Commercial Real Estate Remains Healthy

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The Federal Savings Bank shares news of the current environment of the US commercial real estate market.

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Demand and low inventory are responsible for the higher prices.

A strong commercial real estate industry will likely lead to more jobs and more appeal to certain areas where first-time home buyers will want to invest in homes. The Federal Savings Bank was intrigued by the latest National Association of Realtors Commercial Real Estate Market Survey showing positive growth in the industry for the second quarter of 2015.

Sales volume for commercial real estate increases
According to the survey, the total number of sales increased 9 percent on a year-over-year basis. Participating real estate agents indicated an increase in commercial business opportunities. In fact, the survey shows a 6.4 percent increase from the first quarter. This followed a 3.8 increase from when the previous quarter was compared on a quarter-over-quarter basis.

In addition, 60 percent of real estate professionals indicated they closed a sale while 54 percent completed a lease transaction.

Real estate professionals felt positive about the future growth and presence of business opportunities. In addition, members of the NAR forecast a 6.4 percent rise in opportunities for businesses. The following industries will likely see the most chances for betterment:

New development/construction

Real estate continues to strengthen
Demand for homes in the U.S. is significant. Many individuals are reaching an age when their families are growing and their needs for living change. Job growth and a stronger economy also encourage more interested buyers to invest in real estate. In addition, the industry is helping make it easier for individuals to qualify for a mortgage.

Government-sponsored enterprises, like Freddie Mac and Fannie Mae, offer low down payment options for qualified buyers. This allows potential home buyers to put as little as 3 percent of the total value of a home down.
Primary mortgage insurance costs also decreased in an effort to save homeowners more money and encourage young buyers to enter the market to further strengthen it.

These factors drove up mortgage applications and general housing activity. According to the Mortgage Bankers Association's weekly survey, released on July 29th, applications for home loans increased 0.8 percent on a week-over-week basis while refinance activity increased dramatically. In fact, refinancing applications made up 50.6 percent of all applications for the week ending July 29.

The increasing demand likely contributed to the most businesses opportunities predicted for operations involved in real estate, such as construction and new development. Businesses involved in apartments and multi-family housing are remaining especially strong during the second quarter.

Shortage of inventory drives up prices
The survey indicated sales prices for commercial real estate rose 7 percent when compared on a year-over-year basis. The average transaction value for the first quarter was $1.7 million and increased to $2 million in the second quarter.

Demand and low inventory are responsible for the higher prices. Responding real estate professionals indicated the most substantial concern for the industry is the shortage of inventory available.

Overall, there is good activity in commercial real estate and businesses are growing. This bodes well for the future of the real estate industry.

Contact The Federal Savings Bank, a veteran owned bank, to learn more about mortgages.

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Giorgio Urbano Ferrero
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