S.E.C. Real Estate Observer

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While watching the election returns last week, I was reminded of a quote of Ronald Reagan’s: “When you can’t make them see the light, make them feel the heat.” This election was indeed a statement by the people. Through the 20+ national elections I have witnessed, there has never been such a swing of passions from one election to the next – 2008 vs. 2010. Change just for change’s sake is not always what we are looking for.

How does this relate to our business? The reason I am encouraged by the election results is that a huge percentage of our business is based on the market’s (including our clients’) perception of what the future will bring. In fact, I would submit that all real estate transactions are based on the perception of the future. Confidence in the direction of our country and the free market system is what drives that perception. After last Tuesday, we saw that confidence begin to take shape again, including the NYSE rising 200 points the next day. We are beginning the turnaround, and our real estate market will reflect that in the next several months. The stock market alone is not the only indicator of what is ahead. There are other positive factors showing, as well. Another indicator in a turnaround is the freight transportation industry – trucking, rail and seaports all show increases in tonnage indicating the beginning of commerce accelerating as we pull out of the recession.

There is a hurdle to recovery looming. The new Congress must take aim at resolving the financial and banking industry crisis to bolster this part of the economy before we can truly sustain the recovery. The Fed must allow the banks to work out of their problems and encourage the banking industry to get back into the real estate lending game. Mark Dotzour – Chief Economist for the Real Estate Center at Texas A & M recently stated:

The “real economy” — economic activity that is not stimulated by tax credits — appears to be “turning the corner toward recovery,”

He cautions, though, commercial real estate markets will not clear until two issues involving the U.S. banking system are resolved. First, when will the banks recognize the losses on the real estate loans in their portfolios and begin to sell the troubled assets to new buyers? And, will the Office of the Comptroller of the Currency tone down its strict limits on commercial real estate lending for commercial banks?

According to Dotzour, the health of the residential and commercial real estate industries depends not on gross domestic product (GDP), but on job growth. “Job growth is the essential engine of growth in this country. Until we start producing jobs, it’s premature to say we are out of the recession.” Dotzour said that in the past six months he’s become more optimistic. Corporate profits and new orders for manufacturing have clearly rebounded, and when that happens, companies start to hire again.

Dotzour says, “I think Americans are tired of hiding and hoarding cash and postponing decisions of every sort,” he said. “It’s creating pent-up demand for the entire country.”

For our business there appears to be light at the end of the tunnel and the signs point to a positive turnaround in the coming months. It is encouraging that the American people have acknowledged that we cannot go on with such a spending frenzy, and they are looking at how to shrink the government’s role in our day-to-day business. However, as Representative John Boehner said on Tuesday night, this election was not an endorsement of one party over another; it was a message that the American public is not happy with the direction we are headed and it is time to change course. It was a message to both parties and their leaders that this is a government of the people, by the people and for the people and all power the federal, state or local governments derive is what the people bestow on them and entrust to them. I hope this is a wakeup call for all of our leaders.

Keep the faith; we have begun to climb out of the abyss.