Timing
Investor sentiment regarding the timing of a recovery in sales transactions has slipped since our last survey in Q2. Only 10% of respondents are expecting to see a recovery in 2009, vs. 33% in our last survey. In addition, the number expecting a recovery to wait until 2011 has increased from 25% to 33%.
Looking on the bright side, however, the number of respondents predicting the market will recover in 2010 has increased from 42% to 56%, with expectations for a Q2-Q3 uptick.
There is general agreement on the timing of an increase in transaction volume across brokers, investors and owners, although slightly more investors expect an increase to wait until 2011. Relative to the earlier survey, however, the owners have had the most significant tempering of expectations. In the Q2 survey, 44% of owners anticipated a recovery in transaction volumes in 2009, which was far higher than the percentage of brokers or investors. In the current survey, the percentage of owners anticipating a 2009 recovery has fallen to 10%, much more in line with the other two segments.
Breakdown by quarter and by role
Pricing
The relative consistency on the timing of the rebound in transaction volume across the different roles does not carry over into expectations about future price declines, suggesting there is still a difference in expectations between buyers and sellers.
Overall, respondents are expecting significant further declines in price, with 11-20% being the most prevalent prediction and about 20% expecting declines of 20% or more.
When split by role, however, owners are more optimistic than investors. Among owners, 28% believe that pricing has bottomed out already or will decline by 5% or less. This compares to only 19% of investors. The reverse holds true at the other end of the pricing spectrum, with 28% of investors expecting declines of above 20%, whereas only 19% of owners are that pessimistic. Brokers lie in the middle between the two, with 18% expecting 0-5% declines and 19% predicting greater than 20% declines.
When will prices hit bottom?
There was no clear consensus on when pricing will hit its lowest level, although the majority (60%) does expect it to occur between Q4 of ’09 and Q3 of 2010, with a slight bias toward the first half of this time period. Very few respondents believe that we have seen the end of price declines. A substantial number (17%) are expecting to continue to see declines through 2011.
More owners believe we have already hit the bottom than do brokers or investors, but the differences overall are not as pronounced as on the size of the expected declines. 55% of owners expect prices to reach their lows in the Q4 09 to Q3 10 timeframe vs. 57% of investors and 63% of brokers.
Sector
Multifamily was the overwhelming favorite for presenting the best opportunities for long term investments in the current cycle. This held true across all three major segments—brokers, investors and owners.
Overall
While the expectations for an increase in transaction volumes have shifted later than in our Q2 survey, the shift appears to be driven more by pessimism about 2009 than a long term reassessment. A solid majority of 56% now believe that 2010 will see an uptick in volume, and increase of 14 points from Q2. There is, however, a significant contingent that does not expect recovery until 2011.
Prices will fall further, and there is still a difference in expectations between sellers and buyers of commercial property. This, combined with the lack of consensus on when prices will reach their lows, could prove to be an obstacle to a return in transaction volumes, and will hopefully be worked out over the next quarter.
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We have already seen, depending on the market, a drop in apartment pricing of 30%-40%. If more property is brought to the for sale market, pricing will drop further, holding the debt makert in it's frozen but thawing state. If special servicers and asset managers continue to extend maturing loans and slow the process of property coming to the market, the demand may be strong enough to absorb the properties fast enough to diminish limit some of the anticipated further decline in pricing.
A real estate recovery will come when there is a recovery in industry and jobs. Who can afford real estate without a job? What business needs more real estate when it's business is off? So long as government steals all the capital it will be difficult for a free market in anything to become healthy and develop capital for real estate purchases. Where are the jobs that were promised for all the trillions in bailout and stimulus, etc? They aren't coming, but at least you can count on commodity prices going up as the dollar is detroyed through inflation. When the monster inflation kicks in watch interest rates soar. What will that do for the real estate market? Eventually, the government, which is bankrupt, will want your real estate too.
It is a catch 22 times 4.
In other words, the job market, economy (will come from conusmer spending)and the stock market has to start going up for the real estate market to go up.
Of course, the catch 22 is all four are dependent on each other. Which has to go up first to start the positve domino effect for the other three?
I suspect, it will be laddered. One has to come up little bit, then the other will come up a little bit and so on.
This if of course a slow process. To make a significant effect in all markets to go up would probably come at the end of 2011 and during 2012. In the mean time the laddering will give us slight improvements in one or two market at a time.
The last thing to throw into this pot would be financing. That's another whole animal dependent upon the "Big Daddy" the federal government.
Thanks.
bob
With 1Q annualized GDP -5.5% 2009 and outlook of 1-2% in 2010 and 2011 does not bode well for short term growth. Unemployment levels are expected to peak in 2010 but until GDP growth hits 6-7% may not start to absorb real unemployment (e.g. no longer getting benefits, no longer looking or underemployed). Once this occurs there is still the lag effect of creating real demand for expansion and absorption of existing stock. Negative consumer confidence and unemployment will continue to create a drag on the retail sector and also seep over into manufacturing. A bloomberg article indicated $2.2 Tr (yes trillion) of US commercial properties bought or refinanced since 2004 are now worth less than the original price. As the equity is wiped out and refinancing options are un-available with new underwriting/leverage standards may not leave many viable options other than returning to the lender who will reluctantly take a great big hair-cut to unload the assets to a new set of investors. The overall process will likely take years as there will be little incentive to be in a hurry to accept the massive writedowns necessary to bring back to equilibrium.
As a commercial lender/broker I think that commercial market will not rebound >>till 2011<<, earliest. The poor economy/joblessness and excessive governmental spending is not conducive to e3conomic recovery any time soon. I specialize in the small balance loans and this sector of commercial market is suffering greatly, as retail and office segment of the market was hit very hard.(vacancies are up). Many small busunesses went belly up. Even the multi family market is experiencing problems. Money is tight,especially for re-fis,values are down. Commercial R.E. market is tied closely to economy and if economy is doing poorly, so is commercial market. And do not forget, we are still having serious problems in residential market and these will continue till 2010.
Best regards,
Victor Merhaut
Manager
www.vmloans.com
Job destruction continues, no spending, business falling off, businesses going out of business, tight credit, no recovery...a vicious cycle. Government taking more, spending more, borrowing more...not conducive to a healthy economy or a recovery. Deflation to be replaced by inflation? Stagflation coming? Money supply up over 100% recently. Monetary inflation turns to increased commodity prices and higher interest rates in the long run. People will tighten their belts further..less spending...another vicious cycle begins. Inflation is simply wealth and capital destruction. When the dollar is no store of value who will want to own it? Spend before it's worthless. At least some may want bricks and mortar instead of declining dollars. Perhaps the thing that will create higher values relative to the dollar is when the soveign wealth funds and central banks start unloading he 27 trillion dollars they have in reserve. Get rid of the old maid.
This market is still and will remain a buyers market until there becomes less property's for sale, either residential and or commercial. Historically speaking more buyers and less property create stronger values, the reverse creates the opposite. what we have now is the opposite. I believe if you can pay cash for investment property at the current values today, you can seea double or triple return on your investment in 5-7 years.The ol saying Buy Low and Sell High. Cash is always King ! It is sad for some in this day and time for poor investments and financing when the market was strong;But today offers a Great opportunity for the investor with not too much risk. My feeling it is a better place to put your money than a Bank and even without the meisly 3% return of interest, you will be better off in the end, that is if you are able to keep your property's serviced,ie property taxes , repairs etc.
Thank you for this informative article that puts numbers and good information to what we already believe is true. This market is rough and getting rougher.
I keep hearing that cash is king, but without knowing where the bottom is there is no way to correctly price and that means that the 5 year plan can be very profitable or a big bust.
JW Najarian
CREPIG Founder
www.crepig.com
I thank you for providing this statistical information. I hope this information will be useful to me.
This is the time of recession in all over the world.So many people lost their job or their salary is become less.So people has no so strength to buy a home.So that's bad news for real estate and from all this real estate is pushed back at least for 2 years.
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