2009 will be an exciting year for the world’s major real estate markets – There’s no doubt about that. The incredible movement in values, up and down that 2008 saw will likely be even more extreme shortly.
The evidence for that statement is almost incontrovertible. Regarding the downside, the economy shed over a million jobs in just two months – a new first for the post-Great Depression economy. Consumer sentiment has effectively collapsed, and it looks like it will be a while until things get any better.
On the upside, however, there is a vast swath of capital right now that is waiting for lucrative investments. The bubble that currently exists in treasury bonds and gold is the most potent example of this: Flight-to-safety investment tactics have dominated the markets as of late, and now trillions of dollars are sitting in incredibly low-yielding assets, with investors desperately searching for higher-yielding investment opportunities.
Where the dynamic comes somewhat ahistorical, though – and therefore difficult to predict – is in the chronology of this recession. Unlike most past recessions, real estate led the way, suffering a downturn long before other markets.
Especially with political pressure mounting on the federal government to intercede in the housing market, it is possible that rising home values will be the first significant indicator of a full-blown, quick-moving recovery.
Long-term upward pressures on the New York apartment market have currently taken a back seat to the downward pressure on the national real estate market as a whole. That the international recession originated from the New York financial industry only accentuated this fact.
These conflicting pressures don’t yield an even, across-the-board effect. Downward pressure on the New York real estate market stemming from job losses will hit marginal neighborhoods the hardest, while the upswing is felt in luxury markets first.
More price-slippage will likely show its head in the first quarter numbers due out at the beginning of April. With these depressed prices, it is essential to keep an eye on the broader context: The New York City real estate market recently came in third on Forbes’ list of the best cities in the world to buy real estate.
There are a number of reasons for this, but chief among them is the nature of the capital looking for a new home (pun deliciously intended): Large, institutional investors have fared far better than small investors during the recent financial meltdown… those with access to the TARP got free money, those who didn’t have such a magic wand took a huge hit. So, when the money starts coming in, it’s going to start coming in quickly, particularly in the commercial real estate market.
It’s difficult to say when exactly that will be, but it’s evident that those who get in on the ground floor will likely see huge returns.