Washington Real Estate

The real estate market fluctuates continually and values vary from region to region. Yet one constant remains amidst all this flux and diversity; specific factors drive the real estate market.

These factors have tremendous influence on society. Keep in mind that real estate accounts for a substantial percentage of people's wealth. Almost one-third of the average North American's net worth can be attributed to real estate. The value of the entire market amounts to about $20 trillion. Obviously, real estate is a lucrative market for investors especially in global centers such as New York City and Washington.

Population

The demographics (data describing a population) affect real estate prices and the types of property in demand. Demographics include age, race, gender, income, and migration patterns, as well as population growth. Huge shifts in the demographics of a nation can have a major impact on real estate.

Indeed, significant changes can affect real estate trends for decades. Demographics make a big difference. For example, baby boomers (born between 1946 and 1965) are impacting the market as they start and move forward in retirement.

In this instance, investors are looking at the probable popularity of second homes in vacation hot spots as this group reaches retirement. Will baby boomers prefer smaller homes? After all, their children have flown the nest and they might have to rely more on that nest egg as they live on retirement pensions.

Baby boomers stated to retire in 2010. Yet savvy real estate investors anticipated this shift long before and geared their investment to match the approaching trend. They targeted the types and location of properties of interest to baby boomers.

Rates

Obviously, interest rates drive the real estate market. Rates matter to individuals and the market. When interest rates fall, the cost of a mortgage is lower, and there is a higher demand for real estate. Of course, more demand means increased prices. Rising interest rates will have the opposite effect.

In addition to residential real estate, interest rates affect real estate investment trusts (REITs). When interest rates fall, a bond value increases with the more desirable coupon rate. With falling interest rates, the value of REITs rises and their high yields look attractive to investors.

Economy

No doubt, the economy affects the real estate market. Economic indicators (GDP, employment data, manufacturing activity, prices of goods) are used to measure the economy. The old adage holds much truth – as goes the economy, so goes real estate.

REITs in certain investment areas can suffer during an economic downturn. A REIT centered on hotels might not perform as well in economic turmoil as a REIT focused on office buildings. Hotels are sensitive to economic setbacks because they are considered "short-term leases."

Under economic stress, an entrepreneur might reduce the number of corporate business trips and hotel room rentals. Yet the business owner will still hold on to his office (a longer-term lease). Real estate is sensitive to economic activity.

Check out additional factors that drive the real estate market.

Four key factors that drive the real estate market

Which Factors Do You Think Drive The Real Estate Market?

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Many U.S. home sellers saw dollars vanish in front of their eyes during the past year. Although the vanishing act was really an illusion as the money never existed – except in an over-zealous home seller's mind. Pricing homes outside the realm of reality holds no magic; it just ends with disappointed sellers. All the dollars disappear because home buyers move on to another dream (and price) within their reach.

During the past year, no home sellers (upscale residence or small house) were exempt from price reductions. According to the Washington Post, Former Treasury Secretary Henry Paulson had to reduce the asking price for his Washington, DC home. In 2010, the property sold for almost one-third less than the original asking price. The buyer paid $3.25 billion. During 2006, Paulsen had paid $4.3 million for the property.

Chicago Home Sellers

Between March-December 2010, Chicago home sellers saw a widening divide between their preferred price and the actual amount of the home sale. The Chicago Agent magazine examined monthly data for Cook, DuPage, Kane, Lake, McHenry, and Will counties. The price reductions endured by sellers were calculated at $459 million a month.

Despite the size of the area, Cook County sellers led other counties in their average number of reductions (17,335) per month. As well, this county had the biggest cuts (percentage-wise) – almost 6% ($16,000) every time they lowered asking prices. Du Page County ranked second with 3,583 reductions (4.4%).

Chicago Home Buyers

Of course, Chicago home buyers were pleased with the reduced prices. Yet a few home buyers still paid a fine sum for their dream homes.

Chicago's Most Expensive Houses

            • $7.75 million - Barrington Hills (McHenry County)

            • $5.99 million - Lake Forest (Lake County)

            • $4.1 million - Hinsdale (DuPage County)

            • $2.99 million - St. Charles (Kane County)

Chicago's Most Expensive Condos

11 E. Walton Street

Three Condos

            •$7.4 million

            •$6.88 million

            •$6.28 million

Real estate mantra in 2010: How low can you go?

UK Home Sales

The current state of home sale prices varies from market to market. The average price of a home in England and Wales fell 0.2% to 222,827 pounds ($354,000) from November-December, 2010. Many UK home sellers do not want to be involved in transactions in this market. Many UK home buyers cannot get a mortgage. An Acadametrics report showed the number of transactions dropped by 53,000 (approx) in December 2010 – a 33% decline from the same period in 2009.

U.K. House Prices Decline for Third Month as Lenders Restrict Mortgages

What Do Consumers Predict For Home Prices In 2011?

The Chicago Agent magazine asked its readers for their predictions. At least 54% said that housing prices would remain the same as in the past year. Thirty one per cent of responses expected a decline of home sale prices in the coming months.

No doubt, within Chicago and elsewhere, home buyers are hoping for continued price reductions. Of course, home sellers always wish for higher prices. At least 15% of respondents to the magazine survey expected home sellers in 2011 would be getting better prices.

What Are Your Predictions For Home Prices In 2011?

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According to the results of the 19th Annual Survey released by the Association of Foreign Investment in Real Estate (AFIRE), international buyers favor US property. As foreign investors notice a recovering economy, they are expressing a renewed interest in U.S. real estate. In the latter part of 2010, this real estate survey was conducted among association members. The James A. Graaskamp Center for Real Estate at the Wisconsin School of Business handled the project.

19th AFIRE Survey

Industry leaders are bound to pay close attention to this latest survey by AFIRE with its 180 members representing 21 countries. The survey received responses from members holding more than $627 billion in global real estate and $265 billion in U.S. property. More than 60% of responses named the US as the best potential for capital appreciation. At least 72% of foreign buyers revealed that they plan to increase their US investments in 2011 compared to 2010 transactions.

AFIRE's 19th Annual Survey holds significant weight. The numbers reflect the opinions and plans of an influential group holding a considerable stake in global and regional assets. The 2010 results are far more encouraging than previous dismal numbers.

In 2006, only 26% of international investors saw potential in US property. Now more foreign buyers recognize the chance for capital appreciation in this country. Actually, the 2010 survey showed the strongest faith in this nation's real estate in the past decade.

Leading U.S. Cities

Two US cities – New York City and Washington – outshone other global cities in this recent AFIRE survey. In fact, New York City replaced London as the number one choice for foreign investors in real estate during 2011. Since 2001, London has held either first or second place. With the latest AFIRE results, London dropped to third place – behind the Big Apple and Washington – just before Paris in fourth position. Ian Hawksworth, AFIRE chairman, is not surprised by London's drop in rank.

"...In the last downturn, London was the first market to recover, and whilst investment in the UK Capital is still very active, it is not surprising that London has dropped to third place as investors expand their search to higher yielding markets such as U.S. gateway cities that offer attractive risk adjusted returns," says Ian Hawksworth, chairman of Foreign Investment in Real Estate.

NYC tops London for real estate investors

The popularity of NYC and Washington real estate is not a big surprise. Check out our 2010 articles – Inside New York Hotels – and - Moving To Washington. NYC, Washington, and Boston came in as the top three U.S. cities for foreign investment. New York City and Washington received four times more votes than third-place Boston. Yet in 2010, Boston has moved up from its fourth place position in the previous year. Take a look back at our 2010 analysis of Boston Real Estate – Better & Brighter Market.

U.S. Cities Lead Way for Global Foreign Real Estate Investment

Surprising statistics came to light about preferred U.S. property types for investment in 2011. Multi-family homes, apartments, retail, and hotels are the top four favorites among foreign investors. Offices ranked lower and industrial spaces showed up as the least favorite. Usually, offices are the top pick of institutional investors.

The drop in popularity of office space might be tied to high unemployment rates. Although there is growth in employment numbers, buyers could be feeling somewhat uncertain about investing in offices and industrial property. Yet foreign investors have overall confidence in the U.S. real estate market. Investors interested in U.S. cities quadruple the number of foreign buyers wanting to invest in the UK.

Are You Feeling Confident About The U.S. Real Estate Market?

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As the current year winds down and 2011 approaches, readers can expect reports and articles about real estate trends to pop up everywhere. With so much trend-related content out there, our eyes can sometimes glaze over and we tend to ignore the latest list. Yet we should rethink our reaction to the barrage of year-end statistics.

Tracking Trends

Examining trends helps us to zone in on where we've been, gives us an idea of where we're going, and arms us with the knowledge to navigate the system. Real estate revolves around statistics. It is worth consumers' time and effort to examine the numbers and keep up-to-date about real estate trends.

Global Real Estate Trends

The Global Real Estate Trends report released by Canada's Scotiabank tracks housing markets in 12 major economies. The December report states that global residential property markets in 2010 experienced a modest but uneven recovery.

Australia

Australia fared the best with its housing demand and low unemployment. Slower sales and price appreciation, however, are expected for this thriving market in the coming months.

Japan

Meanwhile, Japan’s twenty-year property slump continued in the past year. In 2011, Japan's economy is expected to experience a further slowdown.

US

Stability is returning to U.S. markets. Housing demand is expected to rise with increasing employment numbers and continued low interest rates. Yet the Global Real Estate Trends report warns that housing demand might not translate into home sales. Within a recovering economy with a high unemployment rate (although shrinking), individuals and lenders are feeling uncertain and cautious about major financial commitments.

Canada

Despite a volatile market in 2010, Canada ranked high in the Global Real Estate Trends report.

Read about all 12 housing markets in the Global Real Estate Trends report.

Local Real Estate Trends

Potential home buyers and sellers should keep informed about state and local trends. Varied media (print or online) across the US and elsewhere publish information regularly about the latest real estate trends. The Washington Post tracks housing sales and prices in the Washington area. Each Saturday, the results are posted in their 'Real Estate' section. Information is collected for every residential zip code and the data is compared to the numbers during the corresponding period in the previous year.

Green Building Trends

'Green building' trends will make a noticeable difference to the real estate industry in the coming year. Regardless of uncertain economies, 'green building' is expected to rebound in 2011. New commercial start-ups will opt for green alternatives. Existing businesses will be making energy-efficient improvements.

This decision makes sense on many levels for businesses. Besides being environmentally-friendly choices, green businesses impress the modern customer. As well, residential buildings will follow this trend. Home owners want to live in a safe and healthy environment.

Parents and educators will also be advocating for 'green' schools. As part of the LEED system, the number of Certified Green Schools should increase as more people embrace the health and educational benefits of these buildings. By the middle of 2010, certified schools made up almost 40% of all new LEED projects in the US. In 2011 and beyond, the real estate industry will be seeing more 'green' buildings in all areas - commercial, educational, and residential buildings.

Green Building’s Top Ten Trends for 2011

What Do You Think Will Be The Top Real Estate Trends in 2011?

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You probably know someone who has moved to Washington. Of course, it is not surprising that so many people would make the move. The city is the nation's capital – the heart of the country.

Granted, many people just make a temporary move to Washington. The politicians account for many 'back and forth' moves. Even a few politicians choose to stay on in Washington after politics. Washington attracts political types – and not just from the US – and not even just for politics.

Canadian Buyers

Washington has just attracted the attention of the Canada Pension Plan Investment Board (CPPIB) – not for its policies – but for its real estate. The CPPIB invests funds that are not required for immediate use by the Canadian Pension Plan. The board is planning to buy two impressive office buildings in Washington, D.C.

They describe the market as being "more attractive" than a few years ago – and they are not referring to the state of the property. The "very, very, attractive" prices are the reason for the board's interest in Washington. The CPPIB is planning to pay $237 million for a 45 percent stake in the two properties - 1299 Pennsylvania Avenue (the Warner Building) and 1101 17th Street NW.

The figure includes $91 million in equity and $146 million of the outstanding mortgage debt. This Canadian board is making an expensive purchase – even if it is more attractive than before. Peter Ballon, vice-president and head of the Americas division of CPPIB's real estate investments, agrees that it is a whopping sum. Yet he thinks that now is a good time to invest in key markets like Washington. New York and Los Angeles have also been identified as key markets because they are more stable than the rest of the nation.

In case you are wondering, yes, the CPPIB has heard about the damage from the recession. They know about the foreclosures and unemployment. Ballon explains the board's reasoning.

"We are not concerned by the debt market in the U.S. if anything we see it as an opportunity because we are typically an equity purchaser and do not need debt to make acquisitions," says Peter Ballon, vice-president and head of the Americas division of CPPIB's real estate investments.

High Stakes

Now, of course, the CPPIB is not doing all this on their own. The board has Vornado Realty Trust (NYSE:VNO) as a partner in this latest acquisition. Vornado Realty Trust owns 55% of this venture. No doubt, it is quite the venture – with an implied value of US$526 million. Vornado will manage and lease both buildings.

High Style

Last May, the CPPIB announced that it would pay US$663 million to buy a 45 percent stake in two Manhattan office properties including a 51-storey skyscraper in the Rockefeller Centre complex. If you wonder why a Canadian board would not seek out investments in Canada, the answer is – a smaller market. The CPPIB is looking to invest and Washington seems like a fine place to make a deal. It looks like Canadian business is moving into US real estate – in high style.

CPPIB seizes on low real estate prices in U.S. to buy stake in D.C. buildings

Are You Planning To Invest In US Property?