The Urban Land Institute released its Real Estate Consensus Forecast Wednesday morning, and overall, the 38 real estate economists and analysts surveyed projected broad improvements for the economy.
With signs of improvement in the housing sector already emerging, participants expect to see housing starts nearly double by 2014 and project home prices will begin to rise in 2013.
The average home price, which has declined somewhere between 1.8 percent and 4.1 percent over each of the past three years, according to FHFA data, is expected to stabilize in 2012, followed by a 2 percent increase in 2013, and a 3.5 percent increase in 2014.
Single-family housing starts are expected to rise from 428,600 starts in 2011 to 500,000 in 2012, and jump to 800,000 in 2014.
The unemployment rate is expected to continue falling, with the rate dropping to 8 percent by the end of 2012, 7.5 percent by the end of 2013, and 6.9 percent by the end of 2014.
GDP is expected to grow by 2.5 percent in 2012 and grow to 3.2 percent in 2014.
But, with the improving economy is inflation and higher interest rates. These rising rates will increase costs for investors, and those surveyed do not expect substantial increases in real estate capitalization rates for institutional-quality investments (NCREIF cap rates), which are expected to remain steady at 6 percent in 2012 and 2013 and then rise slightly to 6.2 percent in 2014.
By property type, National Council of Real Estate Investment Fiduciaries (NCREIF) total returns in 2012 are expected to be strongest for apartments (12.1 percent), followed by industrial (11.5 percent), office (10.8 percent), and retail (10 percent).
By 2014, returns are expected to be strongest for office (10 percent) and industrial (10 percent), followed by apartments (8.8 percent) and retail (8.5 percent).
ULI CEO Patrick L. Phillips advised that while the ULI Forecast suggests that economic growth will be steady rather than sporadic, it must be viewed within the context of numerous risk factors such as the continuing impact of Europeâ€™s debt crisis; the impact of the upcoming presidential election in the U.S. and major elections overseas; and the complexities of tighter financial regulations in the U.S. and abroad.
â€œWhile geopolitical and global economic events could change the forecast going forward, what we see in this survey is confidence that the U.S. real estate economy has weathered the brunt of the recent financial storm and is poised for significant improvement over the next three years.,â€ said Phillips.
Non-housing sector growth, according to the ULI Forecast, which was conducted from February 23 to March 12, 2012
-For the apartment sector, year-end vacancy rates are expected to decline further in 2012 to 5 percent, and then rise slightly to 5.1 percent in 2013 and to 5.3 percent in 2014.
-Apartments are expected to show strong rental rate growth, rising 5 percent in 2012, then slowing down to 4 percent in 2013, and 3.8 percent in 2014.
-Issuance of commercial mortgage-backed securities (CMBS) is expected to increase from $33 billion in 2011 to $40 billion in 2012, $58 billion in 2013, and $75 billion in 2014.
-Ten-year treasury rates are projected to rise to 2.4 percent by the end of 2012, 3.1 percent for 2013, and 3.8 percent for 2014.
-Future equity REIT returns are expected to rise to 10 percent in 2012, then drop to 9 percent in 2013, and 8 percent in 2014.
-Returns for institutional-quality direct real estate investments are expected to trend lower, with returns of 11 percent in 2012, 9.5 percent in 2013, and 8.5 percent in 2014.
-Hotel occupancy rates are projected to increase to 57 percent by 2012, 58.2 percent by 2013, and 59.2 percent by 2014.
-For the industrial/warehouse sector, vacancy rates are expected to decline steadily over the next three years to 12.8 percent by the end of 2012, 12.1 percent in 2013, and 11.5 percent by the end of 2014.