Doug Marshall
Market Assessment
Published June 16, 2009
Many have written on the reasons and rationale for the current market and economy downturn, including us. But for many struggling in this debt-toxic atmosphere, especially in the real estate industry, the more pressing question remains: what’s still to come?
Prognosticators abound but we are intrigued by the long-maintained predictions of Dennis Torres, a California broker and head of Pepperdine University’s Real Estate Operations department.
Mr. Torres spoke out three years ago about the impending doom that is the current housing market crisis. In an article for Realtor Magazine, he has put into context the “four horsemen of the real estate market apocalypse” that that we are currently or will be experiencing.
The first three have come to pass. They have wreaked havoc on the U.S. economy and the shock waves continue: 1) the collapse of the sub-prime loan market followed by losses in the prime mortgage market; 2) high and increasing unemployment; and 3) the resulting escalation of the burden of consumer debt, especially credit card debt, on the economy.
But Mr. Torres’ “fourth horseman” remains on the horizon and could have a more long-lasting effect on the economy, and the real estate industry, than many believe or are talking about. And that ghost of ill wind is the one of rampant inflation.
The reasons are simple. Where are our bailouts to the banks, the auto industry, etc., coming from? How is our government paying for the wars? They’re printing money, of course, and you can’t do that without it losing some of its intrinsic value.
In the real estate world, what does this mean? Mr. Torres believes inflation will take hold within the next two years. Before that time home values will decline then stagnate until 2015 before climbing due to inflation.
The difficulty for consumers, in keeping their homes and paying their bills with paychecks that don’t match rising inflation, is going to have good and bad effects on the markets.
High prices for durable goods will be matched, says Mr. Torres, with increasing values in homes as the prices go higher.
And Mr. Torres doesn’t fear another housing market collapse, as those prices will be “based on the intrinsic value of the then-current dollar.”
So how will inflation affect commercial real estate? Rents and expenses will likely keep pace with inflation. So will interest rates.
Who will be the winners if inflation is rampant? Those lessees who negotiate favorable lease rates today and lock in their rates for as long as possible will be one group of winners.
And those borrowers who finance a property this year with long-term fixed rates will look back years from now and crow about how farsighted they were to realize the importance of locking in a rate when rates were comparatively low.
Mr. Torres calls the potential for high inflation “unsettling.” But in reality there will be winners and losers in this type of real estate market.
To be one of the winners will take a positive attitude, seeing the opportunities before us, and having the foresight to adapt real estate skills to take advantage of the market.
Source:
Market Assessment
Published June 16, 2009
Many have written on the reasons and rationale for the current market and economy downturn, including us. But for many struggling in this debt-toxic atmosphere, especially in the real estate industry, the more pressing question remains: what’s still to come?
Prognosticators abound but we are intrigued by the long-maintained predictions of Dennis Torres, a California broker and head of Pepperdine University’s Real Estate Operations department.Mr. Torres spoke out three years ago about the impending doom that is the current housing market crisis. In an article for Realtor Magazine, he has put into context the “four horsemen of the real estate market apocalypse” that that we are currently or will be experiencing.
The first three have come to pass. They have wreaked havoc on the U.S. economy and the shock waves continue: 1) the collapse of the sub-prime loan market followed by losses in the prime mortgage market; 2) high and increasing unemployment; and 3) the resulting escalation of the burden of consumer debt, especially credit card debt, on the economy.
But Mr. Torres’ “fourth horseman” remains on the horizon and could have a more long-lasting effect on the economy, and the real estate industry, than many believe or are talking about. And that ghost of ill wind is the one of rampant inflation.The reasons are simple. Where are our bailouts to the banks, the auto industry, etc., coming from? How is our government paying for the wars? They’re printing money, of course, and you can’t do that without it losing some of its intrinsic value.
In the real estate world, what does this mean? Mr. Torres believes inflation will take hold within the next two years. Before that time home values will decline then stagnate until 2015 before climbing due to inflation.
The difficulty for consumers, in keeping their homes and paying their bills with paychecks that don’t match rising inflation, is going to have good and bad effects on the markets.
High prices for durable goods will be matched, says Mr. Torres, with increasing values in homes as the prices go higher.And Mr. Torres doesn’t fear another housing market collapse, as those prices will be “based on the intrinsic value of the then-current dollar.”
So how will inflation affect commercial real estate? Rents and expenses will likely keep pace with inflation. So will interest rates.
Who will be the winners if inflation is rampant? Those lessees who negotiate favorable lease rates today and lock in their rates for as long as possible will be one group of winners.
And those borrowers who finance a property this year with long-term fixed rates will look back years from now and crow about how farsighted they were to realize the importance of locking in a rate when rates were comparatively low.
Mr. Torres calls the potential for high inflation “unsettling.” But in reality there will be winners and losers in this type of real estate market.To be one of the winners will take a positive attitude, seeing the opportunities before us, and having the foresight to adapt real estate skills to take advantage of the market.
Source:
“Inflation on the Horizon?” by Dennis Torres, Realtor magazine, June 2009
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