Well the numbers are in for the first 6 months of 2010 and it does not look great. After improving the employment numbers are starting to falter, consumer spending is not great and business and economic trends are not looking good for the next six months. Residential real estate after seeing some upward trends is now faltering as the government is removing incentives and tax credit. The number of 1 to 4 units residential properties owned by banks and financial institution after going down will go back up. In a Wall Street Journal blog post "More Bank-Owned Homes Likely to Hit the Market" the writer use two sources to assess the size of the issue, is appaears that between 530 thousand and 570 thousand homes are owned by banks and financial institutions. Using the same source 7.3 million household are 30 days late, implying that more REOs are on the way. We have two good news interest rates are low and should stay in low for the next 6 months or even a year and some banks have re-started lending beyond government sponsored loans. They are now started to keep some loans in their portfolios.
On the commercial real estate front the issues are there to stay and we are going to start seeing additional problems caused by a lack of economic growth. As discussed in previous posts, banks who own commercial real estate are in trouble and since there is no economic recovery, more investors who have tried to kip properties are going to start to default. In addition, numerous property owners are starting to see that their notes are due and they have nowhere to go to get refinance, forcing banks to foreclose. Until the economy start to improve significantly and until banks clean their books the commercial real estate market is going to continue to experience major difficulties.
Even with all these bad news it is a time of opportunities because when there are problems, there are also opportunities to fix them. In residential real estate numerous small investors have been buying properties for the past year from banks, cleaning them up, improving them and re-selling them. The most active market segment appears to be for properties below $400,000.00. While the residential real estate market could go down, most likely it will stay depress and in some very specific areas markets may go up. Investors that are, recognizing these trends, who are willing to take the risk to buy properties at auctions, from banks etc… and can find ways to turns them at profit are going to continue to make money.
On the commercial side opportunities are also going to create themselves, investors are starting to recognize that while the market is down and depress investment opportunities exist with limited risks. In another Wall Street Journal article "Fortress Is Buying While Real Estate Is Down" the private equity firm is acquiring companies related to commercial real estate in order to have access to assets at depressed prices. The ICBC or Industrial & Commercial Bank of China is moving into commercial lending in the United States for loan $100 M and above. They recognize that they can lend at low valuations and that there is limited or no competition.
As describes above opportunities already exists for investors in both residential and commercial real estate. I believe that while we are in a difficult economic situation investors are going to be able to see significant returns over the next few years on their real estate investments, either by directly investing or by investing through funds and other conduit. As you see these opportunities develop and encounter success stories, let me know I will post them here, email me.
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