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While the future of the real estate industry is uncertain, several experts offered their predictions during the Urban Land Institute’s (ULI) virtual 2021 Spring Meeting, held on May 10-12.

“The demand for housing will hold up as economic recovery continues to pick up speed,” said Vicki Mullins, EVP and chief financial officer at Newland. “Builders are focusing on starting and closing homes, as they sold more homes last year than they anticipated. New-home communities are selling out faster than they can be replaced. We’re seeing accelerating home-price appreciation, with new-home prices up 16% YoY. Housing affordability remains a problem. We think some of the buyers will continue to rent.”

Mullins was a panelist on ULI’s “Trends and Outlooks: Where Are We Now and What’s Next for the Housing Industry?” virtual session. She joined Darryl Carter, chairman and CEO, Avanath Capital Management, and Thomas Toomey, chairman and CEO at UDR, Inc., to discuss the current conditions of the housing and rental market.

Mullins’ claims appear to be supported—at least in part—by data and predictions featured in ULI’s “Learning in Real Time: Experts Share Their Forecasts for Real Estate in ’21, ’22, ’23.” virtual panel.

The discussion, which was moderated by Ken Rosen, chairman at Fischer Center for Real Estate and Urban Economics, featured forecasts of what the next three years of post-COVID recovery will look like for real estate and the national economy.

Speakers at the session included Mary Ludgin, senior managing director and director of Global Investment Research at Heitman; Ben Breslau, chief research officer, Americas, JLL-Leadership; and Tim Wang, managing director, head of Investment Research Clarion Partners.

Economic Predictions

Ludgin predicted an “unusual recovery” to the virus-induced recession, albeit a positive one.

“This is likely the best couple of years of our professional lives—this year and next year—so enjoy them,” she said, referring to ULI’s data which predicted a substantial bounce back in 2021 before tapering off in 2022 and 2023.

Contrary to past predictions of a quick and smooth recovery, Ludgin said a “K-shaped [recovery]” is more likely amid the mix of social policies passed and proposed by the Biden administration.

Compared with past recessions, Ludgin also said bouncing back from the pandemic will not be a “jobless recovery.”

Job recovery appears to be on track for a total return of jobs lost during the pandemic—9.42 million positions—by 2023, dropping unemployment from 6.7% in 2020 to 4% in three years.

“The labor force did expand in April, but in some estimates, there are as many as 5 million people who are not in the labor force today that were in the labor force pre-pandemic,” said Ludgin. “It will take a while for the jobs that were lost to come back, but we are adding jobs.”

According to Rosen, an issue facing the real estate market is the immense fiscal stimulus that includes a lot of borrowing.

“We have to keep in mind that we already have the $900 billion put in place in December, another $1.9 trillion in March and proposals for almost $4 trillion more—some of that will be handled by tax increases,” Rosen said, pointing out the elimination of the 1031 exchange, doubling of capital gains tax and eliminating the step up on basis as potential problems for real estate.

Where Real Estate Is Heading

Perhaps one of the most significant effects of the pandemic—and subsequent government response—has been the increased demand and buying power of millennials.

“The pandemic kind of accelerated that,” Mullins said. “On the other end, the kids are out of the home, and they want to size down. It’s supply and demand, and we’ve been undersupplied for quite a while. Now we have this big millennial group coming up and they want homes.”

Home starts were slightly above the 20-year average in 2020 at 990,500. That’s forecasted to jump up to 1.1 million this year, along with 1.2 million in 2022 and 2023, respectively, according to ULI’s data.

The market is still dealing with the disruption to the supply pipeline, which has also affected price tags on single-family homes.

“The main thing is construction costs have gone crazy,” Rosen said. “We have never seen price increases like this.”

Home prices are expected to ease up in the next three years following a historic uptick in 2021. Based on ULI’s predictions, high price tags for homes will continue this year—up 8.1%—and taper down to 2% and 4% in 2022 and 2023, respectively.

“We’ve seen an acceleration of inflation, and the forecast here is that people expect mid to high 2% over the next three years, which is the highest number we’ve seen since the recovery in 2011,” Rosen said.

Out Migration and the Return to Big Cities

The housing market has taken on a life of its own due to the pandemic, disrupting and transforming standard living patterns as many people realize they can work almost anywhere.

Migration out of large metro areas like California and New York to more affordable markets—Florida, Texas and Arizona were the top three according to census data—was an existing trend that the pandemic exacerbated.

The trend is slated to continue in the coming years, according to Breslau.

“I think that shift was coming regardless of the COVID pandemic, and we did see it meaningfully, and it showed up in 2020, and we still see that in terms of mental stability in suburban locations as compared to urban, and we expect that to continue as well,” Breslau said.

The shift out of bigger cities and subsequent decrease in the cost of living may be appealing to people who initially couldn’t afford to move to markets like New York or San Francisco, according to Ludgin.

According to Breslau, this could translate into a bounce-back for the apartment market— he said he’d seen some signs of stabilization in the market in the last couple of months.

“Our long-term view is that young people will continue to flock to gateway markets like New York,” Breslau said.

Senior Online Editor Liz Dominguez contributed to this article.

Jordan Grice is RISMedia’s associate content editor. Email him your real estate news to jgrice@rismedia.com.

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