For what it's worth economic predictions by Matt Hudgins National Real Estate

[lonestarnot]

Investor.

Real Estate Recovery Expected in 2011

Aug 28, 2008 2:24 PM, By Matt Hudgins

The nation is in for more than a year of stagnant job creation and tepid economic growth that will set the

stage for marked improvement in 2011, according to two of academia’s respected authorities on the

economy and commercial real estate.

In separate forecasts presented this month, economists in Georgia and Texas expressed dour expectations

for national job growth in the coming year. Because commercial real estate depends on employment

growth to drive the demand for space, the forecasts suggest that demand will be weak for the foreseeable

future.

Dr. Rajeev Dhawan, director of the Business Economic Forecasting Center at Georgia State University,

blames the credit crunch for pushing the economy into a recessionary state. In a forecast published

Wednesday, Dhawan says the credit crunch has damaged the economy’s growth prospects until 2010.

“Some banks are on the brink of failure and it will be up to the FDIC to bail them out,” Dhawan says,

expounding on the nation’s economic predicament. “Should they run short of funds, look for the

government to bail out the FDIC, leaving taxpayers with the tab.” That’s why Dhawan is projecting real

gross domestic product growth at a rate of 1.4% in 2008, decelerating to 0.5% in 2009 before beginning an

anemic recovery to growth of 2.2% by 2010.

That lackluster economic growth means net job losses that have averaged 66,000 per month so far this

year will grow to 90,000 losses per month in the second half of 2008. Expect less severe losses averaging

15,000 job cuts per month in 2009, Dhawan says. “The job market will emerge from the twilight zone in

2010, when the economy will add jobs at a monthly rate of 100,000.”

Recent and anticipated job losses are a serious challenge for the commercial real estate industry,

according to Dr. Mark Dotzour, chief economist at the Real Estate Center at Texas A&M University. “In the

real estate business we don’t care what GDP is,” Dotzour quipped in a forecast presented to members and

guests of the Real Estate Council of Austin on Aug. 18. “All we’re interested in is job growth, and we’ve had

negative job growth in the U.S. now for about eight months. I call that a recession.”

Dotzour says the credit crunch has begun to thaw for global banks and has become a balance sheet

crunch for commercial real estate lenders. Investors are amassing funds to invest in real estate, he says,

and the challenge now is for lenders to clear devalued loans from their books so they can provide financing

for new deals.

Both economists harbor heartening expectations for relief from high oil prices, which Dhawan expects will

drop to $89 per barrel in the fourth quarter this year and average about $107 per barrel throughout 2009.


2008 Penton Media, Inc. All rights reserved.

Oil prices have already retreated 25% from the summer’s record highs near $150 per barrel now that

American consumers have stepped back on consumption.

Less expensive oil would help the economy regain its footing before the Federal Reserve clamps down on

inflation by raising interest rates. The Fed would prefer to keep interest rates low to stimulate the economy

until banks have had more time to recover liquidity, economists say, but persistently high oil prices could

thwart those efforts to let banks heal. “If the price of oil does not retreat below $100 per barrel by October

on a sustained basis, worries of inflation will cause the Fed to raise rates much earlier than expected,”

Dhawan says.

Consumers and manufacturers may find their dollars buy more this fall, which would help the economy limp

through the winter. Dotzour believes the prices on steel, cement and other materials vital to commercial

real estate construction will come down this fall along with oil prices.

Why? Dotzour theorizes that China’s extraordinary efforts to prepare for the Olympic Games spurred that

country to accelerate construction programs for transportation infrastructure and residential and

commercial space, and to stockpile commodities such as diesel fuel. Now that the Olympics have ended,

Dotzour expects China’s demand for those products and materials to slacken for several months, giving

global producers an opportunity to catch up with demand and bring prices down.

“It’s going to be interesting to see what happens to the price of copper and steel and all the construction

materials,” Dotzour says. “If demand does slow down, we’re looking at the possibility of a pretty

dramatic decline in construction materials costs in the coming months.”

Dotzour points out a source of hope for commercial real estate investors, who would certainly welcome an

unexpectedly stronger economy next year. Due to the credit crunch and economic uncertainty associated

with the presidential election, Dotzour believes a number of U.S. companies and consumers have put off

major decisions to spend or commit to space this year.

By March 2009, he says, businesses will have a better understanding of their financial standing and tax

burdens under the new president, and may cut loose with a swath of business deals, leases and real estate

purchases. “It’s possible we could have a very pleasant surprise around April.”

[dixiegrrrrl]

1. ty for posting this

Kinda ironic that the head of the Business Economic Forecasting Center at Georgia State University is Indian.

[oldskool]

2. Sounds to me like

a North American Union. I hope I'm wrong.