After a dismal crash during 2007-09, real estate had improved to a small extent in some markets in the U.S. by early 2011, although prices remained at depressed levels. Meanwhile, real estate had enjoyed a significant boom in China, Canada and a few other select spots during 2010 and into early 2011.
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. “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 been resolved, in some cases through massive bankruptcies of mortgage firms, banks and construction companies. However, in the United States and parts of Europe, the market for houses remains very low. Part of the problem is an enormous number of houses that are either going through the foreclosure process, or are already bank-owned and on the market at modest prices.
In the U.S., home sales volume had picked up slightly by 2010, but remained far below pre-recession levels. For 2009, the National Association of Realtors (NAR) reported 4.91 million existing homes sold. For 2010, the number grew to 5.14 million. While the median sales price for these homes was $172,900 in 2009, it fell to $156,100 in 2010.
In total, 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 2010, the U.S. Bureau of Labor estimated that 5.5 million Americans were employed in the construction industry, down from 6.0 million in 2009, 7.2 million in 2008 and 7.6 million in 2007. The agency also estimated that 1.4 million Americans were employed in the real estate industry as of 2010, unchanged from 2009 and down slightly from 2008.
There was $13.8 trillion in outstanding mortgage debt in America at year-end 2010, down from $14.3 trillion one year earlier, including $10.5 trillion in home mortgages (down from $10.8 trillion in 2009). However, many home mortgages remained in arrears as 2011 began, and mortgage owners will continue to suffer write-downs to some degree. During 2010, banks foreclosed on 1.05 million U.S. homes, according to RealtyTrac, up from 918,000 in 2009.
About $814.5 billion in new American construction was put in place during 2010, according to the U.S. Bureau of the Census. Sales of newly-built, single-family homes plummeted to about 323,000 in 2010, from 374,000 in 2009 and 485,000 in 2008 (according to the U.S. Bureau of the Census). These numbers are an immense reduction from the 1.05 million sold in 2006. As of April 2011, the Mortgage Bankers Association (MBA) forecast America’s new single-family housing starts to total only 458,000 for 2011, growing to 648,000 in 2012.
Clearly, homebuilders have been suffering. For example, Pulte Homes, Inc., one of the world’s largest builders of new homes, saw its revenues soar from $8.8 billion in 2003 to $14.5 billion at its peak in 2005. In 2007-08 the bottom fell out. Pulte’s revenues dropped to $9.1 billion in 2007, with a net loss of $2.2 billion. Revenues dropped even further in 2008 to $6.1 billion, with a net loss recorded for the year of $1.4 billion. Now renamed PulteGroup after a merger with Centex, business remains dull. PulteGroup’s 2009 revenues were only $3.9 billion and large losses continued. In 2010, revenues improved to $4.4 billion, but the company continued to post losses ($1.1 billion for the year).
On the opposite end of the spectrum, luxury home builder Toll Brothers saw sales rocket from $2.7 billion in 2003 to $6.1 billion at its peak in 2006. Buyers of these expensive homes (averaging about $688,000 during the boom) found it incredibly easy to get a mortgage, often a mortgage that they couldn’t afford in the long run. For 2009, Toll Brothers’ revenues were only $1.7 billion and the firm recorded a $755 million loss. In 2010, revenues fell further to $1.5 billion, but losses were reduced (totaling $3.3 million for the year).
Many owners of retail centers and malls were hit hard by the recent recession. General Growth Properties, Inc., America’s second largest mall operator, filed bankruptcy in early 2009. The company had been unable to refinance its massive mortgages as they came due. At $27.3 billion, this was the largest bankruptcy in U.S. real estate history.
Retail centers in the U.S. were seriously overbuilt during the boom, through 2007. The end result of the glut of mall and shopping center space was a retail space shakeout. Reis, Inc. reported that the vacancy rate at U.S. neighborhood and community shopping centers in the U.S. rose to 10.9% in mid-2010, up from 10.0% a year earlier. The highest vacancy rate on record was 11.1% in 1990. As for regional and super-regional malls, vacancies hovered close to a 10-year high, reaching 9% in mid-2010 compared to 8.4% a year earlier. The third quarter of 2010 showed a slight improvement, with vacancy rates dropping to 8.8%. 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.
U.S. apartment house occupancy rates increased during 2010. Apartment house operators are enjoying brisk business in general.
Office building occupancy rates in the U.S. have been low in many markets, and rents are depressed. 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. reached $266.6 billion in 2010, according to figures compiled by the U.S. Census Bureau. Private, residential construction put in place was $241.7 billion. Commercial public sector (for government), construction totaled $306.3 billion during 2010.
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, increasing 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.