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April 2008
Over the past several months we have been presenting our Real Estate forecast to various organizations and firms. The following hyperlink is the PDF of this PowerPoint presentation:2008 Economic Presentation Our sense of the market is that the short term outlook is rather sober, while we are optimistic over the mid- and certainly long term. Current conditions are keeping capital on the sidelines and consumers feeling the squeeze. How much longer do we have to wait? This is not playing out as a turnaround year and the national and even global economy seem to be precarious.
Moratorium on Money The top story contiues to be the credit crunch. Last year it was the subprime . This year will be the year of the resets of prime credit borrowers. From an investor perspective, capital continues to be on the sidelines, waiting for some sign that values have declined as much as they will. Lenders have tightened all of their standards. It feels like we are in a period of moratorium. Not all markets are created equal. While it is tempting to put a national or even global spin on the state-of-the-real estate-market, real estate remains inherently local. For stance, coastal California remains supply constrained, Arizona and Florida, by contrast, are not. There appears to be over 15,000 empty condominium units (recently built) in urban Miami alone, yet there might be 2,000 available condominium units in San Diego. When the market does cycle back, the dearth of inventory, the fact that builders essentially stopped building two years ago coupled with stronger consumer demand will inevitably result in a bid-up of residential pricing. Meanwhile values appear to be declining, although we doubt that decline is as steep as the sources report, principally because the information is garnered from mostly distressed sales. Most people are on the sidelines.They are not transacting. So value declination may not be as pronounced. The commercial markets also seem to be weakening, mostly a functioning of weakening demand for office and retail space due to economic decline, coupled with the addition of significant new commercial development during the past three years. Time to Buy It isn't yet clear whether we are in the midst of a cyclical decline, in which case the market will eventually re-emerge, or a structural or systemic decline that is more national in scope. Our advice to our clients is to play it conservatively. But this does not mean to be sheepish. The time to buy is when the market is down and prices have adjusted accordingly. For many of our investor clients, that time appears to now be approaching.
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