Thursday, October 22, 2009

Double bubble? What do we have to fear now?

The media has grabbed hold of the meltdown in the commercial real estate market because bad news sells papers. However, what they fail to mention is that this is because of declines in business performance the last 2 years.

Here's an article from MSNBC that talks about it:
http://www.msnbc.msn.com/id/33404369/ns/business-personal_finance/

The bottom line is that commercial property owners are facing foreclosure just like residential customers. However, the difference is that recovery in values typically takes longer, mortgages are shorter, and the impact on banks is less severe (the commercial market is about 1/3 of the residential market).

What this means to our local economy is that while jobs may be plentiful and home sales improving, if banks are burdened with losses due to mortgage failures in the commercial real estate market the ability to lend will be compromised. Without money to lend to residential customers, the residential market will stall as well as the overall economic recovery.

What does this mean for local real estate prices? Not much for the time being but it does cast a level of doubt on the overall economic recovery. That may mean some buyers wait for more good news and some sellers will put off listings until spring when the economy is expected to be stronger and the local real estate market gets its normal seasonal "pop".

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