factor is the slow but steady decline in the number of foreclosed, bank-owned homes on the market. 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, is on the rebound. About $885.1 billion in new American construction was put in place during 2012, according to the U.S. Bureau of the Census (up from $789.7 the previous year). While this is a big improvement from recent years, it is nonetheless down dramatically from the 2006 peak of $1.16 trillion.
By 2012, home builders in the U.S. were once again enjoying robust sales and profits. Many were challenged in finding enough new lots for future building. As of April 2012, the Mortgage Bankers Association (MBA) estimated America’s new single-family housing starts to total only 433,000 for 2011, growing to 505,000 in 2012 and 580,000 for 2013.
Retail centers in the U.S. were seriously overbuilt during the last boom, through 2007. 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 2013, shopping center occupancy rates were improving in general, and many major retail chains were enjoying improved sales. For example, Taubman Centers, Inc., a luxury shopping center developer that owns malls in choice spots throughout the U.S., reported average sales per square foot of mall space of $615 in 2011, a figure much higher than typical malls. For 2012, Taubman saw impressive growth, reaching $688 per square foot.
Apartment house operators are enjoying brisk business in general. For the fourth quarter of 2012, the vacancy rate at U.S. apartment houses fell to 4.5%, compared to 5.2% in the same quarter in 2011.
Office building occupancy rates in the U.S. have been low in many markets, but conditions are beginning to improve and rents are rising. This will improve significantly when economic growth resumes in earnest.
Commercial construction spending was at record levels for several years. Private sector (non-governmental), non-residential construction put in place in the U.S. was on track to reach about $309.6 billion during 2013 (based on a seasonally-adjusted annual rate as of February 2013). This is up from only $266.6 billion in 2010. Private, residential construction put in place was on track to reach $303.4 billion for 2013, using the same methods.
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, boosting demand for medical care and assisted living centers. 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.