My 2012 Real Estate Predictions

As we contemplate the slowly recovering real estate market of 2011, it’s time to look at what real estate will do in 2012. The first three quarters of 2012 may be the hardest to be optimistic about and receives a thumbs down. But, we anticipate the last quarter of the year to have a cautiously optimistic outcome.

 

A two-thumbs up goes to the apartment category. Investors will be buying multi-family properties all over the nation. Whether it’s high-end apartments (Class A) or lower-end apartments (B & C), investors are already clamoring over them. Existing apartment stock can’t keep up with the demand from the busted housing market. Foreclosure weary homeowners are leaving for headache free apartment living. Additionally, the “generation y” group will be increasing apartment demand. These 20 somethings are the fastest growing population of the workforce at an estimated 70 million. They will demand urban oriented, tech-savvy, metropolitan living and will drive additional apartment investments.

 

A one-thumbs up goes to real estate located in job centers. Real estate returns tend to closely follow employment trends. Energy, high-tech, and health-care jobs will rule the day in 2012. Universities and government jobs will also lead the way for employment. Find cities with employment promise and you’ll find cities that bode well for your real estate investment.

 

One concern for 2012 is the banking industry. According to a recent study by Urban Land Institute in their Emerging Trends survey, there will be a lack of critical funding for refinancing needs. Concern still exists with bankers reluctance to lend given the low interest rate environment. It’s ironic that these low rates may actually slow down the recovery by discouraging lending. Given this reluctance, many bankers will prefer to hold-on and extend loans for borrowers who are paying their monthly notes, despite the fact that the underlying real estate value has not improved from underwater status.

 

An optimistic view of the last quarter of this year stems from the election process’s effect on business decisions. Whether that is through changes in the executive branch or through Congress, many feel that the uncertainty of the real estate markets will be settled by a stabilized political structure. And, since real estate values are based on long term trends, stabilization of regulatory requirements will help future real estate earnings.

 

Brian Patton, CCIM is a commercial real estate broker, author, and instructor. He can be reached via his website at: www.CommercialPropertyGuy.com

Commercial Real Estate on the Upswing

A recent study by the Real Estate Research Corporation, with local offices in Duluth, said that high-quality commercial real estate will be a mainstay of investors this year. Kenneth Riggs, President and Chairman of the organization, stated, “Commercial real estate does not have the major swings that we have been seeing in the stock market, it is a tangible asset in this world of surprises.” The report further states that real estate offers a 10 year investment horizon; that is, it’s foreseeable that commercial real estate will maintain its strength well into the future.

 

The advantages of real estate make it more “transparent”, according to the report. With this investment, you know what you are getting. You can touch it, walk through it, and see who’s paying the rent. As with few other investments, real estate is tangible. This is “what the world wants” according to the report.

 

In further good news, the study reports that twenty five markets exceeded $1 billion in commercial sales in the first half of 2011. As to predictions for 2012, we should expect to see $50 million of office absorption nationwide this year, compared with $30 million last year. Industrial vacancy is predicted to drop to 9% by the end of 2012 and retail should be on the upswing by then.

 

Apartments top the study’s predictions, based upon the decreasing home ownership rate, the difficulty to build new apartments, and the easier access to apartment financing.

 

As bank financing has started to loosen up, investors are taking advantage of low interest rates to snatch up commercial investment. Even commercial real estate loans are hoovering around 4%, making it a historically significant time to invest in a tangible, “real” asset.

 

Brian Patton, CCIM is a commercial real estate broker, author and instructor. He can be reached via his website: www.CommercialPropertyGuy.com or via his cell phone 770 634 4848.

Nationwide Housing Shortage Headed Our Way

Kacy Lewis, a residential agent with Coldwell Banker Residential in Roswell, has a problem. She’s finding it harder to find houses for her clients. “Inventory is way down. It’s an unusual situation because it’s becoming a seller’s market, but buyers have a great opportunity with low interest rates.”

 

Recent statistics from First Multiple Listing Services, an online listing service utilized by the majority of brokerages in Atlanta, indicate a 31% drop (36% for townhomes) in inventory from January of last year to this year. Closing activity has soared; up 25% for single family detached homes and 30% for townhomes and condos.

 

The only sour note is on year to year price points. The average price for detached housing has dropped 14% since last year. Townhomes have faired better and have only seen a 2% decrease. However, Christopher Lane, Senior Attorney with Dickenson & Gilroy, LLC, counters that point, “We’ve seen price points coming up since the fall of 2011, and our volume has definitely increased.” Additionally, he sees promise in future home building. “We’ve seen a good number of residential lot sales taking place, as well.”

 

Some people point to upcoming foreclosures as a cure for the inventory slump. However, it seems that the big problem is that we aren’t building enough new homes nationwide to keep up with the population. Steve Wesbury, an economist with First Trust Advisors, told Steve Forbes, in a recent interview, “We need one and a half million houses per year just to keep up with population growth. We’re starting one-third of the houses we need just to keep up with population growth, and that can’t last.” Unfortunately, the national housing market is down to about six to seven months worth of inventory.

 

Since nationwide housing completions are down 25.3% from December of 2008, we may be facing problems with providing enough housing. However, there may be a silver lining in this dark cloud. The laws of supply and demand could step in and solve part of our economic problem. That is, as housing inventory disappears, home values rise. So much of our economy is tied to consumer spending and consumer outlook, that this scenario could be the boost we need. With projected inflation from the feds monetary policy and appreciation in values, our faith in our most valued asset, our homes; and thus, faith in our overall economy, might be restored.

 

Brian Patton, CCIM is a commercial real estate broker, author and instructor. He can be reached via his website: www.CommercialPropertyGuy.com or via his cell phone 770 634 4848.

 

 

Gas Prices Aren’t High, and other Nonsense I’ve Heard

 

I’ve heard some doozies in my time, but this is one that required some more study. The headline in Forbes caught my attention. It read, “Gasoline Prices Are Not Rising, the Dollar is Falling.”

 

The general idea of the article is that based against the price of gold, gas prices have another 65 cents per gallon to rise to be in line with historical data. Presently, as oil hoovers around $105 per barrel, each barrel is worth about 6% of an ounce of gold. However, since 1971, oil barrels have averaged 7.3% of the value of an ounce of gold. Hence, as long as gold stays flat, then oil will move up to around $128 per barrel. Of course, this is based on averages, but it does cover the past 40 years of data.

 

This seems fairly straight forward. So, the question is how does gold relate to a dollar in my pocket? The reason is, although our currency is no longer tied to the gold standard, it is still tied to gold as a bench mark.

 

While I understand the economics behind it, it certainly hurts my pocket at the pump. How this principal applies to our every day lives also reaches further than at the pump. It also applies to real estate values.

 

There are two separate and distinct factors that will affect real estate value over time. They sound like the same thing, but they aren’t. One is inflation and the other appreciation. Inflation is what happens when the dollar falls. As the dollar falls, it takes more of them to buy real estate. It sometimes looks like appreciation, but it’s not. Appreciation is what happens when supply and demand forces increase value. It sometimes looks like inflation.

 

Both can benefit a real estate investor. Inflation benefits the investor because the investor’s money is invested at today’s dollars and not tomorrow’s. As opposed to the investor’s money being in the bank, and losing it’s buying power because of inflation, it’s in a hard asset, such as a real estate investment.

 

Appreciation, obviously, will benefit the investor by increasing the value of the investment if supply and demand forces make it more valuable.

 

It’s generally believed that inflation will be a huge factor in our future economy. This is because the government is creating more money, which automatically increases inflation, by decreasing the value of a dollar. Low prices, low interest rates, and future inflationary pressures make it an excellent time to move your falling dollar into real estate assets. And, good luck at the pump.

 

Brian Patton, CCIM is a commercial real estate broker, author and instructor. He can be reached via his website: www.CommercialPropertyGuy.com or via his cell phone 770 634 4848.

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