In the last few months, there have been many financial (and other) real estate concerns examined, bemoaned, and considered by many folks in the US. When those issues are focused on trepidations as to what is developing in the real estate market, the attention might be grouped within a few limited areas.
Recently, the Counselors of Real Estate (CRE), an organization under the National Association of Realtors, a well-respected body made up of experienced real estate experts, released its Counselor Report as to what its members considered are the Top Ten Issues Affecting Real Estate. (Full Disclosure: I am a member of the Counselors, holding the CRE designation.) (https://www.cre.org/external-affairs/2019-20-top-ten-issues-affecting-real-estate/#housing)
This Top Ten list includes these key areas:
Infrastructure - As the Counselor Report stated, this infrastructure issue has been on the back burner far too long. As the Report noted: “Better infrastructure is required to support growth, and real estate values (both residential and commercial) are tied to more sustainable growth.”
Housing In America - This issue, as pointed out in the Report, is a topic that extends much further than the area of “affordable” housing. Housing in general is a fundamental concern in the US. Housing—available or not available—impacts other areas of real estate.
Weather and Climate-Related Risks - “Weather” is a much broader topic than the issue of sun, wind, rain, hail, snow, and other general climate conditions. As stated in the Report: “Climate related risks are deeply interconnected to other top issues on this year’s list, including political divisions, infrastructure, affordability of housing, and investor confidence.”
The Technology Effect - This fourth element in the Report summarized the importance of technology by stating: “Technological advancements have a nexus to many of the selected issues in the 2019-20 Top Ten. It’s at the core of international trade issues, is a central driver in demand for the four primary real estate asset categories and is central to continued productivity gains.”
End-Of-Cycle Economics - The Report by the Counselors as to this issue points to the uncertainty within the economy. With the unrest in the population, the virus—and its continuing impact on the world, and the volatility in the economy, be it with real estate, the capital markets, or other parts of the economy, it is difficult to judge where the economy will be in both the short term and long term.
Political Division - There is little explanation needed as to this sixth item. Knowing there is very little current agreement among the political parties, most—if not all—agree that without some cooperation and conciliation among the parties, it will be difficult to create and enforce/apply policies that will provide for a structure and/or catalyst to meet many of the aspirations and goals stated within these ten issues.
Capital Market Risk - The supply of debt and equity, with concomitant risk and related issues, are crucial factors when attempting to meet most of the goals outlined in the top ten issues discussed here.
Population Migration - How, who, when and where the population and the population centers will be modified in the coming months and years are important factors that will relate to the other areas discussed in these top ten issues. Demographic issues, possible changes in the election process (Electoral College, etc.), safety and perception issues in locations (think COVID 19 and movement to suburban areas, etc.) are a few of the population issues that will need to be considered in this area.
Volatility and Confidence - The subtle and amorphous label of “confidence” is difficult to describe. Confidence is necessary to encourage consumers to spend, businesses to be open, and the overall economy to operate. Yet, “controlling” confidence is akin to controlling and keeping jello in a steady state: It is difficult. Consumer Confidence, a measure that was addressed in the Report when referring to such studies as the Confidence monitoring by the University of Michigan, is subject to many influences; consider such issues as to how consumers will react when there is a virus, when there are riots, and when there is other uncertainty. This confidence factor, when examined, even knowing it is important, does not imply that such factor can be controlled.
Public & Private Indebtedness - The need to consider debt as an important factor influencing real estate issues is not in doubt by the Counselors. Low or high interest rates quickly and clearly impact the market place. (This area of debt overlaps with the earlier discussion of the capital markets and risk involved in the same.) Any experienced real estate counselor will tell you that a sudden spike, for example, in interest rates, where the spike is substantial, will almost immediately slow many areas in the real estate field, e.g., home sales. Clearly, debt is a very important factor that fits nicely within the top ten issues examined by the Counselors—and most experts dealing with the economy.
Although I would order and prioritize the above 10 areas differently, there is no question that these 10 areas are very important to not only the real estate field, but to our entire US population.
I would summarize the key areas of concurrent concern—to me—by the following three groups. Yes, I realize that each of these groups affecting real estate, et al, have many sub-issues included within them. These sub-categories include all of the above 10 fields, along with other areas. Yet, again, the three groups I would focus on, with my terminology, using major topics, would be:
1. Unrest (riots, et al);
2. Virus; and the
3. Economy.
Yes, there are many more issues contained within the above three groups. However, I think we must address, concurrently, the above three fields, quickly and properly. A failure to appropriately examine these areas, timely and thoroughly, will not only adversely affect real estate, such failure will hugely and negatively damage our country.
All of the above areas overlap and influence each other.
On the political side of the ledger, the outcome from the November 2020 election is and will be substantially influenced (determined?) in large part by these three areas.
By
Dr. Mark Lee Levine,
Professor, University of Denver