Lusk Casden Real Estate Economics Forecast

April 20, 2016

Barry Slatt Mortgage was recently honored to sponsor the 2016 USC Lusk Casden Real Estate Economics Forecast, released this past Tuesday. Big names from throughout the state were in attendance to hear this year’s forecast findings, which were followed by a gloves-off discussion on the political and economic climates affecting commercial development and investments in California. The data-driven report’s conclusions covered a wide swath of topics ranging from nationwide economic currents to multifamily focused state-specific trends. Here are a few of our favorite takeaways from the Lusk Casden Real Estate Economics Forecast event.

On the US Economy: “Sometimes it pays to be a tortoise…”
Chris Thornberg (Founding Partner, Beacon Economics, LLC) described a culture of “Miserablism” where it is en vogue to take all news and indicators as if the sky is constantly falling. As the forecast shows, the US Economy’s fundamentals remain on solid ground and he sees no evidence for asset bubbles in equities, commodities or real estate.

Domestic Final Demand (an alternative measure of GDP) was up 3% YOY in 2015 and net exports were up 0.15% YOY. The Forecast expects 2.5% growth for 2016 and perhaps better for 2017. Consumer spending was good and the job market is on solid ground. Steady as she goes…

On California: Outpacing the rest of the country, for good reason.
Weather, immigration, intra-state migration, burgeoning industry and travel continue to make California a desirable place to live, work and conduct business. Despite its “business-unfriendly” reputation, California unemployment stands at 5.9% (lowest since late 2007), job creation continues to outpace the labor force, and the California economy is following suit.

On Multifamily: Less of the same.
Single-family affordability remains low and access to credit is beginning to return. Couple that with nationwide housing starts at their highest level since 1987, demand for Multifamily looks to be waning in much of the country. However, a full flight from rentals is unlikely due to demographic trends in slower overall household formation, the death of the career “lifer,” and still-restrictive credit.

In California, a consistent population boom, high relative home prices, and significant headwinds to new development mean a housing supply issue for the foreseeable future.

The Forecast further sees ongoing, existential threats to the California Multifamily space to include the California Environmental Quality Act (CEQA) and Proposition 13. CEQA, initially intended to help mitigate impacts to the environment on new development has become a bit of a big stick for neighbors to use against development they oppose, while Thornberg contends that Prop 13 (a boon to property owners at its surface) continues to serve as a disincentive for city councils to support development since revenues are sparsely affected by proposed projects. Both fit within the “law of unintended consequences,” according to him.

So, with ongoing demand outpacing supply for the foreseeable future, expect rental rates in the Bay Area, Los Angeles, Orange County and San Diego to continue to rise while vacancies continue to fall, but both will move by slower measure than in immediately preceding years. Let the good times slow.

The full Forecast can be viewed/downloaded here.

by Cody Charfauros

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