The Next Shoe to Drop: Commercial Real Estate
I try to stay ahead of the curve.
Which is why, nearly two years ago, I wrote a piece on the impacts of the housing bust on the job market.
In short, I noted that all those millions of people who chased the real-estate boom—the newly minted real-estate agents, the mortgage brokers, the developers, and the construction workers—had added more jobs to the economy than had any other industry, at its height accounting for about 1 in every 10 jobs: a record, according to Moody's Economy.com. (In California alone, the number of real-estate brokers rose to more than half a million workers—more than the total number of homes sold in the state last year.)
"We're more dependent on housing than at any time in the last 30 years," Moody's chief economist Mark Zandi told me, "which could be a problem if the downturn becomes more pronounced."
Yet until just recently, it wasn't. While the folks I wrote about were forced to give up selling mortgages and houses, their lost jobs were offset by a continuing boom in commercial real-estate development. In San Diego, for example, while condo construction all but dried up, a dozen or more fancy new hotels and office buildings were rising into the skyline, offering jobs aplenty to many of those thrown out of work in residential construction.
Yet as several economists noted at the time, the commercial building cycle is far slower than the cycle for residential housing. Big buildings take years to get approval and years more to construct. "There's somewhat of a time lag here," Jay Butler, director of the Arizona Real Estate Center, said. "But everyone's eventually going to feel it."
Nearly two years later, we're doing exactly that as whatever backlog there was back then has been all but erased. And with demand for commercial space falling and credit as tight as it has been in more than a decade, new construction is slowing— with construction in January down by 1.7 percent, the largest decline in 14 years—as the massive commercial real-estate market slowly grinds to a halt.
The result isn't just more job losses in the real-estate sector—it's more write-downs for the banks that have financed the huge commercial projects. Indeed, today's Wall Street Journal suggests that the result will be yet another ugly round of write-downs for the banking industry as commercial property values decline by as much as 26 percent over the next two years.
All this isn't just to say I told you so (although I pretty much did, didn't I?).
Tags: economy | real estate | recession | housing market
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Commercial-next shoe to drop
There is a small probability of this. I study trends and own retail space. The problem you suggest is that lenders are MUCH more aware, credit has been tightened and 25% down will even become tough to find on retail and office properties. The only area even possibly to feel this will be areas heavily hit by the residential bust, ie; Sacramento, Las Vegas, Miami, etc. Banks will not let highly leveraged deals happen but I'm glad you've alerted the media who fuels these ideas and tries to impact the thoughts of speculators, not investors
this article
I cannot believe what I am reading..you are the FIRST, and I mean FIRST pundit,writer,journalist,etc to aknowledge that this economic crash is a direct result, well maybe a condition of far too many people reliant on the real estate economy for their incomes. Brokers,lenders,escrow employees,notaries,appraisers,title officers,real estate agents, and many many more no longer have "jobs" in this industry. Because of this, a HUGE influx of high income spenders are no longer contributing to our economy. The domino effect of this paradigm is exceedingly exponential. I could go into a complete detailed analysis, but I do not have the platform. I have the solution!!!!!!!!!!!!!!!!!
Congratulations to Alex for realizing this clear, but "unpublished" analysis. I can be reached at bcanada102@comcast.net
Washington needs fixing as it is the cause
With the government increasing the money supply so much since 2001 and manufacturing and labor markets held down by intense competition from Chinese and Mexican labor, where was this money going to go? Housing.
So the market oversupplied demand. Lobbyists kept Washington from noticing.
The entire mess is one more bust created by lobbyists and a government whose strings are pulled by them and not the people they are supposed to represent.
Remember the S&L crisis? Lobbyists pushed for greater freedom to lend but nobody was minding the taxpayer's interest by requiring corresponding greater responsibility by those lenders. So they took ridiculous risks because they'd get rewarded if the risk worked out and and could send the tab to the taxpayer if it didn't. No one was watching out for the public interest.
I'm for limited government intervention in the economy. But if we are going to do it, it has to be done by decisions makers are not bought by those that stand to profit from such intervention.
We have got to fix this systemic problem, not just knee jerk react to each bubble as it pops.
People wake up....act now!
Act now to get your family insulated from what's coming.......No one is paying attention and the ship is sailing itself! Change your lifestyle today...Not tomorrow!
THE END IS (OR MAYBE ISN'T) NEAR
Thanks for your comments, folks.
I've written about the likelihood that builders -- unable to sell their inventories -- will themselves start to default on their construction loans, which represents yet another leg down in the real estate market.
Just want to add another datapoint from today's Wall Street Journal, it appears that's starting to happen even to the biggest, best funded builders:
http://online.wsj.com/article/SB120553684871238089.html?mod=hps_us_whats_news
THE END IS (OR MAYBE ISN'T) NEAR
Thanks for your comments, folks.
I've written about the likelihood that builders -- unable to sell their inventories -- will themselves start to default on their construction loans, which represents yet another leg down in the real estate market.
Just want to add another datapoint from today's Wall Street Journal, it appears that's starting to happen even to the biggest, best funded builders:
http://online.wsj.com/article/SB120553684871238089.html?mod=hps_us_whats_news
Lack of jobs
The mortgage mettdown is is a symptom of a larger problem. The lack of jobs or nore acturarely the lack of high paying jobs. We have 6% unemployment where jobs are mostly related to low paying service jobs.
Soution: The next time the US Congress wants to spend $180 billion on an economic stimulus package, it should spend the money on job creation. We have spent the last 50 years destroying the quality of our air and water. Now is the time to create an economic stimulus package directed toward rewards for creating solutions and jobs related to protecting our environment.
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Huanita8631@yahoo.com
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Christophor3603@yahoo.com
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The Next Shoe to Drop: Commercial Real Estate
The projections are realistic. However, I can't consider Moody's a reliable source. They have lost ALL credibility after rating subprime mortgage garbage triple A. I see no way for them to ever regain the credibility they once had.
Mar 04, 2008 15:17:23 PM [permalink] [report comment]