I heard a report this morning (5/27/09) that stated many economists believe the recession will be over by the end of this year. They claim the basic underlying economic problems have been stemmed and although unemployment will continue to rise until the end of the year and into next year, they claim the worst is over and we will begin to regain our economic strength in 2010. I wish I could believe those economists but considering an abundance of facts surrounding the real estate market both commercial and residential, I do not happen to agree with them. The housing start numbers for April 2009 were the worst in recorded history. There remains a huge problem out there with jumbo and super jumbo loans coming due and this will be the next wave of foreclosures to hit the marketplace. The continual increase of low cost properties entering the supply side will further convince the Home builders to sit on their cash and wait out the problem. Why would home builders build a product that must compete with a foreclosure product which may be up to 50% cheaper to buy in a local marketplace? The builders know that eventually (I predict middle-end of 2010) the foreclosures will finally begin to subside and then once the supply is reduced they will again start applying for permits and begin building new homes.
The economists are misreading the housing sales numbers because they assume that more housing sales equals a reduction in supply, but when foreclosures continue on a faster pace than unit sales, this model does not apply. Furthermore using numbers that show a smaller decrease than expected for both Home Depot and Lowe’s to determine that new home building is picking up is also flawed. In our experience since many foreclosures need work, this is driving the increase in companies like Home depot and Lowe’s who service the small contractor or homeowner markets. This activity and the fact that more and more people are becoming do it yourselers is the cause for the smaller decreases, not the improved housing market.
On the commercial side; supply has swelled and that is bad news for commercial contractors and landlords. It is become increasingly difficult to match rental rates with financing models thus causing owners of properties to reduce rental rates. That translates to more properties on the market at lower prices thus creating a problem for all but the owner-user segment. It is more likely that many commercial properties will also end up in foreclosure thus causing a severe slowdown in that market.
I can only hope that I am wrong, but I do not think so. I believe it is the economists that are wrong.
Greg Wiener
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I think you're right on Greg. I am seeing the same things.
Greg, Very good observations. I too hope you are wrong. Unfortunately I feel you are spot on. BTW, Your company web site is great. Sincerely, Michael George - MG Design Group