The nation’s booming real estate market should continue rolling through mid-2000, though at a slower pace than in 1997 and 1998.
That was one of the conclusions of the mid-year forecast by the Urban Land Institute (ULI), a non-profit developers’ group based in Washington, D.C.
“It will be difficult for the U.S. housing market to improve on 1998, but it will make a solid run at matching that performance during the coming year,” said the ULI report, which was released at the group’s spring meeting in Atlanta.
Chicago ranked sixth in the ULI’s investment forecast and 27th in the performance forecast: “The city’s real estate market is expected to see another solid year. The single-family home category showed consistent, steady growth.
“In 1998, 850 suburban subdivisions were under construction, and homes priced under $200,000 accounted for 60 percent of the market.
“Despite strong market fundamentals, resistance to rental housing by most suburban communities (in the Chicago area) has thwarted multifamily development.”
ULI’s outlook was based on the opinions of 350 real estate experts around the country.
Nationally, sales of new and existing homes broke all-time records last year, and construction starts approached near-record levels. A strong economy and a drop in already low interest rates fueled the market’s strong performance,” according to the ULI.
New home sales totaled 888,000 units in 1998, easily breaking the previous record of 818,000 set in 1977, and exceeding by 10.6 percent the 803,000 units sold in 1997.
Sales of existing homes in January, 1999, were even higher than the monthly records set in November and December, 1998. This suggests that even if sales slow toward the end of this year, another record-breaking year is possible.
On the downside, though, a forecast of 1.1 million housing starts this year and 1 million next year will represent a decline of 5.2 percent in 1999 and 10 percent in 2000.
In addition, a forecast was presented to the 2,000 ULI members attending the Atlanta meeting by Donald Ratajczak, director of the Economic Forecasting Center at Georgia State University.
He pointed out that the average home appreciated at a 5.5 percent rate last year, but “people are consuming more than they earn, partly by liquefying their real estate by taking out home equity loans.”
Ratajczak noted, though, that the asset appreciation of real estate could turn around quickly.
“The construction industry is cyclical, based on the availability of money. Banks currently still have excess lending ability. They look backward. After a couple of good years, banks throw money at you.”
He said that there is upward price pressure caused by price increases in energy and building materials. Shortages of drywall and plastic tubing represent “a clear sign that we are overdoing construction.”
In the retail sector, he suggested that the rise of electronic commerce on the Internet could develop into a dramatic force within five years. “Maybe we’ll see a slowing down of the malling of America.”
Ratajczak said investors are coming back to real estate investment trusts, with the exception of those in retail.
In the national economy, “the probability of a recession is virtually zero this year,” he maintained. “Next year there is a 25 percent chance of recession and 2001 could be the recession year.”
Ratajczak acknowledged that there exist some areas of imbalance that have the potential for slowing the U.S. economy.
As for the stock market, he believes that it is only half overvalued. “When the market wakes up, there could be a selloff. The correction, which could be as much as 20 percent, will take place in the second half of this year.”
He predicted that the Federal Reserve Board will take no action in raising interest rates this year, but an increase is expected in the second quarter of next year.
“That could result in higher home mortgage rates of 1 percent, and maybe that is good.”
Ratajczak concluded by saying: “We have a good economy, but we haven’t defeated the fluctuations of the business cycle.”
