US Real Estate Sector
Industry Profile Report
Dive Deep into the industry with a 25+ page industry report (pdf format) including the following chapters
Industry Overview Current Conditions, Industry Structure, How Firms Operate, Industry Trends, Credit Underwriting & Risks, and Industry Forecast.
Call Preparation Call Prep Questions, Industry Terms, and Weblinks.
Financial Insights Working Capital, Capital Financing, Business Valuation, and Financial Benchmarks.
Industry Profile Excerpts
Industry Overview
The 419,682 establishments in the real estate sector are involved in the purchase, sale, rental, leasing, and management of properties. Establishments typically specialize in a particular type of property, such as residential, commercial, or industrial.
Dependence on Credit
The real estate sector is capital-intensive and highly dependent on credit.
Maintaining Occupancy
For commercial and residential lessors, maintaining occupancy is critical to generating steady streams of rental income, which are necessary to cover operating expenses and debt costs.
Industry size & Structure
The real estate sector is comprised of 419,682 establishments that employ more than 2.3 million workers and generate $637 billion in annual revenue, according to government sources.
- The real estate sector represents 12% of the nation's Gross Domestic Product (GDP) and employs 1.2% of the country's workers.
- The sector is fragmented with the 20 largest firms representing 13% of revenue.
- In addition to employer establishments, the real estate sector has 2.8 million owner-operated establishments with no employees. Subsectors with the highest numbers of nonemployer establishments are lessors of real estate (44%) and offices of real estate agents and brokers (28%). The owners of nonemployer establishments typically perform the work and may outsource support functions like marketing and accounting.
- The real estate sector has shed about 27,000 establishments annually, which equals about 9.6% of existing establishments. However, the sector has added about 36,000 new establishments annually, which is equivalent to 12.7% of existing establishments. As a result, the sector has an average growth rate of 3.1%.
- The real estate sector is forecast to grow its employment base by 2.1% overall in 2021-2031, which is much lower than the national average of 5.3% for all jobs, according to the Bureau of Labor Statistics.
Industry Forecast
US Real Estate Sector Industry Growth
Recent Developments
May 17, 2024 - Home Builder Sentiment Declines
- Home builder confidence dropped in May for the first time since November 2023 as high mortgage rates dampened demand for new single-family homes, according to the National Association of Home Builders (NAHB). Home builder sentiment, as measured by the NAHB/Wells Fargo Housing Market Index (HMI), fell six points to 45 in May 2024. Any HMI reading over 50 indicates that more builders see conditions as good than poor. The HMI survey also showed that a quarter of builders have reduced home prices to lure potential buyers off the sidelines, although the average price reduction of 6% remained unchanged for the eleventh consecutive month.
- A lack of affordability in the US housing market is prompting a building boom of for-rent homes, according to The Wall Street Journal. Amid high interest rates and home prices, many affluent potential home buyers are priced out of the single-family and townhome markets. In 2023, US builders completed 93,000 for-rent homes - the most ever in a single year and up 39% over 2022, according to John Burns Research and Consulting. There are another 99,000 for-rent homes currently under construction, but the breakneck pace of development is expected to slow as lending standards tighten. However, some industry watchers believe any lull in built-for-rent home demand will be brief as economic conditions make renting a better financial option than buying. As of March 2024, the average monthly mortgage payment was 38% higher than the average monthly apartment rent, according to CBRE.
- Fitch Ratings’ US CMBS delinquency rate rose by 14 basis points to 2.33% in April 2024 from 2.19 in March. A rise in office maturity delinquencies drove the April rise, as several large office properties defaulted at maturity. Commercial mortgage-backed securities (CMBS) are fixed-income investment products backed by mortgages on commercial properties rather than residential real estate. The delinquency rate is the percentage of commercial real estate loans that were 30 or more days past due or in foreclosure. A rising delinquency rate indicates that an increasing number of commercial property owners cannot pay the mortgages on those properties. Current and prior-month delinquency rates for April and March were: Retail: 3.96% (from 9.92% in March); Hotel: 3.36% (from 3.31%); Office: 4.27% (from 3.66%); Multifamily: 0.39% (from 0.33%); Industrial: 0.49% (from 0.53%); Mixed Use: 4.00% (from 3.99%); Self-storage: 0.00% (from 0.00%); and Other: 1.83% (from 2.04%).
- As hopes that the Federal Reserve will cut interest rates before the end of the year dwindle, some commercial real estate owners may decide it’s time to sell and move on, according to The Wall Street Journal. About $929 billion in outstanding property loans is set to mature in 2024, up 41% compared to an earlier estimate by the Mortgage Bankers Association. The increase is due to many of the loans that were due in 2023 being extended into this year. Extending loans further could be costly for some property owners. To secure additional loan extensions, lenders are requiring owners to put in additional cash as a show of faith in their properties. Some commercial real estate owners may decide to turn the keys over to lenders and deploy their cash elsewhere.
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