Bill Pastuszek, Shepherd Associates

Looking in the rear view mirror: What noteworthy happened in 2015? Anything new under the sun (or under the snows). Any winners, losers? What can be taken away from 2015 which can inform our expectations and actions going forward?

• Winter of 2015. The brutal winter affected:

- Everybody (and stories for a generation to come)

- The T.

- Housing markets, for a short time; then they rebounded.

- Maintenance costs and CAM reimbursements.

Result: No real winners here. Buildings and site improvements experienced accelerated aging; there was some wrangling between tenants and landlords for extraordinary weather-related costs.

Will real improvements occur in Boston’s Mass Transit system?

• Jobs/Unemployment.

- Total nonfarm payroll employment increased by 211,000 in November, and the unemployment rate was unchanged at 5% percent, the U.S. Bureau of Labor Statistics reported. Job gains occurred in construction, professional and technical services, and health care.

- In Massachusetts, jobless rates were lower in November than a year earlier in most metro areas. Nonfarm payroll employment was up in most metro areas.

Result: The economy and the population benefited. Over the past 12 months, the national unemployment rate and the number of unemployed persons are down by 0.8 percentage point and 1.1 million, respectively.

• Interest Rates.

- The Fed finally acted to raise the discount rate and will raise it again. Not a problem-markets have been expecting this, and these raises are unlikely to affect consumer rates in any significant way.

Result: Everybody won. Money was affordable and if you wanted to borrow, there was plenty of it. On the lending side, it was a tightrope act to maintain discipline and standards when everybody was offering a better deal to borrowers.

•Inflation

- No real change in the national CPI-U or for Boston.

- Commodity prices were low. Energy was cheap.

- Inflation rates remain below 1%.

Result: Prices were stable. Low inflation is not necessarily good. And cheap energy is only good to a point. Economic growth (GDP) was moderate. No boom here.

• Single Family housing. MLSPIN notes that there were 49,000+ transactions in Massachusetts in 2015; in 2014, there were slightly more than 45,000, an increase of about 9%. The median statewide price went from $336,000 at the end of 2014 to $346,000 in 2015, an increase of nearly 3%. Condos showed similar median price changes.

Result: Better volume made everyone happier about housing in 2015. If the winter hadn’t shut down activity for a period of time, the year would have been even better, though markets recovered through the summer. Days on market didn’t change dramatically statewide, going from 98 to 95.

What happens is 2016? The economy seems to have legs; interest rates are stable. Consumers are feeling pretty good about things. Housing, though overheated in a lot of markets, will be a strong economic driver. Outlying areas will play catch up.

• Consumer Confidence. The Consumer Confidence Index (Conference Board) improved in December over November.

Result: Lynn Franco at The Conference Board notes, “As 2015 draws to a close, consumers’ assessment of the current state of the economy remains positive, particularly their assessment of the job market. Looking ahead to 2016, consumers are expecting little change in both business conditions and the labor market. Expectations regarding their financial outlook are mixed, but the optimists continue to outweigh the pessimists.” 

• New Construction. High land prices for scarce land and high barriers to entry make eastern Massachusetts a premium market with low affordability. Overall, there is optimism for new construction and home builders continue to create housing to meet demand.

Result: Local builders are frustrated by lack of development opportunities. The high end continues to thrive.

• Multi-Family Markets. Sources report some satiation of apartment demand and moderation in rental rates. In many markets, including those affected by the energy bust, moderation in positive builder sentiment is reported.

Result: While multi-family still seems like a “can’t lose” proposition, moderation of rental growth may signal over building in some markets. In eastern Massachusetts, tenants have moved west to find more affordable rental housing with the result that outlying markets experience rent growth and increased investor interest.

• Commercial (CRE) Markets. A lack of inventory continues to push prices. Investors worldwide chase few assets. Cap rates continue to see more modest compression.

Result: CRE markets experienced a strong year in 2015. The trend is likely to continue with no major changes, except for demand from disparate sources.

Conclusion: There was plenty of cause for optimism nationally and in Mass. during 2015. Ample job opportunities, strong residential and commercial real estate markets, a highly skilled workforce, and a diverse population made for a propitious and distinctive combination of factors within the Commonwealth. Based on past performance, there is ample cause to anticipate a positive 2016.

Bill Pastuszek, MAI, ASA, MRA, heads Shepherd Associates, Newton, Mass.