Residential market steady in 2004.
However, historically low interest rates, a lack of alternative investments, and an increased desire for homeownership (and its tax advantages) have maintained and strengthened this market.
So, no, I wouldn't call this a bubble and I don't see anything road-blocking the momentum of this market--in fact there are more reasons now to feel optimistic about the market than ever before.
Real estate prices in 2004 will be dictated by the performance of the economy and, as most indicators point to a prosperous year ahead, I am compelled to forecast continued growth in real estate-slow and steady as they say.
After all, we faced a 30-month recession before we saw the economy strengthen in the third quarter of 2003, and real estate thrived. Imagine what job creation will do for the market.
Our economy faced three consecutive years of job losses, yet residential real estate prices climbed. In 2004, the Office of Management & Budget anticipates we will add 40,000 jobs.
While this is modest growth, it is welcome news to a City that has lost more than 200,000 jobs during the latest recession.
Unemployment has fallen from 9.2% to 7.8% over the past nine months. And, increasing payrolls are always viewed as vital to the housing market and should begin to show their impact by mid-year. These are all positive factors when it comes to making projections for the real estate market in 2004.
The growth in the City's real estate market has certainly been fueled by a record period of low interest rates. Thirty-year fixed rates remain below 6% and no increase is in sight, at least not for the first six months of 2004. Sluggish employment gains have forced the Federal Reserve to maintain an accommodative interest rate policy and, without any signs of inflation, I see no change in this policy in the near future. With that said, I predict we will continue to enjoy low rates that will keep housing affordable, especially for first-time buyers. Of course the tax advantages of homeownership remain a primary reason for many to buy and are certainly crucial in driving the market. Real estate is the most tax-friendly investment in America. T
he capital gains exclusions combined with the tax deductibility of mortgage interest and property taxes will continue to appeal to potential buyers.
For many, as Wall Street goes, so does the City. In 2003, stock exchange member firms earned an estimated $15 billion or almost the same as during the prior two years combined.
The Dow Jones and the NASDAQ were up 25% and 50% respectively during 2003. Bonuses, a figure watched closely by both real estate brokers and tax collectors, are expected to rise substantially in 2003.
There is no question that a lack of confidence in the stock market has certainly helped keep real estate strong over the past few years. And, even though people will likely begin to place more of their money back into the stock market, I do not believe it will happen on a large enough scale to impact real estate in the coming year.
Finally, there is the perpetual shortage of supply of housing, particularly in Manhattan.
For the first 11 months of 2003, permits for only 3,895 new units of housing in Manhattan were filed This is the third straight year this number has fallen during this time.
What, if anything, could break the stride of real estate in New York?
A sharp rise in interest rates, stagnant job growth, increased competition from the equity markets, heightened security concerns and the City's precarious budgetary condition could spell trouble in the year ahead, but the market will not disappoint.
I believe rates, our biggest concern, will remain low and we will see continued sustenance in the market for 2004.
BY GREG HEYM, DIRECTOR OF RESEARCH, TERRA HOLDINGS
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|Title Annotation:||Insiders Outlook|
|Publication:||Real Estate Weekly|
|Date:||Jan 28, 2004|
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