3 economic factors set to affect U.S. real estate this year

The United States saw jobs growth in the first month of the new year, adding 225,000 positions compared to the 176,000 that were created per month in 2019, according to a recent research brief from Marcus & Millichap Research Services. The unemployment rate stood at 3.6 percent in January, an increase of 10 basis points from a 49-year low. Meanwhile, the labor force participation rate increased to 63.4 percent, its highest level since June 2013.

However, researchers noted that the month’s figures should not cause real estate investors to assume accelerated growth this year. They pointed to 2018 and 2019, when those years also started with higher job creation only to wane throughout the following months. And while analysts said that January’s figures illustrated an upward momentum in the labor market, overall hiring pace is starting to slow, with projections calling for 1.5 million new jobs this year.

Following are a few economic factors that could affect the real estate sector, according to the analysts.

Construction Jobs See Boost

The construction sector, in particular, heightened its hiring power thanks to increased real estate development, according to Marcus & Millichap. In January, 44,000 new construction jobs were added, compared to the 12,000 positions added monthly in the previous year.

Wages Increase at Faster Pace

Marcus & Millichap noted that wages increased faster in January, improving to an annual rate of 3.1 percent. Researchers said that the increase was due in part to higher minimum wages that took effect at the start of 2020, in addition to the need for labor in low- and high-skill positions. And because inflation remains below 2 percent, the real value of wages is rising, adding to consumers’ discretionary incomes. This leads to an increased spending power for consumers, according to analysts.

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Coronavirus to Affect U.S. Real Estate

The most immediate impact of the coronavirus when it comes to real estate will be in the hospitality sector, according to Marcus & Millichap. Travel bans and other issues will decrease the number of visitors from China, impacting hotel room demand during a time of downcast revenue growth. However, researchers noted that despite these trends, U.S. hotel occupancy and revenue per available room are hovering around historical highs. This can give hotels the ability to respond to the current health epidemic.

Meanwhile, the Baird/STR Hotel Stock Index dropped 7.7 percent in January to 4,863. Michael Bellisario, senior hotel research analyst and director at Baird, pointed to the coronavirus as a likely culprit.

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“Hotel stocks significantly underperformed in January as coronavirus fears mounted,” he said in a news release. “Last year’s positive stock market momentum reversed course sharply, and investors have become increasingly concerned about how the spread of coronavirus might impact global growth with hotel stocks being disproportionately impacted as a result. Industry [revenue per available room] forecasts for 2020 continue to moderate, and most industry participants now are expecting flattish growth.”

Amanda Hite, STR’s president, said that the hotel data firm is expecting non-growth for RevPAR this year.

“Even though preliminary U.S. performance results for January have shown positive, the uncertainty around the coronavirus outbreak on top of already modest growth expectations has created angst around the investment community,” she said. “It will be some time before we know the extent of the coronavirus impact on travel and lodging in the U.S., but this is no doubt a concern with global implications in the sector. It is worth pointing out that the total number of Chinese visitors was expected to be around 2.8 million in 2020, and any disruption to this flow will impact local and national demand growth figures.”

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