Dodge Outlook Report Predicts Increased Construction Starts for Multifamily Housing Market in 2016
Dodge Data & Analytics released its 2016 Dodge Construction Outlook, a mainstay in construction industry forecasting and business planning. The report predicts that total U.S. construction starts for 2016 will rise 6% to $712 billion, following gains of 9% in 2014 and an estimated 13% in 2015.
"The expansion for the construction industry has been underway for several years now, with varying contributions from each of the major sectors," stated Robert Murray, chief economist for Dodge Data & Analytics. "Total construction activity, as measured by the construction starts data, is on track this year to record the strongest annual gain so far in the current expansion, advancing 13%. Much of this year's lift has come from nonbuilding construction, reflecting the start of several massive liquefied natural gas terminals in the Gulf Coast region, as well as renewed growth for new power plant starts. Residential building, up 18% this year, has witnessed continued strength for multifamily housing while single family housing seems to have re-established an upward trend after its 2014 plateau. At the same time, nonresidential building has decelerated this year after surging 24% back in 2014, and is now predicted to be flat to slightly down given a sharp pullback for new manufacturing plant starts and some loss of momentum by its commercial and institutional building segments."
"For 2016, the economic environment should support further growth for the overall level of construction starts. While short-term interest rates will be going up in 2016, given the expected rate hikes by the Federal Reserve, the increases in long-term interest rates should stay gradual. On the plus side, the U.S. economy continues to register moderate job growth, lending standards are still easing, market fundamentals for commercial real estate continue to improve, and more funding support is coming from state and local construction bond measures. Total construction starts in 2016 are forecast to advance 6% to $712 billion, with gains for residential building, up 16%; and nonresidential building, up 9%; while the nonbuilding construction sector retreats 14%. If the volatile electric power and gas plant category within nonbuilding construction is excluded, total construction starts for 2016 would be up 10%, after a corresponding 8% gain in 2015."
The 2016 pattern by more specific sectors is the following:
Single family housing will rise 20% in dollars, corresponding to a 17% increase in units to 805,000 (Dodge basis). Access to home mortgage loans is improving, and some of the caution exercised by potential homebuyers will ease with continued employment growth.
Multifamily housing will increase 7% in dollars and 5% in units to 480,000 (Dodge basis), slower than the gains in 2015 but still growth. Low vacancies, rising rents, and the demand for apartments from Millennials will encourage more development.
Commercial building will increase 11%, up from the 4% gain estimated for 2015. Office construction will resume its leading role in the commercial building upturn, aided by more private development as well as construction activity related to technology and finance firms.
Institutional building will advance 9%, picking up the pace after the 6% rise in 2015. The educational facilities category is seeing an increasing amount of K-12 school construction, supported by the passage of recent school construction bond measures.
Manufacturing plant construction will recede an additional 1% in dollar terms, following the steep 28% plunge for 2015 that reflected the pullback by large petrochemical plant starts.
Public works will be flat with its 2015 amount, as a modest reduction for highways and bridges is balanced by some improvement for the environmental public works categories. A new multiyear federal transportation bill is being considered by Congress, and is expected to achieve passage in late 2015 or during the first half of 2016. The benefits of that bill will show up at the construction site later in 2016 and into 2017.
Electric utilities and gas plants will fall 43% after a sharp 159% jump in 2015. The lift coming from new starts for liquefied natural gas export terminals will be substantially less, and new power plant starts will recede moderately.*
CBO Includes RAD in Updated Guide to Federal Housing Programs
The Congressional Budget Office released an updated guide to federal housing programs, entitled Federal Housing Assistance for Low-Income Households (September 2015). For the first time, the guide includes the Rental Assistance Demonstration program.
According to the October 2015 RAD Blast, the guide explains the program as follows:
“Lawmakers could also increase access to private funds by authorizing an expansion of the Rental Assistance Demonstration Program. Under that program, PHAs convert public housing to project-based rental assistance or to project-based HCVs. The property owners can then renovate or redevelop the units using private sources of financing — such as conventional mortgages — and the LIHTC…An advantage of this option is its potential for improving the condition of properties used to provide assistance.“**
Mortgage Rates Slip Further; Jumbo Rates at Record Low
Mortgage rates moved lower, with the benchmark 30-year fixed mortgage slipping 3.88 percent, the lowest since late April according to Bankrate.com's weekly national survey. The 30-year fixed mortgage has an average of 0.21 discount and origination points.
The larger jumbo 30-year fixed retreated to a record low of 3.84 percent, and remains below the smaller conforming 30-year fixed mortgage. The average 15-year fixed mortgage nosed higher to 3.13 percent. Adjustable mortgage rates were mixed, with the 5-year ARM down slightly to 3.17 percent and the 7-year ARM inching higher to 3.36 percent.
Disappointing economic data amid an environment of global economic sluggishness is keeping mortgage rates at the lowest levels in six months. The Federal Open Market Committee, however, has pointed the focus squarely toward the December meeting as time for a possible rate hike. Should the lineup of economic data between now and then – including two monthly employment reports – come in with a positive tone, then expectations for a December interest rate hike will increase. As those expectations increase, mortgage rates will likely do the same, though fairly modestly. Mortgage rates are closely related to yields on long-term government bonds, which move in anticipation of actual Federal Reserve actions.
At the current average 30-year fixed mortgage rate of 3.88 percent, the monthly payment on a $200,000 loan is $941.05.
30-year fixed: 3.88% -- down from 3.93% last week (avg. points: 0.21)
15-year fixed: 3.13% -- up from 3.11% last week (avg. points: 0.14)
5/1 ARM: 3.17% -- down from 3.18% last week (avg. points: 0.20)
Bankrate's national weekly mortgage survey is conducted each Wednesday from data provided by the top 10 banks and thrifts in 10 top markets.
For a full analysis of this week's move in mortgage rates, go to www.bankrate.com
The survey is complemented by Bankrate's weekly Rate Trend Index, in which a panel of mortgage experts predicts which way the rates are headed over the next seven days. The panelists are divided this week, with half predicting mortgage rates to rise in the coming week and 42 percent expecting mortgage rates to remain more or less unchanged. Just 8 percent of the respondents are forecasting continued declines.*
This ‘Key Factor’ Predicts Riskiness of Senior Housing Construction
Merger and acquisition activity in the senior housing market is at a high point, and new construction is high enough levels to drive concerns about oversupply. With all of this recent activity, it is important to know what differentiates smart acquisitions and builds from unwise ones.
One particularly important metric is penetration rate, according to Imran Javaid, managing director of healthcare real estate at Capital One.
“I think that penetration rates end up being the key factor for us for deciding whether it’s a construction project that we want to be involved in or not,” Javaid said during a Senior Housing News webinar Wednesday.
For new construction, Capital One prefers penetration rates of between 5% and 15%.
“You want at least some acceptance in the marketplace of the kind of product that you’re looking to target,” Javaid said, explaining that “you don’t want to be the first mover” or the last.
Javaid also explained that Capital One performs on-site tours of all potential acquisition properties. This is to assess the quality of on-site staff, check out local competition and review the physical condition of the property itself.
Penetration rates should also be considered in combination with other indicators of market potential, Dana Wollschlager, senior vice president of Plante Moran Living Forward, stressed during the webinar.
These indicators include the area’s attractiveness as a retirement destination, the occupancy of the existing supply, and the size, age, and attractiveness of the existing supply in the market area, Wollschlager said.
Obviously, there are plenty of other metrics to consider when financing new construction and acquisitions in senior housing. Mark L. Myers, an executive director at Institutional Property Advisors, emphasized during the webinar that the value of senior housing facilities is in operations, not necessarily in the real estate.
Additional key metrics discussed in the webinar included projected net operating income, the acuity of residents, and the age of the property and market.* **
- Gill Group plans to attend the 2015 Ohio Housing Conference December 1st – 3rd in Columbus, OH.
- Gill Group plans to attend the AHF Live 2015 Affordable Housing Developers Summit November 17th – 19th in Chicago, IL.
- Cash Gill will be speaking on a panel entitled “Acquisition Challenges and Opportunities”
- Gill Group attended the National Association of Housing and Redevelopment Officials’ (NAHRO) 2015 National Conference & Exhibition October 15th – 17th in Los Angeles, CA.
- Gill Group attended the 2015 Tennessee Governor’s Housing Conference October 7th – 8th in Nashville, TN.
- Cash Gill attended the Missouri Real Estate Appraisers Commission Quarterly Commission Meeting September 29th – 30th in Jefferson City, MO.
- Gill Group attended the CARH Quarterly Board Meeting September 15th – 16th in Washington, DC.
- Cash Gill attended the Missouri Real Estate Appraisers Commission Quarterly Commission Meeting June 17th – 18th in Jefferson City, MO.
- Gill Group attended the National Council for Affordable Rural Housing’s Annual Meeting June 14th – 16th in Washington, DC.
- Gill Group attended the National Council of State Housing Agencies’ (NCSHA) Housing Credit Connect June 1st – 4th in Los Angeles, CA.
- Cash Gill spoke on a panel entitled “Successful Development in Challenging Markets”
- Gill Group attended the Middle Atlantic Regional Council of the National Association of Housing and Redevelopment Officials’ (MARC NAHRO) Spring Conference May 19th – 22nd in Ocean Springs, MD.
- Gill Group attended the Tennessee Association of Housing and Redevelopment Authorities’ (TAHRA) Spring Workshop April 20th – 22nd in Murfreesboro, TN.
- Cash Gill presented a session Tuesday, April 21st entitled “Appraisals, Market Studies, Rent Comparability Studies and Rent Reasonableness Studies for RAD and LIHTC Transactions”
- Cash Gill attended the Missouri Real Estate Appraisers Commission Quarterly Commission Meeting April 15th – 16th in Jefferson City, MO.
- Gill Group attended Bank of Advance’s Annual Meeting March 19th – 22nd in Norfork, AR.
- Gill Group attended the Maco Companies’ Annual Meeting March 12th – 15th in Biloxi, MS.
- Gill Group attended the Council for Affordable Rural Housing’s Quarterly Board Meeting March 4th – 5th in Washington, DC.
- Gill Group attended Mississippi’s Annual Affordable Housing Conference February 23rd – 25th in Natchez, MS.
- Gill Group attended NH&RA’s Annual Meeting February 18th – 20th in Key Largo, FL.
- Gill Group attended CARH’s Midyear Meeting January 27th – 29th in St. Pete Beach, FL.
- Cash Gill spoke on a panel Wednesday, January 28th entitled “Preservation Challenges and Opportunities”
- Gill Group attended 40+ meetings and conferences throughout the United States in 2014.
GROWTH (2014 - Highlights):
- Gill Group began the process of working with owners of affordable housing to develop a web-based program that will work hand-in-hand with our services. It will give the users of our appraisals, market studies, capital needs assessments and many other services easy access and real time usage.
- Gill Group added 2 offices with appraisers, market analysts, engineers and architects.
- Within the offices are 11 architects, one MAI appraiser, one general certified appraiser, four market analysts and 12 additional support staff.
- Gill Group attended 22 conferences and meetings throughout the United States in 2013
GROWTH (2013 - Highlights):
- Gill Group expanded our cutting-edge market analysis software and added our own in-house developed needs assessment software for CNAs, PNAs, PCNAs, PCAs, RPCAs, and every other acronym for this type of service.
- Gill Group added 4 offices with appraisers, market analysts, engineers and architects.
- Within the offices are three architects, one MAI appraiser, two general certified appraisers, five market analysts and 10 additional support staff.
- Gill Group expanded the footprint of its subsidiary, National Title & Escrow, to cover the entire United States with a local presence.
- Gill Group attended 20 conferences and meetings throughout the United States in 2012
GROWTH (2012 - Highlights):
- Gill Group developed cutting-edge market analysis software that will allow us to do preliminary analysis that is subject-specific in any market in the United States within minutes.
- Gill Group added 11 offices with appraisers, market analysts, engineers and architects.
- The offices now employ an additional 34 people.
- Gill Group expanded coverage of its subsidiary, National Title & Escrow, to cover the entire United States.
- Gill Group expanded coverage of its subsidiary, Gill Insurance Group, to cover the entire United States.
Gill Group has published the following:
- New York Real Estate Journal - How can low-income housing facilities translate into high profits?
- New York Real Estate Journal - Up, up and away: Home mortgage interest rates and gasoline prices continue ascending.
- Tax Credit Advisor - Boston MSA Market Snapshot
- Tax Credit Advisor - Seattle MSA Market Snapshot
- Northeast Industrial Development Resource Guide - What Appraisers Know About Investing.
- Affordable Housing Finance – Urban and Rural Market Studies.
- Tax Credit Advisor – LIHTC Appraisals 101
Cash Gill, MAI has had the opportunity to speak on the following topics:
- (Indianapolis, IN) National Council of Affordable Housing Market Analysts - Maximize Your Market: Understanding the Methodology Behind Market Studies.
- (Reno, NV) Nevada Council of Affordable and Rural Housing - Don't Get Caught in the Red. New Guidelines for Audits and Inspections.
- (Washington, DC) The Institute for Professional and Executive Development - Nonrecourse HUD Deals - So You Closed Your Nonrecourse HUD Deal. Now What? And Is It Really Nonrecourse?
- (Arlington, VA) Council for Affordable and Rural Housing - Property Valuation: The Correct Way to Value Properties.
- (New Orleans, LA) National Council of Affordable Housing Market Analysts - Affordable Housing Site Analysis
- (Las Vegas, NV) Nevada Council of Affordable and Rural Housing - Auditing and Accounting Guidelines for Section 42 Low Income Housing Tax Credits.
- (Washington, DC) Council for Affordable and Rural Housing - Rural Development Appraisals and Market Studies
- (Miami, FL) Council for Affordable and Rural Housing - The Equity Market - Impact on Rural Housing
- (Washington, DC) Council for Affordable and Rural Housing - How to Foster Affordable Green and Rural Housing Needs Assessments
- (Indianapolis, IN) Affordable Housing Association of Indiana - Market Analysis – Best Ways Use Market Studies to Ensure Application Points
- (Portland, ME) Enterprise Buyer/Seller Conference for RRH 515 Properties – Valuing the Product. What Is My Development Worth?
- (Washington, DC) National Housing and Rehabilitation Association – Financing and Underwriting Special Needs Housing.
- (Atlanta, GA) National Council of State Housing Agencies – Comprehensive Market Analysis.
- (Chicago, IL) AHF Live – Strategies for Rural Deals.
- (Dallas, TX) Crittenden Multifamily – Financing Special Use Properties.
- (Washington, DC) Council for Affordable Rural Housing – Rural Housing Preservation
- (Denver, CO) National Council of State Housing Agencies – Rural Housing Strategies
- (Denver, CO) National Council of State Housing Agencies – Y15: Preservation and Disposition Seminar
- (San Antonio, TX) Rural Rental Housing Association – LIHTC Legislative Update
- (Key Largo, FL) Council for Affordable Rural Housing – How National Appraisal Practices Impact USDA Assisted Properties
- (San Francisco, CA) National Council of State Housing Agencies – Changes and Challenges in Rural Housing Development
- (Chicago, IL) AHF Live – Preservation of Older LIHTC Deals
- (Franklin, TN) Regional Affordable Housing and RAD Training – Valuation, Feasibility and Capital Needs Assessments
- (Columbus, OH) Council for Rural Housing & Development of Ohio – Rural Housing Market Research
- (South Bend, IN) Great Lakes Capital Fund’s University of Affordable Housing – Valuation Risks Using Financing for RAD Deals
- (Chicago, IL) National Council of State Housing Agencies – Rural Development Opportunities
- (Orlando, FL) National Association of Housing and Redevelopment Officials – Affordable Housing Appraisals, Market Studies, Rent Comparability Studies and Rent Reasonableness Studies
- (Alexandria, LA) Regional Affordable Housing and RAD Training – Valuation, Feasibility and Capital Needs Assessments
- (Ft. Lauderdale, FL) Southeastern Affordable Housing Management Association (SAHMA) – Rent Comparability Studies 101
- (Indianapolis, IN) Midwest Buyer/Seller Conference – CNAs and Appraisals
- (Chicago, IL) AHF Live – Acquisition Challenges and Opportunities (2014)
- (St. Pete Beach, FL) CARH – Preservation Challenges and Opportunities
- (Nashville, TN) TAHRA – Appraisals, Market Studies, Rent Comparability Studies and Rent Reasonableness Studies for LIHTC and RAD Transactions
- (Los Angeles, CA) NCSHA – Successful Development in Challenging Markets
- (Chicago, IL) AHF Live – Acquisition Challenges and Opportunities (2015)
*as seen on multifamilybiz.com
**as seen on housingonline.com
***as seen on seniorhousingnews.com
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