Beyond the "State of Real Estate"

Last evening Cassidy Turley hosted their annual “State of Real Estate” event in Indianapolis. It’s always great to catch up with colleagues this time of year after the holidays and discuss the status of the local market. While it is evident that the Indianapolis area economy is fairing slightly better than the nation as a whole, there remains a lot of room for improvement. You can download their full report here.

In the spirit of trends, we thought we’d offer a few words of our perspective for 2011. It’s no secret the single-family residential market remains troubled. Foreclosures will continue to be a drag on the economy through 2011 and 2012 (there were almost 4 million homes taken back by lenders just in the last 24 months). However, there are some very good signs of life in the multi-family sector. We know from the Urban Land Institute’s Emerging Trends Report near the end of last year that the only things investors should be looking at nationally in 2011 is apartments and perhaps industrial space. The market for retail and office space will remain dormant.

We have seen some loosening in apartment financing in late 2010 and look for that to continue through this year. A couple of the more positive trends for apartments are unemployment and demographics. First, unemployment is expected to stay above 9% through 2011 and not fall below 5% until 2015 or later – dependent on GDP growth. With so many people out of work, there are still others in precarious employment positions. All this uncertainty prevents most people from making long-term commitments, like buying a home. The only alternative for them is an apartment. In fact, for every 1% drop in the home ownership rate, there are 1 million more renters. Depending on whom you ask, the rate has dropped from somewhere over 69% in 2004 to 67% today, and it continues to fall.

Second, the demographics are increasingly favorable for renting. Almost 3 million teenagers graduated from high school in 2009 – the largest graduating class in US history. Of those, 70% entered college. Of course, some are living with mom and dad (maybe some of you); but rest assured, a majority of them will be renters over the next 5 years.