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Thursday, September 1,2011

The Fed does not take much comfort in the decline

Commercial Real Estate News

The Fed does not take much comfort in the decline

in the unemployment rate because it is not driven by job growth. The slow labor market recovery, which is in stark contrast with other sectors of the economy, is unwelcome news for our President who has struggled to boost employment. High joblessness cost the Democratic Party control of the U.S. House of Representatives, while fairly upbeat data on consumer spending, trade and manufacturing points to a strengthening in the economy. We have also seen increased evidence that a self-sustaining recovery in consumer and business spending may be taking hold. The foreclosure crisis is the biggest threat to U.S. economic growth. Lender delays in processing defaults may prolong a decline in prices. All these factors mean more opportunity for investors.

In Florida, among the states most affected by delays because the courts oversee foreclosures, filings plunged 54 percent from a year earlier to the lowest level since July 2007. Miami and Orlando were the top search sites in the nation behind Las Vegas and Los Angeles last year. Bargain hunters kept these two Florida recessionhit markets in the top two search spots throughout last year, for every month during 2010. This is good news for our state, but particularly for South Florida, which attracts relocating and retiring Americans as well as international buyers.

As many commercial real estate investors and land developers are aware, the Department of Community Affairs oversees Florida’s Land Planning and community development and has the responsibility to insure growth in accordance with the state’s vital growth management laws. It’s becoming more apparent that our Florida Governor is very cognizant of the importance of real estate investment and commercial land development to Florida’s future. Governor Scott wants to combine the FDCA with Florida Department of Transportation and the Florida Department of Environmental Protection. The fight between Florida conservationists and Florida business development has continued so long in this state, it’s a tradition at this point.

Meanwhile, development here is at a standstill and our local economy is welcoming foreign investment in residential and commercial properties as vital to our growth, perhaps our survival. Banks and other mortgage institutions are in the money business. They are not set up to hold real property - which not only isn’t producing income for them unlike their loans, but brings with it various costs of upkeep. Banks here in Florida should be very interested sellers. For real estate bargain hunters, these new foreclosure predictions may be good news for some. For many buyers, this is simply advertisement for great potential future investments.

Rental Income In Relation To Values.

Calculations show big declines are needed in the markets around the country to bring home prices back to their historical relationship to rent prices.

What are rent prices saying about home values today?

To answer that question, adjustments are needed to get home values and rents back in balance. According to calculations, prices in most markets will fall by double digits over the next five years. The average drop for all the markets surveyed is 28%. The adjustment doesn’t come exclusively from a fall in prices - rising rents also help close the gap. To complete the picture, assembled a forecast of rental growth in each market: the average rise in our 54 markets is a total of 12% over the next five years. Over long periods housing, like stocks and bonds, follows a set of economic fundamentals. No matter how far prices get unhinged in a speculative craze - and we’ve witnessed a blowout - those basic forces eventually regain their grip.


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