How Long Can A Good Thing Last? – A Market Update

How Long Can A Good Thing Last? - A Market Update

How long can a good thing last?? Our nation has enjoyed a bull market for nine years—the second-longest stretch since World War II! With such a mix of things to consider these days—low unemployment, increased wages, the impact of new tariffs, new tax laws—individuals and businesses alike are figuratively holding their breath as they wonder how long it can go.

Predictions for the continuation of the bull market were carefully made in LPL’s March 5, 2018 and March 12, 2018 publications. (Note: These predictions were made just as the tariffs on steel were being announced, and before the announcement of trade tariffs on competing countries, so the market fluctuation experienced in the past few weeks due to these tariffs are NOT considered in their analyzation. It will be interesting to see how these changes play out among the indicators by the time of LPL’s next analysis.) To make their predictions, LPL analyzed and explained what they call the “Five Forecasters”: the Conference Board’s Leading Economic Index (LEI), the US Treasury’s Yield Curve, market breadth, market valuation, and the Purchasing Managers’ Index (PMI).

The LEI is a grouping of ten different economic indicators, “including data on employment, manufacturing, housing, bond yields, the stock market, consumer expectations, and housing permits”. In part because it is so diverse, it gives a solid snapshot of the economy’s general health, and has proved to be quite reliable in predicting early warnings of a recession. As of the latest reading, conducted in January 2018, LPL asserts there is a “low probability” of the US going into a recession over the next twelve months.

The US Treasury’s Yield Curve is said by LPL to be “one of the most reliable leading indicators” of an impending recession, as for the last 50 years, the curve has batted .1000 in this arena. When the Federal Reserve raises the short-term interest rates above the long-term interest rates, it creates what’s known as an “inverted yield curve”, and every time this has happened in the last 50 years, a recession has begun within 5-16 months. Right now, the curve is still “fairly steep”, and the estimation is that it could be at least two years before the Feds could raise the short-term rates high enough to trigger the inversion, suggesting the bull market may have quite a ways to go before it is finished.

Market breadth is measured by the number of stocks climbing in value as opposed to falling. As of LPL’s latest analysis in early March, there were no “major warning signs or any concerning divergences” between the breadth and the NYSE Composite Index, which is the comparison for this particular analysis tool.

The Purchasing Managers’ Index (PMI) is based on the “front lines” of manufacturing, despite the fact that manufacturing does not make up a large portion of our economy when measured by GDP. Why? Because the “demand for manufactured goods has been a timely barometer for all types of economic activity in recent decades. In the past, the peak of manufacturing has preceded recession by a period of nearly four years. LPL attests the PMI shows there is “no sign yet of a meaningful peak” in manufacturing, indicating the bull market is still running strong.

Market valuation—though not effective as either short-term or intermediate investment timing tools—have been “solid indicators of long-term stock returns”, and are therefore strategically quite useful. This indicator is the ONLY one of the five indicates a bear market may be coming soon. The reasoning is that price-to-earnings ratios are typically high at the end of a bull market, and that is the case at this point in time. However, as earnings estimates rise—as they have done “significantly” in 2018—this ratio becomes more stable and nearer the long-term averages, thus removing any cause for an earlier-than-anticipated end to the bull market.

Now, what does all of this financial mumbo-jumbo mean in terms of commercial real estate? If you’re a CEO or a Developer, it means you need to strongly—and perhaps quickly—consider your growth plans. Although purchase prices are up from the “dirt cheap” prices of years past, the market is still on an incline and property values have not yet hit their high point, so it’s reasonable to expect prices to continue rising until the market officially shifts to a bear market. All things considered, it’s still a reasonably good time for land transactions.

We look forward to working with you!

2017 Commercial Real Estate Forecast

2017 Commercial Real Estate Forecast

 

Screen Shot 2017-03-14 at 10.52.46 AMAn amazing future for commercial real estate has been predicted by forecasters for our area with growth in every area and more to come! Some of the major “takeaways” from a recent forecasting meeting for the coming year indicate the following exciting advancements:

We are starting off the 2017 Year in a great position, because 2016 “Exceeded Expectations” in many ways.

  • Vacancy was down to 10.1% in the “Office” market, which is the lowest level since the year 2000.
  • Class A Office Space Reached an historical rate, having crossed the $25 per square foot for the first time.
  • There was a significant increase in speculative development.
  • Suburban markets re-emerged as cost effective options.
  • Rent growth and limited Class A Space drove development activity.
  • There was an increase in average asking rental rate in the “Retail” arena.
  • In the “Retail” arena there has been a significant market disruption due to technology and shifting consumer habits of ordering online!
  • In the “Investment” arena, pricing is strong across all product types, in particular office and multifamily.

In 2017:

  • In the “Office” market conditions will favor Landlords and rental rates will continue to rise, but at a slower pace.
  • In the “Industrial” Market there will be increased speculative construction, and e-commerce growth will drive the need for the development of more modern facilities.
  • Re-purposing of existing buildings as well as e-commerce advancement is changing the way real estate is being used and bringing new uses and new vendors to the area!
  • The Index of Consumer Sentiment is the Highest it has been in Years!  (Faith in the Economy has Returned).
  • In terms of a healthy economy locally speaking:  RDU ranked #7 on the list of “Markets to Watch” for overall Real Estate Prospects in 2017!
  • The Triangle will continue to be a magnet for Investors in 2017, and the availability of capital will support sales.

 

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With these items in mind, it is both a great time as well as a great location for Commercial Real Estate and we are in the perfect growing location for it!  If you have a need in the Raleigh/Durham/Wake Forest area for Commercial Real Estate, please give us a call to let us know how we can help you! We can be reached at 919-336-1700. We look forward to hearing from you soon to find out how we can best be of assistance.

Keller Williams Preferred Realty, 7920 ACC Blvd, Suite 210, Raleigh, NC

919-336-1700

Peter@KimaCommercial.com

We look forward to working with you!