Where Are We In The Latest Real Estate Cycle

Where Are We In The Latest Real Estate Cycle

Where are we in​ the​ latest real estate cycle?
With the​ current economic expansion moving ahead in​ 2018, the​ key issue for​ real estate is: will the​ normal relationships between overall economic activity, demand for​ space, increasing demands for​ money, and​ rising levels of​ property development prevail as​ in​ past cycles?
Or will be unusual curt flood of​ capital into real property markets cause different cyclical outcomes?
In the​ normal business cycle, as​ the​ economy moves out of​ recession into expansion, growing levels of​ business activity raise demand for​ both money and​ commercial space .​
These increases put upward pressure on interest rates and​ occupancy levels in​ commercial space .​
Rising interest rates, plus current high vacancy rates and​ lower rental rates, continue to​ inhibit new commercial property construction .​
Also, investors are drawn away from real estate investments into competing asset forms such as​ stocks of​ successful companies .​

These conditions produce only gradual absorption .​
Vacancies are falling and​ rates are stable or​ rising, but neither holding far enough to​ justify a​ new development, especially since interest rates rise along with other competing investments .​

With the​ accelerating general expansion, increased competition for​ existing space drives vacancies lower and​ rates higher .​
Eventually, these changes stimulate developers to​ start a​ new construction projects, in​ spite of​ higher interest rates .​
This starts the​ development phase of​ the​ cycle .​
New projects start just as​ the​ overall business cycle peaks .​
Then with the​ expansion of​ available space, combined with an​ economic slowdown, the​ result is​ another overbuilt phase just as​ the​ economy slips back into a​ recession.
Presently most commercial markets are in​ the​ gradual absorption phase, with high levels of​ vacancies declining and​ rents stabilizing .​
Downtown office vacancy rates have dropped slightly while national industrial vacancy rates remain unchanged .​
However, bold office and​ industrial vacancies are more than double the​ lower rates they had in​ late 2000 .​

Consequently, new office construction dropped off .​
New industrial development also fell on .​
However, the​ demand to​ buy well-occupied properties of​ all types remain very high because of​ the​ flood of​ money going into real property investment .​

Most experts predict this situation cannot last .​
Some claim rapidly rising interest rates will make a​ real estate less attractive to​ invest in​ and​ cause some values to​ fall .​
Others think with so much money still trying to​ invest in​ real estate that rising interest rates will not dampen investor enthusiasm .​

Still others believe that the​ demand for​ property will not drop off unless the​ stock market makes dramatic increases .​
Enough uncertainty remains about world economic conditions to​ inhibit investor enthusiasm to​ get back into stocks .​
In addition, underlying market conditions are slowly improving, supporting positive investor attitudes toward real estate .​

The flood of​ money has not stimulated a​ massive move into new property development which in​ the​ past would have happened if​ funds were available so easily .​
Also, the​ ability of​ real estate to​ pay cash incomes that are much higher than most stocks or​ bonds make property increasingly attractive to​ pension funds that are facing rising payouts and​ retiring baby boomers in​ need of​ good incomes .​

Therefore, there may not be a​ near future call apps of​ real property values except in​ some condominium housing markets were speculative purchasing could lead to​ sudden shrinkage of​ occupancy .​
Today’s huge investor appetite for​ properties make this an​ ideal time to​ sell real estate .​
But these conditions will not last forever .​

Interest rates will certainly increase in​ the​ near future with the​ Federal Reserve’s desire to​ raise rates combined with an​ increasing expansion in​ the​ overall economy .​
if​ current favorable borrowing conditions continue, more developers will be tempted to​ start building new projects that lead to​ another boom .​
That would undermine improving market conditions, as​ it​ has in​ the​ past, and​ may dampen investor demand for​ properties .​

The moral: when the​ sun is​ shining, you better make hay.
Good luck to​ you,

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