The Residential Real Estate Crash Index Message Board

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Strategies & Market Trends : The Residential Real Estate Crash Index

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To: MulhollandDrive who wrote (21065)	5/28/2004 1:00:58 AM
From: X Y Zebra	Read Replies (1) of 306849

my general question pertained to this type of money chasing RE investment ultimately creating excessive supply. While possible, due to low interest rates and the opportunity cost of available capital (i.e. what (or where) else can I do (get) with money)... I believe than at large, investors are more cautious now... I have been hearing about real estate 'collapses' for years now... and I am not suggesting it cannot happen... but the reality seems to be another... I do not understand the housing market, other than to say that it has a primary function of being a shelter (a basic need), from that angle, the combination of internal population growth PLUS imigration... it is almost certain that a gradual growth could be maintained... commercial real estate is driven by cap rates for the most part (of course, except land)... cap rates have been influenced by two elements.... interest rates and the relationship between risk exposure & expected return.... all this with the underlying basic principle of the old law of supply & demand... so low interest rates and the greater risk of holding real estate is the excuse that will tend to lower cap rates, hence higher prices.... however... if there is enough supply that will satisfy the demand for quality properties, hen an equilibrium will be found.... BUT if supply does not meet demand.... then you know what happens.... the real question to ask is.... is there a need for the commercial buildings that are "on line"? There are some investors that feel when you reach 50 % occupancy (on new product) within 6 to 18 months... then the project is deemed a success... again... what level of risk? how much debt in which to incurr? perhaps with te exception of Seattle (since Boeing HQ moved to Chicago)... I have not seen massive overbuilding in the main markets... so .... I do not know..... little by little the ant built a nest.... etc etc.... -g

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