One of the benefits of 50 years of tenure in the industry is hindsight. Yes, it’s always crystal clear!
Unfortunately, looking to the future is a bit tricky. Every January, we bloom with economic forecasts from scholars. Do you doubt what I say? Check out reviews from Chapman, Cal State Fullerton, UCLA, Charles Schwab and more. Everyone has an opinion on what the year of flowering will bring to our economy. Expected are growth in commerce, changing consumer confidence, interest rate outlooks, stock market trends, inflationary pressures, and the impact of all of the above on real estate prices.
But it’s August and you might be thinking, why are you looking forward to January? Well, you can see it by looking at the Christmas decorations next month. These next four months are gone!
I have consumed some of these Nostradamus events over the years. One of the most meaningful was February 2020. Of note was a panel of experts gathered by Northwest Mutual. One gentleman, in particular, told a wonderful story about the power to cause a recession. From my note: “The five factors that caused the bear market were mentioned in the preamble: inflation, recession, commodity shortages, crazy market valuations, and uncertainty checks.”
Hmmm, do you remember it? I’ve seen all five since March 2020 for those who scored at home. So where and when is the recession?
In particular, let’s look at inflation. Rents for commercial real estate have increased by 134% since 2011, a staggering 13.4% per year. Further analysis of this shows an increase of 12.6% over the last eight months. Annualized, that’s 18.9%!
Investors are greedily absorbing buildings with very high rents with very high praise. Look at the pump. Yesterday I paid $ 4.89 for a gallon of petrol on my way home from Arizona. Stupid I forgot to fill up before crossing the border! wood? The price for 2 rows and 4 columns has gone from $ 2 to $ 8. The container load from China has also quadrupled.
Again, where is the recession?
Now let’s talk about uncertainty. Uncertainty is one thing that can kill a rally faster than anything else. As you know, if a company or investor is uncertain about the future, they will postpone the purchase decision. This “pause” drips into our world.
During the financial crisis of 2008-2011, our real estate market was devastated for almost a year. Prices have fallen. Buyers and tenants who saw a clear path to improvement enjoyed an amazing deal.
We also experienced such a stagnation of industrial activities from March to June 2020. But then something completely unexpected happened. In the balance of the first seven months of 2020 and 2021, industrial demand was supercharged. As buying habits changed from traveling to malls to keyboard clicks, commerce was adjusted, space was consumed, and record profits were gained.
So where is the recession?
Next, look at the shortage of products. Raw materials used as raw materials for copper, lumber, petroleum, steel, etc. We rely on our Far East neighbors for much of this production, and we are again in short supply due to the lack of container loading. Indeed, this adds upward pressure to pricing. Moreover, you can’t get things. If the refrigerator blinks, get a replacement. Industrial Building Roofs-Steel Trusses? You will wait at least 13 months!
But where is the recession?
Hopefully you are getting an idea. We survived the “Black Swan” event. A once-in-a-century pandemic and the resulting five factors: inflation, recession, product shortages, and a crazy market valuation that should be a real estate crater. And the opposite happened.
So where is the recession? Dear readers, it’s about to come. There is no difference. Is it a surge in interest rates, another blockade, a power surge to wipe out the grid, the bursting of a price bubble, an attack on our soil, 10 years of interest-free and growth, something else, or a combination thereof? All that? I wish the crystal ball wasn’t so cloudy.
SIOR’s Allen C. Buchanan is a principal of Orange Lee & Associates Commercial Real Estate Services. He can be contacted at firstname.lastname@example.org or 714-564-7104.
Is there a real estate crash to come? – Press Enterprise Source link Is there a real estate crash to come? – Press Enterprise