There are signs that the US real estate sector may have turned a corner, or at least that the worst of the recession is now in the past. Higher-than-expected Q309 GDP growth indicated that the administration’s stimulus measures have started to have an effect on the economy, including the housing market, with large numbers of first-time buyers tempted by the government’s tax credit scheme. However, the prospects for commercial realty are much less optimistic, and in both cases the predicted ‘jobless recovery’ of the US economy threatens to undermine demand for real estate. As we note in our RECBER section, below, for all the extremely well publicised problems facing the US’s construction sector and commercial banking sector in the last year, the absolute amount of activity is huge. Nevertheless, the oversupply of housing, and the turmoil in particular regional economies, will almost certainly have an impact on what happens over the next five years. The US federal stimulus has allocated funds to help the US's struggling housing sector. First-time home buyers accounted for more than 45% of home sales during the past year, courtesy of the tax credits afforded to them by the public sector. Needless to say, government policy will continue to have a big say in the trajectory of the recovery. The aid package makes it harder to discern whether housing stocks have fallen to market-clearing levels, a key corner that the real-estate industry must turn. Alongside government aid, finance is another crucial factor. Although interest rates are low, the banks are cautious about lending, and not without good reason. Regional banks are still failing, with 89 banks closed or taken over by the FDIC as of September 4 2009, by far surpassing the 25 institutions that were closed in the whole of 2008. The figure for 2009 has already surpassed the 50 banks that failed in 1993 at the tail-end of the S&L crisis. What is more, the number of failures is accelerating. With 24 failures, July was the worst month of 2009 so far.
Decreased employment has led to a fall in demand for office space, especially in leading financial districts, where financial services firms are vacating. Office rents are dropping as a result. Mid-town New York has suffered a 31.5% drop year-on-year (y-o-y) according to CB Richard Ellis (CBRE), the second fastest decline in the world after Singapore, reflecting the heavy employment losses in the city’s financial sector. Boston was not far behind, with a -29.7% fall.
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