With 2013 now behind us, what can we now predict will be coming our way in 2014? The good news is that all of the chaos that began with the financial collapse of 2008 is gradually looking farther behind us in our rear view mirror. It feels like we’re making progress, but it’s definitely slow progress. But in any event most people seem to feel that we’ve definitely become better off now than we were economically just several years ago. So what kind of year will 2014 be for us economically? Let’s take a look at the underlying fundamentals;
The stock market has been out of alignment for several years now. We’ve been experiencing some tough economic times which have been improving in recent years, but the value of stocks have risen higher than what would typically be warranted based upon the underlying economic conditions.
Contributing greatly to this is the huge amount of bailout money that has been given to our financial institutions, which has been reinvested by these institutions back into the stock market. With so much of this money having gone back into the stock market, the resulting stock values and indices have been higher than they normally would have been, indicating what could be a bubble in the stock market. The bursting of this bubble rests largely on how much financial support The Fed continues to give to the financial markets, but if they continue giving large amounts of money to our financial institutions, the bursting of this bubble is less likely to happen. However, if The Fed substantially reduces the amount of money that it’s giving to our financial institutions, this bubble could then burst at any time.
In commercial real estate, it’s unlikely that we’ll see any rapid increase in the demand for office, industrial, and retail space. The good news is that we’re unlikely to see any rapid decrease in the demand for these kinds of properties also. With the air having already been let out of the commercial real estate market several years ago, and with lenders having now loosened-up their purse strings in lending to both businesses and to real estate investors, combined with an overall feeling of greater confidence in the economy, “slow and gradual improvement” is likely the phrase to describe our commercial real estate market in 2014.
One sector of the commercial real estate industry that’s been interesting to observe is the apartment house sector. This is an arena that’s experienced increased demand in recent years from investors, and increased demand from tenants to rent apartments, too. However, the increased demand from renters for apartments has been buoyed by people losing their homes to foreclosure, and then moving into apartment units immediately thereafter. Once the economy continues to improve, and these renters begin feeling it’s time for them to buy a home once again, this will then reduce the demand for rental units. So for this one sector, continued improvement within the economy will eventually spell a reduction in the demand for renting.
In summary, 2014 is looking like it will be a year of slow, upward movement within our economy, with a similar feeling of stability in commercial real estate to what we experienced in 2013.