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What the Newest Beige Book Has to Say About the Economy


[Updated: Jan 05, 2021 ] Mar 09, 2020 by Deidre Woollard
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The next several months may prove very interesting for the real estate market. The information in the latest Beige Book was compiled at the end of February but still gives a glimpse into the mindset of the Federal Reserve Districts distributed throughout the United States.

Overall, the Districts are seeing modest or moderate growth as we start what is considered the traditional real estate buying season. Even at the end of February, the coronavirus was already causing a drop in tourism and contributing to manufacturing delays.

See below for the most interesting trends we've identified from the latest report.

A mild winter may start the housing season early

Median sales prices in the Northeast generally increased in 2019 as inventories of

both homes and condos dropped. A favorable interest rate environment should continue to incentivize demand. The mild and warm winter has led to more construction.

The Philadelphia District reported that its homebuilders are seeing modest growth in contract signings, as warm weather prompted more purchases. The District says that current sales will keep contractors busy through fall.

In the Richmond District, Realtors noted that 2020 was off to a stronger start than 2019, especially in the starter-home market. In the Southern states, some new homebuyers have noted that a low inventory of rentals means that they don't have somewhere to stay while waiting to close on new construction.

Smaller markets continue to show strength

In Rhode Island, growing demand and low inventory have led to a 40% increase in industrial property values over the last two years. In the Cleveland District, housing demand continues to grow and both real estate agents and builders expressed optimism about the spring season.

Mixed-use development continues to spread

In our report on the January Beige Book, we noted that multifamily construction is on the rise. The companion to that is an increase in mixed-use development. Today's buyers and renters prize easy access to shops and restaurants, making mixed-use projects more appealing.

While many buyers still prefer single-family homes, rising prices and urban proximity make multifamily and mixed-use developments a solid option. On the West Coast, agents are seeing heavy buyer demand, low inventories for single-family homes, and high occupancy rates for multifamily units.

Office construction stalls out

New commercial construction has largely dried up in New York, and many other markets are scaling back office construction. The Cleveland District also reported that developers are expecting the rate of commercial real estate to slow after several years of growth. In some areas, elevated construction costs mean that some deals are being postponed or are slower to launch.

In some areas, increased reliance on remote workers has eased the need for office space. Larger cities are also feeling the impact of a sluggish coworking market as WeWork's travails have depressed demand.

In the Minneapolis-St. Paul market, an abundance of redeveloped projects has led to higher vacancy rates. While office development remained strong in Dallas, the forecast was more mixed in Houston, which has been hit by slowdowns in the energy industry.

Renters rule in top markets

New York City’s residential rental market has strengthened at the higher end as many potential buyers have steered away from a depressed market. However, in Dallas, rent concessions are becoming more popular as there is an abundance of Class A properties with vacancies.

With home prices hitting new highs in the most popular markets, the demand for rentals remains steady in many areas. So far, the forecast is for vacancies to remain high as new multifamily construction slowly comes online.

Will the forecast change?

With the spread of the coronavirus leading to widespread uncertainty and the potential for economic disruption rising, the next Beige Book could tell a different story. For now, though, prospects for the spring seem moderately strong.

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