MBA Makes Predictions for Economy, Interest Rates, Unemployment, Commercial Real Estate

Commercial real estate market conditions are not likely to ever return to levels last seen at the peak of the market in 2007, according to Jay Brinkmann, chief economist and senior vice president, research and economist, of the Mortgage Bankers Association (MBA).

February 4, 2010
By Keat Foong, Contributing Editor

Courtesy Flickr Creative Commons user heathbrandon.

Las Vegas–Commercial real estate market conditions are not likely to ever return to levels last seen at the peak of the market in 2007, according to Jay Brinkmann, chief economist and senior vice president, research and economist, of the Mortgage Bankers Association (MBA).

Brinkmann spoke at a general session at MBA’s Commercial Real Estate Finance/Multifamily Housing Convention and Expo held this week in Las Vegas.

The mid-point of the last decade was “anything but normal,” said Brinkmann. He said the U.S. economy at that time was an economy that was “artificially stimulated.” For example, more than $250 billion per quarter was withdrawn as equity from homes by consumers. “We will not get back to that point,” he said.

Brinkmann was joined in the forecast presentation by Jamie Woodwell, vice president, commercial/multifamily research at MBA.

The MBA predicts real GDP growth to be 2.7 percent in the first quarter, 2.3 percent in the second quarter, 2.7 percent in the third quarter and 3.2 percent in the fourth quarter. Nevertheless, unemployment—an important indicator for commercial real estate and the multifamily sector — will be slow to recover in this business cycle notwithstanding economic growth.

The good news on the employment front is that new claims for unemployment insurance has been declining for most of 2009, said Brinkmann. He expects that trend to continue through 2010. By the end of this year, the unemployment claims level will likely be at pre-recession levels, Brinkmann said.

The falling unemployment insurance claims rate means that consumers who have jobs now will be more confident that they will not lose them and will be more willing to spend, he said.

The bad news, however, is that the percentage of those who have been unemployed for more than six months has hit a record 40 percent–the highest level ever seen since records were kept in 1951. In past recessions, the highest percentage of long-term unemployed was only 25 percent.

Unemployment now will be always longer to recover than economic development, said Brinkmann. Given that 2.7 million jobs have been lost since the trough of this recession, it is likely to take nine quarters for that level to be replenished, he said.

Brinkmann forecast that it is “highly unlikely” the Federal Reserve will increase the Federal Funds rate before December and early 2011—unless it needs to jump in to defend the dollar. Otherwise, there is no evidence of inflation and there is still a flight to quality among investors.

Keat Foong is also executive editor of Multi-Housing News.