Gloomy Forecasts May Have It Wrong
If all the downbeat forecasts for the U. S. economy and its highly strategic real estate markets were laid end to end, there might be enough black/gray paper to stretch from Los Angeles to Phoenix--maybe even to Denver.
This seems to be the season for gloomy forecasts, but there are some solar rays waiting to break through the prognostic clouds. Often pessimistic Michael Sumichrast notes that we have built 20% more office space than we’ve needed . . . 10% more industrial space and 8% more retail space than we can lease in all parts of America.
To complete his dreary scenario, Sumichrast expects multifamily housing starts, which declined 26% in 1987, to keep declining in 1988.
But economist Stephen E. Roulac views the stock market plop as positive for real estate investors who now “can buy property for 1980 prices.” That seems quite an overstatement, however, in non-depressed areas, such as Washington and Los Angeles.
Developer Giuseppe Cecchi forecasts “continued growth” in the Washington area where he has created billions of dollars worth of real estate (starting with the spectacular Watergate) in the past 20 years. He added that foreign investors are still mightily interested in buying properties hereabouts.
Consultant/investor Justin Hinders supported Cecchi’s positive view while noting that even the obviously overbuilt commercial realty market is “less soft” than might appear to be the case. He said that locations near Metro rapid transit stations are actually quite strong in leasing.
You want to hear upbeat. Developer Angelo Puglisi reports hearing talk of a shortage of good new office space in downtown D.C. by 1990, despite general anxiety about overbuilding in northern Virginia.
What about housing? No doubt about it, the resale market has slowed more than usual for the early winter months. Houses are on the market longer, and there are some price reductions to make sales.
Early in 1987, potential buyers were bidding up resale prices to near ridiculous levels. Now, if you’ve got some cash and a good credit record, eager-to-sell owners may accept prices that would have been unseemly low just six months ago.
Even the traditionally upbeat National Assn. of Realtors expects a further decline in home sales in early 1988. Also, both multifamily and single-family housing starts are expected to decline. Housing professional Earl Farr said any backlog in housing demand seems to have been satisfied in 1986-87.
Thus, 1988 new-home starts and resales should be more normal--maybe 1.4 million housing starts and about 3 million resales. “There’s no reason to panic, but the big escalation in all housing prices and sales disappeared. We’re back to the days when selling will become an art again,” Farr said.
Robert Van Order, economist for the Federal Home Loan Mortgage Corp., said lower mortgage rates are a boon to home seekers, with early-1988 fixed-rate, long-term rates likely to be under 11%. However, he added: “If a recession takes hold, expect mortgage rates to fall to 10% in the second half of 1988.”
Meanwhile, offshore investors are looking for and finding good investment properties in Washington and other major cities. Research done by Barnes, Morris & Pardoe here pinpoints prime downtown signature buildings as being highly attractive to foreign investors and pension funds. Since being burned in the stock market last fall, more pension funds focus on realty investments.
When a market is overbuilt, it takes imagination to put on a good face. Donald Mercer of Weaver Bros. contends that 1988 will be remembered as a great period for deal making for companies seeking to expand or relocate into heavily overbuilt areas such as northern Virginia.
He sees fierce leasing competition and many “generous concessions for tenants.”
