A raft of mixed signals across the economy has left commercial and residential real estate investors scratching their heads and looking for clarity. So which way is the real estate market headed? Nobody seems to know.

For one thing, real estate investment trust (REIT) stock prices have soared as of late, with many issues at their 52-week and all-time highs. But at the same time, one of the nation's bellwether real estate measures -- construction volume -- is taking a nosedive.

California's total construction volume for May was $5.31 billion, down 11.3 percent from April and down 4.5 percent from May 2000, according to the Construction Industry Research Board (CIRB).

On the flip side, the state's year-to-date figures show total construction after five months is up 14.3 percent. Yet this dramatic rise is largely due to construction of new power plants, which inflates the totals.

The slowdown becomes clearer in the numbers for private non-residential building, the steadiest sector over the past five years. Seasonally adjusted the May non-residential building total is down 2.5 percent from April and down 13.7 percent from May 2000. And the annual rate of the past three months is down 15.9 percent from the $19.07 billion average rate of the previous 12 months.

Ben Bartolotto, director of CIRB, said he believes "the gap is closing." Large projects early in the year "do not diminish the fact we are starting to slow down," he added.

According to CIRB, total non-residential building adjusted for inflation is forecast to decrease by 5.3 percent in 2001, and to decrease by 5.8 percent in 2002. These declines would be the first in private non-residential buildings since 1993.

Yet while commercial construction drops on the West Coast, the National Association of Realtors (NAR) predicts that the housing market will continue to chug along, thanks to low unemployment and mortgage interest rates coupled with high consumer confidence.

"We expect the economy to gradually pick up steam during the second half of the year, yet inflation will remain tame. This should boost consumer confidence and keep the housing market rolling along at strong levels," said David Lereah, NAR's chief economist. "Thirty-year fixed mortgage interest rates will rise and hover in the 7.3 range during the second half of the year, a little higher than we've seen but not enough to deter overall sales."

The NAR forecasts that existing-home sales will rise 0.7 percent in 2001 to a total of 5.15 million, still the second highest on record. New-home sales will rise 4.6 percent to a total of 918,000 units this year, a new record, and housing starts are forecast to rise 2.7 percent to a total of 1.61 million units in 2001.

You wouldn't know that by looking at stocks for residential builders, however, which have suffered on Wall Street lately, regardless of Fed Chairman Alan Greenspan's recent gift.

So what happens next? Apparently, it's anyone's guess.

For more articles by Lesley Hensell, please press here.

Published: July 12, 2001

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Lesley Hensell covers commercial real estate and financial issues for Realty Times. Based outside of Dallas, Lesley works with high-tech and real estate clients as an independent marketing and public relations consultant. She also writes for several publications, including the Dallas Morning News. E-mail Lesley at: lhensell@earthlink.net