Commercial Real Estate: A Bright Spot in our Economy

According to the latest economic forecast released by the Mortgage Bankers Association, the country’s economic growth should return to near normal growth during 2007 and 2008, after some slow down for the remainder of 2006, according to its Chief Economist and Senior Vice President for Research and Business Development, Doug Duncan, and commercial real estate activity is expected to remain a bright spot in the economy.

In his general session presentation at MBA's 93rd Annual Convention & Expo in Chicago, Duncan said that although the labor market has recently weakened and despite sluggish growth, the market is still quite healthy.  Employment continues to expand moderately and several measures of core inflation have trended higher in recent months.

Duncan continued, “Despite sluggish growth, largely due to declining residential investment and auto production in the second half of this year, we are optimistic about a rebound in 2007, Long-term interest rates have remained low in the face of rising short-term rates, equity prices have risen nearly 20 percent, capital expenditures remain strong, the trade sector has turned from a big drag on growth to a modest stimulus, and energy prices have dropped sharply.”

The good news from the MBA forecast is that the yield curve will remain inverted, with the fed funds rate and the 1-year Treasury yield exceeding the 10-year Treasury yield;financial markets perceive that the Fed is now done with the tightening cycle and expect an easing at some point in 2007; the 30-year fixed-rate mortgage yield is expected to trend modestly higher over the course of the next two years, reaching 6.8 percent by the end of 2008; and interest rates will remain low by historical standards.

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