Five Years Since the Peak of the Real Estate Bubble - What To Watch For Now.

Happy Presidents’ Day! We have a rich history of great Presidents to be honored and it feels good to live in this great land. University of Oregon On The Rocks free ticket offer below (just above the banner.)

It has been 5 years already from the 2007 height of the real estate market bubble. Five years. In some ways it is hard to believe that it has already been half a decade, but in other ways it is hard to remember the pre-crash exuberance. How do you come out on that – “doesn’t seem like 5” or “I can really only remember things the way they are now”?

Five years is a magical number in real estate for two different reasons. First let’s explore the impact on Commercial Real Estate (CRE). The most common term of lease in the commercial office space is 5 years. The impact of those 5 years passing is that the rollover effect on landlord income may be substantial. As tenants have felt for the past number of years that they have been paying “over-market” to stay in place (if they haven’t already renegotiated), they will certainly be looking for the next 5 years to be at- or below-market or find some place else.


The effect of the downturn has therefore not fully set in with CRE. In NYC, for example, the market lease rates for office space today are still 15-20% below the 2007 rates. In most national markets that is 10-20% down. While 2005 and 2006 rollovers have been substantial, we are not through it all yet. If you would like to read more, click here for a good article from NREI on the topic.

In the residential market there is another significant 5-year milestone we have been watching for. In this case it is mortgage related. There were significant numbers of Adjustable Rate Mortgages (ARMs) issued in the run-up to the peak. The most common type of ARM has been the 5/1, meaning the first period of fixed-rates is 5 years and the subsequent fixed periods are 1 year each. This type of loan can rollover 25 times, 1 year at a time and fully amortize in a 30-year period.

The anticipated risk has been those adjustable mortgages making their move and people who were in very low-rate notes, all of a sudden being boosted into high-rate payments. So far, our record low interest rates of the past 2 years has kept that monster at bay. But it is only at bay and is set to pounce whenever the rates do move up. The risk certainly remains for any who have not yet moved into a Fixed Rate Mortgage, be that 30, 20, 15 or 10-year in term.

The mortgage rates continue to be in the 4.00% APR range for 30-year and below 3.00% for the 10-year fixed rate products. It I certainly the time to take care of any floating business. If you have been waiting for self-employed tax returns of 2011 results, now is the time to start the application process and be ready to take advantage of these rates as soon as possible. Give me a call if you have anyone in mind who could use that help.

Inflation is still on the rise. The Core CPI is now solidly above 2.0% annually, the low end of the FED’s target 2-3% range. The FED watches inflation from many measures, but the CPI carries less wait with them than the CPE, not yet at these levels.Skip down below the banner for more on the impact of inflation.

A quick follow up on the Unemployment facts and figures delivered in the last two weeks. The headlines were that national unemployment is now down to 8.3%. Some have seen this move from 10% to near 8% as the straight-line trajectory headed to healthy 5-6% unemployment. One of the more sobering, but realistic parts of the President’s proposed FY 2013 budget was their own recognition that the unemployment rate at the end of 2012 is likely to be near 8.9% and at the end of 2013 near 2013. I was relieved to see that the Whitehouse is not “breathing its own gas” on this topic.

The holiday-shortened week ahead is light with economic events. Three key events will have an impact on financing rates and indirectly on real estate this week. Today’s summit meeting in Brussels to consider the solutions for Greece are not likely to produce a solid conclusion. Another meeting is scheduled for next Monday. Between these two Monday summits and certainly by the March 20th deadline, a solution is “probable”. That solution will have a favorable impact on equities and an unfavorable upward impact on Treasury interest rates. To a lesser degree unfavorable to mortgage rates as well. The current expectation is a less-than 0.125% impact for now.

Two other events to watch for: The US Treasury is auctioning off $99 Billion in 2, 5 and 7 year notes Tues - Thursday. Also the Existing-Home and New-Home Sales data will be out on Weds and Friday respectively.

These days, more than ever, experience counts. We at Signet have spent our careers providing the best programs and the best customer service. You, your friends and clients deserve the best. We enjoy making exceptional real estate deals happen. Please let us call your friends and clients who could use expert advice. We are grateful to work with you.




LOCAL HAPPENINGS IN BEND!

U of O's On the Rocks are coming to Bend! This Saturday February 25th at 7 pm at the Bend High School Auditorium. The show sold out last year. Tickets are only $7. I have some if you would like to call me at 541.318.0888, or you can order them online at this website.

Free OTR Ticket Offer! The first person who replies to me by email requesting tickets will get 2 free tickets to the show Saturday night at 7 pm. The tickets are only $7 for those who don't get the 2 free tickets. Click on the image to the right to see a very brief video of the group on last year's NBC "Sing Off!" show.

Valograms were a Smash! Thanks from Luke MacSween and the Bend High Choirs.


Make it a great week!