Ideas as the Bull Market Continues

The NAREIT 2020 Outlook emerged this week. Calvin Schnure, Senior Vice President, Research & Economic Analysis at the National Association of Real Estate Investment Trusts (NAREIT) released his annual outlook. Let’s take a look at his high-level expectations for the year ahead.

NAREIT 2020 Outlook

Schnure points out in his opening remarks that 10 years into what is now the longest recovery on record the combination of low unemployment and low inflation is unprecedented. While we are in somewhat unchartered waters, he still has positive expectations for the US economy and REITs in 2020.

Schnure believes recessions risk is moderate next year. He writes “Every recession over the past 70 years occurred at a time when cyclical GDP was well above its long-run average, and during every recession except 2001, fell to below average. Growth of these cyclical components, however, has been modest over the past decade, and cyclical GDP is still below average.”

Homeownership in 2020 and Beyond

He also thinks that residential real estate and the economy will get a boost from an increase in homeownership rates.

“Homeownership rates have begun to recover, however, and have risen steadily over the past three years,” he wrote. “It is notable that the rise in homeownership over the past three years has been driven primarily by younger age groups. The homeownership rate of households under age 35 has increased 340 basis points from its low point following the crisis, and the rate among households age 35 to 44 has increased 230 basis points.”

He believes that we are in a mature phase of the commercial real estate cycle. However, he says we are not yet in the late cycle of the move. Late cycles are identified as those where we see overbuilding in most markets and prices are rising faster than net operating income is rising and he does not believe we are seeing either of those two conditions yet.

All of this should be positive for Real Estate Investment Trusts.

“The outlook for REITs in 2020 remains favorable,” Schnure wrote. “We expect modest economic growth and see few signs of a recession on the horizon. Real estate markets enjoy low vacancy rates and a balance of new supply and growing demand, supporting rent growth and REIT earnings in the year ahead.”

You can access the full NAREIT 2020 Outlook here.

Related: Mercer Outlook 2020: Europe Could Face Problems