Uncertainty Abounds For Real Estate in 2003
The real-estate market soared to new heights in 2002, as battered stockholders sought shelter in real-estate investment trusts, office buildings and even their own homes. But with prices continuing to climb, some are starting to wonder if real estate is the next asset bubble. Will the roof come crashing down in 2003?
A lot is riding on the answer. For the past two years, real estate has remained one of the only bright spots in the U.S. economy, helping to offset stock-market losses while reassuring many Americans that the economy, for all its failings, isn't falling apart. In some cases, investors have moved large sums of money into real estate, hoping that strong returns in that sector will hold up while the rest of the economy struggles.
In 2002, at least, that was a good bet, thanks in large part to low interest rates that made it extraordinarily attractive to buy properties. The average rate on a 30-year home mortgage, for example, fell as low as 5.93% in 2002, pushing home sales to an estimated 6.5 million, shattering the previous record of 6.2 million in 2001. Home values, meanwhile, rose an average 6.2% in the year ended Sept. 30, far better than the annual average of 4.6% since 1980, according to the Office of Federal Housing Enterprise Oversight in Washington, D.C. The latest price gains come on top of already-impressive appreciation in recent years; since 2000, prices have risen 15.4%. On New York's Long Island suburbs, they are up 77.8% since 1997, and in San Diego, they are up 79.1%.
Results were much the same last year in the commercial sector. Despite extremely weak leasing activity, buyers bid up the prices for high-quality office buildings to $189 a square foot in 2002, from $174 in 2001, according to Real Capital Analytics Inc., a New York real-estate research firm. Some 830 shopping centers changed hands in 2002, compared with 613 in 2001, and 115 malls were sold, compared with 33 in 2001. Even REIT stocks had a strong year, outperforming companies in the Standard & Poor's 500-stock index, though they weakened in the second half.
As 2002 came to a close, however, talk of a real-estate "bubble" began to swirl. In the residential market, some economists worried that home prices were rising too fast, raising the odds of a price correction sometime down the road. In the commercial market, growing vacancy rates -- especially in the office sector -- fed similar fears.
"The best years for real estate are probably behind us, both for residential and commercial," says Sung Won Sohn, chief economist at Wells Fargo & Co.
More of the article @
realestatejournal.com. |
