Facing the next real-estate collapse

NY Post ^ | September 18, 2009 | Rich Lowry

[Scanian]

THE next wave of the credit crisis is about to hit -- a collapse in com mercial real estate and potential explosion of bank failures. With its resources tapped out by the first wave, what should Washington do?

Over the last year, the Federal Reserve doubled the size of its balance sheet, and took unprecedented action in monetizing government debt and extending credit to financial institutions. Now it must head off inflation and extricate itself from $5 trillion-plus in credit exposure from various bailouts. The Treasury, meanwhile, is issuing debt at the fastest pace in peacetime history.

Now comes the next crisis. The same factors that caused the residential bubble -- easy credit, lax lending standards and booming mortgage-backed-securities underwriting -- also drove commercial real-estate overvaluation. But the commercial market lags the residential one by about a year, so this bubble is still popping.

[Dem Guard]

It takes jobs to fill commercial real estate. How has that been going for us lately?

[screaminsunshine]

Whats another 5 tril? Just buy more presses.

[poobear]

Three of the last 6 commercial buildings we finished are now bank owned.

The only commercial buildings that seem to be OK are privately owned tenant build-outs mostly doctors. Of course GOVERNMENT projects are being built all over the place.

I've seen it coming since the end of 2007. You can build a great building and if no-one rents it, bingo!

[MeneMeneTekelUpharsin]

Blah, blah, blah, blah. I am sick and tired of every predicted next crisis. It is all a lie. This market does absolutely nothing but go up. Go ahead, tell me another lie.

[MeneMeneTekelUpharsin]

Oh, look at the ETF fund with symbol SRS. It goes nowhere but DOWN. If commerical real estate were ACTUALLY in trouble, the ETF funds like SRS would be going up. The banks are in trouble? LOL. What a lie, the ETF fund FAZ goes nowhere but DOWN. Housing? Hee, hee, hee. Stocks like TOL and KBH go nowhere but UP. Nothing in the financial world is tied to the truth. Nothing is tied to the actual truth in this economy. Not one thing.

[from occupied ga]

This market does absolutely nothing but go up. Go ahead, tell me another lie

This is the housing price index from the fhfa.gov housing cost site. How about YOU tell the truth.

[MeneMeneTekelUpharsin]

I know what is happening. You are not understanding the nature of my posts, apparently. The markets are being driven in the exact opposite direction of what is actually happening. SARCASM.

[Mouton]

There is little onus on the G to bail out these transactions because the various financing schemes do not include the words home and mortgage on them. IMO, the FED will either have to come to some accommodation as these properties are liquidated or refied. These commercial properties mostly include retail and office space, the former under water due to a lack of consumer spending and the use of the internet for purchasing and the latter due to huge reductions in white collar jobs which has driven the productivity numbers skyward in the past few years as companies try to pump up their bottom lines.

The CEO of Kroger the other day in an interview I believe was very insightful said she did not believe employment would be “coming back” anytime soon and would not till some kind of industry grows up to absorb those out of work. Her theory is firms have no intention of adding to payrolls even if business picks up because most of the workforce has been replaced by technological improvements allowing fewer individuals to do more. She added there is little new manufacturing, which is labor intensive, on the horizon domestically either.

So, where does that leave the banks, mostly the regional banks that are heavily burdened by this coming nightmare? My guess is they will be made insolvent and be made wards of the huge banking enterprises. The empty office structures will wither as monuments to stupidity on a grand scale while retail space will lag till employment picks up or the internet is made less attractive say by forcing sales taxes upon on line purchases. Again IMO.

Vince

[ottbmare]

Why do they keep referring to it as “the next” collapse? Commercial real estate collapsed last December and continued falling through successive floors like the World Trade Center all last spring.

[backhoe]

Why do they keep referring to it as “the next” collapse? Commercial real estate collapsed last December and continued falling through successive floors like the World Trade Center all last spring.

That's how I see it- as I've mentioned previously, if you go south of where we live, there's a billion-dollar condo conversion of the shipyard where my Mom & Dad met.

Years have passed as they moved dirt around, built one sales office, then another. Breathless ads proclaiming "Phase one Gone! Don't miss Phase 2!"

And so on- but they never built the condos. Still moving dirt around, being sued for nonperformance.

Go north of here, see what I call "the towers of silence."

They built the shell, the 2 months ago padlocked the place. Now, they've taken down the signs.

[silverleaf]

Harry Dent “The Great Depression Ahead”

Watch for this bubble to burst in 2010
Predicts commodities bubble to burst, too, for all you gold buyers

http://www.youtube.com/watch?v=nF18_-iZTe0

[Leisler]

The Keynesians believed you could pay people to dig ditches and fill them up again to stimulate the economy.

Well, people now a days don’t like ditch digging jobs. But, they do like paperwork. So you can have the government create all sorts of filling requirements, complex legal and tax codes, and have people fill them out. Another group can read them. Yet a third group can find errors in the forms and prosecute the first group. A forth group can defend the first group. There will need to be a sixth group for judges to get between the first group and the...um...let me...wait, ah yes, the forth group. Yet a seventh group will needed to be an appeals panel in case the first group is found guilty by the sixth group. We’ll probably need an eight group to recruit people for the first group because of the prosecution of the fifth group.

See, full employment!

[RipSawyer]

“Whats another 5 tril? Just buy more presses.”
////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////

Intaglio presses cost money! When the hyperinflation kicks in they will have to run the old presses around the clock to print enough money to buy new presses 80)

Next stop The United States of Zimbabwe.

[modhom]

hee hee hee... great post.

[Lonesome in Massachussets]

That curve is the derivative (change or delta) in the price change. To get the cumulative price change you need to take the area under the curve. The units of the y-axis is relative change per quarter. The total area under the curve is distinctly positive. (Area below the x-axis is negative.)

Price change per decade (longer averaging period) is clearly positive.

[Catphish]

I think this article is written in part by one David Lowry and ended up under Rich Lowry’s name and picture. I was suspicious when reading it and the note at the end gives it away . . .

[from occupied ga]

The total area under the curve is distinctly positive. (Area below the x-axis is negative.)

So what? Obviously you wouldn't have houses selling for negative amounts.

Price change per decade (longer averaging period) is clearly positive.

Again, so what? If you look in centuries the trend is positive too, but the recent trend is downward, and probably won't go upward again until the middle of next year.

[wtc911]

Obviously you wouldn't have houses selling for negative amounts.

______________________________________

That was sarcasm, right? I mean, you could really believe that, could you?

[meadsjn]

The markets are being driven in the exact opposite direction of what is actually happening.

You are correct. Tons of mystery money (actually bailout billions) manipulating a few large stocks are keeping the Dow artifically inflated. GE was the star yesterday. The stock market does not reflect reality.