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Where are We in the Real Estate Cycle?


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Ivan Kaufman explains where we are currently in the real estate cycle, detailing important market trends that you should be aware of.

Published in: Real Estate
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Where are We in the Real Estate Cycle?

  1. 1. Where Are We in the Real Estate Cycle? by Ivan Kaufman ARBOR.COM • 1.800.ARBOR.10
  2. 2. Ivan Kaufman’s Real Estate Market Overview • The real estate market will inevitably progress through cycle after cycle. • The market is currently in the midst of its second longest expansion. This follows the longest historical expansion that led into the Great Recession. • There is a sentiment now that we’re in an asset bubble and that there is going to be a correction. It’s just a matter of when and how deep. Key Takeaways – Market Cycle
  3. 3. Ivan Kaufman’s Real Estate Market Overview Business and Real Estate Cycles
  4. 4. Ivan Kaufman’s Real Estate Market Overview • The Moody’s/Real Capital Analytics Commercial Property Price Index has been slowing and, in January, showed prices come off their peaks. • Many lenders are no longer underwriting rent growth. • Rent growth has far outpaced wage growth and there has to be a catch-up period. Key Takeaways – Property Prices
  5. 5. Ivan Kaufman’s Real Estate Market Overview Moody’s/RCA Commercial Property Price Index United States, Based on Repeat Sales Transaction Pairs $2.5 Million and Larger, December 2000 = 100 80.0 120.0 160.0 200.0 240.0 280.0 Dec-00 Dec-03 Dec-06 Dec-09 Dec-12 Dec-15 All Property Apartment Source: Arbor, Real Capital Analytics
  6. 6. Ivan Kaufman’s Real Estate Market Overview U.S. Recession 60.0% 62.0% 64.0% 66.0% 68.0% 70.0% 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 Homeownership Rate (%) Source: Arbor, U.S. Census Bureau Historical Homeownership Rate Key Takeaway— Homeownership is at the lowest levels in decades, so there has been a decrease in vacancy and increase in rents, without there being an increase in wages. United States, Not Seasonally Adjusted
  7. 7. Ivan Kaufman’s Real Estate Market Overview 0 50,000 100,000 150,000 200,000 250,000 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Completions (Units) Completions Forecast (Units) Completions Key Takeaway—Multifamily starts for 2016 are tremendous, which will be an issue for rent growth. United States, Multifamily Source: Arbor, Reis
  8. 8. Ivan Kaufman’s Real Estate Market Overview • Cap rates and interest rates have a significant relationship. There has been huge cap rate compression and that’s a direct result of historically low interest rates as well as other factors. • Expect to see cap rate expansion for the first time in a while because of the slowing of foreign capital flows, a slowing of rent growth and an increase in debt costs. Key Takeaways – Cap Rates
  9. 9. Ivan Kaufman’s Real Estate Market Overview Cap Rate vs. Treasurys United States, Multifamily, 12-Month Rolling Average 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 4Q01 4Q02 4Q03 4Q04 4Q05 4Q06 4Q07 4Q08 4Q09 4Q10 4Q11 4Q12 4Q13 4Q14 4Q15 Cap Rate (%) 10-Year Treasury (%) Spread (%) Source: Arbor, Real Capital Analytics, Federal Reserve