Economic Snapshot Overview by Dr. Reid Cummings - February 2021
Posted on February 25, 2021 by Dr. Reid Cummings
Greetings, and welcome to the February 2021 Mobile Bay Economic Snapshot.
This month, we highlight 2020 Mobile and Baldwin real estate market performance and discuss some key national real estate metrics. As reported in our July 2020 Snapshot, coastal residential markets were as hot as they have been for many years. As reported in our September 2020 Snapshot, commercial markets overall held their own, showing relative strength in multifamily and industrial categories, but weakness in the office and restaurant sectors. Please drill into our interactive dashboards for specifics on residential and commercial monthly and annual sales and financing breakdowns by property type and geographic area.
We think the most remarkable real estate story for 2020 was residential home sales. The National Association of Realtors reported recently that sales of existing homes rose to the highest levels seen since 2006, just as housing inventory levels reached their lowest point ever.[i] In markets across the country, tight inventory levels coupled with the lowest home mortgage rates in years forced many buyers into tough bidding competitions. New home sales also surged in 2020, rising 4.3% in January 2021 alone, to a seasonally adjusted rate of 923,000 units.[ii]
Key national performance indicators lend further support to the story. The S&P CoreLogic Case-Shiller 10-City Composite Home Price NSA Index,[iii] which measures the change in residential real estate values in the metropolitan areas of Boston, Chicago, Denver, Las Vegas, Los Angeles, Miami, New York, San Diego, San Francisco, and Washington, D.C., was up 9.82%. The S&P CoreLogic Case-Shiller 20-City Composite Home Price NSA Index,[iv] which adds the metropolitan areas of Atlanta, Dallas, Detroit, Charlotte, Cleveland, Minneapolis, Phoenix, Portland, Seattle, and Tampa, was up 10.10%. The S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index,[v] which is a single-family home price composite for the nine U.S. Census divisions, was up 10.37%.
A key indicator of residential growth is new home construction. In 2020, there were 1.38 million housing starts, a 7% increase over 2019. Another leading indicator of homebuilding activity is residential building permits. For the year, permit activity advanced 4.8% over 2019 to a total of 1.45 million.[vi]
The question for residential markets is whether the robust activity experienced in 2020 will continue in 2021? Dr. Lawrence Yun, chief economist for the National Association of Realtors says the answer is yes.[vii] He predicts a 9% increase in existing homes sales and an incredible 21% increase in new home sales. Further good news for homeowners is his prediction that home values will rise by 3% this year.
As incredible as all of this is, a recent report by the U.S. Federal Reserve Bank really caught our attention. In their November 2020 Financial Stability Report,[viii] they list total values for several different asset classes. We think it is especially important because while much of the investment attention always seems to focus on the performance of the U.S. stock and Treasury bond markets, U.S. real estate is often overlooked. The Fed’s latest value estimates were eye-popping.
| Asset Class | Average Annual Return 1997Q2 - 2020Q2 | Total Value 1997Q2 - 2020Q2 |
|---|---|---|
| U.S. Equities | 8.0% | $37.19 Trillion |
| U.S. Treasury Bonds | 8.8% | $19.88 Trillion |
| U.S. Commercial Real Estate | 7.0% | $20.44 Trillion |
| U.S. Residential Real Estate | 5.6% | $39.39 Trillion |
Given that the reporting timeframe spanned from the middle of 1997 through the middle of 2020, which includes the devastating collapse of the housing market in 2008-2010, the total value of residential real estate still surpassed that of equities and Treasury bonds. Even more incredible, consider that wealth tied to U.S. real estate is very nearly $60 trillion dollars. That is almost $3 trillion dollars more than the combined value of U.S. stock and Treasury bond markets. Truly, real estate continues to be an amazing story!
Until next time, from everyone at the Center, we wish you and yours all the best.
[i] https://www.nar.realtor/newsroom/existing-home-sales-rise-0-7-in-december-annual-sales-see-highest-level-since-2006
[ii] https://www.census.gov/construction/nrs/pdf/newressales.pdf
[iii] https://www.spglobal.com/spdji/en/indices/indicators/sp-corelogic-case-shiller-10-city-composite-home-price-nsa-index/#overview
[iv] https://www.spglobal.com/spdji/en/indices/indicators/sp-corelogic-case-shiller-20-city-composite-home-price-nsa-index/#overview
[v] https://www.spglobal.com/spdji/en/indices/indicators/sp-corelogic-case-shiller-us-national-home-price-nsa-index/#overview
[vi] https://www.census.gov/construction/nrc/pdf/newresconst.pdf
[vii] https://www.nar.realtor/lawrence-yun
[viii] https://www.federalreserve.gov/publications/2020-november-financial-stability-report-asset-valuation.htm