|
|
 |
|
| Real Estate & Land |
Fertile Assets
Michael Verdon
06/01/2004
|
House Poor
But as investors who suffered
through the 1988 to 1993 real estate downturn can attest, this is not a market
without its risks. Indeed, the fundamentals of the real estate market today—the
rate of growth of commercial properties’ net operating income, the occupancy
rates of retail store properties, and so on—are sending increasingly mixed
signals. Residential property, with its outsized effect on retail spending and,
consequently, the economy at large, is also showing signs of susceptibility to
gravity’s downward pull. Jack C. Harris, research economist at the Real Estate
Research Center at Texas A&M University, cautions that he has seen some
softness recently in segments of residential housing in his local Texas market.
“I don’t think there’ll be a steep downward trend,” he says, “but it could be
coming to the top of its cycle. Right now, most residential segments are in
neutral range, somewhere between over- and undersupplied. But the high end of
residential is looking a little soft.”
One of the pillars supporting the
real estate boom in recent years—and potentially a contributor to its undoing—is
the ever-closer tie between mortgage rates and the global capital markets. In a
recent editorial in the Los Angeles Times, Susan M. Wachter, professor of real
estate and finance at the Wharton School of Business, University of
Pennsylvania, wrote: “Housing and mortgage markets have been the cornerstone of
the U.S. economy’s recovery. The low mortgage rates have driven refinancing to
record levels, reaching a peak of $3 trillion in 2003. It’s been an
unprecedented time in our history.” According to Wachter, the difference in
recent years has been the rapid growth of the mortgage-backed securities market,
which repackages home buyers’ mortgages and sells them to investors
worldwide.
In a subsequent interview with Worth, Wachter explained that
because of the exponential growth of this secondary market, U.S. mortgage
markets are now fully integrated into overall global capital markets. “This
means that interest-rate declines translate almost literally overnight into
lower mortgage rates for homeowners. In the past, it would’ve taken weeks, or
even months, for this to happen.”
|
|
|
|
|
|
|
