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Commercial Sectors Expects Modest Growth

Multifamily and industrial properties will continue to lead growth among commercial real estate sectors as the economy makes moderate gains through the end of the year and into 2017, NAR Chief Economist Lawrence Yun said at the 2016 REALTORS® Conference & Expo in Orlando on Friday. He expects rental rates in the multifamily sector to rise a modest 3 percent a year through 2018, fueled by young households who see solid job growth but aren’t yet ready to buy. He said that the industrial properties are expected to see a solid 4 percent growth in rental rates. Yun said the country is likely to maintain positive economic growth over the next two years likely at a 2 percent rate.

Inflation will largely stay in check, thanks to low gas prices, but expect it to rise from 1.2 percent this year to 2.5 percent over the next two years because gas prices will continue to drop. That means the inflation rate will no longer offset rising medical costs, rents, and college tuition. He predicted that it is likely for the Federal Reserve to raise its short-term interest rate in December 2016 — and then possibly twice more in 2017.

K.C. Conway of Sun Trust Bank said that because of weakness in the U.S. economy, Conway said, the Fed might raise its short-term rate only once (in December) and then not at all in 2017 because increases could hurt the two sectors of the economy that are still doing well: home sales and personal consumption.

Both Yun and Conway said the economy is hurt by the lack of new housing construction, which is keeping prices high and forcing young households to delay home purchases. At the core of the inventory problem are regulations that make it hard for banks to increase their construction lending to builders. Easing those restrictions for community banks, Yun said, would help unleash badly needed financing for builders without putting the banking system at risk, since large, systemically important financial institutions would still be subject to stringent capital rules.

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