Commercial Real Estate Bubble?
Today, I had to investigate why my Blog was receiving more hits than usual. After examining the issue, I quickly came to the realization that my site was mentioned in a BusinessWeek blurb concerning Real Estate, and people were curiously checking in.
Anyway, a hearty “thank you” to BusinessWeek for the plug, but I must admit that my feelings go against the general thoughts/comments in the article linking to me—“No Commercial Real Estate Bubble.”
Those who have taken the time to read my Blog will quickly understand that my philosophy takes into account numerous factors, and I feel the U.S. housing bubble is only the latest (albeit huge) symptom of much larger fundamental economic imbalances that will soon start to correct.
My belief is: Our U.S. Housing Bubble is the direct result of massive Fed liquidity, several years of ultra-low interest rates, relaxed lending standards, high use of non-conventional mortgages, general economic euphoria and irrational exuberance on the part of realtors, loan agents, speculators, new homeowners and the general public.
I also feel it was part of Alan Greenspan’s “Master Plan” to create a new asset bubble in an effort to help the U.S. get out of a recessionary period (post stock market crash and 9/11). In his endeavor to stimulate the economy, Mr. Greenspan swiftly opened the money spigots, and dropped interest rates to a 40-year low. Alan then blew more oxygen into the bubble by recommending the use of adjustable & non-conventional mortgages…the bubble grew.
Ultimately his plan worked, as housing prices rose, consumers spent like crazy (using their homes as ATM’s), construction permits soared, U.S. GDP grew, the Stock market re-inflated, and here we are today… dumb, fat, happy and completely oblivious to the huge economic problems at our doorstep.
If we take a casual look at our country’s economic situation today, everything looks real good on the surface, but strip back a couple of layers and things get real ugly, real quick:
- Our trade deficit is at an all time high—again! ($726B)
- Cumulative government debt is soaring ($8.25T)
- We have exceeded our congressionally authorized debt ceiling ($8.184T)
- Massive fed liquidity; M3 is greater than $10 Trillion dollars
- Foreign Central Banks own ~ $3 Trillion U.S. Debt
- Foreigners could dump their dollars/wreck our economy at will
- We Americans consume ~ 80% of world’s savings to maintain our lifestyle
- U.S. has massively outsourced blue/white collar jobs--continues to do so
- Consumer spending/housing were responsible for 90% of growth in GDP
- U.S. savings rates are negative--not seen since the great depression
- New day of increasing interest rates—possibly higher than predicted
- Lending practices will soon start to tighten up as risks increase
- Inflation is rising—probably much higher than gvt’s manipulated figures
- Housing market cooling--taking away consumer wealth effect/housing ATM
- Interest rates will reset on > $1 Trillion in mortgages in next 18 months
- Inverted Yield curve (possible recession on the horizon?)
- GM, FORD, DELPHI, US Airlines and many others are struggling
- Oil is currently a major issue (world supply/demand and higher prices)
- Numerous issues w/ IRAN, Venezuela and Nigeria
- Oil could rise to > $100 barrel this year and clobber the world economy
Bottom Line: Far too many negative issues at play here. Our United States is quickly turning into a service based, consumer nation and we, as Americans, are currently living far beyond our means. I honestly (yet regretfully) believe that we will be in a recession by this time next year (Feb 07), and by that time, it will become quite apparent that we have both a housing bubble and a commercial real estate bubble.
Let’s all hope we can get through this next recession intact... It'll be a monster this time!
Note: I've previously discussed many of these issues here--if you like to read more