Economy Watch: Will the Economy’s Continuing Slow Growth Affect Real Estate Development?

By Dees Stribling, Contributing Editor

Now that a crummy first quarter, at least in terms of U.S. economic growth, has been verified by the preliminary GDP numbers (up a meager 0.2 percent), attention turns to the second quarter. Since the recovery started, the economy’s had a few weakish quarters followed by bounce backs. Will it happen again, or is the funk of the first quarter going to stick around to bother the economy, including the residential and commercial real estate markets, which tend to be lagging indicators? So far the indicators are mixed. Much depends on the direction of hiring in April; numbers from the government on that metric will be out Friday.

Various negative indicators have been well publicized. But there are some recent positive indicators as well. For instance, the University of Michigan reported on Friday that its Consumer Sentiment index came in at 95.9 at the end of April, which was unchanged for the month. So despite various uncertainties, consumer attitudes toward the economy remain reasonably sanguine for now. That’s important, because once consumers start to feel nervous, they cut their spending, which is a prime driver of the economy (and quite directly, the retail property sector; less directly, the industrial sector).

In the residential sector, Black Knight Financial Services reported on Monday that just over 8 percent of U.S. residential borrowers are currently underwater on their mortgages, representing a near 30 percent drop in the negative equity rate since a year ago. That isn’t to say the problem is gone completely: Black Knight also reported that nearly a third of underwater borrowers are seriously delinquent on their mortgages, and that borrowers in negative equity positions like that make up 77 percent of all active foreclosures. Yet it’s clear that underwater mortgages aren’t the drag on the housing market they used to be.

Indeed, some parts of the residential business remain fairly optimistic, such as seniors housing developers. Builder confidence in the single-family 55+ housing market remains in positive territory for the first quarter of 2015, according to the National Association of Home Builders’ 55+ Housing Market Index, which also came out in Monday. It edged down slightly by one point to 58, but still Q1 represented the fourth consecutive quarter above 50. That probably reflects the notion that it’s going to take more than a soft quarter of two to dent an industry like seniors housing, even the single-family branch of it.