All home sales have increased moderately in many sections of the nation during the past six months, and the pace of commercial realty investment also has increased because of renewed confidence in real property holdings.
One reason for the decline in home mortgage rates from the 15% range last July to the current 13% level can be found in the increased commitment of pension funds to all forms of real estate. Although pension funds now hold in excess of $1 trillion, only about 3% of that amount is invested in real estate. But those investments have increased during 1983 and 1984 as pension-fund executives gained more experience and confidence in the realty investments.
Another positive factor for all real estate developments is the perception that foreign investors are again becoming active in the U.S. realty market. Philip D. Morse, an executive with the Abacus (financing) Group here, recently pointed out that new foreign investments now exceed $5 billion a year in American properties and could move over the $8-billion level this year.
Morse noted that major investors are based in Great Britain, the Netherlands, the Middle East and the Far East. Those offshore investors tend to provide longer-term financing (20 or more years) than do American investors and also seem willing to pay somewhat more than home-grown buyers will offer for high quality, well-located properties.
The Abacus executive said that foreigners favor the tightly controlled and generally strong markets in cities such as New York, Boston, Washington and San Francisco. Abacus itself was involved in the recent start of a major, multimillion-dollar development in the Potomac waterfront in nearby Alexandria, Va., where Dutch investors are also involved.
This project is expected to enhance Alexandria's ability to attract top-grade business and association tenants to the site south of National Airport and the Pentagon.
While investment money has primed the total economy in the past six months, there has been a significant upturn in the amount of dollars available for such investment in new homes, mortgages for existing homes and private commercial development. All through 1984, seasoned Washington area realtors such as Justin Hinders and Angelo Puglisi kept insisting that "there's plenty of money out there" waiting to be invested in solid new housing and commercial developments.
In analyzing the residential market, chief economist Michael Sumichrast of the National Assn. of Home Builders noted recently that the sales of new homes have been narrowly defined rather than generally strong. The veteran Washington housing and finance observer noted that new homes priced under $50,000 are the best sellers across the land and those priced in the $50,000 to $75,000 range are next best in attracting first-time buyers who now account for 40% of all new home sales.
For the most part, these purchasers are young married couples with two incomes that total $35,000 to $45,000.
In reviewing housing statistics, Sumichrast added that the average age of new home buyers (now 33 years) is virtually the same in age (and also in percentage of buyers) as was the case in post-World War II.
One negative note that home builders cannot totally understand is that the upsurge in new home sales has been concentrated in the single, detached houses. Townhouses are still being built and sold, but they are not gaining a larger share of the market. But the condo apartment market has gotten worse rather than better in most urban areas.
"The condo market has been soft for some time and continued to be weak throughout 1984," added Sumichrast. He noted that the inventory of unsold condo dwellings is unhealthily large in many urban areas.
Apartment rental expert Joseph C. Murray of Shannon & Luchs commented that the soft market in condo sales in and around the nation's capital is undoubtedly the result of both over-conversion of rental apartment and too much construction of condo units priced above the pocketbooks of current apartment tenants. As a result, Murray noted, rental apartment vacancies are low despite rent increases in the past few years.