Previewing the ULI/EY Real Estate Consensus Forecast

Next week, ULI will release the ULI/EY Real Estate Consensus Forecast, a semiannual report based on a survey of 39 of the nation’s leading real estate economists and analysts. The report looks at several broad benchmarks including gross domestic product (GDP) and the unemployment rate, but also indices that are specific to the real estate industry.

Any ULI members interested in receiving the forecast and attending a webinar on the survey’s findings should register here.

One of the panelists on the webinar will be Douglas Poutasse of Bentall Kennedy. Poutasse joined Bentall Kennedy as executive vice president and head of strategy and research in 2010. He was also executive director of the National Council of Real Estate Investment Fiduciaries.

He spoke to Urban Land by phone about some of the survey’s findings.

UL: What are some of the things that jumped out at you from the survey that was done six months ago?

DP: The first thing that jumps out at me is how few things have changed. It’s interesting how tight the fit is to what it was six months ago. But we did see a lot of positive signs on the employment front at the end of 2013.

UL: We are seeing some movement in the forecast for single-family homes, both on the starts and the home prices.

DP: Compared [with those seen in] other consensus surveys, the price changes [6 percent for next year] seem a little low. But these expectations have been low for the last few years; the actuals have been higher.

With this projection, the index does not get back to the nominal price level from 2006 until the end of 2015. This is not particularly consistent with the projection for continued solid employment growth and single-family housing starts just trickling on up from where they’ve been.

We’re saying we’re creating 2.5 million jobs per year for the next few years, which means many more households, but we’re still building less than a million new homes per year and not seeing much price growth.

Multifamily starts also seem to have peaked out, yet we don’t have apartment rents climbing much either.

UL: The GDP growth also seems to be in a tight range of right around 3 percent for the next few years.

In the previous recovery, we had only two years above 3 percent GDP growth.

Compared to last fall, the unemployment outlook is much improved, with the year-end 2014 projection moved from 6.8 percent to 6.3 percent. Solid job growth starting to eat away at unemployment should be a real positive for the housing market.

These are all really broad measures. If you look at Case-Shiller, the metros range from almost zero year-over-year growth to 22 percent. The average is fairly benign.

I was also intrigued that the forecasted interest rate on the ten-year Treasury didn’t move much, despite the unemployment rate moving fairly significantly.

At the long end of the interest rate curve, some of the events of the past six months have made U.S. Treasuries even more attractive.

UL: Do you see any improvement for REITs?

The consensus forecast is 400 basis points below the historical average next year, but property prices are projected to grow above historical average. So it seems people are very bearish on REITs. We’re looking at four consecutive years of NCREIF property returns outperforming the REITs. That isn’t something we’ve seen in the recent past.

UL: What about other sectors like industrial, which is a bit of a favorite right now?

Industrial is one of the most cyclical sectors, so it makes sense that [it would] be projected for continued solid returns, right around the historical average. You see the same things in most of the other sectors covered by the NCREIF indices.