Will the Volatility of the Real Estate Cycle Continue?
McCoy, Bowen H., Real Estate Issues
At this time, certain economists and financial reporters are predicting the end of the business cycle as we have known it. As real estate practitioners, most of us would probably disagree with that premise. In my opinion, one of the fundamental factors which causes real estate to become overbuilt toward the end of each cycle is the lack of "perfect" data and information. "Irrational exuberance" is undoubtedly a factor as well.
Real estate disclosure has benefited greatly in recent years from broader access to the public markets. Informational requirements of the Securities and Exchange Commission, the rating agencies, security analysts, market makers, and investors have brought forth a much greater database for real estate assets held in real estate investment trusts or in commercial mortgagebacked securities portfolios. As more and more assets are captured in the public market, it may become possible to construct national and local indexes of rental rates and vacancies which are more reliable than what has previously existed. The existence of such data may eventually mitigate the volatility of the real estate cycle.
As more and more reliable data enters the public marketplace, one might even envisage the construction of property indices which could be traded, much as one trades the Standard and Poors 500 Index. …