TOP VIEW
Our real estate portfolios have consistently outperformed most other
types of investments in the years since the technology bubble burst. Caution,
however, is warranted; some economists argue that many parts of the market are
now overpriced, and values may fall if interest rates rise. There are useful
indicators we can monitor to judge the health of the market, and how to best
position our investments in it. |
This integration could work in
reverse—with rises in interest rates moving more quickly from the capital
markets to the mortgage markets. “Mortgage rates will eventually rise with an
improving economy, and the housing markets will cool,” says Wachter. Still, she
is sanguine: “They won’t collapse. There are no signs of a housing bubble on a
national basis.”
Regional markets may be a different matter. Real estate
prices in America’s urban centers have reached record highs, causing some
analysts to nervously speak of the potential for, and consequences of, the
bursting of a real estate bubble. In markets like Atlanta, Los Angeles and New
York, buyers now pay princely sums for properties that only a few years ago were
considered unattractive. “There may be some local markets that have issues,”
Wachter agrees. “After all, high prices supported by nothing more than the
expectation of even higher prices is the definition of a bubble.”
Fundamental Issues
Craig Hall, chairman of the Hall Financial Group and
author of the just-published book, Timing the Real Estate Market, has invested
in Dallas real estate for 36 years. In 1995, he bucked conventional wisdom
and bought a pair of downtown office buildings for $60 million. “Dallas was so
down and out, most people thought it was the dumbest thing we could’ve done,” he
says. “But we felt the timing for this market was ripe for a turnaround. We
often make our money by taking a contrarian position, and going against the
grain.” Hall’s gut feeling to buy was right. “We held it for three years, and
made capital improvements, but the turnaround wasn’t going as I had hoped,” he
says. “But other people were more excited about the future, and there were more
buyers than the market justified.” In the end, Hall sold the two buildings in
1998 for $110 million.
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