National Real Estate Market Conditions
The state of the United States real estate market has been rather problematic during the recent two years. According to JP Morgan (2009), the year 2008 can be assessed as the worst year for the US economy since the time of the Great Depression, and the professionals of JP Morgan (2009) expect 2009 to be even worse in its influence on financial markets on the whole, and real estate market in particular (p. 1). The recent figures prove this point, as in the fourth quarter of 2008 commercial transactions in the real estate market decreased by the rate of 80% compared to the 2007 levels. The specialists of JP Morgan (2009) connect this developmental trend of the real estate market to the global economic recession and its influence upon the major demand-forming factor for real estate, i. e. employment and its low rates observed in 2008 and 2009 (JP Morgan, 2009, p. 3).
The depressed condition of the US real estate market is illustrated by the retail sales rates, which have been displaying a sharp and steady downturn amounting to the 20% decrease as estimated for January 1, 2009 (JP Morgan, 2009, p. 6). Under these conditions, the apartment investment has been at the lowest level among all real estate trading areas with sales decreasing by 75% according to December 2008 data. Given the above discussed economic and financial market conditions, the real estate market is subjected to risks of concentration in an exclusive market segment, a decrease of real estate value, unemployment growth, and the risk of decrease in value of the property for sale, resale, or rent.
Apartment Investment Details
The general conditions of apartment investment in the US real estate market prove to be as difficult as the conditions of the whole market. For example, the US Bureau of Economic Analysis (2009) and JP Morgan (2009) forecast the continued decrease in apartment rentals and sales rates. This brings the theory of the real estate cycle into the spotlight as the equilibrium in this cycle, or its absence is determined by such basic real estate factors as vacancy rates, rent trends, asset price trends, cap rates, and level of new construction. Generally, the current real estate market conditions in the area of apartment sales and rent are far from equilibrium according to the real estate cycle.
In more detail, the real estate cycle presupposes the state of equilibrium when supply and demand are equal in the market. According to the US Bureau of Economic Analysis (2009), vacancy rates in apartment real estate in the US have reached the highest level since 1986. The current vacancy rate is 7.8% and it evidences the lack of demand in the real estate market. Rent trends are predicted to be decreasing in 2009, which also means falling demand and the financial inability of potential customers to afford real estate purchases or rentals. The assets price trends are also pessimistic as the Bureau of Economic Analysis (2009) and JP Morgan (2009) see the potential for assets to lose about 40% of their value by late 2009. The cap rates are expected to increase as, according to the real estate cycle, cap rates always grow if rent trends go down. Finally, levels of new construction are and expected to be, low reflecting the lack of demand and conformity of the US real estate market to the real estate cycle principles.
Sacramento, CA Real Estate Market Conditions
At the same time, irrespective of the generally pessimistic trends in the national real estate market, the developments of the real estate market in Sacramento, CA seem to be rather positive, according to Streitfeld (2009). Experts, as Streitfeld (2009) argues, claim that the recession is over and the markets, among which there is a real estate market, begin recovering from it. The facts that prove the point include the 45% growth of sales in the real estate market of Sacramento, CA, and the majority of the market (53%) constituted by first-time buyers. This evidences that the real estate cycle in Sacramento has passed its bottom line and the curve of demand is on the rise at the moment. The considerable supply in the real estate market now starts being satisfied by the newly emerging demand.
The recovery of the real estate market in Sacramento, CA is especially evident in the single-family home segment. According to Streitfeld (2009), only in March of 2009, over 2,000 single-family houses were sold in Sacramento, CA. Although banks are still reluctant to offer mortgage services, Sacramento customers readily buy real estate property for the increased prices under the condition they get the chance to repay the loans in acceptable parts during several years or the estimated house price is lower than renting the accommodation with the same living conditions for the same period (Streitfeld, 2009). All these facts evidence the recovery of the real estate market in Sacramento, CA, and prove that the real estate cycle is about to take an upward direction.
Works Cited
JP Morgan. US Real Estate Outlook. Real Estate Insights. Spring, 2009. JPM.
Streitfeld, David. Where Home Prices Crashed Early, Signs of a Rebound.Business. 2009. NYTimes.
US Bureau of Economic Analysis. US Economic Accounts. US Department of Commerce, 2009. BEA.