By George Ratiu, NAR Research Economist
The economy concluded 2009 with a positive level of activity. Gross domestic product advanced at a better-than-expected 5.9 percent rate. Other economic indicators also pointed towards a continued recovery. At the same time, commercial real estate concluded the year with mixed results. Fundamentals remained weak, investments were down and the volume of distressed properties increased. Contracting credit and a tightened lending environment added to the pressure.
In the broad landscape of commercial properties, the multifamily sector has fared comparatively better. Demand for space was modest but positive. Net absorption closed the year at 105,458 units. Yet, there are factors which caused adverse impacts in the sector.
Household formation seems to be one of those factors. More precisely, the prolonged recession of the past two years has taken a toll on the number of people starting a household. Based on household formation data from the Census Bureau, the 10-year average of new households being formed has been 1.3 million per year. However, this number decreased significantly in both 2008 and 2009. From a decade-high of 3.5 million in 2001, household formation dropped to 772,000 in 2008 and only 398,000 in 2009.
It is not surprising that many people delay forming households considering the current employment environment. Except for a solitary 0.6% rise in November 2009, payroll employment has been declining for two years. Over this period, 8.4 million jobs have been cut, leading many job seekers into longer job searches, and causing others to discontinue their attempts altogether. The number of people receiving unemployment benefits reached the 4.6 million mark this past week.
