Real Estate Industry Draws Its Share of Conflicting Analysis

Article excerpt

It has been said that there are as many theories and opinions about economics as there are economists who can talk.

Well, the same could probably be said about real estate.

Real estate organizations across the country are busy as we speak, churning out their next newsletter or press release, identifying trends and adding their opinions, analyses and advice to the marketplace of ideas.

Most of them observe the nation in wide brush strokes, often failing to recognize the peculiarities that exist in places like Oklahoma.

But consider this, from a recent issue of "REAL Trends," a Dallas-based real estate newsletter:

Michael Sumichrast, chief economist for the National Association of Home Builders since the mid-1960s, says the housing market is doomed. Jesse M. Abraham, an economist with the Federal Home Loan Mortgage Corp., disagrees.

First, Sumichrast, as quoted in the Dallas Morning News:

"The whole country is going to where you were in Texas two or three years ago. Housing is in simply terrible shape. I have never seen anything like this, and I have been through seven recessions.

"What makes this period so dangerous is that the lifeblood of housing - the credit to buy, develop and build - has been virtually cut off. The people I talk to are devoid of reality. I am shocked by their lack of understanding of the issues.

"Regulators have pushed real estate into a tailspin. Nobody can foresee the ultimate impact. And nobody in Washington cares."

Now Abraham, as quoted in the Wall Street Journal:

"As with Chicken Little, the alarmist talk is overblown generalization. In fact, we are seeing confirmation of a widely observed but only reluctantly accepted fact - regional economies can cycle out of sync with the nation.

"There will not be a nationwide collapse in home prices. Still, price inflation is likely to slow. Someone will have to buy the houses that trade-up buyers are selling, and the incomes of these buyers - some of whom appear to be currently frozen out of the market - will limit the sales prices of the boomers' outgrown homes and hence their capital gains.

"Reduced demand will eventually mean lower total appreciation. So the dynamics of demand and supply should work well and without catastrophe over the next 10 years."

Who should we believe?

I'll side with the guy who says regional economies can cycle out of sync with the nation. . .

- The newsletters produced more food for thought this week, this time from the Schroder Real Estate Associates Advisory.

We'll leave out the national generalizations about commercial real estate in the late 1980s, because Oklahoma was out of sync. We'll also assume the baby-boom phenomenon is well understood, and plunge right into the part that looks ahead:

"New space needs will be much lower in the '90s, so there will be less new development and more focus on adapting and maintaining existing properties to accommodate the demands of a mature, affluent population.

"Attractive opportunities are emerging for cash buyers because so many property owners are overextended and are under pressure from lenders. For investors that also have foresight the wherewithal to manage quality properties with excess vacancy, the prospects over the next two years are truly exciting. …