Don’t hold your breath! But yes, there is a lot happening in the land, commercial and Industrial real estate markets.
Statistically the numbers are not looking good for the next couple of years. Values are dropping … in some cases some local experts are telling me that certain segments can expect to see drops of 10% or more per year into and through 2012.
Other parts of the market like multifamily properties (apartments and other residential rentals) are starting to experience a significant drop in vacancies and even slight increases in rental rates.
As for the overall health of the real estate market, we can hope that some kind of new magic stimulus will turn things around overnight, but let’s be realistic. When you consider where values were after the super hyper ride to record high levels in 2006, it is not unrealistic to expect that it will take that long for the roller coaster to get back to where it started in 1998.
Whether we like it or not, the decline in the real estate market is proving to be just another business cycle … we all know the old saying that “what goes up must come down.” As a point of reference take a look the Case-Shiller Historical US Housing Market Data Chart that we posted back on July 1st (Seeking a Normal Real Estate Market: Using Housing as Barometer). From this it is very clear that since the end of WWII, the US has experienced 5 major housing peaks and valleys … each one being a bit sharper than the last … except in the case of 2006 , which spiked at over 4 times higher than the previous 1989 peak.
OK, so I’ve painted a gloomy scenario … but I did say that a lot is happening in the market … that means there are positive signs … yes, positive! Here’s why. The fact is that it appears that the industry shakeout will intensify over the next couple of years.
Residential foreclosures are at record levels, and according to Chris Marchalleck, a market analyst for Forex Traders, who wrote recent article entitled U.S. Real Estate Market: Are There Positive Signs of Market Recovery? for RealEstateRama.com, “There are still over 11 million homeowners literally underwater on their mortgages. A subset of these, some 4.8 million, are over 60 days past due in their monthly payment obligations.”
In the real estate investment arena developers who have been holding on hoping for the market to turn in their favor have finally come to the realization that things are not going their way. In some cases there’s more than a little nudging coming from their lenders. Many of these property owners have decided that they have to take their heads out the sand and be realistic with values … and sell for the best price they can get now.
On the other side, there has been “a lot of money sitting on the sidelines” just waiting for the opportunity to get back in the market. Marchalleck adds that “One positive has been the appreciation witnessed in domestic REITs (Real Estate Investment Trusts) and related ETFs (Exchange-Traded Funds),” meaning that REITs are finding their way back into market. On the local level many businesses, developers and other organizations who have adapted to the economic times are now strategically laying the groundwork for expansion plans that include the acquisition of real estate.
Put these two forces together and activity is brewing in the market place. The tire kicking has picked up, and while transactions are taking longer to come together and lenders are still very cautious, deals are being made. And when real estate changes hands, that’s a very good sign that property is moving out of the hands of those who need to sell into those who have the financial wherewithal to ride things out. If enough of this happens, a recovery could be on the horizon … someday … We just don’t know when.
At MacRo, Ltd., we definitely experiencing increased activity on the buying and selling side, and I’m hearing the same from other brokers in the market. Here’s one for you: Contracts are actually being crafted with the buyer and seller agreeing to select a mutually acceptable appraiser who will establish the sales price.
With all that said the roller coaster ride is not over, but when buyers reenter the market that is one signal that shows us that the market is one step closer to the bottom.