Will 2011 Be the Year Of the Real Estate Rebound?

Last week's report on existing home sales provided a clue some housing analysts are interpreting as a sign of a bottoming in the real estate market.

It wasn't the fact that sales of existing homes increased unexpectedly. Rather, it was the rising number of investors who were purchasing homes and the fact that 32 percent of the purchases were made with cash.

Money talks

When the real estate market is attracting large numbers of investors -- and those investors are paying with cash -- it suggests property is becoming more affordable, falling from the inflated levels of the housing bubble.

In the Northeast, the median price of a home is $236,000 -- down four percent from 12 months ago. In the Midwest, the median price is $126,300, down 3.2 percent from a year ago.

Commercial stability

The residential real estate market isn't the only one showing signs of stabilization. The National Association of Realtors reports the commercial real estate sector, brought to its knees by speculation and overbuilding in the last decade, is showing signs of recovery.

"Very limited construction of new commercial real estate over the past few years has essentially fixed the supply of available space," said Lawrence Yun, NAR's chief economist.. "This means vacancy rates could fall quickly from any increase in demand for commercial space." (Read consumer complaints about realtors).

From the first quarter of this year to the first quarter of 2012, NAR expects vacancy rates to decline 0.5 percentage point in the office sector, 1.3 points in industrial real estate, 0.1 point in the retail sector and 0.9 percentage point in the multifamily rental market.

Rental rebound?

"Even with declining vacancy rates, rents are not likely to turn positive in most markets until next year, outside of multifamily rental properties," Yun said. For example, office rents are forecast to fall 1.8 percent this year before turning higher by 4.0 percent in 2012.

Yun says apartment rent increases are expected to accelerate from job creation leading to new household formation, particularly among the young adult population who will seek their own housing arrangements. Many will be leaving their parents' homes, or choose to live with fewer roommates. Average apartment rent is projected to grow 3.4 percent this year and another 4.2 percent in 2012.

"Rising apartment rent in combination with rising oil prices could push the overall inflation rate beyond a comfort level, which could then force the Federal Reserve to raise interest rates later this year or early in 2012," Yun said.