2011 Pessimistic Predictions

I sat down with a client this week and discussed the current real estate climate, economy, and world politics and even through out some predictions for 2011.  We had a great conversation that got my mind stirring so I thought I’d share some thoughts, comments and predictions that developed because of the meeting.

My client is looking to invest in a multi family property.  He’s been looking on and off for about a year and is debating whether to get serious again.  He asked me if it was a good time to buy as many investors do when we sit down to talk about the market and in the past year I usually give the same answer.  It’s a good time to buy for someone who has enough capital, good income and doesn’t want to sell for at least 5 years.

Last year at this time I was foolishly thinking that spring 2010 was going to get New York City real estate back in gear.  The 2009 market was so terrible because of Lehman Brothers and the precipitous drop in the stock market in 2008.  Why would anyone want to buy or sell such a valuable asset in a market that was unpredictable at best?  I assumed that everyone who had to sell in 2009 did.  Those properties that were still on the market, or coming on the market, would be priced to sell. With the supply adjusted if the demand was stimulated Spring 2010 would bounce back. This would give the market some momentum and lead to a year with price improvements and inventory getting back toward normal levels.  I wasn’t expecting a 20 or 30 percent increase in sales or decrease in inventory but I was expecting things to improve.

The pace of sales this year has been stagnant at best due to continued unemployment, foreclosures, lack of financing available, and the debt crisis in Europe.  I underestimated the continued uncertainties in the market and I do not see many resolutions coming in time to create an improved Spring 2011.  There are also so many properties waiting for an uptick in demand to go on the market that any increase in demand would be met or exceeded by an increase in supply.

Unfortunately I believe this is probably the best case scenario – demand picks up enough to clear out some of the shadow inventory and hopefully in 2012 we return to a market equilibrium where sellers actually have more than one offer to consider that is at or close to asking with the ability to get financing.  I hope that I am wrong again this year and that gains in the economy will stir hiring which will bring new buyers in to the market to clear out the excess inventory, but I don’t see that happening.

What are your thoughts? Am I being too pessimistic?

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One Response to 2011 Pessimistic Predictions

  1. max says:

    Prices seem to have stabilized in most areas in Manhattan and after a slow
    Summer it seems Fall has gone relatively well in terms of number of
    transactions. Pipeline seem to be also likely to improve in 1q11. Inventory is now
    less than 7k units and properties taken off the mkt should be around 2.3k. Both
    have improved since September so maybe it is not not too bad after all. My impression is that established submarkets are doing ok while submarkets which are still in a sort of developing stage cannot find enough thrust in this environment to
    recover and grow, yet (Harlem?).
    Overall, if you are looking for price appreciation and/or significant growth in the number of transactions you are probably right in being pessimistic for 2011.
    However, the Fed’s interest rate policy and the growth of emerging
    economies are generating inflation in a number of asset classes
    (commodities and equities primarily). I am not saying this is the intended goal but
    this is what’s happening. US real estate will likely be the last asset class
    to ignite especially if mkt interest rates keep rising (as they did recently).
    With such a high stock of debt at both household and government level a “whiff
    of inflation would be even beneficial” (Mr.Bob Diamond CEO of Barclays). To sum it up I think your pessimistic predictions may be correct for developing submarkets and/or for the market nationwide. But most areas in Manhattan
    may show some degree of stability in 2011. And who knows? We may even have some hyperinflation at some point…

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