Inertia is a difficult thing to overcome. Merriam-Webster defines it as an ?indisposition to motion, exertion or change.? Once we get in a rut in our thinking, we get comfortable traveling in our rut, and after a while we don?t even notice we are in one.
In case you missed it, the housing market exploded in 2007. The past five years have been gruesome for the entire housing market ? not just for homeowners but also for lenders, the mortgage and title insurance businesses, real estate brokers, home builders and skilled construction workers. After five years of dismal news, it can be difficult to even visualize a brighter future for the industry.
Clearly, the housing market in America turned a corner in 2012 and is beginning a true cyclical upturn that could last for many years. It has happened regularly in the past, and it will happen again.
It is happening now. The upturn will be gradual but real. This is not a fake upturn resulting from some misguided government program to give people tax credits to buy homes. This is a real upturn because people want to buy a home. When home prices increase faster than the mortgage rate, even more people will want to buy a home.
What are the implications of this nascent recovery in the housing market for commercial real estate investors?
Here?s my logic. When the good times were rolling in 2005 and 2006, many new suburban homes were built and sold. Real estate brokers opened branch offices near the action. So did mortgage brokers and title insurance companies. The homebuilders were using industrial space to store their gear and manage their businesses. Suppliers to the homebuilders also had flex space to show off their products and store their inventory. The ceramic tile firm had a showroom in the area.
Then the storm came. Home sales began to collapse, and lending to the homebuilding and land development industry was shut off. As sales of new and existing homes declined (especially in the suburban perimeter where new neighborhoods were being created), all of the suppliers of real estate goods and services were forced to either retrench or go out of business. The title company may have closed the branch near the new subdivision and retreated to the main office downtown. So did most of their competitors. The mortgage broker did the same thing. The tile company, the lighting company and the carpet company also scaled back on their space demands. Consequently, vacancy in suburban office and flex industrial space increased substantially.
As with any thunderstorm, tornado or hurricane, the storm ultimately passes, and life starts to revert to normal. Home sales are up substantially, home prices are appreciating in many markets again and the inventory of homes available for sale is incredibly low in many markets.
As home sales pick up in coming years, more homebuilders will re-enter the market. They will need industrial space. Their suppliers will expand with them, creating more demand for industrial space near the action.
As home sales pick up in coming years, title companies will reopen branch offices near the hottest areas of development in their local market. Mortgage companies and banks will do the same. So will the real estate brokerage industry.
This trend is just beginning. It?s in the embryonic stage. It could take several years for this story to fully unfold. You are unlikely to see stories of investors flipping suburban office or flex industrial space anytime soon. But a long-term rebound in housing could make some of these properties much more valuable in the next five to ten years.
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Source: http://blog.recenter.tamu.edu/2012/12/rethink-housing-market/
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