July 3, 2019
Editor's Note: this week's commentary is provided by ACRE's Research Coordinator Stuart Norton
With the Fourth of July tomorrow, it’s a good time to reflect back on the interesting role that real estate played in our nation’s early history. When George Washington’s will was executed in 1800, it called for the sale or distribution of 52,194 acres in Virginia, Pennsylvania, Maryland, New York, Kentucky, and the Ohio Valley. This was in addition to his land holdings in the Virginia cities of Winchester, Bath (now Berkeley Springs, West Virginia), Alexandria, and in the newly settled City of Washington.
His career in real estate was quite interesting...and lucrative, as he is estimated to be our nation’s wealthiest President, the majority of which resulted from his vast land holdings. While commanding British troops in the French and Indian War, he explored the vast Ohio Valley and quickly realized its potential, even mentioning in a letter that if he didn’t survey the region, somebody else would. Leaving military service in the late 1750’s, he shifted his focus to surveying vast and bountiful lands in what would become the Northwest Territory. He also led a successful 20-year effort to finalize western land grants promised to veterans of the French and Indian War. The compensation of lands for military service was delayed throughout the colonial era, most notably by the Proclamation of 1863, which banned colonial governors from issuing land grants west of the Appalachian and Allegheny Mountains. Of the many factors leading the colonists towards Revolution, the Crown’s disfavor towards western expansion, expressed clearly by the King in his Proclamation of 1863, stands out because the country would span the continent by 1848, a mere 72 years after the Revolution. For more details about the role that real estate played in our nation’s early history, tune in to this week’s podcast. (Link needed)
Now that we have brushed up on our history, let’s move on to the major economic and housing news from the previous week. First quarter GDP was unchanged in the most recent revision, remaining at 3.1%. Be on the lookout for the second quarter advance estimate on July 26 as it will provide a window into the effects of economic uncertainty including retaliatory tariffs and the ongoing trade dispute.
On the commercial front, warehouse construction reached an unprecedented 255 million square feet in the first quarter of 2019. The impressive growth was due, in part, to growing e-commerce demand. California’s Inland Empire lead the way with 23.4 million square feet of finished warehouse space and a 3.2% vacancy rate and 9.4% annual rent growth. Atlanta was second with 16.1 million square feet under construction, a 6.4% vacancy rate and 7.9% annual rent growth.
On the residential side, new home sales nationwide declined 3.2% in May, but are up 3.8% YTD. While new home sales are up from last year, builders continue to struggle with a variety of challenges including rising land costs, rising material costs, and skilled labor shortages. Additionally, the FHFH Home Price Index was up 5.2% y/y in the latest release. With 4.3 months of supply nationwide, it is not surprising to see home price appreciation continue its upward trajectory.
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